L3Harris(LHX) - 2025 Q2 - Quarterly Results

Executive Summary & Highlights Second Quarter 2025 Performance Overview L3Harris Technologies reported strong Q2 2025 results, marking an inflection point with significant EPS growth and the strongest revenue growth in six quarters Second Quarter 2025 Key Financials | Metric | Q2 2025 | Q2 2024 | Change | Non-GAAP Q2 2025 | Non-GAAP Q2 2024 | Non-GAAP Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Diluted EPS | $2.44 | $1.92 | +27% | $2.78 | $2.40 | +16% | | Revenue | $5.4B | $5.3B | +2% | - | - | - | - Orders reached $8.3 billion, resulting in a book-to-bill ratio of 1.5x, indicating strong demand and future revenue potential[5] - Adjusted segment operating margin expanded for the seventh consecutive quarter, increasing by 30 basis points to 15.9% in Q2 2025[5][6][11] CEO Commentary The CEO highlighted impressive Q2 results driven by record orders and margin expansion, aligning with a generational defense investment cycle - The company achieved a record book-to-bill of 1.5x and solid organic growth, marking a clear inflection point towards the 2026 Financial Framework[4] - Defense is entering a generational investment cycle with rapidly growing U.S. and allied budgets, aligning with L3Harris's portfolio in key growth areas[4] - The 'Trusted Disruptor' strategy drives differentiated, mission-critical solutions, creating value for shareholders and meeting evolving customer needs[4] Key Financial Highlights Strong Q2 2025 orders, revenue growth, and margin expansion led to an upward revision of 2025 guidance and 2026 outlook - Orders: $8.3 billion; book-to-bill of 1.5x[5] - Revenue: $5.4 billion, up 2% (6% organically)[5] - Operating margin: 10.5%; Adjusted segment operating margin: 15.9%[5] - Diluted EPS: $2.44; Non-GAAP diluted EPS: $2.78, up 16%[5] - 2025 guidance and 2026 outlook increased due to strong performance and improved expectations[5] Consolidated Financial Results Summary Financial Performance The company reported revenue growth and improved EPS, though cash flow declined due to working capital timing and legal settlements Summary Financial Results (Q2 2025 vs Q2 2024) | Metric | Q2 2025 ($M) | Q2 2024 ($M) | Change (%) | | :--- | :--- | :--- | :--- | | Revenue | 5,426 | 5,299 | 2% | | Operating income | 571 | 476 | - | | Adjusted segment operating income | 863 | 825 | 5% | | Operating margin | 10.5% | 9.0% | +150 bps | | Adjusted segment operating margin | 15.9% | 15.6% | +30 bps | | Diluted EPS | $2.44 | $1.92 | - | | Non-GAAP diluted EPS | $2.78 | $2.40 | 16% | | Cash from operations | 640 | 754 | (15%) | | Adjusted free cash flow | 574 | 714 | (20%) | Summary Financial Results (YTD 2025 vs YTD 2024) | Metric | YTD 2025 ($M) | YTD 2024 ($M) | Change (%) | | :--- | :--- | :--- | :--- | | Revenue | 10,558 | 10,510 | —% | | Operating income | 1,096 | 854 | - | | Adjusted segment operating income | 1,663 | 1,613 | 3% | | Operating margin | 10.4% | 8.1% | - | | Adjusted segment operating margin | 15.8% | 15.3% | +50 bps | | Diluted EPS | $4.48 | $3.40 | - | | Non-GAAP diluted EPS | $5.18 | $4.64 | 12% | | Cash from operations | 598 | 650 | (8%) | | Adjusted free cash flow | 502 | 558 | (10%) | Revenue Analysis Second quarter revenue increased 2% (6% organically), driven by higher volumes and increased international demand across all segments - Q2 2025 revenue increased 2% to $5.4 billion, with organic revenue growth of 6%[5][9] - Growth was primarily attributed to higher volumes, new program ramps, and increased international demand across all segments[9] Operating Margin Analysis GAAP operating margin increased by 150 bps, while adjusted segment operating margin expanded by 30 bps from cost savings and asset monetization - GAAP Operating Margin increased 150 bps to 10.5% in Q2 2025[10] - The GAAP margin improvement was primarily driven by lower unallocated corporate expenses and the absence of prior year business divestiture-related losses[10] - Adjusted Segment Operating Margin expanded 30 bps to 15.9% in Q2 2025, mainly due to monetization of legacy assets and LHX NeXt driven cost savings[11] Earnings Per Share (EPS) Analysis Both GAAP and non-GAAP diluted EPS increased significantly, benefiting from higher operating income and lower interest expense - GAAP Diluted EPS increased 27% to $2.44 in Q2 2025[12] - Non-GAAP Diluted EPS increased 16% to $2.78, and Pension Adjusted Non-GAAP Diluted EPS increased 22% to $2.42[13] - EPS growth was driven by higher operating income and lower interest expense, partially offset by a higher effective tax rate[12][13] Cash Flow Analysis Cash from operations and adjusted free cash flow decreased in Q2 2025 due to working capital timing and a legal settlement - Cash From Operations decreased 15% to $640 million in Q2 2025[14] - Adjusted Free Cash Flow decreased 20% to $574 million in Q2 2025[14] - The decrease in cash flow was driven by working capital timing and a legal settlement, partially offset by operating income growth and lower capital expenditures[14] Condensed Consolidated Statements The condensed consolidated financial statements provide a detailed view of the company's financial position, performance, and cash flows Statement of Operations The statement of operations shows Q2 2025 revenue of $5,426 million and net income attributable to L3Harris of $458 million Condensed Consolidated Statement of Operations (Unaudited) | Metric ($ millions, except per share amounts) | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $5,426 | $5,299 | $10,558 | $10,510 | | Operating income | $571 | $476 | $1,096 | $854 | | Income before income taxes | $524 | $390 | $983 | $680 | | Net income attributable to L3Harris | $458 | $366 | $844 | $649 | | Diluted EPS | $2.44 | $1.92 | $4.48 | $3.40 | Statement of Cash Flow The statement of cash flow indicates net cash from operating activities of $640 million for Q2 2025, a decrease from the prior year Consolidated Statement of Cash Flow (Unaudited) | Metric ($ millions) | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :--- | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $640 | $754 | $598 | $650 | | Net cash (used in) provided by investing activities | $(78) | $58 | $666 | $(58) | | Net cash (used in) provided by financing activities | $(610) | $(744) | $(1,415) | $(600) | | Net decrease in cash and cash equivalents | $(35) | $70 | $(133) | $(13) | | Cash and cash equivalents, end of period | $482 | $547 | $482 | $547 | Balance Sheet The balance sheet shows total assets of $41,240 million and total equity of $19,278 million as of June 27, 2025 Condensed Consolidated Balance Sheet (Unaudited) | Metric ($ millions) | June 27, 2025 | January 3, 2025 | | :--- | :--- | :--- | | Total current assets | $7,608 | $8,218 | | Total assets | $41,240 | $42,001 | | Total current liabilities | $7,322 | $7,633 | | Total liabilities | $21,962 | $22,422 | | Total equity | $19,278 | $19,579 | Segment Performance Communication Systems The Communication Systems segment reported a 2% revenue increase driven by international demand, with flat operating margin Communication Systems Segment Results | Metric ($ millions) | Q2 2025 | Q2 2024 | Change | YTD 2025 | YTD 2024 | Change | 2025 Guidance | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Revenue | $1,376 | $1,346 | 2% | $2,728 | $2,640 | 3% | $5,600 - $5,700 | | Operating margin | 24.4% | 24.4% | — bps | 25.0% | 24.2% | 80 bps | ~25% | - Revenue growth was primarily driven by increased international demand for resilient communication equipment and related waveforms[16] - Operating margin was flat due to higher volume and LHX NeXt driven cost savings, offset by the absence of favorable legal settlements from 2024[17] Integrated Mission Systems Integrated Mission Systems organic revenue increased 6% from ISR program ramps, and operating margin significantly increased by 120 bps Integrated Mission Systems Segment Results | Metric ($ millions) | Q2 2025 | Q2 2024 | Change | YTD 2025 | YTD 2024 | Change | 2025 Guidance | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Revenue | $1,622 | $1,671 | (3)% | $3,214 | $3,298 | (3)% | ~$6,400 (Prior: ~$6,300) | | Operating margin | 13.2% | 12.0% | 120 bps | 13.0% | 11.7% | 130 bps | ~12% (Prior: high 11%) | - Excluding the CAS business divestiture, organic revenue increased 6%, primarily due to ISR classified program ramp[18] - Operating margin increased 120 bps to 13.2%, driven by monetization of legacy assets, partially offset by an unfavorable EAC adjustment[19] Space & Airborne Systems Space and Airborne Systems organic revenue increased 7% due to higher FAA volume, while operating margin slightly decreased Space and Airborne Systems Segment Results | Metric ($ millions) | Q2 2025 | Q2 2024 | Change | YTD 2025 | YTD 2024 | Change | 2025 Guidance | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Revenue | $1,787 | $1,707 | 5% | $3,398 | $3,458 | (2)% | ~$7,100 (Prior: $6,900 - $7,100) | | Operating margin | 12.3% | 12.6% | (30) bps | 11.7% | 12.5% | (80) bps | low 12% | - Excluding the antenna business divestiture, organic revenue increased 7%, driven by increased FAA volume and improved program performance[20] - Operating margin decreased 30 bps to 12.3% primarily from unfavorable mix, partially offset by asset monetization and cost savings[21] Aerojet Rocketdyne Aerojet Rocketdyne's organic revenue increased 12% due to higher production, and operating margin improved by 50 bps Aerojet Rocketdyne Segment Results | Metric ($ millions) | Q2 2025 | Q2 2024 | Change | YTD 2025 | YTD 2024 | Change | 2025 Guidance | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Revenue | $698 | $633 | 10% | $1,327 | $1,217 | 9% | ~$2,800 | | Operating margin | 13.3% | 12.8% | 50 bps | 12.7% | 13.0% | (30) bps | mid 12% | - Excluding the AOT business divestiture, organic revenue increased 12% from increased production volume across key missile and munitions programs[22] - Operating margin increased 50 bps to 13.3%, primarily due to improved performance driven by LHX NeXt cost savings and a favorable contract resolution[23] Guidance and Outlook 2025 Non-GAAP EPS Guidance Bridge Full-year 2025 non-GAAP diluted EPS guidance was increased to $10.40 - $10.60, reflecting strong performance and an improved outlook 2025 Non-GAAP Diluted EPS Guidance Bridge | Item | Amount | | :--- | :--- | | Non-GAAP diluted EPS (Prior) | $10.30 - $10.50 | | H1 2025 performance and guidance update | ~$0.40 | | Non-GAAP EPS (Before tax reform impact) | $10.70 - $10.90 | | Impact of tax reform | ~($0.30) | | Non-GAAP diluted EPS (New) | $10.40 - $10.60 | - The updated guidance reflects a net increase of $0.10 to the full-year non-GAAP diluted EPS, offsetting a tax rate headwind[25] Supplemental Information Supplemental information for 2025 includes updated estimates for pension income and the effective tax rate on non-GAAP income 2025 Supplemental Information | Other Information | Current | Prior | | :--- | :--- | :--- | | FAS/CAS operating adjustment | ~$15 million | ~$15 million | | Non-service FAS pension income | ~$285 million | ~$270 million | | Net interest expense | ~$600 million | ~$600 million | | Effective tax rate on non-GAAP income | 13.5% - 14.5% | 11.0% - 12.0% | | Weighted-average diluted shares | ~188 | 188 - 189 | | Capital expenditures | ~2% revenue | ~2% revenue | - The effective tax rate on non-GAAP income is projected to be 13.5% - 14.5%, an increase from the prior guidance of 11.0% - 12.0%[27] - Non-service FAS pension income is now estimated at ~$285 million, up from ~$270 million previously[27] Non-GAAP Financial Measures & Disclosures Forward-Looking Statements This section contains forward-looking statements subject to various risks and uncertainties, and the company disclaims any obligation to update them - Forward-looking statements are made in reliance on the safe harbor provisions of the Private Securities Litigation Reform Act of 1995[29] - Important risks include competitive markets, U.S. Government spending priorities, inflation, supply chain disruptions, and changes in effective tax rate[29] - The company disclaims any intention or obligation to update or revise any forward-looking statements, other than as imposed by law[29] Non-GAAP Financial Measures Explanation Management uses non-GAAP financial measures to provide a clearer understanding of ongoing operating performance and business trends - Non-GAAP Financial Measures (NGFMs) are used to provide investors with information on period-over-period operating results[30] - Management utilizes NGFMs for forecasting, long-term planning, and compensation purposes[30] - Reconciliation of forward-looking NGFMs to GAAP is not available without unreasonable effort due to forecasting difficulties[30] Reconciliation of Non-GAAP Measures This section provides detailed reconciliations of various non-GAAP financial measures to their most directly comparable GAAP measures Organic Revenue Reconciliation The organic revenue reconciliation adjusts GAAP revenue by excluding amounts attributable to divested businesses Organic Revenue Reconciliation (Q2 2025 vs Q2 2024) | Segment | GAAP 2025 ($M) | Adjustments ($M) | Organic 2025 ($M) | GAAP 2024 ($M) | Adjustments ($M) | Organic 2024 ($M) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | CS | $1,376 | — | $1,376 | $1,346 | — | $1,346 | | IMS | $1,622 | — | $1,622 | $1,671 | $(138) | $1,533 | | SAS | $1,787 | — | $1,787 | $1,707 | $(32) | $1,675 | | AR | $698 | — | $698 | $633 | $(12) | $621 | | Corporate eliminations | $(57) | — | $(57) | $(58) | — | $(58) | | Total Revenue | $5,426 | — | $5,426 | $5,299 | $(182) | $5,117 | Adjusted Segment Operating Income Reconciliation This reconciliation adjusts GAAP operating income to derive adjusted segment operating income, reflecting core operational performance Reconciliation of Operating Income to Adjusted Segment Operating Income (Q2 2025 vs Q2 2024) | Metric ($ millions) | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Operating income | $571 | $476 | | Amortization of acquisition-related intangibles | 193 | 215 | | Unallocated corporate department expense, net | 50 | 33 | | FAS/CAS operating adjustment | (3) | (6) | | Merger, acquisition, and divestiture-related expenses | 13 | 21 | | Business divestiture-related losses and impairment of goodwill | — | 38 | | LHX NeXt implementation costs | 39 | 48 | | Adjusted segment operating income | $863 | $825 | Effective Tax Rate on Non-GAAP Income Reconciliation This reconciliation adjusts the GAAP effective tax rate to present the effective tax rate on non-GAAP income Reconciliation of Effective Tax Rate to Effective Tax Rate on Non-GAAP Income (Q2 2025 vs Q2 2024) | Metric ($ millions) | Q2 2025 Earnings Before Tax | Q2 2025 Tax Expense (Benefit) | Q2 2025 Effective Tax Rate | Q2 2024 Earnings Before Tax | Q2 2024 Tax Expense (Benefit) | Q2 2024 Effective Tax Rate | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Income before income taxes | $524 | $66 | 12.6% | $390 | $23 | 5.9% | | Merger, acquisition, and divestiture-related expenses | 13 | 3 | | 21 | 7 | | | Business divestiture-related losses and impairment of goodwill | — | (18) | | 38 | (2) | | | LHX NeXt implementation costs | 39 | 4 | | 48 | 11 | | | Non-GAAP income before income taxes | $576 | $55 | 9.5% | $497 | $39 | 7.8% | Diluted EPS to Non-GAAP Diluted EPS Reconciliation This reconciliation adjusts GAAP diluted EPS for significant and/or non-recurring items to arrive at non-GAAP diluted EPS Reconciliation of Diluted EPS to Non-GAAP Diluted EPS and Pension Adjusted Non-GAAP Diluted EPS (Q2 2025 vs Q2 2024) | Metric ($ millions, except per share data) | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Diluted EPS | $2.44 | $1.92 | | Merger, acquisition, and divestiture-related expenses | 0.07 | 0.11 | | Business divestiture-related losses and impairment of goodwill | — | 0.20 | | LHX NeXt implementation costs | 0.21 | 0.25 | | Income taxes on above adjustments and other, net | 0.06 | (0.08) | | Non-GAAP diluted EPS | $2.78 | $2.40 | | Less: per share impact of: | | | | FAS/CAS operating adjustment | (0.01) | (0.03) | | Non-service FAS pension income | (0.35) | (0.39) | | Pension adjusted non-GAAP diluted EPS | $2.42 | $1.98 | Net Cash Provided by Operating Activities to Adjusted Free Cash Flow Reconciliation This reconciliation adjusts net cash provided by operating activities to calculate adjusted free cash flow Reconciliation of Net Cash Provided by Operating Activities to Adjusted Free Cash Flow (Q2 2025 vs Q2 2024) | Metric ($ millions) | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $640 | $754 | | Capital expenditures | (88) | (97) | | Proceeds from disposal of property, plant and equipment, net | 9 | — | | Free cash flow | 561 | 657 | | Cash used for merger, acquisition and severance | 13 | 57 | | Adjusted free cash flow | $574 | $714 | Key Terms and Non-GAAP Definitions This section provides definitions for key terms and non-GAAP financial measures used throughout the earnings release Key Terms and Non-GAAP Definitions | Description | Definition | | :--- | :--- | | Merger, acquisition, and divestiture-related expenses | Transaction and integration expenses associated with the AJRD acquisition; external costs related to pursuing acquisition and divestiture portfolio optimization; non-transaction costs related to divestitures; and salaries of employees in roles dedicated to planned divestiture and acquisition activity | | Business divestiture-related losses and impairment of goodwill | In 2024, includes loss on sale and impairment of goodwill recognized in connection with the sale of our antenna and related businesses and a loss associated with the then pending divestiture of our Commercial Aviation Solutions business. In 2025, includes loss recognized in connection with the sale of our Commercial Aviation Solutions business | | LHX NeXt implementation costs | Costs related to the LHX NeXt initiative are expected to continue into 2026 and are expected to include workforce optimization costs and incremental IT expenses for implementation of new systems, third party consulting expenses and other related costs, including costs related to personnel dedicated to this project | | Organic revenue* | Excludes the impact of completed divestitures and is reconciled in Table 4 | | Orders | Total value of funded and unfunded contract awards received from the U.S. Government and other customers, including incremental funding and adjustments to previous awards, excluding unexercised contract options and potential orders under ordering-type contracts, such as indefinite delivery, indefinite quantity (IDIQ) contracts | | Non-GAAP income before income taxes* | Represents income before income taxes adjusted for items reconciled in Table 6 | | Effective tax rate on non-GAAP income* | Represents the effective tax rate (tax expense as a percentage of income before income taxes) adjusted for the tax effect of items reconciled in Table 6 | | Adjusted segment operating income and margin* | On a consolidated basis represents operating income and margin, excluding unallocated corporate department items and items reconciled in Table 5 | | Non-GAAP diluted EPS* | Represents EPS (earnings per share attributable to common shareholders) adjusted for items reconciled in Table 7 | | Pension adjusted non-GAAP diluted EPS* | Represents Non-GAAP diluted EPS, described above, adjusted for the after tax per share impact of the FAS/CAS operating adjustment and Non-service FAS pension income reconciled in Table 7 | | Adjusted free cash flow* | Net cash provided by operating activities less capital expenditures, plus proceeds from disposal of property, plant and equipment and cash used for merger, acquisition and severance reconciled in Table 8 | | Cash used for merger, acquisition, and severance* | Cash related to merger, acquisition and divestiture-related expenses (described above) and severance costs included in LHX NeXt implementation costs | Investor and Media Contacts Contact information for investor and media relations is provided for inquiries regarding L3Harris Technologies - Investor Relations Contact: Daniel Gittsovich, 321-724-3170, investorrelations@l3harris.com[31] - Media Relations Contact: Sara Banda, 321-306-8927, media@l3harris.com[31]