Greetings. Welcome to the L3Harris Technologies' Fourth Quarter 2023 Earnings Call. At this time, all participants are in listen-only mode. A brief question-and-answer session will follow the opening remarks. [Operator Instructions] As a reminder, this conference call is being recorded. It is now my pleasure to introduce your host, Mark Kratz, Vice President of Investor Relations. You may begin.

Thank you, Rob. Good morning, everyone, and welcome to our Fourth Quarter 2023 Earnings Call. Joining me this morning are Chris Kubasik, our CEO; and Ken Bedingfield, our CFO. We've updated our quarterly earnings approach based on feedback and yesterday evening, we published our fourth quarter earnings release detailing our financial results and guidance. We've also provided a supplemental earnings presentation on our website. As a reminder, today's discussion will include certain matters that constitute forward-looking statements. These statements involve risks, assumptions, and uncertainties that could cause actual results to differ materially. For more information, please reference our earnings release and SEC filings. We also discuss non-GAAP financial measures which are reconciled to GAAP measures in the earnings release. Specifically, I will note, segment operating income, which excludes items such as impairments to goodwill and other assets reported at the business segment level. I would now like to turn it over to Chris and Ken for some opening remarks.

Okay. Thanks, Mark, and welcome, Ken, to your first L3Harris earnings call. We're excited to have you on the team.

Thanks, Chris. I'm excited to be a part of the team.

All right. I want to start by thanking our investors and analysts for attending our Investor Day last month. We had a great turnout and appreciate the strong positive feedback from the event. 2023 marked the fourth full year since the merger and served as an inflection point in many respects. We met our financial commitments. We closed our integrating and seeing the benefits of two acquisitions that are focused on national security and aligned with defense spending priorities. We announced the sale of a non-core business further aligning our portfolio and we returned to growth following a few years of macroeconomic disruptions. This past year, we also strengthened our leadership team and Board of Directors adding key talent that will help drive future value for our investors, customers and employees. This year's progress gives us confidence that we have set the foundation to achieve the financial outlook that we laid out at our Investor Day and are reaffirming today with segment level detail. Globally, the threat environment remains elevated emphasizing the importance of our mission. With the national security-focused portfolio, we continue to support the US and its allies providing vital solutions for our customers' most critical missions. Domestically, we await Congress to pass all 12 appropriation bills by the end of April including the pending vote for an $842 billion topline defense budget which has solid support for our programs, most notably, in the areas of space, missiles, intelligence, and resilient communications. In 2023, demand remained strong. We reported a record $23 billion in orders, including key awards for the US Army's Manpack and Leader Radios, Compass Call missionized business jets, and rocket motors for the Army's Guided Multiple Launch Rocket System. The orders we received in 2023 contributed to a record backlog of $33 billion, more than…

Thanks and good morning, everyone. It's great to be part of the L3Harris team and working alongside Chris. Over the last six weeks, I've been actively engaged with the team, reviewing the business and our financial plan. I'm all in on our approach and grow more confident with each day. We'll be on the road meeting with investors next week and attending a few conferences during the quarter, so I look forward to re-engaging with you all over the coming months. Let's start with consolidated results, which were all in line with our latest guidance. We reported full-year revenue of $19.4 billion at the high end of our guidance, up 14% year-over-year and 6% organically, which was primarily from growth in our Space and Airborne Systems and Communication Systems segments. We delivered segment operating margin of 14.8%, earnings of $12.36 a share and free cash flow was just over $2 billion. For the fourth quarter, revenue was $5.3 billion, up 17%, largely driven by the Aerojet Rocketdyne and Tactical Data Links acquisitions and continued strong growth in space systems and resilient communications. Fourth quarter segment margin was 15.1%, up 50 basis points from higher volume and favorable product mix, and better program performance, which all resulted in net positive EAC adjustments. The first net positive quarter since mid-2022. Fourth quarter earnings per share grew 2% to $3.35. Let me hit on segment results before turning to 2024 guidance. SAS reported revenue of $6.8 billion for the year, up 7% as we continue to see strong growth in Space, Mission Networks, and Intel & Cyber programs. I've been impressed with what we're doing in Space. To me, this demonstrates how we are thinking differently, responding quickly, making targeted investments, and seeing them pay off and growing in enduring markets. It's exciting…

Thank you. We'll now be conducting a question-and-answer session. [Operator Instructions] Thank you. And our first question is from the line of Scott Deuschle with Deutsche Bank. Please proceed with your question.

Hey, good morning.

Hey, good morning, Scott.

Chris, can you give us an update on attrition and program performance at IMS? And then for Ken, the IMS margin guide implies '24 segment margins. I think will be down relative to the second half of '23. So like to hear a bit more on the thinking there. And then also for Ken, just maybe you can comment on your philosophy on guidance. And where you sit on the spectrum in terms of viewing guidance as an aspiration and operational plan or closer to a promise? Thank you.

All right. Thanks, Scott. Yeah, talking about IMS, if we look at 2023, you'll see that we did improve margins in the second half compared to the first half. And as we've talked about, it is a little bit of a lumpy business based on the timing of aircraft purchases. We laid out at Investor Day that our strategy in the near term here was really to continue to have stability, especially with the program performance and focus on margin improvement. So to answer your question specifically, here in the short-term, we are seeing better program performance and I think that's what gives us confidence and opportunities not only for 2024 but the next several years. The attrition is definitely slowing down. We've been successful in hiring new people, training new employees, and I think that's starting to be reflected in our performance. And equally as important, the suppliers, and maybe more specifically in this case our subcontractors' performance is starting to improve as we got through those macroeconomic disruptions. The bidding rigor is improving, we've lowered the delegations of authority, so more bids are being reviewed. Not only at the segment level but the corporate level and we have at least one instance in the fourth quarter where we no bid a fixed price development program, and I've been talking about this for at least a year and we will continue to no bid programs where the contract type does not appropriate for the risks we're assuming and I said it in December and I'll say it again. I will sacrifice revenue for earnings and cash every day of the year and we will continue to do so until that changes. And of course, we're making structural changes to the business. In the midterm, I see upside to the margins as we're going to grow internationally at IMS. We're looking at about 25% international this year. I see that getting into the 30% range in a couple of years, driven by WESCAM and international business jets. In fact, this quarter already European customer has awarded $300 million award to us for aircraft missionization and that will be accretive to our margins. And then when we, sure, we will talk more about LHX NeXt in the time that remains but I think this segment is clearly ripe for opportunities. We laid out the fact despite all the good work we've done in the last four years, we still have 100 facilities. We still have eight different ERP vendors and we have 24 reporting units. I did mention that 10 of those in my comments were migrated into one. So we're making progress and the team has taken action, takes some investment on our part, but I like the momentum in the path that we're on. So maybe with that, Ken, you want to?

Sure. Thanks for the question, Scott, and I think Chris hit it well. I'll just add a couple of points. One, the guidance for IMS does assume the CAS divestiture during 2024. CAS does have higher average margins than IMS as a segment. So that's a little bit of a headwind at a margin level for IMS. In terms of timing, we did have some large aircraft procurements in the first half of '23. Nothing in the second half of 2023. So that helped the margin pick up a little bit in the second half of '24, as well as solid program performance. We do see again it's stabilizing as we look forward and we look forward to the team delivering on that. And then thirdly, I guess what I would say is the EO product line tends to build throughout the year that, Scott, solid commercial-like margins. And so we'll see that more likely contributing in the second half as well. With respect to the second part of your question on guidance philosophy, I'll just say, look, again, I'm excited to be a part of the team. We've spent a lot of time thinking about kind of where we are and what this business can do. I think we've laid out a guidance that is something that we can meet and work to build to deliver confidence on during the year. And this is something we're putting out there and that's something that we intend to deliver on.

Our next question comes from the line of Doug Harned with Bernstein. Please proceed with your question.

Good morning and thank you.

Hi. Good morning, Doug.

At the investor conference, you talked about looking to 2026 and basically there was a 100 basis point upside guide to each of the segments. But when you look across them, the opportunity there, it can't be uniform. So perhaps you can help us think through when you look at each of the segments where there is opportunity for more? And maybe in some cases, it might be more difficult to get to that number.

Yeah, Doug. Let me take that one. Yeah, let me start with where we are on margins. I mean, we have well-documented that our margins have declined in the last couple of years. We acknowledge we have had some performance issues across the portfolio. But I also want to mention that we have consciously made investments in some high-growth programs and businesses, which impacted the margins in the short-term, but we believe create value in the long-term, and I think Space is probably the best example that we keep highlighting in that regard. Investor Day we did step up our cost savings goal to $1 billion gross run-rate savings by the end of '26 that goes across the entire enterprise. We're calling that program LHX NeXt, as you well know. And look, I agree with you that there's differences by segments for a variety of reasons, and we're setting out a framework, three years out. So we put the 100 -- the 100 basis points is kind of the floor. If I go through or maybe in the -- in some form of order relative to the ability to realize the 100 basis points either earlier or exceeded, I'd like to start with Communication Systems. I think we all know that that has a commercial business model and the potential for more international growth. I think those will be key drivers. We run that like a commercial factory where we make the radios. We look at the quality, the cost of poor quality, the real throughput yield. We're making investments in equipment and training that gives us potential upside. And in that regard, pretty much every dollar falls to the bottom line. We're also looking at the models and seeing if we can be more aggressive on increasing our software…

No, I think you hit it well.

All right.

Our next question comes from the line of Ron Epstein with Bank of America. Please proceed with your question.

Yeah. Good morning, guys. One of the big focuses at the Investor Day was the Space business. And maybe if you can give us a deeper dive into how that's going, work on the SDA transport and tracking layers, and maybe continued opportunities for growth in that business.

Yeah. Space, we keep talking about Space and highlighting. That is kind of the model for our trusted disruptor strategy. So we've one -- we're really just on the tracking for SDA. So we won tranche zero, we won tranche one. And as I mentioned just a couple of weeks ago, we were awarded tranche two. So I think we've gone from four satellites to eight satellites to 18, so and there will be a tranche three and beyond, I would expect. I can tell you that in each of those successive contracts, the margins that we bid and expect have increased, which was part of our strategy. So the team is performing well. We have satellites waiting to be launched. So we're looking at these annuity-long cycle constellations, and we've talked about the missions really migrating from the air domain to the space domain, and I think we're seeing it here. And these satellites will have single-digit useful lives, and they'll need to be repopulated over time. So I kind of look at this as an annuity where in several years, the tranche zero satellites will deorbit and they'll need additional satellites to be launched. So three for three. Quite proud of the team, and I think our customer is obviously pleased with our performance. I did mention we do have a pretty good business in weather satellite, so it was exciting to see us get some international opportunities. You don't necessarily see that all the time in the Space business. So that's some additional growth. And we still provide payloads for exquisite satellites where we're a sub to the primes. Most of those are classified. So pretty good backlog. We also mentioned it at Investor Day. We're investing in building a satellite factory here in Florida and that ground has been broken and we're excited about that. So we'll be able to turn satellites at a pretty quick pace here in the near term.

Thank you. The next question is from the line of David Strauss with Barclays. Please proceed with your question.

Thanks. Good morning.

Good morning, David .

So, Chris, I guess following up on Ron's question, SAS, I think in '23 you did something like 8% organic growth. It looks like your guidance for this year is only 2% organic growth. So if you could touch on the slowdown there that you're anticipating, I guess, broken out between Space and maybe the Avionics piece of the business. And then could you also touch on the forecast for Aerojet this year? It looks like if you just kind of annualize the run rate of sales, you're not really anticipating any growth at all out of Aerojet this year. Thanks.

All right, David. No, good questions. Yeah, so if I look at SAS, we have several sectors there, two of them, relatively large are flat. The air domain that we've talked about is a flat business. It's a good business with good margins. This is where we perform on mission systems for F-35, F-16, F-18, some classified platforms, but a relatively flat market. And as I just mentioned, those missions are migrating into Space in some cases. So that's how we see that playing out. Mission Networks, which does a lot of work for the FAA, is a very solid business. Good margins, but that's traditionally a pretty flat business for the foreseeable future, especially given some of the budget pressures at the FAA. So that's two of our segments or two of our sectors. Space is growing and Intel and Cyber are growing as well. Just as an aside, I mentioned a lot of this -- more of this business is cost plus than most. So as we continue to reduce cost, I think, David, sometimes -- not sometimes, it always does ultimately reduce your revenue a little bit as well. So the good news of taking out costs, you get higher margins. And as continue to say revenue is interesting, but I'll take margins and cash and EBIT every day, and that's a little bit of the headwind. So that's how I see SAS coming out where it does. And second question on Aerojet Rocketdyne, interesting that you say that, because nobody really knows what their 2023 revenue is. We will disclose that in the 10-K, they only reported the first quarter. There were four months that weren't reported, and then we reported the five months. Anyway, when you see those numbers, you will see that we're right around 5% top-line growth, 2024, compared to the pro-former 2023. Aerojet disclosed three months, we disclosed five. The four fell through the cracks just based on how the accounting works. So we'll put that all in there, and you'll see the 5% growth.

Our next question is from the line of Michael Ciarmoli with Truist Securities. Please proceed with your question.

Hey, good morning, guys. Thanks for taking the question. Maybe, Chris, just to stay on Aerojet, looks like, I think, you said you got all $50 million of cost synergies achieved. I mean, it sounds like that was a lot of low-hanging fruit, public company cost. Is there more there? I mean, is that layered into the next initiative? And then I guess just on NeXt, what flowed through in the quarter? I mean, we saw the $47 million in cost. What did you net out in savings? I think the goal was $175 million for the year. And does one segment maybe benefit disproportionately as you progress through NeXt?

Yeah, I'll take the first part. Ask Ken to chime in on the second part. Yeah, the $50 million, we did go quickly to realize it. It obviously was a little more lower-hanging fruit than not, but it still takes a lot of time and effort, and we execute it, and we absolutely expect to get a little more out relative to what I'd call the integration. I mean, there's more work to do on the IT systems and tools. We have already aligned them on policies and procedures. All the personnel are already on our payroll systems, our benefit plans, and that type of stuff. So, yeah, we think there's probably an additional $20 million or $30 million that we can get that I would call integration. That will just roll into LHX NeXt. But Ken?

Yeah. No, I agree on that front. I would say the team did a great job of working aggressively to get on top of the initial integration cost savings. We did hit that target. We're continuing to drive for more, but at this point, the primary focus is really around some of the operational efficiencies working to drive the throughput through the business and getting what were some bottlenecks to increased production out of the way so that we can deliver these critical capabilities to our customers at Aerojet. So, great work by the team, certainly continues. And as Chris mentioned, we'll continue to drive opportunity for further, not only integration, but I would say at this point, more importantly, operational efficiencies, again, to drive volume. In terms of LHX NeXt, what I would say is we are very consistent at this point with what we discussed at Investor Day, the gross run rate of a $1 billion savings. We talked about, to your question, $175 million of margin improvement exiting 2024. And I think we see that across the business. I don't necessarily see any individual sector that will benefit first from that. I think Chris talked about the margin opportunity at the sectors through 2026 in getting to our 16% margin framework, but in terms of LHX NeXt, a lot of confidence in the program, confidence in the team. We had set an initial target out there. As we started to work through it, we saw the ability to drive further savings out of that. I've got confidence that we're working to drive at least to that level of savings. And I think, again, all of the segments should see the benefit of that here in 2024.

The next question is from the line of Peter Arment with Baird. Please proceed with your question.

Yeah, thanks. Good morning, Chris and Ken. And welcome, Ken. Hey, Ken, maybe just on guidance, if there is, could you maybe level set us just on cadence if first half versus second half, anything to really call out? And then also it was highlighted at the Investor Day that working capital would certainly be positive contributor in cash over the kind of the guidance period. How are you thinking and seeing any opportunities from a working capital perspective, and maybe just working capital profile going forward? Thanks.

Sure. Thanks, Peter. I appreciate the question. Yeah, in terms of cadence, I would say as we look at the -- as we look at 2024, we think the revenue growth itself should be relatively steady throughout the year, probably a relatively even split 50-50 between the first half and the second half in terms of the growth from 2023, quarter-by-quarter, probably a little more of an accelerated ramp on the revenue side starting in the second quarter. In terms of EPS, I would say we'll kind of follow the margin trend. Talked about the margins would be a little bit slower in the first half of the year as we saw a strong performance in the fourth quarter, kind of across the board at the segments. And so we expect that to kind of build momentum as we work through the year. That margin momentum should fall through to EPS. And again, we'll probably see that kind of build sequentially, quarter-over-quarter through the year over 2023. And then from a free cash flow perspective, and on the working capital question, I would say the free cash flow profile will continue to be weighted towards the second half of the year. And on working capital, I think the team did a great job in driving down our working capital at the end of '23, but the work is never done. We'll continue to try to improve that in 2024, but we've got a lot of confidence in our growing free cash flow. We talked about 10% free cash flow growth that will be driven by certainly the margin growth, the margin improvement on growing revenues as well as continued and disciplined balance sheet management.

And I'll just chime in, Peter, the continuing resolution. While we've had one every year since 2010, and I think we in the industry know how to deal with it, it does tend to slow things down, really, from a customer perspective. So as I mentioned, we are under a CR through March. Hopefully we'll get a defense budget and eleven other appropriation bills passed so we can get back to normal. But that causes a little bit of the slow start, unfortunately, like it does pretty much every year for the last 13.

Thank you.

Thank you. Our next question comes from the line of Seth Seifman with JPMorgan. Please proceed with your question.

Hey, thanks very much, and good morning, everyone.

Hey, Seth.

I wonder if you could talk in the Communications business where 2023 ended up on tactical radio sales and what you expect in 2024 for domestic and international and kind of the trajectory for each of those?

Yeah, let me take that. We actually had a pretty -- we had a great year in CS and especially tactical radios specifically. The interesting thing here, as we talk about the margins, is really the mix between the DoD and the International. So when I looked at the first two quarters, we were heavily weighted towards International versus domestic and then it flipped again in Q3, Q4. And we'll start 2024 with a little more domestic deliveries than commercial, and then it flips in the back half. So we had a record year when it came to revenue in TCOM. I think the business is really coming together quite nicely. We've overcome most of the supply chain challenges. I know when we talked in the past, we literally had hundreds of key suppliers that we were tracking. Now we're down to just a handful. So the results are getting better. We're getting dual sources. And in fact, we've recently had some wins in some new markets that we've been informed of. We're not authorized to disclose them quite yet, but there's a lot of good news coming out of TCOM.

Our next question is from the line of Robert Spingarn with Melius Research. Please proceed with your question.

Good morning, Chris. Welcome, Ken.

Good morning.

Thanks, Rob.

So Chris, Ken touched on this, but maybe a quick operational update on Aerojet, but more in the context of some of these supply chain bottlenecks that are still there. Now obviously, this started well before your acquisition and part of the value proposition there is getting it back on pace, but a couple of things. Does it make any sense to bring any of the problem suppliers in-house? And then Lockheed's talking about standing up a third supplier, Anduril is building a business. So I wanted to see how you think about the longer-term market share implications if others come in.

Yes. Thanks, Rob. Let me start -- cover a couple of things and work in specifically your question. The demand, I mentioned earlier, there's more demand than there is supply, which is a great thing when we look back on the acquisition. And to repeat myself, 200 proposals for $13 billion is something we would have never expected in just a six-month period. The infrastructure, great progress. We've got the $50 million. We've got the policies. We've got the personnel. The IT systems are in work. And in fact on the talent front, the attrition at Aerojet Rocketdyne has dropped by 1/3 overall and 50% for the engineers. We do these regular surveys. There's just a lot of enthusiasm and excitement about the acquisition, the strategy. And I think it's a tribute to the team that shows how we successfully have integrated them and welcomed them into L3Harris. Going back to the demand, it's all about capacity. We've talked about the DPA investment for $216 million focused on GMLRS and Javelin and Stinger. In fact, we've already acquired a building in Huntsville, Alabama. Our capacity and footprint there is 4x and that will ultimately -- it is, but it will ultimately be our inert center of excellence, which is great. The challenges are really at the sub-tier suppliers, as you said. I don't think it makes a lot of sense to bring them in-house. We've actually invested in some of these, not as an ownership, but by helping them with tooling and capital. Our customers have also -- our end customer and our immediate prime customers have also invested. So as we've said, there's a little bit of a chokepoint here at the sub-tier. Personally, I think over time, a third solid rocket motor provider is fine. We don't shy away from competition. But that doesn't really solve the problem because at the end of the day, everybody's going to be going to the same sub-tiers, for the cases, for the igniters, for the nozzles and such. So we have to fix the sub-tier. We're doing our part by helping them out financially, getting the equipment, improving their -- the capacity. And we started to see it. There is a big well documented, I think, we call it backlog or undelivered motors, and we're chipping away at that, as I mentioned. And once we get these facilities and equipment up and running, I think it's going to look pretty good. And, yes, there's a lot of people trying to get into this market now, which is fine. It's a high-growth market, and in my mind, reaffirms the rationale and the value potential from this acquisition.

The next question comes from the line of Myles Walton with Wolfe Research. Please proceed with your question.

Ken, I'm hoping you can provide a few of the cash details on the surface, the Section 174 impact for '23 and '24, maybe what the benefit would be if they retroactively reversed it, what you've paid and what you could get back. And then maybe just also as it relates to stripping out from the cash numbers, is it just the $220 million for LHX NeXt that you laid out at Investor Day? Or are there other adjustments we should consider? Thanks.

Thanks, Myles. Let me -- I'll talk about 174 a little bit first and then get into the second part of the question. So let me just start by saying we've got a great tax team that works really hard every day to drive value for the business. And one of the things that I think they do well and we do well in supporting them is getting them really integrated with the businesses so that we get all the data, we get all the information needed to support our R&D deductions and credits. We work very closely with the IRS team to validate what we've got and what we're doing and how all that works. And I think we've done a great job. This is a business that invests heavily in R&D to drive future capability and future growth, and we'll continue to do that, and we'll continue to see that benefit. In terms of the cash profile, what I'll say is that, in '23, we're able to catch up a little bit on some tax payments from a timing perspective. In terms of the new amortization of Section 174, we're able to kind of catch back up to being current through the end of '23 on the impact -- the cash impact of that. And then in terms of the new legislation that's working through, I'll say we're tracking that carefully, keeping an eye on it. The impact of that, if it is passed into law, would be positive for us from a cash perspective. And I don't want to put a number on it, but as currently drafted, would have some retroactive impact for, I believe, it's '22 and '23. So positive on cash. And then I think there would ultimately be a little bit of a rate headwind as we look forward. But I would say we'd be very willing to trade that little bit of rate benefit for the cash benefit that we see. And then in terms of kind of free cash flow guide for 2024 and the adjustments. At this point in time, what we're looking at in terms of what that would be adjusted for would largely be the LHX NeXt onetime implementation cost. To your question, I think that should be the largest item there.

Our next question is from the line of Sheila Kahyaoglu with Jefferies. Please proceed with your question.

Good morning, Chris and Ken.

Hi, Sheila.

Chris, One for you, please. You mentioned international mix within IMS. More broadly, what are you seeing in the international pipeline? And how are you thinking about the timing of that conversion? And just thinking about the overall 3% organic growth guidance for '24, how does internal track relative to domestic, and what are the broader margin implications?

Yes. Thanks for the question. I mean, obviously, the broader margin implication is we tend to have higher margins in international than domestic, just like we do with commercial. So I see an increase -- slight increase year-over-year. We're kind of hanging around the 22%, 23% of our revenue comes from international, maybe a little uptick in '24, '25 and '26. But every point helps. I think it comes down to this -- the one that's going to move the needle a little bit is going to be the supplementals. And we haven't talked a whole lot about DC in the budget. But there is a supplemental out there for Ukraine, Taiwan and Israel put out last year for $110 billion. I think about $58 billion is targeted for the DoD. It's all tied up in politics as it relates to border security. But I think at the end of the day, we need to get these things passed because it's really just backfilling the stockpile that we've already given into several of the countries I mentioned. So hopefully, we get that behind us, and that will solidify our growth opportunities in those regions specifically. So as I look at each of the segments. Aerojet, as you know, most of that goes through a couple of primes. So we actually don't have any international revenue the way we disclose it for Aerojet, notwithstanding that several of these products get deployed from -- but from our perspective, we just sell them to two or three primes and then they put them wherever they need to go. So we just call that domestic for what that's worth. IMS, I talked about WESCAM and bizjets, I see upside there. SAS, it's really given the classified nature of so many things they do. We have an occasional space satellite, like I mentioned, in Japan. Some of the avionics stuff goes international as well. And then CS has the highest percentage of international mainly coming out of the tactical radio business. And when I look at what we've done in Ukraine and what's needed in Europe and the Mid-East and the Far East, it's looking rather positive. So I hope that help, Sheila.

Rob, we're coming up on the hour, so maybe we'll take our last question this morning.

Sure. Our last question comes from Robert Stallard with Vertical Research Partners. Please proceed with your question.

Thanks so much. Good morning.

Good morning.

Hey, Rob.

And welcome back, Ken.

Thank you.

Chris, probably a question for you. Your counterpart at Lockheed Martin, Jim Taiclet was kind of talking about structural problems in the defense industry with regard to pricing and contracting and whether that could change in the future. I was wondering if you have any issues lingering in the L3Harris portfolio that maybe fits that criteria. But on the flip side, do you see the opportunity to grow more sort of commercial terms contracts in the future?

Yes. Good question, Robert. Look, we've all been in this industry for decades, and it kind of goes in cycles where everybody thought fixed-price development programs was a good idea in the '70s and '80s, and then it migrates back to cost-plus and goes the other way. Just kind of have to understand where the customer is and figure out where they're going. There's lots of opportunities to interface with them. We're we've been successful with our commercial business models that I've mentioned. I think there's more that we can look at in that regard. I think more and more things are moving towards software, and I think it's a new area. I think the DoD has to figure out how to buy software and we have to figure out how to sell software. There have been some cases where it's done. But again, that's probably a different business model than your traditional cost-plus, truth in negotiation type regulations may not make sense. And I think that's what a lot of the new entrants are also struggling with, to figure out how to get into those markets. So look, we all get to draft RFPs. We review them, we push back and sometimes you just have to no-bid. And one of these days, the entire industry is not going to bid on a fixed-price development contract and the DoD will change. But when you get one or two bids, they're going to make the award, and we're doing our best to balance the risk with the financial upside that we have, so probably a little more disciplined. But this has been an ongoing debate probably for decades, and we continue to engage with the customer, and I think they appreciate and understand where the industry is coming from. So we'll see what happens in the months and years ahead.

So look, before I sign off, I really would like to take a moment and thank our 50,000 employees for their focus on performance and execution throughout the year. Clearly, this is impossible without them, and they're critical to our success in meeting not only our shareholders, but our customer commitments. So really appreciate everybody joining the call. Ken, again, welcome to the team. And we'll be talking to you all soon. Thanks.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.