Ross Wilkers

COMPANIES

How L3Harris is balancing internal focus & external pursuits

Now 20 months old post-merger, L3Harris Technologies is at best in inning number six of the three-year journey to put its two big pieces together and make the most out of the transaction that created it.

Or to be exact with this baseball analogy, Chief Operating Officer and soon-to-be CEO Chris Kubasik put the journey as in the “mid innings” during an investor briefing Wednesday morning.

For example, Kubasik said new IT and enterprise resource planning tools take several years to integrate as the company continues to work on hitting its cost synergy targets.

L3Harris recorded $270 million in savings last year and has taken up this year’s number of expected synergies to a range of $320 million-to-$350 million.

Then of course there is the matter of going out and reaching for market share with its increased scale and hence resources in this environment Kubasik laid out as the one L3Harris and the industry at-large operates in.

“We see counteracting dynamics when it comes to global defense spending. On one hand, we have a rapidly-evolving environment with persistent threats mainly from Russia and China. These threats are increasingly sophisticated and span multiple domains, consistent with what the National Defense Strategy and new administration officials have highlighted,” Kubasik said.

“On the other hand, as we’re all aware: we have budgetary pressures that stem from the pandemic with deficits widening in the U.S. and around the world. The net of this is an expectation for flattish defense budgets and a customer focus on procuring more resilient, advanced and affordable solutions.”

When I spoke with Kubasik last year for our Top 100 series, he said L3Harris had won 13 out of the 23 proposals it submitted so far at the time that constituted revenue synergy opportunities.

Fast forward to Wednesday and Kubasik told analysts that win rate has become roughly two-thirds out of 48 proposals awarded to date, or bids where L3Harris believed neither side could have chased as a prime contractor on their own before the merger.

Those wins add up to around $400 million in awards to date, while the overall pipeline of revenue synergy opportunities L3Harris now sees add up to more than $7 billion.

One recent example of such a win came at the start of the year, when L3Harris secured its role alongside SpaceX in a Space Development Agency effort to build the first block of satellites for a future missile tracking constellation.

Both so-called “Tranche 0 Tracking Layer” awards are worth $342 million combined. The long-term potential value however is at least 10 times that to more than $2 billion, according to L3Harris’ accompanying investor slide presentation.

The SDA work is also one case in point of how L3Harris has sought to move its role from being a subsystem provider on many programs to that of being a prime. Or in their case, becoming the defense industry’s “non-traditional Sixth Prime.”

In some cases, that means becoming the lead system integrator for a platform. Such as the Navy’s future Medium Unmanned Surface Vessel, which was bid by legacy L3 before the merger and awarded in July 2020.

L3Harris’ broader internal conversations about their meaning of non-traditional partly “focus on mission systems and open architecture” in addition to affordability and agility, Kubasik said.

A second ongoing internal conversation and agenda item for L3Harris is the portfolio reshaping effort executives have said will end up seeing between 8 and 10 percent of its revenue being divested. The largest sale was of its security detection and automation businesses to Leidos last year for $1 billion.

Nearly 80 percent of the divestitures are “behind us or announced,” Kubasik said.

Further acquisitions during the integration process have not been high on L3Harris’ agenda during the integration unless an available property on the market was one that could not be passed up.

“We’ve watched the market for the last 20 months and we are highly confident we did not miss anything that we would have wanted to acquire,” Kubasik said.

About the Author

Ross Wilkers is a senior staff writer for Washington Technology. He can be reached at rwilkers@washingtontechnology.com. Follow him on Twitter: @rosswilkers. Also connect with him on LinkedIn.

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