Greetings, and welcome to the Harris Corporation Fourth Quarter Fiscal Year 2018 Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. And it is now my pleasure to introduce your host, Anurag Maheshwari, Vice President of Investor Relations. Thank you. You may begin.

Thank you, Michelle. Good morning, everyone, and welcome to our fourth quarter fiscal 2018 earnings call. On the call with me today is Bill Brown, Chairman and Chief Executive Officer; and Rahul Ghai, Senior Vice President and Chief Financial Officer. First, a few words on forward-looking statements. Discussions today will include forward-looking statements and non-GAAP financial measures. Forward-looking statements involve assumptions, risks, and uncertainties that could cause actual results to differ materially from those statements. For more information, please see the press release, the presentation and Harris SEC filings. A reconciliation of non-GAAP financial measures to comparable GAAP measures is included in the quarterly materials on the Investor Relations section of our website, which is www.harris.com, where a replay of this call also will be available. With that, Bill, I will turn it over to you.

Okay. Well, thank you, Anurag, and good morning, everyone. We ended fiscal 2018 on a high note with fourth quarter earnings per share up 19% on revenue growth of 8%, the highest top-line growth we've seen in seven years. Revenue was once again up in all segments and operating margin expanded 50 basis points to 19.6%. For the year, earnings per share was up 18% to $6.50 on 5% revenue growth and we generated record free cash flow of $915 million, 116% of net income. Orders were up 18% and increased by double-digits for the fifth consecutive quarter, ending the year up 23% with a book-to-bill of 1.2, and backlog up 26%. All driven by our multi-year investment and innovation, strong customer positions, high win rates, and an improving budget environment. Rahul will walk through the details of the quarter and full-year financial results. But I want to take a moment to just recap the highlights of the year on slide 4. Communication Systems had a terrific year with revenue up 9% from strength in DoD Tactical and Night Vision. DoD Tactical revenue was up 46% in the quarter and 35% for the year driven by more than $100 million of readiness demand from the Army and the Air Force to support deployment of security forces overseas, with upgraded software-defined-radios. Order momentum was even stronger up 81% for the year to support readiness and the ramp of modernization programs. Notable wins include the first LRIP order for the Army HMS Manpack. Additional orders from the Marine Corps for Manpack radios with MUOS capability, and a $765 million sole-source IDIQ for Navy and Marine Corps Falcon III and next-gen radios, double the previous contract and aligned with the budget request for Marine Corps modernization efforts over the next few years. We…

Thank you, Bill, and good morning, everyone. Starting with total company results on slide 5. As a reminder, discussions today are on a non-GAAP basis and exclude one-time adjustments. Revenue was up 8% in the fourth quarter and operating income increased 11% on higher volume and operational efficiencies, resulting in margin expansion of 50 basis points to 19.6%. EPS grew by 19%, or $0.29, and excluding the benefit of tax reform was up 12%, or $0.18. Free cash flow was a record $464 million for the quarter. Turning to the full-year EPS bridge on slide 6. EPS grew by 18%, or $0.97. The expected $0.21 headwind from the ADS-B program transition was offset by disciplined capital deployment. Half of the EPS growth was from higher volume in Tactical Communications, Avionics, and Classified Space, solid program execution, productivity and higher pension income offset by lower environmental volume and program mix. The other half came from a lower tax rate including the benefit from tax reform. On slide 7, Communication Systems' revenue in the quarter was $523 million, up 16% versus the prior year with growth across all the three businesses in the segment. In addition to the strong growth of 21% in Tactical, Night Vision revenue was again up double-digits as the business continued to improve execution. Operating income for the segment was up 11% to $162 million from higher volume and operational efficiencies. Operating margin remained strong at 31% and orders were up 6%, growing for the eighth consecutive quarter. For the full-year, revenue and operating income each increased 9% with operating margin of 30%. Segment orders increased 28%, book-to-bill was 1.3x, and greater than 1x in each of the three businesses in the segment. We continue to include historical information for Tactical orders, revenue and backlog as supplemental information…

Okay. Well, thank you, Rahul. I want to close with a few comments on our multi-year strategy, including the growth outlook for the medium-term. As we recap on slide 12, in recent years we reshaped our portfolio to focus on high-growth, high-margin businesses, successfully integrated Exelis, and made disciplined investments in the business that led to several new product launches and strategic program wins. We also de-risked the balance sheet to give us more financial flexibility. Fiscal 2018 was an inflection point for Harris as we returned to growth and grew backlog significantly. This combined with a more favorable budget environment, especially in strategic growth areas, positions us well to accelerate growth in fiscal 2019 in the medium-term. At this time last year, I laid out the medium-term growth drivers by segment that is shown on slide 14, and over the past year we've seen the outlook improve in each of them. Communication and Electronic Systems are now expected to grow high-single digits and Space and Intel at mid-single digits, the higher end of the medium-term range for all three segments that we indicated this time last year. In Tactical, we're beginning to see the DoD modernization ramp across all the services, and International has stabilized and is returning to growth as we leverage our incumbency and large installed base and benefit from higher defense spending by coalition partners. In Electronic Systems, Avionics and Electronic Warfare are entering a multi-year growth cycle, driven by our position in long-term platforms. And in Space in Intel, Classified growth will accelerate as we maintain high win rates and expand into adjacencies in a growing budgeted environment and the headwinds in the environmental business now become tailwinds. We've been on a multi-year journey to improve margins. And while we made progress in driving productivity…

Thank you. We will now be conducting a question-and-answer session. Our first question comes from the line of Robert Spingarn with Credit Suisse. Please proceed with your question. Robert M. Spingarn - Credit Suisse Securities (USA) LLC: Good morning.

Good morning, Rob. Robert M. Spingarn - Credit Suisse Securities (USA) LLC: I just had a couple of program-related questions. First, on the ES segment, the midpoint of your margin guidance would be flattish with 2018. And I think you call out some lower-margin programs perhaps being offset by operational improvement. What are some of these lower-margin programs, or the mix shift that you see here?

Well, I think, first I'd say on 2018, we ended the year at 19.2% and we were guiding to 19.3% to 19.7%. So, at the center point we're up about 30 basis points before the Rev Rec goes in place, it's 50 basis points including revenue recognition. But as we've seen growth in our segments, especially in our Space, in environmental, in our Electronic Systems' business, some new wins like a Classified business is coming in at a lower than average segment margins and that's growing pretty healthily, and that will bring down the SIS segment a little bit, again offset by operational excellence. And of course, over in the Communication Systems segment and Tactical, as we see the ramp of modernization programs, as we've said before on this call, we'll see those programs coming at slightly lower than segment or normal Tactical margins, but improving over time as we continue to take costs out of the products, as we've done many times in the past. Robert M. Spingarn - Credit Suisse Securities (USA) LLC: Okay. And on F-35, you talked a little bit about higher content as one of the drivers there. Lockheed's been doing some things with the suppliers in order to pursue lower costs and better value, at least on things that are not life of program. Are there further opportunities or risks for your packages on the aircraft?

You know, Rob, we see more opportunities than risk, so there are some risks that remain today. We're about $2.2 million per shipset. Either we provide the mat (26:09) or we provide the common components. We have the bomb-release system, the carriage-release system. We recently won, over the last year, the PCD EU as well as the Aircraft Memory System. You know one of the things that's coming up is the ICP, the Integrated Core Processor, or the Mission Processor and that'll be awarded probably sometime later on this year. We're one of three companies are in the hunt on that. And over time, I think, you've heard Lockheed talk about what they might do on the ICNI as well as on the EW platform. And given our progress so far on EW and the work we've done through software-defined EW, a big investment over the last several years, a small size, weight and power systems, really improvements in cognitive in the algorithms we have. You know we think we'll be a player there if they decide to move down the path and re-compete that. So, as I look at F-35, is both going to grow from a volume perspective, but I think net-net I see opportunities to increase our content per shipset over time. Robert M. Spingarn - Credit Suisse Securities (USA) LLC: Okay. Thanks very much, Bill.

You bet.

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

Thanks for taking my question. Good morning.

Good morning, Dave.

Bill, you talked, I think, again about $4 billion in outstanding bids at ES. Could you just talk about, obviously, the big ones, the chunky ones and the timing around those when you would expect to hear on those?

Yeah, there's some – certainly a big piece of it is going to be some opportunities, we have with the FAA, which is a bridge contract on the FTI program. We should expect that over the next couple of months that's going to be an important one, but there's a lot of other activities including some of what I just mentioned on the F-35. There's opportunities on F-16. You know there's opportunities in the near-term pipeline on robotic systems, especially as we extend that platform beyond the UK into other international markets as well as U.S. DoD. So, it really goes across the gamut of what's in the Electronic Systems business. I don't know, if you have any other color, Rahul?

The only other thing I would add to that Bill is, we've got – you know we've been talking about the UAE program, David, and a lots of bids that are outstanding to expand that program, further not only with the land forces, but even beyond that within the country.

That was a $189 million program in the UAE and we're coming up very close to a mission readiness exercise in the next month or two which has gone, so far exceptionally well and as that goes well in the August-September timeframe, as well as point out, there's a big opportunity ahead of us in the UAE.

So, I mean, in terms of percentage, are you going to hear – on the $4 billion, would you hear 75% of that this year, or is – kind of ballpark how much are you, what percentage you expect to hear on this year?

I think the bulk of it, we should hear on within the next year, yes.

Okay. All right. Bill, you outlined the potential for margin upside between volume and productivity and various other things. Currently, the businesses as a whole are running around 22%. Would you care to frame kind of the margin upside potential you're thinking about here?

Yeah, when I look at it – let me take it from the Harris-wide perspective, you're talking about the seg Op margin or segment EBIT margin.

Yeah.

This year, we're going to be – again, center point of our guidance is 19.5%. So that's up on an average about 30 basis points over reported 2018, a little bit more than that when you look at the revenue recognition restatement in 2018. But if I go out in the 2019 – into fiscal 2020, I think we should be approaching, if not hitting 20%. So, we believe with the maturity of our operational excellence program, some of the actions, the steps we're taking today and the way we're going to take cost out of new product launches like in Tactical over the next 12 to 18 months, we're pretty confident of margin expansion in 2020 and beyond.

Great. I'll get back in the queue. Thanks.

You bet, David.

Thank you. Our next question comes from the line of Noah Poponak with Goldman Sachs. Please proceed with your question. Gavin Parsons - Goldman Sachs & Co. LLC: Hey, good morning. It's Gavin on for Noah.

Hey, Gavin. Gavin Parsons - Goldman Sachs & Co. LLC: So, having taken up the revenue guidance in all three of the segments, just kind of how should we think about how much visibility you have into that over the next few years? How much of that is already in backlog given you've had bookings well above revenue past few years or how much of that is contingent upon further budget growth?

When we look at going into next year, again, we're guiding to 6% to 8% revenue growth. We ended the year with very strong backlog growth. And as I look into next year, Harris as a whole – and I'll really keep my comments specific to fiscal 2019, we have about two-thirds of our revenue that's covered either in backlog or in high probability follow-on opportunities, which is up from where we were last year. And it's up pretty substantially in the CS business, as well as the Space and Intel segment. So, we think just based on where the backlog is, the pipeline we have, the bids that are outstanding, I see more visibility on revenue in fiscal 2019 than we would say going into 2018 a year ago. Gavin Parsons - Goldman Sachs & Co. LLC: Okay. And then on the long-term outlook for Manpack, I'm just curious if you could update us on how much you think of the IDIQ might be exercised. Do you think you can get more than 50% share, and if so, what do you think your share could ultimately be on that program?

Look, we've been running historically over the last five to 10 years at a much higher share than 50%. So, we would aspire to have our fair share of that market, which would be more than 50%. Look, first of all, the funding lines for Tactical as a whole are actually quite strong. They're up in the fiscal 2019 NDAA from 2018, and 2018 was up about 17%, 20% from fiscal 2016, and they're growing to about $1 billion or $1.2 billion a year over the next several years. So, the funding that's supporting the overall Tactical business is very, very strong including the HMS Manpack. We're doing well. We had a delivery order, an LRIP delivery order for 1,129 units out of (32:31) delivery in fiscal 2019. We expect that we'll see another LRIP order probably in the back half of our fiscal 2019 of some size, leading into operational testing in fiscal 2020. So, it is all playing out, I think, very well. It's moving forward as we'd expected. The budget is there. The Army is moving the program. So, I think, it's all very good news on not just the Army Manpack, but really all the Tactical Radio programs as a whole. Gavin Parsons - Goldman Sachs & Co. LLC: Great. Thank you.

You bet.

Thank you. Our next question comes from the line of Carter Copeland with Melius Research. Please proceed with your question.

Hey, good morning, guys, and nice results again.

Hey, good morning, Carter. Thank you.

Bill, I wondered if you might expand a little bit on the – just the thought process around the R&D pipeline. Obviously, your IRAD investments have had a lot of payoff, a lot of attractive payoff in the last couple of years, and I just wonder if you think about the incremental dollars and opportunities that you have in that pipeline, is your thought process around these things changing? I mean, you've obviously had a lot of success, just help us with the mindset around what else may be out there given the success you've seen already.

Well, it's a very good question, Carter, thank you. In fact, having a new CTO on the team over the last year is really helping us dig in a lot more into where we're spending our money and where we shouldn't be spending our money going forward. I mean, you're right, over the last couple of years we've raised our investment in IRAD. This year we closed at just over 5% of revenue, which is above where everyone else in the segment, the peers happen to be. It's going to go up again a little bit in fiscal 2020. When tax reform was enacted, we took our fiscal 2018 number up about $20 million, because we saw new opportunities in things like robotics that we invested in. So, we continue to look at how we spend money, we look at the return on different programs, we look at how we leverage capabilities across the company. Lots of places around Harris invest in various features of software or waveforms, and we're thinking about how do we leverage the investments we have across the company in a more productive way. So that's one of the things our CTO is helping us think about. As I go out a year or two or three from here, I don't think we'll be substantially higher than as a percentage of revenue. So, I see it neither as a margin drag nor tailwind on our margins. But if we continue to find good opportunities to invest, invest ahead of the curve, invest ahead of where the customer is going to go. And I think as you look at the results we're pointing out today and very good growth, it really does come from some of the IRAD investments we've made in the last three or four years.

Is there a way to increase the velocity of opportunities that you're identifying down at the segment level so you can deploy more dollars in that direction?

Well, that's certainly something that we're looking at very, very carefully and something that we're focused on as an organization. Certainly, as you deploy tools like DevOps, it's going to help you develop products which have significant software content faster. The concept is basically being able to integrate your – continuously integrate and test software builds so that you always have a software feature that you can field in market, and that is something that we have not developed – a lot of the defense companies have not, and that is going to compress the cycle time for software pretty substantially. We've seen that in multiple cases where we deployed DevOps. As we go out the next two years to three years, you know by fiscal 2021, we think 85% or 90% of our new starts will be on DevOps, I think that's going to be a key thing to compressing our overall cycle time in developing and launching new products, Carter.

Awesome. Thanks for the color, Bill.

Carter, I just wanted to add to what Bill said. So just to give you an example or a couple of different examples, a lot of – like if you take Communication Systems as a segment, we've been investing a lot in hardware over the last couple of years with SOCOM and the Army all the products coming on. So even that is kind of coming to an end at this point, with SOCOM Manpack is a one big program that is going to work on next year. So, a lot of the attention now is going to shift to waveforms and the software that goes onto those radios, and how do we monetize that revenue stream as we've done previously with the MUOS waveform. So, there's a shift of where we're spending the dollars are happening as well within our R&D space.

Thank you. Our next question comes from the line of Gautam Khanna with Cowen and Company. Please proceed with your question.

Thanks. Good morning, guys.

Hey, Good morning, Gautam.

Just a couple of questions. I was hoping you could kind of update us on the pipeline at Tactical RS, DoD International and if you can call out any larger campaigns that you're pursuing?

Sure. Yeah. First, on the international side, pipeline is actually still very good. It's about $2.3 billion, it's still about the same where we were last quarter. You know, the makeup really looks about the same about 50% is Middle East and Africa. You know, Iraq remains a big opportunity. It was pretty substantial in 2018. It will be a substantial amount in 2019 and beyond. So, there's really good opportunities there. About 30% is in Europe and we're starting to see a little bit of a shift from Eastern Europe to Western Europe from countries like Poland and Romania to NATO countries, so in Western Europe still a little bit of a shift. And then the balance is going to be in Asia, in Central and Latin America, a little bit in Canada. In Asia, we see Australia some additional opportunities on the rise and other smaller countries in Asia. And we see in Central America, we see Mexico being a bigger opportunity in 2019 than we had in 2018. So, overall the trends I think are very positive in the International. We ended up having a good year in fiscal 2018 in International, a little bit better than we thought, down less than 1% and a little bit better in Europe than we had anticipated at the beginning of the year. So, played out a little bit better than we had thought. And I think we'll be back to low-mid-single digit growth in fiscal 2019. Do you want to cover the DoD?

Yeah, the DoD, Gautam, the DoD Tactical, it's right, it has actually grown since we last spoke. The DoD Tactical pipeline is now $1.7 billion, which includes about $400 million, $450 million of the modernization pipeline and about $1.2 billion, $1.25 billion on the base side so that's – so it's – I think last time we spoke, it was around a $1.5 billion if I remember correctly.

Right.

Okay, that's very helpful. And just curious if you've seen any sort of potential blowback from some of the more challenged relationships the U.S. has with NATO allies, is there any – can you talk about your incumbency there and how much of a – how difficult it is for some of the NATO allies to switch away from the Harris radios that they've already purchased in? I'm just curious like is there any potential blowback from the friction we're seeing where they may prefer European suppliers or what have you instead?

Gautam, it's interesting. I see – we've seen no blowback in fact, I would say it's going in the other direction we're seeing more opportunities than we've seen in the past with NATO countries. I think it's turning out to be a little bit more of a positive than a negative in lots of ways. We are seeing coalition partners, NATO partners stepping up with more defense spending. And we do see opportunities that are increasing for Harris on the Tactical Radio side not decreasing.

Okay. And just one last one from me, you guys have been repurchasing quite a bit of stock, raising the dividend, repaying debt. How does this M&A fit into your medium-term plans, if at all?

Well, look, I mean I think you pointed out. I mean I think we've done a lot of good things on the balance sheet, we'll generate a $1 billion dollars of cash this year. We've been paying a dividend that's just under $300 million, we'll evaluate that at our August board meeting and decide if there's an increase and to what extent. We have a placeholder out there for $400 million worth of buyback, we have $300 million of debt that's due at the backend of the year. And over the course of 2019, we're going to evaluate that $400 million share buyback placeholder as to whether it's the best places to buy back our stock or to look at M&A. Certainly, as we get beyond 2019 when you really step up more on free cash that you see any – in fact any drag on debt repayments go to zero. We're going to generate more free cash and more optionality on that cash for M&A. So, look, we're going to – we're building our strategic pipeline on M&A. We're looking at a variety of different opportunities all within core segments and that will bolster our ability to compete. But nothing more to report on today, certainly, with the way we execute on Exelis and how we transformed the business at Harris, I'm very confident that any deal we do would be accretive and would be effective when we execute it and would be strategic to the company.

Thank you, guys.

You bet, Gautam.

Thank you. Our next question comes from the line of Jon Raviv with Citigroup. Please proceed with your question.

Hey, good morning, everyone.

Hey, Jon. How are you doing?

Rahul, can you step us through some of the cash building blocks heading into next year? You went through a couple of them in your prepared remarks, but can you just sort of narrow in on things like working capital, cash flow, headwind versus tailwind? And then also, I know you mentioned CapEx, so a little bit more on cash building blocks towards the $1 billion?

Yeah, absolutely. Jon, so in 2019, our net income is up about $140 million. And we get the cash tax benefit of about $90 million from the pension funding that we did or prefunding that we did back in 2018 and that's getting partially offset by increase in working capital of about $30 million to $40 million. As I mentioned in the prepared remarks, our days come down by one day, but we still because the revenue growth – we still see some drag on working capital. So, there is about $35 million of CapEx growth and it's primarily to fund new program starts like the FTI India win that Bill mentioned. Our ERP investment is a multi-year investment, it's a little bit of step up in that as well. Classified wins that we got in Space this year that required a little bit of CapEx. So, it's about $35 million growth in CapEx. And then there's some cash tax refunds that we got in 2019 from old payments in fiscal 2018 that we discussed earlier and that's a headwind as well and that won't repeat. So, you put all that together we feel good about the $1 dollars, but as we look further out Jon and look into fiscal 2020, you know the big one-time item that we have in fiscal 2019 is this $90 million of cash tax benefit from pension prefunding. And as we look at fiscal 2020, we think there's several offsets to that, the biggest being we have not yet recovered the Exelis restructuring outflows that we had from the government. It's a proposal (44:03) restructuring proposal, it's a multi-year approval process and we start recovering all the money that we have previously spent and we recovered that through our cost-plus program. So, there's a little bit of outflow in Exelis restructuring that still happening in the $10 million to $15 million range that kind of goes away. We do think that CapEx is a tailwind in fiscal 2020, because a lot of the program CapEx will be kind of behind us also the ERP implementation starts winding down. And then we're working on several other cash tax saving projects that we've kicked off this year and that will start delivering results in fiscal 2020. So, put all that together there's enough to offset the $90 million of one-time benefit that we'll get in fiscal 2019 and then earnings drive cash flow growth in 2020 and beyond.

Got it. That's very, very helpful. And then just on the investment decisions. And then Bill, thank you for all the color you offered earlier in the call. Can you just offer some perspective on what role the customer is making or playing in driving those decision? Do you sense that customers are desiring to see more investments upfront that you can then deliver a more mature product at the other end? Just kind of curious what the customer conversations like when it comes to approaching CapEx and also R&D investments.

Well, it's a very good question, man. It's been a multi-year push by our DoD customers for industry to step up in R&D. And I think we heard that message that demand signal. We started to step up on this four years or five years ago. And I think that's paying some dividends today. We don't make investments in R&D internally without really understanding the business case, and understanding where the customer is going. The messages that we're hearing from them and we shape our internal investment pipeline accordingly. So, it's all very well connected to where we believe the customers are going. Input from them and I think, the fact that we've been willing to step up internally has paid dividends for us. And you see that very clearly upon what's happening on Electronic Warfare, with an area that was underinvested in by Exelis we stepped up dramatically in Electronic Warfare. And now, we've not only positioned ourselves to retain our strong platform position on F-16, F-18, B-52 but also now we're starting to get into the mix for re-competes on fifth-gen aircraft and proprietary platforms that are being envisioned down the road. So, I think one good example of where we're hearing the message, shaping our investments and I think we're investing smartly on behalf of shareowners. So, I think it's all pretty tightly connected. And again, our new CTO is going to help us shape it even further in the next couple of years.

Thank you.

You bet.

Thank you. Our next question comes from the line of Sheila Kahyaoglu with Jefferies. Please proceed with your question.

Good morning. Thank you.

Good morning, Sheila.

Just on the medium-term target, there's solid growth outlook across the portfolio. I guess, how do you think about biggest risks, whether it's budget related or maybe tied to Op (47:09) pursuits in the pipeline?

A little bit difficult to hear, but I think you're referring to the medium-term outlooks and – first of all budget is going to be an important driver to that. What I've seen very positively in the NDAA, which passed the House, it's supposed to be at the Senate this week, it could be signed by the President, before we even get out of fiscal 2018, which would be pretty unique. I think very encouraging to us as well as to all the people who issue procurement decisions in DoD, if the NDAA can get signed that quickly, and maybe even an Appropriations Bill by the end of September, that's even a possibility. So, I think these are all very positive indicators. So, when you look at Harris, last time I talked about medium-term as mid-single digit growth plus, I think now it's mid-to-high single digits, you see that coming through in 2019. It's really across the segments. I think a very important driver of that is going to be in the Communication Systems segment where we do see a very strong ramp in DoD in the Tactical Radio business, and we've been focusing a lot on commentary around the Army. We see the budgets growing pretty dramatically on the Army over the next four or five years. But you also see SOCOM growing, you see the Air Force being strong, and you see the Marine Corps recap coming in quite substantially. So, when I look at our next five years, there's about $5.5 billion worth of budget available to Harris on the Tactical Radio side that supports our business cumulative over the next five years. So, it's very, very encouraging to me. We also see I think great progress on some of the platforms in both Avionics and Electronic Warfare. I think we're just really starting this big growth. The IDIQ we won on the F-16 EW platform internationally was for $400 million. So, we booked an award for Turkey in Q4, that was $60 million (48:59), we had Morocco before that. We have about a $1.5 billion opportunity that's ahead of us on international F-16s, F-18's going to grow, the F-35's going to grow, and again, I think we're on the frontend of a nice growth trajectory on the Space Classified business. So, Sheila, really as I look at the business and I see even things that have been headwinds turn to tailwinds like environmental, really across the franchise I see really good growth prospects. Some of it's driven by – and a lot of it driven by where the budgets are growing. But I think a lot of it's driven by how well we've positioned our portfolio and the differentiators we have in our products and our solutions.

Got it. Thank you, Bill. And then just one more. You mentioned software as a potential opportunity for yourselves and the defense primes. I guess how do we think about software evolving as a contributor to the top-line over time and where are those opportunities?

Well, it's going to be – today, it's more than 40% of the work content we do in engineering. So, it really is today part of the top line. Five years ago, it would've been half that or 25% of our engineering content. As we go forward, it's going to be more than 40%, it can grow to 50%, 55%, 60%. I think where it's going to contribute to the top-line, Sheila, is how good we are at ingesting and maturing DevOps within this company so that we become strategically better than other players in the space, so we can develop software faster with lower defect rates, with better capability. And I think the more we can do that, that is where I think it's going to contribute mostly to the top-line as I see that. To me over the next four or five years, I think it's going to be fundamental to how we and probably other players in the space develop products. A lot of it's going to turn on software and I think the best people in this space are the ones that are going to win.

Thank you.

You bet.

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

Thanks very much. Good morning.

Good morning, Seth.

You mentioned that Space driving the higher CapEx, and I wonder if you could talk about, if you can at all, what's underlying that. And then just the – that's an area of the budget where we've seen a lot of additional resources, and maybe how you're seeing that play out in terms of what contracts are coming up so far, what areas are most exciting for you guys. And then maybe to bring it back around to the CapEx, when we look out to fiscal 2020 and beyond where you see CapEx overall for the company kind of shaking out.

Well, yeah, I mean, look, on the Space side, it's very exciting, a lot of stuff that's happening. We talked the last quarter about a $0.5 billion exquisite win that we have to a prime on a mission are that we've had some experience on. It's going to deliver over the next five, six years. Our piece of that is probably more front-end loaded, there's some capital associated with that program. We've talked over the last year about our positioning on smallsats. We have multiple contract awards on that. That's going exceptionally well. There is some capital associated with that. And as that matures over the next 12 months or so, there's lots of other mission areas and components and capabilities that will be augmenting that smallsat mission that we're positioning ourselves on. It's all, I think, very exciting. Space superiority is a huge growth driver for the company. I talked about our growth in that area being more than 15% this past year. We see that continuing to grow, we think we're well-positioned for opportunities for – on ground control systems as well as space situational awareness. So lots of different ways we're competing on, on space superiority. And the last one is on the optics side. With Exelis, we acquired a great capability up in our Rochester facility for optics and there is a recap of a lot of different capabilities in Space, some are RF related and some are optics related. And those recapitalizations sometimes requires some additional capital investment. So that all goes together in some of the things we're spending our growth capital on in 2019. As Rahul mentioned, we're up to about $170 million in 2019. We'll see that mitigate itself a little bit going into fiscal 2020, probably down around $15 million or $20 million as we get through a lot of this sort of one-time growth capital we see in 2019.

Great. Thanks. And then just maybe as a quick follow-up, Rahul, as we go through the year, anything we should be aware of in terms of the cadence of the sales or the earnings this year?

Our sales are typically a little bit backend loaded as you – and that's kind of – it's a 48%/52% split traditionally for us. DoD, Tactical, as I mentioned earlier, is a little bit backend loaded, the SOCOM and the Army handhelds are – they basically don't start till tail-end of Q2. So, December-ish is when they start and then a ramp in the second half of the year. And then Manpack kind of starts Q2 our time. So, a little bit more backend loaded than typical. But so other than that, ES and Space should be fairly typical.

We should see the orders that Rahul is referencing on SOCOM handheld and Army handheld more in the front end of the year and with the execution delivery, the revenue, towards the backend in Q2 into the back half.

Great. Thanks very much, guys.

You bet, Seth.

Thank you. Our next question comes from the line of Josh Sullivan with Seaport Global. Please proceed with your question.

Hey, good morning.

Hey, good morning, Josh.

Bill, you just mentioned the hiring of a new design team, the new CTO, consolidating ERPs, changing some of the way you approach development. What kind of benchmarking have you done for that? And then what's the timeline on some of those efforts and maybe where we would see the impact first?

Well, I think broadly over the last five or six years, as I started to reshape this OpEx program we have at Harris, I've been talking about what I consider to be a good OpEx program is a program that delivers 2% to 3% net of cost, so 2% to 3% savings, net of what's given back to the government, net of inflation dropping to the bottom line. And we've been running towards the high end of that 2.5% to 3% range really over the last five or six years, and I expect that to continue and maybe even go above that over the next several years. What's driving it is changing over time. Of course supply chain is important and there's some engineering productivities, the labor productivity in our factories, but even through Exelis integration, we continue to see on top of the savings from the Exelis integration opportunities to just get better every day at what we do, and that's going to be continuation. So that was from my experience at UTC and what I see other companies doing. So, I think that is generally pretty good. In terms of benchmarking on ERP systems, it's hard to say, but I can tell you 20 systems today is too many, and three is about the right number. We've got a government business, we've got a commercial business, and one is – it's pretty fairly unique, which is why we're at three. But really what we're doing is, we're bringing people into the company in senior roles either an IT or technology or other places that have experience outside of Harris to really look at what we do and bring best practices from their experiences here, and that is what's giving us some shining the light on some new opportunities that really are in front of us. And as I said, as I look into the future, I see as much opportunity ahead of us as I've seen we captured in the recent past. So, I think the ground is pretty fertile on continuing to get better, drive efficiency and productivity really across our business in the next couple of years.

Okay. Great. And then just with the new medium target – medium-term targets, can you update us on the Rochester facility utilization, and maybe where you see that utilization going over the next two to three years? I know you just mentioned in the previous question some opportunities in optics, does that change the paradigm at all?

It doesn't, no, I mean in fact in our Rochester Tact, we've got multiple facilities up in Rochester and on the tactical side, we've been running in the low 60% – 60% utilization. You know there're plenty of opportunity to grow in that Rochester facility without any additional capital, it's about six years old. But even there as we go to multiple shifts there's opportunities to do something different with some of the components we make there. So, I see no capacity limitations on the rise in, in our Rochester Tactical facility. And for that matter really in any other facilities we do a lot of optics work at some other things up in Rochester. And I don't see any limitation there. I think the spike we're seeing this year on capital is really on specific programs and program capital not on basically not on infrastructure capital.

Okay. Thank you.

You bet.

Thank you. Our final question comes from the line of Robert Stallard with Vertical Research Partners. Please proceed with your question.

Thanks so much. Good afternoon. Good morning, sorry.

Good morning, Rob.

I'm going to Slide 13 and the medium-term guidance Bill, it may sound a bit pedantic, but your commentary said you expect the revenue growth rate to accelerate up to high-single digit. Well, you kind of going to get there in 2019, if everything goes to plan. So, do you see the potential to go faster than what you're guiding to in 2019? And then in relation to that how sustainable do you think this sort of growth rate is, is it sort of a one or two years and it slows, or do you see this as being a sort of three year, four year, five year affair?

Well, first, on that slide, the Electronic Systems and Space and Intel, there is an acceleration from what we see in fiscal 2019 or in fiscal 2018. So there's some acceleration there. We see CS and Communications to continue to be at a high-single digit range. Frankly, I think as I look back on 2018 and where we started our guidance on 2018 – keep in mind we started, I believe it was 15% or mid-teens on DoD Tactical. Then we went up to 20% or low-20s% and we ended at 35%. So, I'm not so sure, I'm really sort of calling it accurately. I think we're being more conservative than aggressive in our assumptions and hopefully with the same place today in 2019, and hopefully beyond there as well. As we see opportunities placed – put on order a lot faster than we saw over the last couple of years, and this is a pretty remarkable phenomenon. Orders are being placed, dollars are being obligated at a much faster rate not just in DoD but also in the intelligence community, certainly from where we were a year or two ago. And that's been a very positive surprise. And like I said the NDAA getting approved out of the House and maybe even getting approved by the President before we even hit September is pretty unique. And I think what's happening when that – when things like that happen, it gives encouragement to people who issue procurement decisions to obligate dollars faster. Their confidence goes up. So, I continue to see opportunities in 2019 and beyond. So, what's medium-term, medium term to us is three to four years. As I look at it and we look at our positioning, the amount of unused dollars that are not yet committed, where the budgets are growing and what we see in the budget that we can actually see over the next five years, there's a lot of opportunity to continue really robust growth across Harris, going out in that three-year, four-year, five-year period, Rob.

That's great. Thanks for it, Bill.

Okay. You bet.

Thank you, everyone, for joining the call this morning, and please do not hesitate to get in touch with me for any additional questions. Have a great day.

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