Margin Outlook
Q: Are you still on track for 16% margins?
A: Management expressed increased confidence in reaching the 16% margin target by 2026, noting solid progress with first-half margins at 15.3%, up from 14.8% last year. They highlighted improvements across segments and successful cost-saving initiatives like LHX NeXt.

Aerojet Performance and Growth
Q: What drives Aerojet's strong performance and future growth?
A: Aerojet Rocketdyne is performing well, with strong margins in the first half. Management expects growth in the second half driven by increased supplier deliveries and operational improvements. They have reduced overdue deliveries by 40% in 12 months and are investing in capacity expansion. They see Aerojet as a fast-growing opportunity with demand exceeding supply.

Communication Systems Growth
Q: What's the outlook for Communication Systems orders and backlog?
A: The Communication Systems segment has a $32 billion backlog and a $16 billion pipeline over three years. Growth is driven by DoD modernization, NATO's focus on interoperability (a potential 100,000 radio opportunity), and demand for resilient communications. The international pipeline amounts to $10 billion. Management sees no supply chain issues affecting this growth.

Impact of European Defense Spending
Q: How does increased European defense spending benefit L3Harris?
A: European defense spending is rising, creating significant opportunities for L3Harris, especially in software-defined radios due to NATO's emphasis on interoperability. Management estimates a potential 100,000 radio market in Europe, viewing it as a major growth area for 2024 and beyond.

LHX NeXt Cost Savings
Q: Will cost savings from LHX NeXt boost margins?
A: The LHX NeXt program is expected to deliver $1 billion in savings over three years, with 40% accruing to company margins. Management is ahead of schedule on these savings, which are contributing to margin improvements and competitiveness.

Free Cash Flow Guidance
Q: Are you maintaining the $2.2B free cash flow guidance?
A: Management is confident in achieving the $2.2 billion free cash flow guidance for 2024, having generated 25% of this target in the first half. They anticipate stronger cash flow in the second half without significant working capital headwinds, progressing toward their 2026 goal of $2.8 billion.

SAS Segment Growth
Q: What are the trends in the SAS segment?
A: The Space and Airborne Systems segment is seeing growth in Space, Intelligence, and Cyber areas, driven by successful bids like the SDA Tranche awards. Airborne is facing headwinds as missions move from air to space, but SAS margins are improving due to cost savings and moving from development to production phases.

Competition and Pricing in Tactical Communications
Q: Are you facing price pressure in tactical communications internationally?
A: International tactical communications markets are winner-take-all, but L3Harris has had great success without significant price pressure. Management feels confident in maintaining their margins due to the value of their technology and the importance of interoperability for customers.

IMS Margins Outlook
Q: What's affecting IMS margins in the second half?
A: Integrated Mission Systems showed strong first-half margins at 11.7%, but margins may soften in the second half due to less favorable commercial mix and growth in less profitable areas like ISR. However, cost savings from LHX NeXt should continue to benefit margins.

Supplemental Funding Impact
Q: How will supplemental funding affect your revenue?
A: Supplemental funding is built into their guidance, with expectations of benefiting from additional radio revenues and supporting munitions through Aerojet Rocketdyne. While quantities and timing are uncertain, this funding provides confidence and stability in their outlook.