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L-3 Communications Holdings Inc. Q1 2010 Earnings Conference Call

L-3 Communications Holdings Inc. Q1 2010 Earnings Conference Call

L-3 Communications Holdings, Inc. (LLL)

Q1 2010 Earnings Call

April 22, 2010 11:00 AM ET


Eric Boyriven - IR

Mike Strianese - Chairman, President and CEO

Ralph D'Ambrosio - VP and CFO


Cai von Rumohr – Cowen and Company

Robert Spingarn – Credit Suisse

George Shapiro – Access 342

Joseph Campbell – Barclays Capital

Rob Epstein – Merrill Lynch Bank of America

Noah Poponak – Goldman Sachs

Joseph Nadol – JPMorgan

Troy Lahr – Stifel Nicolaus

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Good day ladies and gentlemen and welcome to the L-3 Communications first quarter 2010 earnings conference call. My name is Michelle and I will be your operator

for today. At this time all participants are in listen only mode. We will be conducting a question-and-answer session towards the end of today's conference. (Operator


As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's conference, Mr. Eric Boyriven of FD. Please proceed.

Eric Boyriven

Good morning and thanks for joining us for L-3 Communications first quarter earnings conference call. We have Michael Strianese, Chairman, President and Chief Executive Officer and Ralph D'Ambrosio, 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.

Please also note that this call is being simultaneously broadcast over the internet. I will now turn the call over to Mike Strianese. Mike, please go ahead.

Mike Strianese

Thanks, Eric and good morning everyone, thanks for joining us. I hope everyone has had a chance to read the earnings release. We had a good start to 2010 with a solid first quarter. Our earnings were up -- earnings per share were up 13% to $1.87 per share and that's even after a $0.04 per share charge related to that Medicare Part D prescription drug coverage compared to 2009’s first quarter.

Overall though sales were essentially flat at $3.6 billion, our ISR business continued to do very well with significant growth offsetting declines in the other segments, ISR grew at approximately 11%. The flatness in sales we attributed to orders and sales that have moved from the first quarter out into probably the second quarter; most notably are order for the additional JCA, the Joint Cargo Aircraft expected in March has moved out of the quarter, probably will come in the second quarter.

So at the end of the quarter March 31, our backlog was at $10.8 billion; first quarter orders were $3.6 billion, which gave us a book to bill of one but that's even without this $233 million JCA order. So we are happy with the book to bill at one.

We had some significant wins in the quarter, several which were competitive including a NAVAIR systems engineering support contract and a US Air Force Cyber Security Operations contract as well as linguist services for classified customer.

We also had significant follow-on orders on several important legacy programs including our UAV Communications Systems, EO/IR Charts, our rover product, Phoenix Communications Systems, our compass call aircraft, the Canadian F18 program, the Law Enforcement Professionals Program, our Contract Field Services, maintenance work at Fort Rutger, the small ISR Aircraft such as Project Liberty, River Joint work US Navy P3s, (ABCAPS) and to the C-12 CLS just to name a few.

In terms of recompetitions, the only major outstanding recompete for us continues to be the special operations for support activity contract or job. Where that stands today is that SOCOM is currently taking corrective action in response to our protest. They said they expect to release a new RFP in April and they can award by next January.

As of now we still haven't received the RFP but in the meantime the period of performance on our contract, the incumbent contract has been extended to January 31, 2011 and our contract value has been increased by $400 million.

We expect to see a new contract in this competition being worth up to $5 billion over 10 years and this is obviously a very important program to us and we await this competition and look forward to continuing on as the incumbent force.

In terms of our significant programs I'll name a few in terms of the larger ones and give you some color. First of all on JCA, the Joint Cargo Aircraft, we expect orders for eight aircraft, they're in the fiscal ‘10 budget, which will bring our orders to date to 21 aircrafts; now that's the order that mentioned slipped out of the first quarter but we still expect it, it's in the budget so we expect to see the money, I think it's a paperwork issue. We also expect eight more in fiscal ’11. So the total US Air Force buy is expected to be 38 aircrafts with the final nine coming in fiscal ‘12.

This year we expect to deliver four JCAs bringing total deliveries inception to date to six. We've already delivered in the first quarter, two of those four, so we're in good shape to make those deliveries this year. In addition, the National Guard is still projecting a need for additional aircraft and there's also a potential for a plus up in fiscal ’12. So we remain optimistic on this program and obviously there are still several foreign military sales opportunities. I would not characterize them as being in the short term just because the sales cycle is longer internationally but as this aircraft begins to get deployed we expect to see more interest in it.

In terms of project liberty, we are modifying as you know a total of 37 MC12W aircraft for the US Air Force. So far we've delivered 23 aircraft on time on budget and our deliveries are surpassing our contractual schedule. We expect to finish delivering all 37 aircraft this November.

Not only was Liberty the fastest delivery of defense contractor, by a defense contractor for a weapons system to the US military since World War II but also the aircrafts performance to date has been truly exceptional; we're very proud of the performance here. The fleet has flown more than 2100 sorties over 7000 hours with a mission availability rate exceeding 96%.

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