Harris Corporation ( HRS) F2Q11 (Qtr Ended 12/31/10) Earnings Call January 26, 2011 4:30 pm ET Executives Pamela Padgett - VP of IR Howard Lance - Chairman, President and CEO Gary McArthur - SVP and CFO Analysts Peter Skibitski - Suntrust Robinson Humphrey Joe Nadol - JP Morgan Rich Valera - Needham & Company Gautam Khanna – Cowen And Company Chris Quilty - Raymond James Jim McIlree - Merriman Jason Kupferberg - UBS Mark Jordan - Noble Financial Josephine Millward - Benchmark Company Presentation Operator
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And with that, Howard, I'll turn it over to you.Howard Lance Thank you, Pam, and I want to welcome all of you to our second quarter fiscal 2011 earnings call. Harris’s second quarter results were excellent with contributions from all of operating segments. RF communications posted strong international growth. Government communication systems showed continued stability with better than industry average margins. And we saw good improvement in Broadcast Communication results. I am please to report that the previously announced Schlumberger’s Global Connectivity Services acquisition is still expected to close in our third fiscal quarter. GCS-add scale to our global managed satellite communications services business, expands our global footprint and further diversifies the company into faster-growing markets. When combined with the previous acquired CapRock Communications business, this merger will create exciting new channels to provide Harris Assured Communications solutions to both government and commercial customers alike.” Our consolidated revenue in the second quarter was $1.44 billion. That was 18% higher than the prior year. On an organic basis when we adjust for the impact of acquisitions, revenue increased by a strong 9%. Non-GAAP income, which exclude acquisition related costs was a $155 million in the second quarter or $1.20 per diluted share, that was a 12% compared with the prior-year quarter. Non-GAAP earnings before interest, taxes, depreciation and amortization and also excluding acquisition related costs was $296 million in the quarter and a 11% increase compared to the prior year. Consolidated orders in the second quarter were $1.41 billion, about even with the very strong $1.42 billion in the prior year quarter. Off course the prior year benefited significantly from tactical radio orders for MRAPs and M-ATVs for the U.S. Department of Defense. Second quarter revenue for the RF Communication segment was $545 million, 18% higher compared to the prior year. Operating income was $189 million and operating margin for the segment continued very strong at 35% due to favorable product mix and continuing operating efficiencies.
Second quarter orders for the RF segment were $391 million, segment backlog of $1.52 billion at the end of the quarter remains high and is expected to rise in the second half of our fiscal year thanks to several large multiyear contract wins that were awarded during and following the close of the quarter. These wins included the greater than $300 million international tactical radio contract. The province wide Alberta, Canada first responder program and the statewide Oregon Wireless interoperability network contract.Tactical communications revenue was $426 million in the quarter; increasing 20% compared to the prior year. Revenue growth was driven by strong international deliveries on multiyear modernization programs for Pakistan, Australia and Iraq. As well as an uptick in the U.S Department of Defense adoption of the company’s new line of Falcon III radios. These increases were partially offset by fewer radio deliveries for the military’s MRAP vehicles program. The remaining $80 million of the fiscal 2010 MRAP backlog was shipped during this quarter. And that compares to a $195 million in MRAP shipments in the second quarter of fiscal 2010. The positive note however is that even with this significant decline in MRAP deliveries we were able top more than take up the slack through higher shipments of our Falcon III radios such that the total US DoD revenue in the quarter actually increased year over year by 4% Orders for tactical communications were $300 million in the quarter. The corresponding book to bill of 0.70 and compared to orders in the prior year of $554 million. Tactical communications backlog was a healthy $1.06 billion at the end of the quarter. We expect year end Tactical Commutations backlog to be in the $900 million to $1 billion range. So our U.S. Tactical Radio business remains healthy and is benefiting from strong customer demand for our next generation Falcon III Radios. These are being procured to address a wide range of applications for both ongoing operations as well communications modernization. Read the rest of this transcript for free on seekingalpha.com