Greetings, and welcome to the Harris Corporation's Third Quarter Fiscal Year 2019 Earnings Call. [Operator Instructions]. As a reminder, this conference is being recorded. 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 third quarter fiscal 2019 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. These 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. Earlier today, we reported strong third quarter results with non-GAAP earnings per share up 30% to $2.11 on revenue growth of 11%, the highest top line growth we've seen in 8 years. Overall, company margin expanded 80 basis points to 19.7%, and free cash flow improved by over $250 million compared to the third quarter of last year. These results extend our exceptional year-to-date performance with non-GAAP earnings per share over the first 3 quarters up 26% on 10% revenue growth and free cash flow up 75% to $788 million. The highlight again this quarter was our accelerating top line growth, a double-digit increase after 3 quarters of high single-digit increases with strong growth in all 3 segments and continued solid operating performance. Quarter momentum remained strong with a book to bill of 1.03 for the quarter and 1.1 for the first 3 quarters with total company-funded backlog up 15% over last year. These results demonstrated relentless focus on day-to-day execution by our team in the midst of integration planning, and I want to especially recognize and applaud their efforts. With the approval from both L3 and Harris shareholders and Harris signing a definitive agreement to divest our Night Vision business, we remain on track to close the merger in mid-calendar 2019. Let me start by first providing some details on the quarter performance before closing our prepared remarks with some additional color on the merger. So turning to Slide 4 in the webcast. Communications Systems revenue grew double digits for the fourth consecutive quarter, up 19%, driven by solid growth in DoD Tactical Communications and Public Safety. DoD Tactical delivered another strong quarter with revenue up 55% driven by more than $100 million of modernization revenue from the Army, Marine…

Thank you, Bill. Good morning, everyone. Discussions today are on a non-GAAP basis, excluding out the deal and integration costs and onetime adjustments in the prior year. Turning now to the total company results on Slide 5. Revenue was up 11% in the third quarter and earnings before interest and taxes increased 15% on higher volume and operational efficiencies, resulting in margin expansion of 80 basis points to 19.7%. EPS grew double digits for the sixth consecutive quarter to $2.11, and free cash flow increased 3x to $379 million as we reduced 12 days of working capital driven by structural improvements, resulting in a more linear cash flow through the year. We also repaid $300 million of debt in the quarter, completing the last tranche of planned debt repayment, enabling us to return future cash flow to shareholders through dividends and share repurchases. Year-to-date revenue was up 10% and earnings before interest and taxes increased 15% with margin expansion of 90 basis points to 19.6%. Free cash flow was robust in the first 3 quarters at $788 million, a 75% increase over the prior year and was approximately $1.25 billion over the last 12 months. Turning to the third quarter EPS bridge on Slide 6. Year-over-year, EPS grew by 13% or $0.49. Of this, $0.30 of growth came from higher volume and solid program execution, which was partially offset by product and program mix. A lower tax rate, including benefit from tax reform, contributed $0.19. Segment details on Slide 7. Communication Systems third quarter revenue was $568 million, up 19% versus the prior year. In addition to strong growth in Tactical, revenue was up double digits in Public Safety as the business continue to gain traction with federal and state agencies. Operating income for the segment was up 19% with…

Okay. Well, thanks, Rahul. We're now in the homestretch of fiscal '19 and performing very well and better than our S-4 projections across all metrics: revenue, margin and cash flow, and we're on track for a record year. President's budget request for GFY '20 and beyond is a real positive for Harris and the programs that we support, especially in strategic growth areas where we invested in R&D over the past several years and have strong customer positions. In addition to tactical radio budgets, long-term platforms like the F/A-18, the F-35 are well supported and classified space and other IC budgets continue to trend up. And with outlays continuing to lag budget appropriations by more than $100 billion in investment accounts, we expect growth momentum to continue in the medium term. Alongside our strong operating performance and execution, integration planning is progressing well. The team over the last 6 months has made significant progress in outlining an operational road map for the combined company to ensure seamless transition on day 1. They're also developing detailed capture plans to achieve the $500 million of cost synergies and, though still early, have identified more than 100 ideas on potential revenue synergies. Chris and I meet -- remain very closely connected with the integration team through our weekly meetings, and we're very pleased with the progress that they made to date. I'm also pleased with the outcome of the divestiture of Night Vision, which we proactively initiated to address potential regulatory concerns. You'll recall this business was operating at breakeven with declining revenue when we acquired it with Exelis. And through aggressive actions, we transformed it into a mid-teens margins business, growing at double digits, resulting in a $350 million sale price, well above the implied value when we bought Exelis. This same relentless focus on operational excellence is clearly demonstrated in a track record of margin expansion at Harris, and we expect to leverage and build on this OpEx muscle in a new L3 Harris to capture integration savings, improve underperforming businesses and drive long-term productivity gains. Overall, I'm increasingly encouraged and confident that this transformative combination will create substantial long-term value for employees, our customers and our shareholders. And with that, I'd like to ask the operator to open the line for questions.

[Operator Instructions]. Our first question comes from the line of Sheila Kahyaoglu with Jefferies.

Good results, guys. First question, I guess more broadly speaking, revenue guidance moved up but margin guidance was maintained. When we think about programs driving upside across the business, how does this convert to profit growth or operating leverage for standalone Harris?

So as we look at margin expansion driven by the revenue growth, clearly, we've said that before, that this year in Communication Systems is a transition year for us as we ramp three new products: the Army handout, the SOCOM handout and the Army manpack. So as we work up the production ramp and take out costs, which we've got a great track record previously, We took out 47% of costs, for example, in the 117G post introduction, we're confident that Communication Systems margins will continue to trend up. Same thing in Electronic Systems. We've done well taking out costs this year. We guided to 18.5% at the beginning of the year. We increased it to 19%. We had a plus sign in the guidance range. 80% of this business is fixed price. We will continue to drive margins in Electronic Systems as well, but the volume is a headwind especially as the growth is coming from long-term platform. So I think Communications Systems and Electronic Systems should drive margin expansion in the future years.

And just if I could add here, Sheila, we said this year we'd see -- it's a little bit of margin expansion fiscal '19, not because of segment margin expansion but more because of the mix shifting to higher-margin businesses, CS and ES, that we'd grow faster. We've even seen more of that this year on top of some margin expansion in ES. So as we look into the back end of the year, we can see ourselves touching 20% margin in the fourth quarter and we see some expansion in margins going into fiscal '20 and beyond.

And then just on CS, strong support for the Tactical business in the budget. How do we think about market share going forward, given upcoming orders for Army manpack and handheld on a best value basis and further implications for the overall tactical market?

Well, look, we're very pleased with the trajectory of the budgets. They continue to increase, and I'm very pleased to see the Army HMS budget going over $500 million in '20 from about $300 million this past year, $7.3 billion over the next 5 years, which is stronger than we had expected than the President would suggest it even about a year ago. Our market share has remained very, very robust. We're on all the contract vehicles. We continue to compete well. We're going to continue to win and gain share through the investments we make to continue to advance our radio, take costs out, add functionality, improve waveforms in the radios. And that's how we expect to win and continue to have a large share of market in DoD and perhaps gain some share over time. So we -- the outlook is very, very strong in DoD radio, Sheila.

Our next question comes from the line of Robert Stallard with Vertical Research Partners.

Bill, just a quick question on the merger situation here. When do you expect to announce the next layer of management for the combined company?

Rob, we're going to -- we'll be fully prepared to announce the management structure several levels down, plus our Board, as we get closer to the closing. So probably towards the end of June.

Okay. And then as a follow-up, again on the merger situation. You highlighted the very strong cash flow performance on the working capital days that you see. Do you see this achievement being applicable to the combined company? And what sort of scale are we now looking at there?

Yes. Well, clearly, we've -- as Rahul pointed out in his prepared remarks, since we bought Exelis, we brought down working capital days by 35 days. We'll end the year at 43, very, very positive trajectory. I think on a combined basis, at -- assuming we -- if we combine the end of March with this past month, I think the combined days was 70 days. So we see a lot of opportunity between the 2 companies. We're estimating 6 to 7 days over the next several years at $35 million a day. But clearly, there's some opportunity beyond that. Chris and his team are working hard on this. They're making good progress. We're really getting into the details of where that working capital happens to be, putting plans in place. So Rob, if anything, I think Chris and I are more confident today than we were 3 or 6 months ago that we've got good working capital improvements ahead of us.

Our next question comes from the line of Carter Copeland with Melius Research.

Just Bill, I wondered if you could maybe comment on -- if you look at the book to bill, obviously the most recent ones are lower than what you saw in the preceding quarters. But obviously, the budget activity has been strong. Just -- I wonder if you could give us some color on the funnel of opportunities that you're looking at behind the bookings we've seen lately and if there's any material difference from what we've seen over the last 18 months or so, which has been very strong.

Yes. I mean good question, Carter. No fundamental or material difference. Year-to-date book to bill was -- is very strong at 1.1. We've had 5 consecutive quarters above 1. Backlog is -- as we pointed out in our remarks, is up 15% year-over-year. It's up over 20% in the Tactical business. It's up 25% over the last couple of years. So the backlog is actually quite strong. We expect book to bill for the year to be more than 1. So I think it's all good news. The pipeline for the Harris as a total company is at $32 billion across the 3 segments. It's very resilient. The budgets, I think, are well supportive of growth into the future. We've raised our guidance now 3x this year. We've had $420 million above the S-4 revenues. So every indication is we continue to see good growth opportunities into the future.

And Carter, if I may add, the 1.03 book to bill that Bill mentioned in his prepared remarks, that's the funded book to bill. If you include the unfunded portion of the awards we received in the quarter, we are at 1.3 book to bill for the quarter. And given the only other data point I would throw out there is that the backlog is up 15% year-over-year, as Bill mentioned, and 12% since we started the fiscal year, so good growth in backlog.

That's great. And then just as a quick follow-up. Bill, you mentioned it quickly, but the thought process around revenue synergies. I just wonder as you get another quarter under your belt and we get close to closure, just if you could share your thoughts on the intersection of the Harris' capabilities and L3's capabilities and how that's evolving and what we should expect to see here, places you're excited about. Any color there would be helpful.

Yes. That's a very good question. I mean everyday that Chris and I interact with the teams on -- as they get together and share information, brainstorm both in the open area as well as in the classified area, we're getting more and more encouraged about the set of opportunities ahead of us. It's still premature to calibrate that or quantify it or say how much time it's going to take to achieve it. Some will require some R&D investment to occur. We see -- it's all the same -- anything happened with Exelis, it was probably a couple of years in until we really started to see meaningful revenue synergies. But we're seeing it in a couple of different areas. We've got a great position now staked out in smallsats. Both L3 and Harris have good expertise in optical and RF payloads, SATCOM, mission knowledge, very strong L3 data link capabilities, [indiscernible] capability. I think when you combine it, we think we'll have a much more holistic, much more competitive offering in smallsats. And I think that's very encouraging. We've talked in the past about data links. L3 is very strong on the airborne side. We're strong on the ground side. I think that's going to be very interesting. The other area that's been, I think, of note recently is -- L3 has a very strong multifunction phased array capability. We've got strength in open-system architecture back in EW processing. Good capability as well in phased arrays. But that multifunction that L3 brings and some of the open architecture that we have is really game-changing in our view. And it's not just from current platform, but also new and new evolving platforms. So those are some of the ideas and some of the things we're thinking about. Obviously, the small SWaP EW product that we've had on the market for a couple of years, it's now starting to take hold. Lots of opportunities to embed that small SWaP EW into some of the unmanned systems that L3 has and that they -- that their system integrator on. So there's more than 100 different ideas. Those are the ones they've got -- come on top of mind. But the energy, the excitement when people talk about these is palpable, and we're very optimistic about this.

Our next question comes from the line of Gautam Khanna with Cowen and Company.

A couple of questions. First, Bill, I was hoping you could expand upon the airborne radio opportunity and maybe just more broadly speak about the foreign and domestic ROS Tactical pipelines and how they may have changed with the airborne kind of opportunity now more [indiscernible].

Well, the pipeline itself are very strong. I mean it's very resilient for the DoD at still around $2.6 billion. It's kind of in line with where we were before in the last couple of quarters, and it's been very stable. On the DoD size is about $1.6 billion, shifting more towards modernization. So now it's almost a 50-50 split between base and modernization, but up year-over-year by about 13%. So again, given the strong orders over the course of the last year across Tactical, the fact that the pipeline for that business remains as resilient as it is, I think, is very encouraging, I think testament to what the team has been doing. On the airborne radio side, I'm very optimistic about this. This kind of goes back 3 years or so. It's been a lot of investment we made with Exelis. They had a position on airborne platforms and -- but it was an older product offering. And a lot of the new product offerings that we're putting in place, the 2-channel offerings on the ground side, have capability that can be embedded on the airborne side. As you know, we're also partner with ViaSat on the STT. We've seen really good growth this year on airborne radios and the Small Tactical Terminal. So -- I mean I'm very encouraged about this. And the fact that we had a first opportunity here in the Middle Eastern country on a small number of Apaches, where they have a very large fleet, I think, is a big win for us. It's not big in dollars, but the opportunity set ahead of us is pretty substantial. I think this will grow over time. I won't be able to quantify it today. But I think it'll grow over time. And again, it's in -- it's along the path of the growth beyond that simple ground business that we've been in, that we've been pushing out for the last several years.

And my follow-up would be just if you could talk a little bit about how you've -- you've mentioned how you work together with L3 in advance of the merger closing. But if you could just talk about what, operationally, maybe you guys have offered in terms of help to L3. They had a traveling wave tube issue a couple -- a quarter ago that didn't seem to recur in today's results. How do you guys been kind of working together operationally ahead of the deal so that there are no surprises once it actually starts to combine.

Yes. No, what -- yes. Thanks, Gautam, for the question. Look, our integration teams are really focused on the integration value, so how we can combine our spend and leverage that, bring that down. We've done a number of should-cost analyses. We've got a very good and robust listing of what we buy, who we buy it from, what we price, we pay. It's done in a clean team, so we don't have visibility to that. But the clean team is coming up with great ideas and actually developing and negotiating packages so that when we close, day 1, we can start executing against that. We see opportunities on the indirect side, facilities we've had. Our combined operational leadership teams going out and visiting many of our sites to understand what the combination of -- what the facility consolidation opportunities might be. I know Chris is very, very deep in what's happening at the traveling wave tube business. I'm sure he'll speak about that later on this morning. He's put a lot of resources there, a lot of focused attention. We're aware of it. We see some metrics coming out of it. We're providing guidance and assistance where we can. But Chris is doing a great job in getting his arms around this, and I think you'll see stability and eventually some improvement here. So I think together, as a combined company, the operational muscle that we both will bring and I think what we honed here at Harris over a number of years, I think we'll continue to see this L3-Harris business perform like I think we have done at Harris over the last 5 or 6 years. So I'm very optimistic about that, Gautam.

Our next question comes from the line of Robert Spingarn with Crédit Suisse.

So I have a question, Bill, for you on growth that speaks a little bit to what we've already talked about, and then I have one for Rahul on cash. But Bill, you're now targeting 9% growth for this year. L3 is at 6%. You both had among the best numbers growth-wise this quarter, and you talked about the budgets supporting further growth in the medium term. But would you say that the new L3-Harris can be the sector top line growth later well into the future? Or is this a peak-ish kind of year, just given those strong budgets over the past couple of years?

Look, I don't see that fiscal '19 is a peak-ish kind of year. I see -- again, it's a little soon to comment on the growth potential of the combined companies. You'll see L3's results. They've knocked the cover off the ball this quarter. They took their guidance up for the year as did we. Between the 2 companies, we're $274 million, $275 million above the S-4, even more if you look at where they're guiding to this year. So the combined -- the companies independently are performing better than expected. The budget outlook is better than we have thought. Our opportunity set, as we think about revenue synergies, is more encouraging to us. We'll be more competitive as an enterprise because we'll take costs out, be able to bid aggressively, attack businesses, be it more of a full mission provider. So if anything, I'm more encouraged about the growth trajectory beyond fiscal '19. I would not call it peak-ish. But I do see us doing, I think, quite well as a combined entity once we close and kind of get on with this. So I think it feels pretty good.

Okay. And then on cash, Rahul, the two of you, the two companies have about $1.4 billion pro forma on the balance sheet, cash, and so you've targeted $2 billion for share repurchases in the first 12 months post close. But given what's on hand and what you're going to generate in the meantime, it seems that you'll end that first year with a lot of excess cash. So I know you're limited in your ability to buy back even more stock in year 1. So should we think about this cash build as giving you more firepower for repurchases in year 2? Or might you do something else with that cash?

No. Absolutely, Rob. We've said this before. I mean post close, our priority -- we've done with the debt repayment. With the sale of our Night Vision business, as even that closes, we're going to prefund the combined L3-Harris pension. And with that, Harris standalone pension is prefunded till 2025; L3 pension, should that be funded, till about '22 based on the modeling that we have done. So the pension should be funded with no near-term funding requirements. And that would -- and we've said -- M&A, it won't be if it's absolutely critical. So all excess cash should go back to shareholders whether in form of dividends or share buyback. And dividends, we've kind of thought, I think, between 30% to 35% of our free cash. So that leaves a lot of firepower for share buyback. And we should keep -- we should need to keep about $500 million in the balance sheet. So all excess cash back -- goes back to shareholders.

And I would just add, I think you know our debt ratios quite well. So we don't have any debt payments in the near term either or the medium term, Rahul.

Our next question comes from the line of Richard Safran with Buckingham Research.

Generally, I'd like to ask you for defense. We're seeing a lot of programs transition from development to production, and I wanted to ask you about the DoD classified and unclassified contracting environment that you're seeing versus what you may have been expecting. For example, as programs transition to production, are you seeing a more favorable contracting environment? And if possible in your answer, could you comment directionally on how contracting may impact your margins going forward?

Look, it's a pretty broad question. I think in general, we're seeing opportunities put on contract a little bit faster than it would've been a year or 2 ago. In terms of the way things are being done, that -- it's not changing all that much in terms of mix, cost plus fixed price, encouragement to industry to invest in IRAD. As you know, Richard, there's been a conversation around contracts financing. That still is out on the horizon. I think there was an attempt to change contract finance structure back in September of last year. This is still an open discussion. But I don't really see substantive changes in terms of anything that's kind of generalized with either classified or none that would impact margin structure going forward. Our margins in the classified side, they're typically -- more typically, they're cost plus, and they tend to come with cost-plus margins as I think that's what you'd see on the cost plus side. That's not really -- or the classified side. But I don't see that changing much here at all. Rahul, I don't know if you have a...

No. I think you're right. And I think even with everything else that's going on, I think we're growing margins this year. All segment margins are expanding in all 3 segments and, in response to Sheila's question, to kind of provide a little bit of forward-looking statements on our expected margins going forward.

Okay. Just quick follow-up here, just on the classified backlog growth. I thought I'd ask if you could comment on how quickly you see classified revenues grow -- growing relative to unclassified part of the business. And on that part of the business, are you finding margins for classified wins at/or above standard margins? And do you think that the trends that you're seeing in the classified programs are going to impact you positively in '20?

Well, first of all, the classified business over the last couple of years has gone very, very well for us. Our bookings continue to be very strong in the mid-teens rate, book to bill is over 1, revenue up in the double-digit mid-teens level, has been very, very good and has been over the last couple of years. It's an exquisite systems. It's in small satellites. It's in ground adjacencies. In these areas, we really can't talk much more about, but it's pretty broad-based. And I think it reflects a drive that we've had over the last number of years that to invest in technology and to move from providing components to subsystems to now more complete mission solutions, and that's been a multiyear journey for us. And we're seeing our growth, our position, our share increasing as the budgets are inflecting. I think that's what's driving positive growth for us. In terms of the margins on that business, a lot of it -- some of it is fixed price. But much of it is because you're pushing the envelope of technology, much is going to come more in a cost-plus side. They come with slightly more compressed margins. But as we look out at the next couple of years, I see our Space business, where a lot of the classified business happens to be, it's also on ES, but a lot's in Space, I see it holding the margins in that area as we continue to drive productivity, take out cost, take out costs and the pieces are not classified or a fixed price and absorb the mix differential as the classified business grows a bit. So I'm not terribly concerned about that. I think it's very good business. In fact, some of the technology that you develop in the classified world does help your business over time in unclassified. So it's terrific business, and we're pleased to be a strong player there.

Our next question comes from the line of Myles Walton with UBS.

Bill, I think it sounded like you're kind of confident on the turn in the environmental headwinds Space, Intel. So I'm just curious, can you size kind of what you had to absorb this year in your fiscal '19 that you grew 7% in spite of that and then just confirm that you don't see that as a headwind year-on-year into '20 and maybe what that outlook is from there?

Yes. Look, we've -- this year, our environmental business, I mean it's kind of in the range of $270 million or so, like little less than $300 million, is down mid-teens in size. We do believe it's troughing here this year. The book to bill, as I mentioned in my remarks, was about 1.4. So it's -- the book to bill has been good. The backlog is obviously up. We see '20 to at least be flat with '19 and perhaps a little bit of growth there and beyond. We've gone through some budget pressures here over the last couple of years. We continue to see things put on order for NOAA. It's GOES-R ground modernization, that we're seeing some opportunities there. We're seeing opportunities in -- over time, in U.S. and international centers. We've launched 5 satellites, five instruments in the last 12 months. These things go in phases. So as they launch, you have both U.S. and international customers starting to look at developing the next-generation instruments. We sell into Japan, Korea as well -- South Korea as well as here in the States. So we're seeing opportunities to grow at adjacencies on RF spectrum management, DoD weather, thermal detection. So we're seeing a number of different things here that indicate to us that '20 should not be another set-down, and perhaps there should be opportunities beyond that. And that basically sizes that business.

So could Space and Intel be your fastest growing or at least the business that's accelerating the most into 2020?

I think it's too soon to say right now. We're going to come back and give you some guidances in early August as we close the year. It has been -- as you could tell, it's been a headwind for us over the last couple of years and certainly into fiscal '19. But we've got to look at the whole portfolio, in the outlook, on the budgets and how it's going to roll into our business. I wouldn't say it's going to be the highest grower, but I think it should be a pretty healthy grower over the next several years. Last time we provided medium-term guidance, we've said it would be mid-single digits, and we'll come back and revisit that come early August.

Our next question comes from the line of Seth Seifman with JPMorgan.

So I wanted to ask a little bit about the tactical radios. It looks like, probably on a DoD side, be up to somewhere in the $660 million or something like that range for this year. When you think about what the growth drivers are in terms of the key programs that we know that you're on, the key growth drivers in 2020 within DoD Tactical.

Well, look, I think as we go from here, the growth drivers are going to be modernization. It's going to be the Marine Corps ramp, Army ramp, both on the handheld and the manpack. We'll see SOCOM continuing to grow. Those will be the principal drivers. I mean your numbers are in the ballpark here in fiscal '19 on DoD. If you go back just two years, in '17, it's up about 2/3. The budget has been up about 2/3 in that period of time. But what's interesting and what's I think very encouraging here, Seth, as you go out the next 2 to 3 years, the budget's grow by another 2/3. So they touch $1.5 billion, $1.6 billion a couple of years out. And when you just look at -- even holding constant share, if those budgets happen, we would see that business continuing to grow pretty substantially and probably touch on $1 billion three years out. So if anything, we remain very encouraged about the growth outlook in DoD Tactical.

Okay. And then in the -- I guess in the Electronics Systems, maybe if you could talk a little bit about the -- do you observe any changes in the competitive environment? I mean that's a place where just about all of the defense primes and some others play. There's a lot of new work out there. Some are growing really fast, some less fast, everybody wants to grow. Can you talk about any changes you've observed in that competitive environment, if there are any?

Well, look, I mean yes, these things are shifting. It's not over weeks or months. It's over several years. And I think what we try to point out here in various investor meetings is that we've invested in new technologies over the last 3, 4, 5 years, in open-systems architecture, and that has matured itself. It's such a place where we won the open-system mission processor for the F-35, the brain of the F-35, which is a very, very big win. It's a multiyear platform, and we feel very good about that. That was a competitive win. We're also leveraging our open systems technology into other new platforms that -- at Boeing, the T-X and the MQ-25. You can imagine in the drive towards nonproprietary solutions. There are other platforms that are looking at this. Certainly, next-gen platforms will be open system. Even some opportunities on the F-18 to drive open systems, we've done that a couple of years ago. We've also made a lot of investments in electronic warfare over the last 3 or 4 years, moving to software-defined EW with better capabilities. And those investments, I think, are positioning this company in a spot where we're growing on those long-term platforms. And we're growing and we're going at a faster rate than, I believe, others in areas because I believe we're taking share. We continued to perform well, the teams working hard driving -- making sure we're successful here. We continue to execute well. And as we merge with L3, if anything, the combined capabilities will open up some new opportunities in some areas that we're not really on today. So Seth, it is competitive. The dynamic is shifting, but I think we're well positioned here.

Our next question comes from the line of Jon Raviv with Citigroup.

This is Colin on for John. Can you just update your thoughts on the $3 billion free cash flow target, what you're seeing in existing budgets and combination, international that could either buy us growth either upwards or downwards?

I think we're feeling as good today as we did before on $3 billion in 3 years. As Rahul mentioned, we're sort of over the last 12 months, over $2 billion of combined cash between us and L3. We see organic growth opportunities both internationally and domestically. We didn't really split those pieces, but we see organic growth driving cash generation. We see that the cash effect of cost synergies kicking in, another 6 or 7 days' worth of working capital, all of which gets us to that $3 billion range. And if anything, sitting here today, we're more confident about that than we would've been 6 months ago, just given the trajectory since the merger announcement on growth in the company, on working capital improvements, on the things that we're all talking about in terms of prefunding pension which eliminates cash flow contribution several years out. So if anything, we feel better today on achieving $3 billion three years out.

Got it. And then if you could just talk a little bit about modernization trends that you're seeing among NATO partners, in terms of both the NATO and U.S. interoperability. The social forces comment points to pretty constructive trend there. I just want to see in terms of the kind of larger forces what you're seeing.

Well, it's very -- it's a very good question because we're seeing really good positive trends here. And I think what we see typically is our international partners, starting with the 5 Is and then moving to others, modernize and upgrade capabilities as they see the DoD upgrading with products. And those same products, for example, the 2-channel handheld, eventually starts to find its way into allied nations in -- starting with their special forces and then working into the regular services as well. And that's a trend that we've seen here in the first couple of quarters of the year, very recently in the last quarter, into Canada, a couple of NATO countries in Europe. We see in Australia as well. So there's a positive momentum behind modernization. As you know, 1.5 years ago, we won a very large contract in Australia. We're executing well under modernization. So these things are all kind of going in waves. I believe the U.S. DoD, if you see the funding, were the front end of a multiyear modernization ramp. And we're seeing the same thing now starting to occur in various countries around the world. U.K. is a little bit further out. It's probably 2 or 3 years out with the Morpheus program, which is the upgrade or modernization of the Bowman program. Just given some of the Brexit concern, I think that might have moved a little bit. But the reality, that's still out in the horizon. And we'll be a good player in all of those different competitions because of the strength of the product offering and the maturity of the product offering that we have here with the DoD.

Colin, the only thing I'd add there is that if you look at our radio business, our investment in Europe is up more than 50% this year primarily driven by the modernization and some of the allied nations buying our radio products.

Our next question comes from the line of Pete Skibitski with Alembic Global.

A couple of quick questions. Bill, just to follow up on international radios. You gave a lot of great qualitative color. Any view directionally on how that business goes in fiscal '20? It's always kind of opaque for us, I think.

Well, it's a little bit too soon to kind of call what '20 is going to look like. I'd like to complete fiscal '19, and we'll provide some deeper guidance as we see some trends evolving beyond that. Just this year, it's evolving as we had expected. We're going to be up low to mid-single digits. The first half was up 7%. The back half is flat. We're up 4% year-to-date. On the full year basis, we see up -- Asia Pacific up mid-single digits mainly because of the Australia ramp. We see Europe up mid-single digits, which is a positive outcome. Rahul just mentioned about what's happening in Western Europe. It's offsetting a decline in Eastern Europe as we had thought would happen. MEA, Middle East, Africa is about flat. Africa has been a strong market for us this year. We likely will see continued trends that are strong in Africa going into next year. CALA and Central Asia have both been relatively weak, but they're relatively small base. We do expect in '20 and beyond, those start to rebound. We see some good signals coming out of Brazil and Mexico about growth outlooks. We're seeing more positive news come out of Afghanistan because of the U.S. pullout -- anticipated pullout and the need to build their forces and equip their forces. There's some more -- likely, we'll see growth in Afghanistan. So we'll see some things shift around. This year, again, playing out as we expected, and I think we'll see sort of some of the same trends into next year.

Okay. That's helpful. And then just my last one. How are you guys thinking about the length and magnitude of the headwind from this UAE program transitioning?

Well, this year, it's down quite a bit because -- and it was expected it would be down. There's a gap between initial operating capability and the full operating capability, which is moving from the one brigade to now another 4, so total of 5. And then there'll be other services, could be radios coming along. So we expect that to be a growth driver in fiscal '20. But we saw a little bit of a headwind here this year because of that particular transition. The good news here is that the team has been doing exceptionally well here. The program has gone very well. The mission readiness exercise that was done with this one brigade towards the beginning of our fiscal year was very successful. Our reputation in UAE is very, very strong. If anything, we're more encouraged today about $1 billion total opportunity in the UAE than we would've been a year or so ago. So a little bit of transition here in fiscal '19 that we're absorbing, and we'll see the turnaround drive to growth in fiscal '20.

Our next question comes from the line of Josh Sullivan with Seaport Global.

So you mentioned more open systems competitions going forward. Can you talk about your historical win rates on open platforms? Maybe JTRS comes to mind. But as the market evolves in that direction, just be curious to hear Harris' historical win rate in that environment.

Well, it's target, call it, win rate because they're very different markets, and it really is just an evolving one. I think the big open system competition, the one that's truly notable because of how sizable it was, was really on the F-35. And winning that -- that was a multiyear process, started with, I don't know, either 10 different competitors. It was down selected to 3. It was a head-to-head competition, and we won that competition over very, very formidable components and competitors in the space. And the team has just done such a great job with that. We brought great technology, great execution, a good cost structure. That also has allowed us to bridge into other new platforms. It started with some open-systems work we had done over some time at -- on F-18 with Boeing. So I think it's been several years. I think we're winning -- the ones that we're in, I think we're winning the ones that we happen to be on. If you consider the JTRS platform as an open system, which you can because it's a [indiscernible] protocol in the waveforms, as you've seen over the last 5 years, we've become exceptionally well positioned on JTRS programs. To take you back 6 years or 5 years ago, we weren't even the Program of Record. We weren't even able to compete for the program dollars, and now we're actually competing. We've got -- we're on contracts. We're on programs. We're delivering radio. We're executing well. So I think this company has demonstrated an ability to find a way to win when it goes towards nonproprietary solution. That points to the agility of the company, but also to the willingness to invest ahead of the curve in R&D. And I think they all kind of go hand-in-hand together.

Helpful. And then I just want to ask one on your efforts in robotics. I believe you competed the T7 robot on the CRS program. Is this an area where you see Harris expanding its efforts? And then it would seem there might be some good cross-functionality with L-3. Are they already in your supply chain on the robotics side?

Well, I don't believe they're in the supply chain on the robotics side, but there could be some opportunities here. I won't comment specifically on that, but there certainly could be. Look, I'm very pleased with what's happened on robotics from just where we were 3 or 4 years ago. As you know, we won the U.K. MoD program with the T7. It was £55 million or about $70 million. I think we've delivered, I don't know, 4 -- 10 units, I think, we delivered into the U.K. They're all performing exceptionally well. We've got a sort of a very strong support by the U.K. MoD as we go around the world and offer the T7. They love the robot. They love the performance of what we've shown. There's another opportunity called Dark Rose in the U.K. It's a smaller robot that we'd be competitive on. We're on the -- we're down selected on the Common Robotic System-Heavy, the CRS-H program in the U.S., which should be awarded sometime this summer. We think we're well positioned on that. We think globally, the opportunity set is -- could be in the -- close to $1 billion here for robotics. So we're on the front end of this. And I think just the early wins with a strong -- very reputable MoD in the U.K., I think it's very encouraging for us in robotics.

Our final question comes from the line of David Strauss with Barclays.

Rahul, you commented on the cash progression through the year. I just want to circle back on that. It looks like the free cash flow guidance [indiscernible] some pretty big step-down in Q4 relative to what you did in Q2 and Q3. It looks like it assumed some sort of working capital drag. Can you just elaborate a little bit on why free cash flow is off so much in Q4?

Yes. So a couple of different ways of looking at it, David. I mean clearly, we're driving more linear working capital performance through the year. And if you compare ourselves to last year Q4, where we had driven kind of half the cash flow for the full year in Q4, we got 20-plus days of working capital, call it 20 days of working capital improvement in Q4 last year. And this year, we're only getting less than 10 days. And that's driving a huge change between what we delivered in Q4 in cash last year, what we're delivering this year in Q4. CapEx is a little bit up versus last year as well and step-up from Q3. So all in all -- and there is timing of tax payments, some accrued expenses. We've got some nonexecutive bonuses getting paid out in Q4 as well. So you put all that in, that's why Q4 is lower than Q4 last year in spite lower than Q3 '19 as well. But having said all that, I mean we are -- we've been delivering -- we delivered 10 days of working capital in Q2. We're delivering 12 days or better year-over-year performance in Q3. We're aiming for [indiscernible] in Q4. So there could be some upside to Q4 cash if we drive a little bit better performance in working capital.

Okay. Bill, a question on how -- how are you thinking about -- I know you've been giving consideration around how you would report the combined company in terms of adjusted EPS number and what might be excluded. Could you give us an update there? And assuming the deal closed, let's say, in late June or early July, when would -- would you immediately come out and give guidance for the combined company? Or would this be something and wait until later?

David, I think if we close at the end of our fiscal year or thereabouts, Chris and I will work then in July as we close our books and report earnings early in August. My thinking at the moment, I think Chris is aligned with this, is that we would guide to the stub year, the 6-month back end of our calendar '19 and then maybe towards the end of the year or early in calendar '20, then guide to '20. And that's kind of what we're thinking at the moment. Again, we'll say more in the coming months. It all hinges on when we actually close the transaction. We're still contemplating cash EPS likely to exclude amortization expense. But any more detail on that in terms of exactly how we're going to report that, I think, is still going to be determined. And Chris and I with the CFO of the company will certainly give some thought to that and share more about that as we get closer to close.

Thank you, everyone, for joining the call today. If there's any questions, just get in touch with me. Bye, bye.

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.