L-3 Communications Holdings (LLL)

Q3 2011 Earnings Call

October 27, 2011 11:00 am ET


Michael T. Strianese - Chairman, Chief Executive Officer, President and Member of Executive Committee

Eric Boyriven - Investor Relations

Ralph G. D'Ambrosio - Chief Financial Officer and Senior Vice President


Howard A. Rubel - Jefferies & Company, Inc., Research Division

Robert Spingarn - Crédit Suisse AG, Research Division

Joseph Nadol - JP Morgan Chase & Co, Research Division

Peter J. Skibitski - SunTrust Robinson Humphrey, Inc., Research Division

George Shapiro - Citi

Myles A. Walton - Deutsche Bank AG, Research Division

Cai Von Rumohr - Cowen and Company, LLC, Research Division



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Good day, ladies and gentlemen, and welcome to Third Quarter 2011 L-3 Communications Holdings Inc. Earnings Conference Call. My name is Tahisha, and I'll be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Eric Boyriven. Please proceed.

Eric Boyriven

Good morning, and thanks for joining us for the L-3 Communications 2011 Third Quarter Earnings Conference Call. With me are Michael Strianese, Chairman, President and Chief Executive Officer; and Ralph D'Ambrosio, Senior Vice President and Chief Financial Officer. After their formal remarks, management will be available to take your questions.

Please note that during this call, management will reiterate forward-looking statements that were made in the press release issued this morning. Please refer to this press release, as well as the company's SEC filings for a more detailed description of the factors that may cause actual results to differ materially from those anticipated. Also, please note that this call is being simultaneously broadcast over the Internet.

I would now like to turn the call over to Michael Strianese. Mike, please go ahead.

Michael T. Strianese

Thanks, Eric. Good morning, everyone. Thanks for joining us this morning. I'll begin by saying we performed well in the third quarter. We have a lot of new awards and received a number of key follow-on contracts. As you've probably seen, that's reflected in our book-to-bill ratio, which was 1.18 for the quarter, higher than we were expecting. And our business continued to execute well on virtually all of our programs. As always, I want to thank our employees, our management team, our group presidents for their hard work and outstanding program execution in what continues to be a very challenging industry environment.

The results include our continued strong cash flow of about $465 million for the quarter, and we remain on track for the year on cash flow. The ISR business continues to show strong growth, and AM&M logistics services not only is performing well but is managing a steadily increasing backlog and is growing its market share. In AM&M overall, delays in the 2011 JCA orders, Joint Cargo Aircraft program, did impact the growth rate, but we don't see this as a major concern.

In the Electronic Systems segment, we also saw strong performance in our EO/IR, integrated sensor systems business, as well as in our electronics for our commercial ships.

Government Services continues to experience sales declines due to the accelerated timetable for drawdowns in Iraq and Afghanistan and a very competitive environment, which is more than offsetting growth in our cyber and IT services businesses. In keeping with our strategy, we're taking the appropriate actions to enhance our ability to anticipate and effectively address customer priorities and promote growth.

We continue to work on improving profitability through better integration of our divisions, which reduce our costs, and increase our productivity. We focus on collaboration within our business units to develop new products that meet customer requirements, which is becoming increasingly more important to stay in alignment with the customer requirements as there's little room for extras and there's little development funds available. So we are spending extra time really understanding as best we can the direction our customers want us to go and taking initiative where we find it appropriate to invest.

We've also continue our consolidation within the business units. As you know, we've combined the products group with Electronic Systems to form the Electronic Systems group as part of the Electronic Systems segment. But it really is starting to come together very nicely and generating some synergies that will help us through next year. These are positive moves for L-3 that support the business model we have and position us with our customers who are looking for these types of moves and synergies.

In terms of the Engility spin-off, we've been making good progress. Once the transaction is complete, as you know Engility will be a leader in SETA, training and operational support where L-3, however, will remain -- retain its cyber, intel and security businesses that will be renamed National Security Solutions or NSS. The Engility spin-off is on schedule. We've submitted our IRS ruling request regarding the tax-free structure of the spin and expect their ruling early 2012. All the other actions that are needed to complete the transactions are in process and we anticipate will be completed by midyear 2012.

With regards to the DoD budget, I'm not going to spend a lot of time. I'm sure you have questions, and it's no shortage of press on what's going on. But let me say that it's the core of our strategy to constantly strive to deliver greater value to customers, and efficiencies we've put in place across our operations do align with the DoD goals. We're confident that the savings that will result from the DoD's cost reduction initiatives will be used to invest in many of our core areas, C3ISR, intelligence support, our EO/IR sensors, logistics support, platform upgrades and counterterrorism initiatives.

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