Q4 2023 Lockheed Martin Corp Earnings Call

January 23, 2024

Yeah.

Okay.

Good day, and welcome everyone to the Lockheed Martin fourth quarter and year end.

2023 earnings results conference call.

Speaker Change: Today's call is being recorded.

Speaker Change: If you would like to ask a question. Please press the one then zero now.

Speaker Change: At this time for opening remarks, and introductions I would like to turn the call over to Maria Richard Allen, Vice President Treasurer, and Investor Relations. Please go ahead.

Speaker Change: Thank you Louis and good morning, I'd like to welcome everyone to our fourth quarter and full year 2023 earnings Conference call. Joining me today on the call are Jim <unk>, Our chairman President and Chief Executive Officer, Jay Malave, Our Chief Financial Officer.

Speaker Change: Statements made in today's call that are not historical facts are considered forward looking statements and are made pursuant to the safe Harbor Harbor provisions of Federal Securities Law.

Speaker Change: Actual results may differ materially from those projected in the forward looking statements. Please see today's press release and our SEC filings for a description of some of the factors that may cause actual results to differ materially from those in the forward looking statements.

Speaker Change: We posted the charts on our website today that we plan to address during the call to supplement our comments. These charts also include information regarding non-GAAP measures that may be used in today's call. Please access our website at www Dot Lockheed Martin Dot com and click on the Investor Relations link to view and follow the charts with that I'd like to turn the call over to you.

Thanks, Maria Good morning, everyone and thank you for joining us on our fourth quarter and full year 2023 earnings call.

Speaker Change: In 2023, the 122000 men and women of Lockheed Martin working closely with our customers made excellent progress advancing our 20 <unk> century security strategy and delivered strong financial results for our shareholders.

Speaker Change: Turning to chart three.

Speaker Change: Robust demand for our broad portfolio of aircraft helicopters satellites radar systems and other products services and advanced digital technologies boosted backlog to a record $161 billion.

Speaker Change: Full year sales of $67 6 billion increased 2% year over year and came in stronger than anticipated as did earnings per share of $27 55.

Speaker Change: Yes.

Speaker Change: To position the company to take full advantage of these future growth opportunities, we invested more than $3 billion across research and development and capital in 2023.

Speaker Change: We generated $6 $2 billion of free cash flow as expected, which resulted in year over year free cash flow per share percentage growth in the mid single digits.

Speaker Change: We returned approximately 145% of free cash flow to shareholders over $9 billion through dividends and share repurchases combined.

Speaker Change: Our expectations for Lockheed Martin is 2024 financial outlook include low single digit growth in sales off of the higher 2023 base and a range of six to $6 3 billion of free cash flow.

Speaker Change: Our ongoing dividend and expectation for $4 billion of share repurchases, we'll sustain our focus on returns to shareholders in 2024.

Speaker Change: We also plan to further advance our vision for 20 <unk> century security in the year as we believe that it is our responsibility at Lockheed Martin to bring the best of U S and Allied technology and industrial capability to help maintain an effective deterrent to arm conflict and to provide our armed forces with a capable.

Speaker Change: <unk> the wind should we need to.

Speaker Change: First we worked closely with our supply chain to apply anti fragility measures and increased resilience.

Speaker Change: Through teaming arrangements to expand sources of supply and by making strategic investments in startups with cutting edge technologies.

Speaker Change: For example, we are collaborating with the supplier and which we are a minority investment to accelerate our additive manufacturing progress reducing material and process dependencies and complex thermal management applications, such as heat exchangers.

Speaker Change: We also stood up a wholly owned subsidiary called forward edge AC to work with major semiconductor fabs to design and manufacture the cutting edge microprocessors that we need.

Operator: Good day and welcome everyone to the Lockheed Martin fourth quarter and year-end conference call. This is a 2023 Earnings Results Conference Call. If you would like to ask a question, please press 1 then 0.

Speaker Change: Second we lead the industry to broaden and strengthen the defense industrial base by making significant progress with our commercial technology collaborators.

Operator: At this time for opening remarks and introductions, I would like to turn the call over to Maria Richard-Owen, Vice President, Treasurer, and Investor Relations. Please go ahead. Thank you, Lois, and good morning. I'd like to welcome everyone to our fourth quarter and full year 2023 earnings call. Joining me today on the call are Jim Taiclet, our Chairman, President, Jay Malave. Statements made in today's call that are not historical fact are considered forward-looking statements and are made pursuant to the safe harbor provisions of federal law. Actual results may differ materially from those projected in the forward location, today's press release, and the filing for a description, which can be found at...

Speaker Change: To bring their innovations into the service and National Defense.

Speaker Change: For example, in the fourth quarter Lockheed Martin work together with a team, including Intel Horizon, Microsoft Juniper networks key site and radishes.

Speaker Change: To successfully demonstrate a secure resilient hybrid <unk> and military data link network and alive field demonstration in Colorado, or <unk> Dot mill Unified network solutions performed as a tactical and commercial multi node hybrid network for.

Speaker Change: For integrating land air and space operations.

Speaker Change: Together, we demonstrated absolutely cutting edge system capabilities performance and operation for customers that are field setting by combining the best of our technology with those of our commercial teammates.

James D. Taiclet: We posted the charts on our website today that we plan to address during the call. The charts also include information regarding non-GAAP measures that may be affected by COVID-19. Please access our website at www.myleswalton.com, click on the investor relations link to view and follow. With that, I'd like to turn the call over to Maria. Good morning everyone, and thank you for joining us on our fourth quarter and full year 2023 earnings call. In 2023, the 122,000 men and women of Lockheed Martin, working closely with our customers, made excellent progress advancing our 21st century security strategy and delivered strong financial results for our shareholders.

Speaker Change: Third we deepen relationships internationally with partners and allies to ensure that the U S can drive maximum interoperability and both industry and in military operations, we are making progress towards our mission centric approach that uses the latest digital technologies to network aircraft San.

Speaker Change: <unk> command centers and other key elements together to vastly improve their effectiveness and deterrent value across our U S and allied customers.

Speaker Change: One example from 2023 has worked with Australia to develop phase one of <unk> 6500, that's a joint Battle management system and the first of its kind in terms of situational awareness and interoperability.

Maria Richard-Owen: Robust demand for our broad portfolio of aircraft, helicopters, satellites, radar systems, and other products, services, and advanced digital technologies boosted backlog to a record $161 billion. Full year sales of $67.6 billion increased 2% year-over-year and came in stronger than anticipated, as did earnings per share of $27.55 billion, to position the company to take full advantage of these future growth opportunities. We invested more than $3 billion across research and development and capital in 2023. We generated $6.2 billion of free cash flow, as expected, which resulted in year-over-year free cash flow per share percentage growth in the mid-single digits. We returned approximately 145% of free cash flow to shareholders, over $9 billion through dividends and sharer purchases combined.

Speaker Change: This increase is collaboration with trusted allies and partners can also help reduce the fragility and increase the capacity of the defense production system.

Last week Lockheed Martin was awarded the guided weapons production capability risk reduction activity contract.

Speaker Change: Which will provide a mechanism for swift knowledge and technology transfer and serve as a pathfinder to manufacturing our suite of guided munitions in Australia with their workforce and with contributions from their society of their economy.

Speaker Change: Turning briefly now to the status of the U S defense budget. The current proposed agreement being discussed with the administration and Congress would support an $886 billion top line budget, 3% higher than 2023.

We will continue to monitor the status of the U S budget process and strongly believe that Lockheed Martin programs will continue to be well supported as the process unfolds.

Maria Richard-Owen: Our expectations for Lockheed Martin's 2024 financial outlook include low single-digit growth in sales off of the higher 2023 base and a range of $6 to $6.3 billion of free cash. Our ongoing dividends and expectation of $4 billion of share purchases will sustain our focus on returns to shareholders in 2024. We also plan to further advance our vision for 21st century security during the year as we believe that it is our responsibility at Lockheed Martin to bring the best of U.S. and allied technology and industrial capability to help maintain an effective deterrent against armed conflict. And to provide our armed forces with the capabilities to win should we need them. First, we work closely with our supply chain to apply anti-fragility measures and increase resilience through teaming arrangements to expand sources of supply and by making strategic investments in startups with cutting-edge technology. For example, we are collaborating with a supplier in which we have a minority investment. To accelerate our additive manufacturing progress, reducing material and process dependencies in complex thermal management applications such as heat exchangers.

Speaker Change: I will now review a few notable highlights from our operations.

Speaker Change: Starting with Aeronautics and the F 35.

We delivered 18 F 35 aircraft and the technology refresh two or tier two configuration in the fourth quarter, bringing the 2023 total to 90 Hs.

Speaker Change: We are making continued progress towards delivering the first Trs reconfigured aircraft.

Speaker Change: Today over 90% of the Trs III functionality is currently in flight test and we are further advancing the software integration to include additional aircrafts admissions subsystems.

Speaker Change: While this system maturation process continues to advance it is taking somewhat more time than we originally anticipated.

Speaker Change: Our second quarter customer acceptance of delivery software it remains our target.

Speaker Change: However, we now believe that a third quarter may be more likely scenario for tier three software acceptance.

Speaker Change: We are taking the time and attention to get this technology insertion right. The first time.

Speaker Change: Because it will be absolutely worth it.

Speaker Change: This step function technological advances of tier three will provide our customers with the onboard digital infrastructure of data storage data processing and pilot user interface to provide unmatched capabilities for many years to come.

Maria Richard-Owen: We also set up a wholly-owned subsidiary called Forward Edge ASIC to work with major semiconductor fabs to design and manufacture the cutting-edge microprocessors that we need. Second, we led the industry to broaden and strengthen the defense industrial base by making significant progress with our commercial technology collaborators to bring their innovations into service and national defense. For example, in the fourth quarter, Lockheed Martin worked together with a team including Intel, Verizon, Microsoft, Juniper Networks, Keysight, and Radises to successfully demonstrate a secure, resilient, hybrid 5G and military data link network in a live field demonstration in Colorado. Our 5G.mil unified network solutions performed as a tactical and commercial multi-node hybrid for Integrating Land, Air, and Space Operations.

Speaker Change: These include increased types of capability for air to air and air to ground munitions advanced sensing, Jimmy and cyber security capabilities and more accurate.

Speaker Change: Accurate target recognition.

Speaker Change: To achieve this level of reliable capability for the long run the resulting aircraft delivery range for 2024 is between 75 and 110.

Speaker Change: And requires a tier three hardware suppliers to keep pace with production demands both this year and in the future.

Speaker Change: Given the increasing operational capability and digital connectivity of the aircraft is a cornerstone of all domain operations international demand for the F 35 remains very strong.

Speaker Change: In December the Republic of Korea made a decision to procure 20 additional F 35 aircraft.

Maria Richard-Owen: Together, we demonstrated absolutely cutting-edge system capabilities, performance, and operation for customers in a field setting by combining the best of our technology with those of our commercial teammates. Third, we deepened relationships internationally with partners and allies to ensure that the U.S. can drive maximum interoperability in both industry and in military operations. We are making progress towards a mission-centric approach that uses the latest digital technologies to network aircraft, satellites, command centers, and other key elements together to vastly improve their effectiveness and deterrent value across our U.S. and allied customers. One example from 2023 is work with Australia to develop Phase 1 of Air 6500, that's a joint battle management system, and the first of its kind in terms of situational awareness and interoperability. This increased collaboration with trusted allies and partners can also help reduce the fragility and increase the capacity of defense production.

Speaker Change: In December we presented the first F 35 to the Belgian government, which will be one of more than 600 F. 30, fives that will be station in Europe across NATO member basis by the 2000 <unk>.

Speaker Change: Errol also continued to advance the F 16 is the first European F 16 training Center in Romania was inaugurated in November and a partnership with Romania, and the Netherlands.

Speaker Change: This center will provide world class training to enhance mission readiness and ensure safety of flying and operating F 16 fighter Jets.

Speaker Change: In addition, we delivered the first two Slovakian F 16 block 70 jets in the fourth quarter deliveries for Slovakia totaling 14 aircraft will continue through 2025.

Speaker Change: Aero Skunk works continues to pioneer groundbreaking innovation as well and for a change I can actually tell you about one the.

Speaker Change: The X 59 experimental supersonic aircraft built by Skunk works and NASA Aeronautics was selected as one of time magazine's best inventions of 2023.

Speaker Change: The X 59 is expected to transform the future of commercial supersonic flight over land by quieting, the Sonic boom one of aviation's most persistent challenges.

Maria Richard-Owen: Last week Lockheed Martin was awarded the Guided Weapons Production Capability Risk Reduction Activity Contract, which will provide a mechanism for swift knowledge and technology transfer and serve as a pathfinder to manufacturing our suite of guided munitions in Australia with their workforce and with contributions from their society and their economy. Turning briefly now to the status of the U.S. defense budget, the current proposed agreement being discussed with the administration and Congress would support an $886 billion top-line budget, 3% higher than in 2023. We will continue to monitor the status of the U.S. budget process and strongly believe that Lockheed Martin programs will continue to be well supported as the process unfolds. I'll now review a few notable highlights from our operation. Starting with aeronautics and the F-35.

Speaker Change: <unk> 59 was unveiled at a rollout ceremony earlier this month and is expected to take first flight later this year.

Speaker Change: Our MFC business continued to push technological advancements forward as well through modernization of air and missile defense and precision strike capabilities.

Speaker Change: In the fourth quarter, we delivered the first precision strike missile or prism to the U S Army and conducted system qualification test for an extended range guided multiple launch rocket system or gamblers, which will extend the range of the high Mark system that many of you are familiar with.

Speaker Change: MFC also delivered the 800 fat that's a terminal high altitude area defense interceptor to the U S government in October.

Speaker Change: And also we successfully integrated the <unk> III Patriot missile was the U S Army's new air and missile defense radar system to defend against cruise missiles tactical ballistic missiles as well as hypersonic.

Maria Richard-Owen: We delivered 18 F-35 aircraft in the Technology Refresh II or TR-2 configuration in the fourth quarter, bringing the 2023 total to 90 HF. We are making continued progress towards delivering the first TR-3 configured aircraft. Today, over 90% of the TR-3 functionality is currently in flight test, and we are further advancing the software integration to include additional aircraft and mission subsystems.

Speaker Change: International demand for the Pac three remained strong too this year, Switzerland in Romania, each signed letters of offer and acceptance for Pac three MSE, marking 15 partner nations for this program.

Speaker Change: RMS also saw strong international interest in the fourth quarter. The U S. Navy awarded Lockheed Martin contract to produce eight MH 60, Romeo Seahawk helicopters for the Spanish Navy and six of them for the North Norwegian government as well to date. So of course he has delivered 330.

Maria Richard-Owen: While this system maturation process continues to advance, it is taking somewhat more time than we originally anticipated. A second quarter customer acceptance of delivery software remains our target, but we now believe that a third quarter may be a more likely scenario for TR3 software acceptance. We are taking the time and attention to get this technology insertion right the first time because it will be absolutely worth it. The step function technological advances of TR3 will provide our customers with the onboard digital infrastructure of data storage, data processing, and pilot user interface to provide unmatched capabilities for many years to come. These include increased types of capability for air-to-air and air-to-ground munitions, advanced sensing, jamming, and cybersecurity capabilities, and more accurate target recognition.

Speaker Change: MH 60 Romeo aircraft of five countries, including the United States 67, more are on order or in production for India, Greece, South Korea, Australia, and now Spain in Norway.

Speaker Change: Also in the quarter Sikorsky installed the U S. Army's improve turbine engine on our Raider X designed for the Army's future attack reconnaissance aircraft or fire program.

Speaker Change: This final phase of the Raider X build brings us one step closer to completing the system that will support the Army's high tech future emissions requirements and we anticipate the first flight of redirects in late 2024.

Speaker Change: Finally, turning to space.

Speaker Change: United Launch Alliance successfully launched the Vulcan Centaur rocket earlier in January. This slides was the first of two flights required to complete National security space certification in the second planned mission can happen as soon as April.

Maria Richard-Owen: To achieve this level of reliability for the long run, the resulting aircraft delivery range for 2024 is between 75 and 110. And now, on to products for the next part of our series... Given the increasing operational capability and digital connectivity of the aircraft as a cornerstone of all domain operations, international demand for the F-35 remains very strong. In December, the Republic of Korea made the decision to procure 20 additional F-35 aircraft. Also in December, Aero presented the first F-35A to the Belgian government, which will be one of more than 600 F-35s that will be stationed in Europe across NATO member bases by the 2030s. Aero also continued to advance the F-16, as the first European F-16 training center in Romania was inaugurated in November, in partnership with Romania and the Netherlands.

Speaker Change: The U S Air Force awarded space at nearly $1 billion contract to develop a new reentry vehicle for the Sentinel Intercontinental ballistic missile the.

Speaker Change: The reentry vehicle or <unk> 21, a.

Speaker Change: We'll be mounted atop the Sentinel The award follows as technology maturation and risk reduction contract and the ICBM recapitalization contributes to modernizing strategic deterrence and reinforcing Lockheed Martin's critical technological contributions to the nuclear triad.

Speaker Change: And last week, the space Development Agency announced Lockheed Martin was awarded an almost $900 million contract for tranche two tracking layer to provide 18 small sats 16 of those space vehicles are for missile warning and tracking and two space vehicles are for missile missile defense infrared sensors to be.

Maria Richard-Owen: This center will provide world-class training to enhance mission readiness and ensure the safety of flying and operating F-16 fighter jets. In addition, we delivered the first two Slovakian F-16 Block 70 jets in the fourth quarter. Deliveries for Slovakia, totaling 14 aircraft, will continue through 2025. Aero's Skunk Works continues to pioneer groundbreaking innovation as well, and for a change, I can actually tell you about it. The X-59 experimental supersonic aircraft built by Skunk Works and NASA Aeronautics was selected as one of Time Magazine's Best Inventions of 2023. The X-59 is expected to transform the future of commercial supersonic flight over land by quieting the sonic boom, one of aviation's most persistent challenges.

Speaker Change: Onboard the first group of nine satellites is expected to launch in April of 2027.

Speaker Change: Lot going on at Lockheed Martin all of our operations and with that I'll turn the call over to Jay and join you later for questions.

Jesus Malave: Thanks, Jim and good morning, everyone today, I will recap, our fourth quarter and full year 2023 financial results and provide our initial guidance for 2024 as I describe our results. Please follow along with the web charts, we've posted with our earnings release today.

Jay Malave: On chart four we will start with the fourth quarter results for consolidated sales and segment operating profit.

Jay Malave: We had a better than expected close to the year nearly matching last year's record fourth quarter sales exceeded internal expectations by close to $1 billion with the improvement largely due to material material throughput.

Jay Malave: Leading to a less than 1% year over year decline in the quarter and a sign of improving synchronization between Lockheed Martin's demand signals and supply chain fulfillment.

Jay Malave: The strong finish led to about two 5% sales growth for the year, which was about $2 billion stronger on an absolute basis than originally expected last January.

Maria Richard-Owen: The X-59 was unveiled at a rollout ceremony earlier this month and is expected to take its first flight later this year. Our MFC business has continued to push technological advancements forward as well, through the modernization of air and missile defense and precision strike capability. In the fourth quarter, we delivered the first Precision Strike Missile, or PRISM, to the U.S. Army and conducted system qualification tests for an extended-range Guided Multiple Launch Rocket System, or GMLRS, which will extend the range of the HIMARS system that many of you are familiar with. MFC also delivered the 800th FAT, that's a Terminal High Altitude Area Defense Interceptor, to the U.S. government International demand for the PAC-3 remains strong, too. This year, Switzerland and Romania each signed letters of offer and acceptance for PAC-3 MSEs, marking 15 partner nations for this program.

Jay Malave: Overall segment operating profit in the quarter was also better than expected on the higher sales volume and was down 1% year over year total due to lower net profit adjustments and lower equity earnings.

Jay Malave: Book to Bill was 115 for the year with strength across all four segments.

Jay Malave: Moving to earnings per share on chart five GAAP EPS grew 2% year over year with lower segment profit and higher interest expense more than offset by benefits from a lower share count and fewer mark to market losses excluding.

Jay Malave: Excluding mark to market activity and other nonrecurring charges adjusted EPS was up 11% year over year or 1%.

Jay Malave: For the year adjusted EPS was $27 82.

Jay Malave: Up 2% year over year and consistent with the sales growth.

Jay Malave: The steady improvement this year resulted in higher adjusted EPS by at about one dollar per share from our original expectations last January.

Jay Malave: Moving to cash flow on chart, six we generated $1 $7 billion of free cash flow in the quarter and $6 2 billion for the full year helped by approximately $625 million and working capital reductions in the fourth quarter from strong and timely conversion of operational milestone achievement to billings and collections.

Jay Malave: We maintained our commitment to shareholders by returning $3 8 billion through dividends and share repurchases this quarter and over $9 billion for the year or 145% of our free cash flow.

Speaker Change: Before getting into the segments, let me pause here to put the numbers in perspective.

Speaker Change: The key takeaways that industry growth is crystallizing based on three converging demand cycles first to meet support requirements of the near and midterm security environment.

Maria Richard-Owen: Also in the quarter, Sikorsky installed the U.S. Army's improved turbine engine on our Raider X, designed for the Army's future attack-reconnaissance aircraft, or FARA program. This final phase of the RaiderX build brings us one step closer to completing the system that will support the Army's high-tech future missions, and we anticipate the first flight of the Raider X in late 2024. Finally, turning to space, United Launch Alliance successfully launched the Vulcan Centaur rocket earlier in January.

Speaker Change: Second to strengthen the effectiveness of existing security platforms and systems with improved sensing connectivity interoperability and embedded intelligence and lastly to recapitalize platforms and systems that may maintain technological superiority in returns over a longer timeframe.

Speaker Change: We expect these demand trends to endure and drive requirements to closely match with Lockheed Martin's advanced technology and systems integration capabilities.

Speaker Change: The long cycle nature of Lockheed Martin systems has in part led to slower growth, but the 2023 results show that it is materializing as evidenced by a 7% increase in ending backlog to a record $161 billion as well as our return to top line growth a year earlier than originally expected.

Maria Richard-Owen: This launch was the first of two flights required to complete National Security Space Certification, and the second planned mission could happen as soon as April. The U.S. Air Force awarded Space a nearly $1 billion contract to develop a new reentry vehicle for the Sentinel intercontinental ballistic missile. The reentry vehicle, or MK-21A, will be mounted atop the centerline.

Speaker Change: And we demonstrated our confidence in the Companys positioning amongst these demand cycles and multi year outlook by again delivering strong shareholder returns over the past two years, we have repurchased about 12% of the current market capitalization.

Speaker Change: Okay back to the segment details and starting with <unk> on chart seven.

Speaker Change: Fourth quarter sales at <unk> were comparable year over year with higher volume at Skunk works and the F 16 production ramp offset by lower volume on F 35, primarily production cost timing.

Maria Richard-Owen: The award follows a technology maturation and risk reduction contract, and the ICBM recapitalization contributes to modernizing strategic deterrence and reinforcing Lockheed Martin's critical technological contributions to the nuclear triad. And last week, the Space Development Agency announced Lockheed Martin was awarded an almost $900 million contract for a Tronch 2 tracking layer to provide 18 smallsats. 16 of those space vehicles are for missile warning and tracking, and two space vehicles are for missile defense infrared sensors to be on board. The first group of nine satellites is expected to launch in April 2027. There is a lot going on at Lockheed Martin, with all of our operations, and with that, I'll turn the call over to Jay and join you later for questions. Thanks, Jim. And good morning, everyone.

Speaker Change: As expected operating profit decreased 7% from the prior year due to lower net profit adjustments.

Speaker Change: For the year sales were up 2% as growth in Skunk works and have 16 more than offset a low single digit decline on F 35 profit.

Speaker Change: Profit declined by 1%, primarily due to lower profit adjustments.

Speaker Change: Book to Bill for the year was $1 four leading to 6% growth in the backlog to $60 billion with nearly 600 aircraft across all production platforms in the backlog.

Shifting the missiles and fire control on page eight sales in the quarter decreased 4% year over year, driven by lower volume on Pac three due to supplier cost timing, partially offset by production ramps on Jasmine and Lorenzo.

Speaker Change: Segment operating profit decreased 12% year over year as expected due to the lower volume and loss recognition related to a classified program.

Speaker Change: For the year sales decreased 1% year over year as growth in tactical and strike missiles were offset by program transitions at sensors, and global Sustainment and integrated air and missile defense supplier cost timing.

Jesus Malave: Today, I will recap our fourth quarter and full year 2023 financial results and provide our initial guidance for 2024. As I describe our results, please follow along with the web charts we have posted with our earnings released today. On chart four, we'll start with the fourth quarter results for consolidated sales and segment operating profits. We had a better than expected close to the year, nearly matching last year's record fourth quarter.

Operating profit was down 6% due to lower profit adjustments and the classified program loss.

Speaker Change: The bill for the year was one three leading to 12% growth in backlog to $32 billion share.

Speaker Change: Driven by strong demand for tactical and strike Mrs.

Speaker Change: Turning to rotary and mission systems on page nine sales declined 2% in the quarter driven by lower volume across a handful of programs within our integrated warfare systems, and sensors and training and logistics systems lines of business, partially offset by higher sales Thats, a core ski from deliveries of international.

Maria Richard-Owen: Sales exceeded internal expectations by close to a billion dollars, with the improvement largely due to material throughput, leading to a less than 1% year-over-year decline in the quarter and a sign of improving synchronization between Lockheed Martin's demand signals and supply chain fulfillment. The strong finish led to about 2.5% sales growth for the year, which was about $2 billion stronger on an absolute basis than originally expected last January. Overall segment operating profit in the quarter was also better than expected on the higher sales volume, but it was down 1% year-over-year due to lower net profit adjustments and lower equity earnings.

Speaker Change: Blackhawks.

Speaker Change: Operating profit increased 2%, mainly due to favorable contract mix within our <unk> portfolio.

For the year sales were up 1% as growth in IW assess.

From radar and Battle management system ramps more than offset declines in the other lines of business operating profit declined 2%, primarily due to lower profit adjustments.

Book to Bill for the year was one four with backlog growing 8% to $38 billion base.

Speaker Change: Based on strong order intake on Sikorsky platforms, as well as radar and Battle management systems.

Speaker Change: On chart 10, as expected space growth moderated in the quarter with sales increasing 3% year over year.

Maria Richard-Owen: The bill was $1.15 for the year, with strength across all four segments. Moving to earnings per share on chart 5, GAAP EPS grew 2% year over year with lower segment profit and higher interest expense more than offset by benefits from the lower share count and fewer mark-to-market losses. Excluding mark-to-market activity and other non-recurring charges, adjusted EPS was up 11 cents year-over-year, or 1%.

Speaker Change: Driven by higher volume and strategic and missile defense, primarily from Nextgen interceptor as that program advances from its success successful.

Speaker Change: Full completion of preliminary design review towards the critical design review milestone.

Speaker Change: Operating profit increased 31% compared to 22022, driven by higher net profit adjustments across the portfolio.

Speaker Change: For the year sales increased 9% with growth across all lines of businesses.

Maria Richard-Owen: For the year, Adjusted EPS was $27.82, up 2% year-over-year and consistent with sales. The steady improvement this year resulted in higher adjusted EPS by about a dollar per share from our original expectations last January. Moving to cash flow, on chart 6, we generated $1.7 billion of free cash flow in the quarter and $6.2 billion for the full year. Helped by approximately $625 million in working capital reductions in the fourth quarter from strong and timely conversion of operational milestone achievement to billings and collections. We maintained our commitment to shareholders by returning $3.8 billion through dividends and share repurchases this quarter and over $9 billion for the year, or 145% of our free cash flow. Before getting into the segments, let me pause here to put the numbers in perspective. The key takeaway is that industry growth is crystallizing based on three converging demand cycles. First, to meet support requirements of the near and mid-term security environment. Second, to strengthen the effectiveness of existing security platforms and systems with improved sensing, connectivity, interoperability, and embedded intelligence.

Speaker Change: Profit grew by 10% as benefits from higher profit adjustments and volume more than offset lower ULA equity income.

Speaker Change: <unk> backlog grew again in fourth quarter and remains at a solid $30 billion almost 225 times sales.

Speaker Change: Now shifting to the outlook for 2024 on page 11.

Speaker Change: Before discussing our expectations I'd like to highlight a few key assumptions embedded within our guidance for the year.

Speaker Change: Based on recent progress made in budget negotiations, we assumed the U S government passes appropriations bills by March consistent with the funding levels within the President's FY 'twenty for budget request equating to approximately 3% topline growth for the Dod.

Speaker Change: 135, as Jim stated, we're targeting between 75 to 110 deliveries commencing in the third quarter.

Speaker Change: In addition, we anticipate sufficient progress being made on the MFC classified program to result in the recognition of losses from two production lots amounting to approximately 50 basis points of margin headwind against our consolidated results.

Speaker Change: That framework in mind, we anticipate sales between $68 five and $70 billion.

Speaker Change: With the midpoint that represents approximately two 5% growth.

Speaker Change: At the midpoint, we expect growth in three of the four segments with MFC, leading the way at 7% growth from its strong munitions backlog at the high end all four segments would grow.

Speaker Change: Segment operating profit is expected to be.

Speaker Change: Between $775 seven $3 $75 billion down at the midpoint as lower.

Maria Richard-Owen: And lastly, to recapitalize platforms and systems that maintain technological superiority and deterrence over a longer time frame. We expect these demand trends to endure and drive requirements that closely match Lockheed Martin's advanced technology and systems integration capabilities. The long-cycle nature of Lockheed Martin's systems has, in part, led to slower growth, but the 2023 results show that it is materializing, as evidenced by our 7% increase in ending backlog to a record $161 billion, as well as our return to top-line growth a year earlier than originally expected. And we demonstrated our confidence in the company's positioning amongst these demand cycles and multi-year outlook by again delivering strong shareholder Over the past two years, we have repurchased about 12% of our current market capitalization.

Speaker Change: The profit adjustments and the MFC classified losses more than offset volume benefits.

Speaker Change: Excluding the MFC classified program 50 basis point basis points impact underlying margins in the balance of the portfolio are expected to be approximately 11%.

Speaker Change: Our net <unk> pension adjustment declines around $400 million from last year to a little less than $1 7 billion for 2024, due primarily to lower Fas pension income.

Speaker Change: The pension headwind along with lower segment profit and higher interest expense led to lower expected EPS year over year to b to b to BB between 25.

Speaker Change: $1 65, and $26 35.

Speaker Change: For purposes of clarity on page 12, we've included in EPS walk at the midpoint of the range.

Benefits from volume mix provide about 55.

With the impact of the MFC classified program losses, netting down segment operating profit to a 35% decline.

Speaker Change: Total SaaS Cas pension is about a $41 40 headwind with higher taxes and interest more than offset by the lower share count.

Maria Richard-Owen: Okay, back to the segment details and starting with aeronautics on chart 7. Fourth quarter sales at Arrow were comparable year-over-year, with higher volume at Skunk Works and the F-16 production ramp offset by lower volume on the F-35, primarily production cost timing. As expected, operating profit decreased 7% from the prior year due to lower net profit. For the year, sales were up 2% as growth in Skunk Works and F-16 more than offset a low single-digit decline on F-35. However, profit declined by 1% primarily due to lower profit adjustment.

Speaker Change: Our free cash flow estimate for 2020 fours range to between 6 billion and $6 3 billion.

Speaker Change: So bringing it altogether.

Speaker Change: We expect continued sales growth in 2024 off the higher 2023 base, some profit and EPS pressure based on loss recognition timing, but with continued solid cash generation and.

Speaker Change: And capping it off with another year of capital.

Speaker Change: Deployment.

Speaker Change: So in summary on page 13, we.

Speaker Change: We closed out 2023 with record backlog and positive momentum that will carry us into 2024 with a line of sight to sustained out year growth in sales profit and free cash flow.

Speaker Change: Of course, we will continue to invest in <unk> as part of our strategy to ensure our people processes and systems remain the most advanced in the industry.

Maria Richard-Owen: Booked a bill for the year was $1.14, leading to 6% growth in the backlog to $60 billion, with nearly 600 aircraft across all production platforms in the backlog. Shifting the Missiles and Fire Control on page 8, sales in the quarter decreased 4% year-over-year, driven by lower volume on Pac-3 due to supplier cost timing, partially offset by production ramps on JASM and LRASM, segment operating profit decreased 12% year-over-year as expected due to the lower volume and loss recognition related to a classified program For the year, sales decreased 1% year-over-year as growth in tactical and strike missiles were offset by program transitions at sensors and global sustainment and integrated air and missile defense supplier cost, Operating profit was down 6% due to lower profit adjustments and the classified program loss.

Speaker Change: And we remain committed to disciplined and dynamic capital returns to shareholders with that lowest let's open up the call for Q&A.

Speaker Change: Thank you if you wish to ask a question. Please press the one then zero on your Touchtone phone.

Speaker Change: You will hear it time, Erin now tier, indicating that you've been placed in the queue you.

Speaker Change: You may remove yourself from queue at any time by pressure number one zero again.

Speaker Change: Using a speakerphone.

Speaker Change: Please pickup your handset before pressing the number once again if you have a question. Please press from London zero at this time.

Speaker Change: And our first question is from Myles Walton from Wolfe Research. Please go ahead.

Myles Walton: Thanks, Good morning, I was hoping to lead off with Arrow and the F 35 in particular.

Myles Walton: And the margins number one that you are looking for and 24 are down about 40 basis points is that primarily on lower incentives as a result of the delays in delivery and then more broadly for the supply chain on the F 35.

Myles Walton: Given the absence of the deliveries.

Myles Walton: Can you continue to simply build inventory or is there a point at which you would actually have to slow down the supply chain.

Maria Richard-Owen: Billed revenue for the year was $1.3, leading to 12% growth in backlog to $32 billion, driven by strong demand for tactical and strike missiles. Turning to Rotary Admission Systems on page 9, sales declined 2% in the quarter, driven by lower volume across a handful of programs within our integrated warfare systems and sensors and training and logistics systems lines of business.

Speaker Change: Okay. Thanks miles on the margins for F 35, what were seeing in 2024 are lower favorable profit adjustments and so it's really two fold one of it is the F 35, where.

Speaker Change: As we make progress on the.

Speaker Change: The ETR three program.

Speaker Change: As well as getting ourselves into production, it's difficult to take risks and rely on risk retirements as we are still facing this program and the progress we're making there and so we assume that the profit adjustments slowdown in 2024 and 35 program.

Maria Richard-Owen: Although partially offset by higher sales at Sikorsky from deliveries of international black, operating profit increased 2% mainly due to favorable contract mix within our IWSS portfolio. For the year, sales were up 1% as growth in IWSS, from radar and battle management system ramps, more than offset declines in the other lines of business. Operating profit declined 2% primarily due to lower profit adjustment.

Speaker Change: There's also some headwinds on the <unk> hundred 30 program, where we're seeing the effects of inflation and also some disruption related to supply chain. Some pressures that we've had there and so when you look at that decline year over year Youre talking about 30 basis points, I'd say half and half between C 130.

Speaker Change: F 35 on.

Speaker Change: On the production cadence for F 35, yes, we feel pretty confident in where we are.

Speaker Change: Through the third quarter.

Speaker Change: To the extent that there were any delays beyond that we would have to revisit our production cadence at that point in time, but right now all signs are pointing to.

Maria Richard-Owen: The booked bill for the year was $1.14 billion, with backlog growing 8% to $38 billion, based on strong order intake on Sikorsky platforms, as well as radar and battle management systems. On chart 10, as expected, space growth moderated in the quarter, with sales increasing 3% year-over-year. Driven by higher volume in strategic and missile defense, primarily from NextGen Interceptor, as that program advances from its successful completion of preliminary design review towards the critical design review milestone. Operating profit increased 31% compared to 2022, driven by higher net profit adjustments across the portfolio. For the year, sales increased 9% with growth across all lines of business.

Speaker Change: Our production and deliver restart here in acute in the third quarter.

Speaker Change: Okay. Thank you.

Speaker Change: Thank you and the next question is from the line of Scott <unk>.

Scott: Deutsche Bank. Please go ahead.

Scott: Alright.

Scott: Morning.

Scott: Good morning.

Scott: Jay I hate to ask on 2025, but at a high level to 10, 5% total company margin guide for 'twenty four is that the right jumping off point for thinking about 25 or is that the 11% underlying margin or is it. The 10, 8% margin you did in 2003, just in terms of identifying jumping off point for thinking about 25%, Yes, I think you do have to stop.

Scott: At the $10 5 million to jump off.

Scott: Do have a line of sight and a path to get overall back to 11%, including <unk>.

Scott: The absorption of these losses on the MSC classified program, but it's going to be a gradual march back up and so I wouldn't expect it to snap back in 2025, I would expect there to be in the range of say 10 to 20 basis points of improvement.

Maria Richard-Owen: And profit grew by 10% as benefits from higher profit adjustments and volume more than offset lower ULA equity income. Space Backlog grew again in the fourth quarter and remains at a solid $30 billion, or almost 2.25 times sales. Shifting to the outlook for 2024 on page 11, Before discussing our expectations, I'd like to highlight a few key assumptions embedded within our guidance for the year. First, based on recent progress made in budget negotiations, we assume the U.S. government passes appropriations bills by March, consistent with the funding levels within the President's FY24 budget request, equating to approximately 3% top-line growth for the DoD. On the F-35, as Jim stated, we're targeting between 75 and 110 deliveries commencing in the third quarter. In addition, we anticipate sufficient progress being made on the MFC Classified Program to result in the recognition of losses from two production lots, amounting to approximately 50 basis points of margin headwind against our consolidated results.

Scott: Starting in 'twenty, five and not to continue to grow at that rate until we get back up to 11.

Speaker Change: Thank you and your next question is from Gavin Parsons from UBS equity Research. Please go ahead.

Speaker Change: Hey, good morning, good morning.

Gavin Parsons: Jay what is the pension contribution schedule look like beyond 2024, and do you have any in the opportunity to pull that forward or use the balance sheet to offset that.

Jesus Malave: A good question and that's something that we've contemplated where we are from a baseline perspective zero contributions required in 2020 for 2025, we're looking at in the range of about $1 billion of required contributions there and so.

Jesus Malave: We're always looking at whether or not there's an opportunity to pull forward.

As you mentioned use the utilization of our strong balance sheet to potentially do that we haven't made any firm decisions on that but that's definitely an opportunity thats under consideration for us.

Jesus Malave: Thanks.

Speaker Change: Thank you and our next question is from the line of Peter Kubicki from Alembic Global. Please go ahead.

Hey, good morning, guys good morning.

Peter Kubicki: J J could you give us a sense for how much. The 24 guide is impacted by what looks like on the order of a six month delay here to the government's budget and still a little bit of lack of clarity on the supplemental.

Yeah for the most part.

J: It's not really impacted significantly in our case, we're able to.

Maria Richard-Owen: With that framework in mind, we anticipate sales between $68.5 and $70 billion, with a midpoint that represents approximately 2.5% growth. At the midpoint, we expect growth in three of the four segments, with MFC leading the way at 7% growth from its strong munitions backlog. At the high end, all four segments would grow. However, segmented operating profit is expected to be between $7.175 and $7.375 billion, down at the midpoint, as lower expected profit adjustments and the MFC classified losses more than offset volume benefits. Excluding the MFC Classified Program 50 basis points impact, underlying margins in the balance of the portfolio are expected to be approximately 11%. Our net FAS-CAS pension adjustment declines around $400 million from last year to a little less than $1.7 billion for 2024, due primarily to lower FAS pension increases. The pension headwind, along with lower segment profit and higher interest expense, led to lower expected EPS year-over-year between $25,000 and $25,000.

J: The buildup of inventories and then as we get the funding we were able to take that the sales and so for the most part we've kept all of our processes intact intact that becomes more difficult. If the process extends beyond March and Thats why I was very clear in my comments that we're dependent on this happening that the budget getting clarity and finalization.

J: In March because going beyond that makes it very just makes it difficult for things to get on contract and you run out of runway in the year to convert those into sales.

Speaker Change: Okay I appreciate it and then anything on Big Awards Youre expecting in 'twenty, four and maybe the timing of <unk>.

Well just just some key things that we're talking about from sales perspective lot 18, 19 is a big one for the F. 35 program. We also have some long lead.

Speaker Change: F 35 awards that we would be.

Expecting as well.

Speaker Change: We've got things there are some classified contracts across the portfolio I can't really get into any beyond that but youre talking multi billions of dollars. There that we have in our order order plan for this year there are things like our Pac three orders, which has multiple billions of dollars. Therefore 2024 requirements.

Speaker Change: And also I'd say hypersonic AD space, particularly on Cps is another one that could approach $2 billion. So there's a number there as those get clicked off in the year, We'll certainly report on those and keep you apprised of the progress.

Maria Richard-Owen: $26.65 and $26.35. For purposes of clarity, on page 12, we've included an EPS walk at the midpoint of the range. Benefits from volume mix provide about $0.55, with the impact of the MFC classified program losses netting down segment operating profit to a $0.35 decline. Total FASCAS pension is about a $1.40 headwind, with higher taxes and interest more than offset by the lower share cost.

Speaker Change: Thank you.

Speaker Change: Thank you. The next question is from the line of Jason Gursky from Citi Research. Please go ahead.

Jason Gursky: Hey, Jay just a quick clarification and then one for Jim sorry, if I missed this but.

Jason Gursky: The deliveries that you are expecting for the F 35, this year with the acceptance on <unk> III.

Happening potentially in the third quarter can you discuss a little bit about the cadence throughout the year do you expect to deliver some F 30 fives through throughout the year and.

Jason Gursky: And maybe the older version of it in the first half of the year just trying to get a sense of whether you are truly doing 75 100 aircraft in the second half of the air and what does that tell us about.

Jason Gursky: Tensile for deliveries.

Jason Gursky: In 2025 can you get to 200 in that year is a bit of a catch up and then Tim for you.

Maria Richard-Owen: A free cash flow estimate for 2024 is ranged between $6.0 billion and $6.3 billion. So, bringing it all together, we expect continued sales growth in 2024 off the higher 2023 base. Some profit and EPS pressure based on loss recognition timing, but with continued solid cash generation and capping it off with another year of capital deployment. So, in summary, on page 13, we close out 2023 with record backlog and positive momentum that will carry us into 2024 with a line of sight to sustained out-year growth in sales, profit, and free cash flow. Of course, we will continue to invest in OneLMx as part of our strategy to ensure our people, processes, and systems remain the most advanced in the industry, and we remain committed to disciplined, dynamic capital returns to shareholders. With that, Lois, let's open up the call for Q&A. Thank you. If you wish to ask a question, please press 1 then 0 on your touchtone phone. You will hear a tone or annunciator indicating that you've been placed into Q. You may remove yourself from Q at any time by pressing the 1, then 0 again.

Speaker Change: Just overall expectations on <unk>.

Speaker Change: Bookings book to Bill for this next year based on the pipeline that Youre seeing and maybe just kind of update us on your current thoughts on the competitive environment.

Speaker Change: Fixed price versus cost plus and how you how the industry.

Speaker Change: You all specifically are kind of reacting to the contracting environment and what's being asked of you and whether you're toggling back more towards less risky programs. Thanks.

Speaker Change: So let me, let me get into the deliveries.

Speaker Change: Jason.

Jason Gursky: Do have a handful of deliveries we would expect in the first half but for the most part you are talking.

Jason Gursky: 90% of the SP anticipated deliveries actually will happen in the back half of the year.

So I think Thats just the way to think about just a handful really in the first half.

Jason Gursky: Maybe I'll kind of give a little bit of color and then hand it over to Jim.

Jim: For the year, we still expect there to be strong demand and we have a pretty solid line of sight to a book to bill that would be above one yet again in 2024 and so.

Obviously these things have to to materialize. The budget has to be approved and all these things have to happen, but the line of sight is there for continued growth in orders.

Jim: As well as in our backlog a couple of things to you just on the question about cost plus.

Jim: The interesting thing is that part of the margin pressure that we saw in 2023 was due to mix or percent of sales of cost type contracts went from 38% in 2022% to 41% in 2023 that in itself caused some margin pressure of about 20 basis points relative to what we were.

Operator: If you are using a speakerphone or Bluetooth, please pick up your handset before pressing the number. Once again, if you have a question, please press 1 then 0 at this time. And our first question is from Myles Walton from Wolf Research. Please go ahead.

Jim: <unk> in the year and so we're actually seeing an uptick in cost plus contracts, we think which we think bodes well for in terms of.

Risk tolerance in the way some of these stronger technological types of programs will.

Myles Walton: Thanks. Good morning. I was hoping to lead off with Arrow and the F-35 in particular. And the margins, number one, that you're looking for in 24 are down about 40 basis points. Is that primarily due to lower incentives as a result of the delays in delivery? And then more broadly, for the supply chain on the F-35, given the absence of deliveries, can you continue to simply build inventory, or is there a point at which you'd actually have to slow down the supply chain? Thanks.

Jim: We will be contracted for and so I think that is generally speaking a favorable trend well. The other thing that we're just to talk about.

Jim: What we're thinking about contractually and Jim has really led the way here as if we are employing a lot more pricing discipline and we have.

Jim: More recently and we're looking at things in ensuring that this is just a more analytical support for the way we approach pricing that we capture any types of technical technological.

Speaker Change: Advantages that we may have also that as we make an assessment of risk any of the contracting vehicles appropriate to that risk within our pricing accounts for that risk as well and so that's the way we've been approaching things for for really this year going into 2024, and I'll hand, it over to Jim Yes, sure. Jay So look there's a near term and a long term.

Maria Richard-Owen: Okay, thanks, Myles. On the margins for the F-35, what we're seeing in 2024 are lower favorable profit adjustments. And so it's really twofold.

Maria Richard-Owen: One of them is the F-35, where, as we make progress on the ETR3 program, as well as get ourselves into production, it's difficult to take risk and rely on risk retirements as we're still facing this program and the progress we're making there. And so we assume that the profit adjustments will slow down in 2024 on the F-35 program. There are also some headwinds on the C-130 program, where we're seeing the effects of inflation and also some disruption related to supply chains and pressures that we've had there. And so when you look at that decline year over year, you're talking about 30 basis points, let's say half and half between the C-130 and the F-35.

Jim: Approach that we're taking to.

Jim: Government contracting with industry in the near term piece of it is a lot of what Jay just described really matching the pricing and the risk profile within our company I'll say I don't know what other companies are doing or how they are making their decisions, but we've recognized and I've said to our senior customer base look we're not monopsony.

Jim: Environment here, meaning there is a single buyer for.

Jim: For the most part for almost everything that we make or Boeing defense makes her E mail dynamic space.

And.

Jim: I guess, the government's credit and one in a way they have been taking advantage of that monopsony power. If you will.

Jim: Over the industry and what's happened as a result of that over the last number of years or even decades is you have lots of programs, which are over cost cost overruns, right, whether fixed price or cost plus and you have scheduled delays because what that monopsony environment can do is give so much power to the buyer that some.

Maria Richard-Owen: On the production cadence for the F-35, yes, we feel pretty confident in where we are through the third quarter. To the extent that there were any delays beyond that, we would have to revisit our production cadence at that point in time. But right now, all signs are pointing to our production and delivery restart here in the third quarter. Okay, thank you.

Jim: The competitors feel that there are a must win programs for them that they will take.

Jim: Tremendous risk on cost and pricing and tremendous cost on the ability to technically deliver these capabilities. So when you multiply those two risk together you get a lot of cost overruns of lot of scheduled delays.

Maria Richard-Owen: Thank you. And the next question is from the line of Scott Duschel from Deutsche Bank. Please go ahead. Hey, good morning.

Scott Duschel: Good morning Jay, I hate to ask about 2025, but at a high level, is the 10.5% total company margin guide for 2024 the right jumping off point for thinking about 2025, or is it the 11% underlying margin, or is it the 10.8% margin you did in 2023, just in terms of identifying the jumping off point for thinking about 2025? Thank you. Yeah, I think you do have to start at 10.5 to jump off, and we do have a line of sight and a path to get overall back to 11%, including the absorption of these losses on the MSC classified program, but it's going to be a gradual march back up, and so I wouldn't expect it to snap back in 2025. I would expect there to be in the range of, say, 10 to 20 basis points of improvement starting in 2025 and that to continue to grow at that rate until we get back up to 11. Thank you. And your next question is from Gavin Parsons from UBS Equity Research. Please go ahead. Hey, good morning.

Programs reviewed.

Jim: Reviewed by Congress et cetera, so I've been advocating in the near term and certainly implementing with our company. We don't have any must win programs at Lockheed Martin anymore.

Jim: If we have a good business opportunity with a balanced price risk profile, we will bid if not we will not bid.

If we hit our limit parameters, we won't go beyond those a competitor may win so be it.

Jim: So that's our near term approach to this.

Jim: The longer term approaches.

Jim: In addition to delivering products that we in our cohorts in the traditional defense industry do so well.

Jim: We need to start migrating towards delivering capabilities right capability would include either products that are already fielded and our new products, but especially digital technologies, which is why we are collaborating so with so much effort with commercial tech companies large and small because we can value price capabilities right.

Jim: If we sell products and that's all we do as an industry. We are kind of locked into the far the federal acquisition regulation as it is written today, which means even if fixed priced contract you've got to provide all your cost information right and you have to do it often every year, even with a multiyear fixed price and there can be adjustments. So we want to move.

Maria Richard-Owen: Good morning Jay, what does the pension contribution schedule look like beyond 2024, and do you have any opportunity to pull that forward or use the balance sheet to offset that? Yeah, good question. That's something that we contemplate just where we are from a baseline perspective, with zero contributions required in 2024. 2025, we're looking at in the range of about a billion dollars of required contributions, and so you know, we're always looking at whether or not there's an opportunity to pull forward, as you mentioned, use the utilization of our strong balance sheet to potentially do that. We haven't made any firm decisions on that, but that's definitely an opportunity that's under consideration. Thanks. Thank you, and our next question is from the line of Pete Skibitski from Alambeg Global. Please go ahead. Hey, good morning, guys.

Jim: Move.

Jim: As briskly as we can as an industry with our commercial partners to their kind of pricing, which is value based subscription that's going to take time, it's going to take changes in government, it's going to probably take literally acts of Congress to do it but that will be the thing that will make our industry healthier on one hand, other traditional defense and aerospace industry, but it'll also and.

Jim: Invite in the commercial tech companies, who are basically if you look at the broad scope investing tenex. What we are in R&D and we want to bring a lot of that 10 X R&D and all of that talent over into the.

Jim: The defense Department as part of their supply chain, but it's really tough under the bar for those companies to put time and attention and effort and to do.

Jim: So that's the long term a long term solution, but the near term solution will also continue.

Speaker Change: Thank you. Your next question is from Doug Harned from Bernstein. Please go ahead.

Doug Harned: Good morning, Thank you.

Doug Harned: Yes.

Doug Harned: As you look at Tech refresh three.

Doug Harned: Delay and then going longer.

Pete Skibitski: Jim or Jay, can you give us a sense of how much the 24 guide is impacted by what looks like a, you know, on the order of a six-month delay here in the government's budget and, you know, still a little bit of lack of clarity on the supplementals? For the most part, Pete, it's not really impacted significantly. In our case, we're able to build up inventories, and then as we get the funding, we're able to take that to sales. For the most part, we've kept all of our processes intact. That becomes more difficult if the process extends beyond March, and that's why I was very clear in my comments that we're dependent on this happening, the budget getting clarity and finalization in March. Going beyond that just makes it difficult for things to get on contract, and you run out of runway in the year to convert those into sales. Okay, I appreciate it.

Doug Harned: As you really want to build out the full kind of block four capabilities.

Doug Harned: Continue to seem to expand.

Doug Harned: First as tech refresh three takes longer and.

Doug Harned: And then as you look toward the kind of multi year trajectory on block for implementation.

Doug Harned: How do you see delays here affecting your production rate knowing that you've been trying to produce.

Doug Harned: Thats, a full 156 type rate, but can that continue.

Doug Harned: As you look at these challenges if they get more difficult.

Speaker Change: Look Doug it's Jim I think we can continue at this rate demand from the U S services.

Doug Harned: And our international customers Air Force's Navy's et cetera around the world is they need the aircrafts right they've got a recapitalization recapitalize the planes that they are still flying that I was trying to get when I went to pilot training and 1983 right. So this is this is essential that this production line keep up it's.

Maria Richard-Owen: And then anything on big awards you're expecting in 24 and maybe the timing of NGAB? Well, just some key things that we're talking about from a sales perspective. Lot 18-19 is a big one for the F-35 program. We also have some long-lead F-35 awards that we would be expecting as well. We've got things, there are some classified contracts across the portfolio. I can't really get into any beyond that, but you're talking multi-billions of dollars there that we have in our order plan for this year. There are things like PAC-3 orders, which are multiple billions of dollars for F-24 requirements, and also I would say hypersonics at space, particularly in CPS, is another one that can approach $2 billion. So there's a number there, and as those get clicked off in the year, we'll certainly report on those and keep you apprised of the progress. Thank you. Thank you. The next question is from the line of Jason Gursky from City Research. Please go ahead.

Doug Harned: It's basically it's the recapitalization of.

Doug Harned: The Allied fighter aircraft for US is the F 35, and so.

Doug Harned: The key to that is full transparency and.

Doug Harned: Realizing the reality of the situation when Youre trying to drive this much technology into air vehicle.

Doug Harned: You've got to be honest about the schedule what can industry do what can the test and evaluation community handle.

Doug Harned: And the various military to accept that technology, and what's the supply chain capacity and we're being.

Doug Harned: Brutally honest with.

Doug Harned: Our services and our joint program office as to what we think industry can do with us and our airplane and industry is who makes the radar industries, who makes the.

Intellectual optical system.

Doug Harned: The industry is who makes the electronic warfare suite, it's not us. So we have to be brutally honest is as an industry.

Doug Harned: And with our suppliers inputs to that with the government and say what is feasible to keep the production rate up I think thats starting to get traction.

Jason Gursky: Hey Jake, just a quick clarification and one for Jim, and sorry if I missed this, but the deliveries that you're expecting for the F-35 this year with the, you know, the acceptance of the P-3 happening potentially in the third quarter, can you discuss a little bit about the cadence throughout the year? Do you expect to deliver some F-35s throughout the year and maybe, you know, the older version of it in the first half of the year? Just trying to get a sense of whether you're truly doing 75 to 100 aircraft in the second half of the year and what that tells us about, you know, the potential for deliveries in 2025. Can you get to 200 in that year as a bit of a catch-up?

Doug Harned: Hope it gets more traction because we cannot afford to.

Doug Harned: The over optimistic in the ability to deliver these technologies as rapidly as one might like there are real technical and physical challenges to doing this.

Doug Harned: And while our commitment to the government.

Doug Harned: Neither the service Chiefs and our allies is I will tell you honestly, what we think industry can do with the jet.

Doug Harned: And if you want to push it beyond that I'll tell you what the risks are and what the cost might be to do it but let's agree on a feasible executable plan for exactly Doug what you talked about.

Maria Richard-Owen: And then, Jim, for you, just overall expectations on, you know, bookings, book-to-bill for this next year based on the pipeline that you're seeing, and maybe just kind of update us on your current thoughts on the competitive environment and, you know, fixed price versus, you know, cost-plus, and how the industry and you all specifically are kind of reacting to the contracting environment and what's being asked of you, and Thanks. So, let me get into the deliveries. Jason, you know, we do have a handful of deliveries we expect in the first half, but for the most part, you're talking, 90% of the anticipated deliveries actually will happen in the back half of the year. And so I think that's just the way to think about just a handful, really, in the first half. You know, maybe I'll kind of give it a little bit of color and then hand it over to Jim.

Speaker Change: Thank you. Your next question is from Sheila Dang.

Speaker Change: Jefferies. Please go ahead.

Sheila Dang: Good morning, guys. Good morning, Tim I don't want to talk about what happened in 1983, but.

Sheila Dang: In terms of the puts and takes.

Sheila Dang: Steve If you could just talk about the 7% topline growth you guys had.

Sheila Dang: What are the biggest program drivers there between missile defense and tactical and just on the margins you've already highlighted the 50 bps.

Sheila Dang: During the classified programs are there any offsets and I really appreciate your commentary about the government and how you plan to sell to them. So I was just thinking where do you think that will manifest itself in its portfolio in your portfolio in the back.

Sheila Dang: Can you give any.

Speaker Change: Yes, sure I'll start with the growth drivers.

Speaker Change: For MFC.

Speaker Change: You would expect tactical and strike missiles, so the guided.

Speaker Change: <unk> weapons.

Speaker Change: Hi, Mars Jasmine will RASM all those will continue towards their march towards these ramps for by 2025 and in certain cases, 2026 and 2027. So that is the largest driver of the growth and that's followed by integrated air and missile defense really on the back of pad III. So we will start seeing a more.

Speaker Change: Significant spike in.

Speaker Change: And Pac three.

Speaker Change: Activity and deliveries over the next few years here as we get to 550 by 2025 and ultimately $6 50 by 2027. So those are the two.

Speaker Change: Really the two business through the lines of business within MFC theyre going to be driving it.

Speaker Change: Which is really should be no surprise.

Speaker Change: And when it gets to moving towards a value pricing model Sheila.

Maria Richard-Owen: The interesting thing is that part of the margin pressure that we saw in 2023 was due to mix. Our percent of sales of cost-type contracts went from 38 percent in 2022 to 41 percent in 2023. That, in itself, caused some margin pressure of about 20 basis points relative to what we were anticipating for the year.

Speaker Change: The first place that's already starting to happen is in command and control.

Speaker Change: Command situational awareness information advantages our customers would call. It. So those are largely digital services right.

Speaker Change: Got sensors on satellites aircraft ships radars.

Speaker Change: Scanning the sky.

Maria Richard-Owen: And so we're actually seeing an uptick in cost plus contracts, which we think kind of bodes well for terms of risk tolerance in the way some of these stronger technological types of programs will be contracted for. And so I think that is, generally speaking, a favorable trend. Well, the other thing that we're, you know, just talking about what we're thinking about contractually, and Jim has really led the way here, is that we just are employing a lot more pricing discipline than we have more recently. And we're looking at things and ensuring that there's just more analytical support for the way we approach pricing, that we capture any types of technological advantages that we may have, also that as we make an assessment of risk And so that's the way we've been approaching things for really this year going into 2024, and I'll hand it over to Jim. Yeah, sure, Jay.

Speaker Change: For Red sensors and space looking for plumes of heat when a missile is launched things like that.

Speaker Change: That's data right. So how do we gathered all of the data from our sensors whatever domain they happen to be in land aerospace et cetera, how do we make intelligent data fusion and then present commanders and decision makers with auctions using AI and other digital services. So.

Speaker Change: This will be probably the first place where we can value price because my goal is to bring in commercial technology to do that digital.

Speaker Change: Digital data fusion evaluation, AI application et cetera, as I said, a minute ago commercial industries investing 10 X, what our aerospace and defense industry could invest in these areas and we need to take advantage of that the only way, they're going to participate in a material fashion and that <unk>.

Speaker Change: History is value pricing theyre not going to provide cost information, it's just not how the industry works, they're not delivering an airplane that you can add up all the costs as it took to make that airplane and give it to the governments. They can give you the margin on top.

Speaker Change: So these command and control systems and they are real programs by the way defense of bond as a program. Like this are 6500 is one that I mentioned and also something called joint fires network, which will be deployed in the Indo pay Com command of the U S. So this is where I think it will start.

James D. Taiclet: So, look, there's a near-term and a long-term approach that we're taking to Government Contracting with Industry, and the near-term piece of it is a lot of what Jay just described, really matching the pricing and the risk profile within our company. Now, I don't know what other companies are doing or how they're making their decisions, but, you know, we've recognized, and I've said to our senior customer base, "Look, we're in a monopsony environment here, meaning there's a single buyer, for the most part, for almost everything that we make or Boeing Defense makes or General Dynamics makes. And, you know, to the government's credit, in a way, they've been taking advantage of that monopsony power, if you will, over the industry.

Speaker Change: And then as we look at mission.

Speaker Change: Emission roadmaps that we have.

Speaker Change: Established and drawn out inside of Lockheed Martin, we're now sharing and have been sharing with the U S services and Vod, we're looking for capability gaps where digital technology can really make a difference right. So I'll give you one really quick one so if we could get a direct feed from an orbiting sat.

Speaker Change: Light scanning a wide swath of the Pacific to find ships and actually directly.

Speaker Change: Provide that data link and that information to aircraft flying in the area then those aircrafts convector towards those targets and turn on their radars and get a much more precise location and maybe even a tracking solution to sink the ship if that's what's needed and so that's a that's a.

Maria Richard-Owen: And what's happened as a result of that over, you know, the last number of years or even decades is that you have lots of programs that are over-cost, cost overruns, right, whether fixed price or cost plus, and you have schedule delays because what that monopsony environment can do is give so much power to the buyer that some of the competitors feel that there are must-win programs for them that they will take, you know, tremendous risks on So when you multiply those two risks together, you get a lot of cost overruns, a lot of schedule delays, programs, you know, reviewed by Congress, et cetera. So, I've been advocating for the near term, and certainly implementing with our company, that we don't have any must-win programs at Lockheed Martin. If we have a good business opportunity with a balanced price-risk profile, we will bid. If not, we will not bid.

Speaker Change: Mission gap.

Speaker Change: Capability gap that we would have an anti ship.

Speaker Change: <unk> mission and so how do we value price that because that's basically a data management.

Speaker Change: Exercise, which requires what we call <unk> Dot mill it requires artificial intelligence solution within it and it requires the management of that data at various classifications, which is something not many companies can do besides those in our industry. So we can value price something.

Speaker Change: Like that.

Speaker Change: And I think it would be a capability gap that would be interesting to the department of defense and they might accept value pricing.

Speaker Change: But.

Speaker Change: Not to take too much time on this topic, but one of the things that we're really advocating for Lockheed Martin and we've got some some friends.

Speaker Change: <unk>.

Speaker Change: The court trying to.

Speaker Change: Work with US on this is how do we set up an adjacent.

Maria Richard-Owen: If we hit our limit parameters, we won't go beyond those. A competitor may win. So be it.

Speaker Change: The acquisition process in the department of defense to traditional acquisition process.

Speaker Change: Designed and reconstituted and originated to purchase digital services versus platforms and products, which is what the traditional acquisition systems built to do that as a heavy lift. It is very complicated it's what I kind of referenced earlier, where you're literally going to need an act of Congress to do.

Maria Richard-Owen: And so that's our near-term approach to this. The longer-term approach is... In addition to delivering products that we and our cohorts in the traditional defense industry do so well, we need to start migrating towards delivering capabilities. So a capability would include either products that are already fielded or new products, but especially digital technologies, which is why we are collaborating with so much effort with commercial tech companies, large and small, because we can value price capabilities. If we sell products, and that's all we do as an industry, we are kind of locked into the FAR, the Federal Acquisition Regulation, as it is written today, which means even a fixed price contract, you've got to provide all your cost information. And you have to do it often every year, even with a multiyear fixed price, and there can be adjustments.

Speaker Change: This but we want to value price as an industry, bringing commercial partners at scale I think the government needs to consider and actually go do this with us.

Speaker Change: Let me just circle back Sheila on the margins in your question I'll use MFC as an example in 2024 when you look at their headwind there headwind is about 200 basis points.

Margin compression in the year 2020 for the MSC classified program.

Speaker Change: <unk> accounted for 230, and so the rest of their business is actually expanding by 30 basis points.

Speaker Change: Doing everything we would expect them to do in their core business.

Maria Richard-Owen: So we want to move as briskly as we can as an industry with our commercial partners to their kind of pricing, which is value-based subscription. That's going to take time. It's going to take changes in government. It's going to probably take acts of Congress to do it.

In general across all of Lockheed Martin the way we are approaching these headwinds.

Speaker Change: It's really threefold first we're just keeping a tight lid on overhead and indirect costs and streamlining that cost structure, where the opportunities exist.

Speaker Change: Second we're driving cost reduction in our direct cost base through supply chain optimization factory productivity and also one ela mix driven efficiencies and then lastly, we talked about about a little bit earlier in the call is just making sure that we're employing pricing discipline across our across our bidding proposals and so those three together will help.

Maria Richard-Owen: But that will be the thing that will make our industry healthier on the one hand, the traditional defense and aerospace industry, but it will also bring in commercial tech companies who are basically, if you look at the broad scope, investing 10x what we are in our industry. And we want to bring a lot of that 10x R&D and all that talent over to the Defense Department as part of their supply chain, but it's really tough under the FAR for those companies, foot time, attention, and effort. So that's the long-term, a long-term solution, but the near-term solution will also help. Thank you. Your next question is from Doug Harned, from Bernstein. Please go ahead.

Speaker Change: US drive to a better result in the future and give us confidence that we'll be able to expand margins even with these headwinds.

Thank you. Your next question is from the line of Sam Thank you.

Sam: <unk> from Jpmorgan. Please go ahead.

Sam: Okay, Thanks, very much and good morning.

Sam: Everyone.

Speaker Change: One clarification and one question.

Speaker Change: Jay on F 35 at the end of 'twenty four should we think about there being maybe 120 undelivered aircraft in the inventory based on the production rate.

Doug Harned: Good morning. Thank you. Good morning.

Doug Harned: As you look at Tech Refresh 3, this delay and then going longer, as you really want to build out the full kind of Block 4 capabilities, which continue to seem to expand. You know, first, as Tech Refresh 3 takes longer, and then as you look toward the kind of multiyear trajectory on Block 4 implementation, how do you see delays here affecting your production rate, knowing that you've been trying to produce sort of at the full 156 type rate, but, you know, can that continue as you look at these challenges, if they get more difficult? You know, look, it's Doug. It's Jim.

Speaker Change: 150, plus and the deliveries you've told us that's.

Jesus Malave: That's the clarification and that inventory, we will have to be worked out over the subsequent year or two and then as far as the question goes I think you've talked about 10 to 20 basis points of segment margin expansion in 'twenty five.

Jesus Malave: If we thought about only one lot exercised on classified missile, that's probably 25 basis points.

Jesus Malave: The margin in Aeronautics seems pretty depressed and 24 so.

Jesus Malave: You would think there may be some potential for expansion there and you just talked about the efforts that youre, making across the company to support margins or there are other discrete headwinds that were not aware of that wouldn't allow you know.

James D. Taiclet: I think we can continue at this rate. You know, demand from the U.S. services and our international customers, air forces, navies, etc. around the world, they need the aircraft, right?

Jesus Malave: That would prevent more than that kind of 10 to 20 basis points that you outlined.

Speaker Change: Yes, let me start with that question first and I'll come back to the F 35, just on the <unk>.

Speaker Change: 2025 margins going forward, yes, it would be essentially one lot versus two however, you got to take into account the volumes.

Maria Richard-Owen: They've got to recapitalize the planes that they're still flying that I was trying to get when I went to pilot training in 1983, right? So this is essential that this production line keep up. Basically, it's the recapitalization of the allied fighter aircraft force, the F-35. And so I think the key to that is full transparency and you know realizing the reality of the situation.

Speaker Change: That are in that lot versus the volumes that were in these first two lots.

Speaker Change: So you really think about it from a gross headwind it doesn't necessarily change all that much because there's more in there.

Speaker Change: And so thats whats keeping the pressure.

Speaker Change: Not just an automatic lift because we're going from two lots to one lot in a subsequent year on the F. 35, I mean, I think what you the way you talked about it Seth is right anywhere between 100 to 120 aircrafts.

Maria Richard-Owen: When you're trying to drive this much technology into an air vehicle, you've got to be honest about the schedule. What can industry do? What can the test and evaluation community handle in the various militaries to accept that technology?

Speaker Change: In terms of undelivered against the $1 56 type of expected delivery rate is the right way to think about it yes.

Maria Richard-Owen: And what's the supply chain? And we're being, I'm brutally honest with our services and our joint program offices about what we think industry can do with us and our airplane. Industry is who makes the radar. Industry is who makes the EOTS, the electro-optical system. The industry is who makes the electronic warfare suite. It's not us.

Speaker Change: Thank you. The next question is from the line of Ron Epstein from Bank of America. Please go ahead.

Speaker Change: Question.

Ron Epstein: I'll do the question first.

Ron Epstein: But what are you thinking about the opportunity for the black Hawk going forward, meaning.

Maria Richard-Owen: So we have to be brutally honest as an industry and with our suppliers' inputs into that with the government and say what is feasible to keep the production rate up. I think that's starting to get traction. I hope it gets more traction because we cannot afford to be over-optimistic in the ability to deliver these technologies as rapidly as one might like. There are real technical and physical challenges to doing this. Well, our commitment to the government, to me, to the service chiefs, and our allies is I will tell you honestly what we think the industry can do with the jet, and if you want to push it beyond that, I'll tell you what the risks are and what the cost might be to do it, but let's agree on a feasible, executable plan for Doug. Thank you. Your next question is from Sheila Kayaoglu from Please go ahead. Good morning, guys. Jim, I don't want to talk about what happened in 1983.

Speaker Change: I don't know we've kind of heard there is some challenges on future vertical lift.

Speaker Change: What what opportunities does that open.

Speaker Change: To you for the Blackhawk.

Ryan: Ryan It's Jim.

Ryan: The Blackhawk.

Ryan: Right.

Ryan: I've gotten to fly it autonomously and by hand actually.

Ryan: I think has a lot of potential there is interest in Congress for modernization of the Blackhawk is a huge fleet out there.

Ryan: And by adding some of these digital capabilities like autonomy and AI to the Black Hawk, which is a really reliable platform that's offline and units today in great numbers and across our allies, that's a real I think value opportunity for the Army's.

Ryan: Of course, and others that use the helicopter. So I do think there's a lot of upside there I don't want to comment on anybody else's programs or how well or not they may be doing but this is a proven scaled vehicle, which with digital technology upgrade and insertion can be very very versatile.

Ryan: And that can be done much more rapidly than new production of new aircrafts. So I do think that there is upside there now the services and Congress have to agree to that and fund those modernizations and keep those those units flying and that'll be up to them, but we are trying to provide them every opportunity to make that decision.

Sheila Kahyaoglu: But in terms of the puts and takes for MFC, if you could just talk about the 7% top line growth you guys have, what are the biggest program drivers there between missile defense and tactical? And just on the margins, you've already highlighted the 50 bps from the classified programs. Are there any offsets?

Maria Richard-Owen: And I really appreciate your commentary about the government and how you plan to sell to them. So I was just wondering, where do you think that'll manifest itself in its portfolio, in your portfolio the fastest? Is it MFC? And specifically, can you give any specifics?

Ryan: Inserting digital and other technologies like autonomy.

That will really make the aircraft much more capable in doing missions like air evacuation resupply of Hot landing zone things like that that when you put it into the entire equation of completing emission it will be a good value to consider it.

Maria Richard-Owen: I'll start with the growth drivers. For MFC, they're what you would expect, tactical and strike missiles, so the guided weapons, the HIMARS, JASM, LORASM, all those will continue their march through these ramps by 2025 and, in certain cases, 2026 and 2027. So that is the largest driver of the growth, and that's followed by integrated air and missile defense, really on the back of PAC-3, so we'll start seeing a more significant spike in PAC-3 activity and deliveries over the next few years as we get to 550 by 2025 and then ultimately 650 by 2027. So those are the two, really the two businesses, the lines of business within MFC that are going to be driving it, which really should not be a surprise.

Ryan: Yeah.

Speaker Change: Thank you and our next question is from the line of Christine Li Wang from Morgan Stanley. Please go ahead.

Speaker Change: Hey, Jim I mean, there's been discussion in the public markets about the depletion of you asked missiles and munitions and a potential shortage.

Speaker Change: From your commentary today, it sounds like supply chain issues continued to linger.

Speaker Change: On the companys ability to convert that demand into revenue.

Speaker Change: Can you talk more about the additional actions you're taking to improve the supply chain's ability to get product to the system and what metrics are you monitoring and how much upside could you see in 2024, if things improve.

Speaker Change: I'll make a couple of comments.

Speaker Change: Ask Jay to follow.

Jesus Malave: The steps that we're taking to take the fragility out of the missile production system.

Maria Richard-Owen: And when it comes to moving towards a value pricing model, Sheila, the first place that's already starting to happen is in command and control, command situational awareness, information advantages, as our customers would call it. So those are largely digital services, right? You've got sensors on satellites, aircraft, ships, radars out scanning the sky, infrared sensors in space, looking for plumes of heat when a missile is launched, things

Our varied one of them is.

Jesus Malave: And it is very specific.

Jesus Malave: We are endeavoring to standup a third solid rocket motor supplier in the United States that can be additive to the industry supply chain, we have today, which hasnt been performing well right.

Jesus Malave: That's one piece more broadly we are using additive manufacturing and we're bringing in.

Jesus Malave: More very suppliers into the supply chain, so that we can get.

Maria Richard-Owen: That's data, right? So how do we gather all this data from our sensors? Whatever domain they happen to be in, land, air, space, et cetera, how do we do intelligent data fusion and then present commanders and decision makers with options using AI and other digital services? So this will probably be the first place where we can value price because my goal is to bring in commercial technology to do that digital data fusion, evaluation, AI application, et cetera. As I said a minute ago, the commercial industry is investing 10x what our aerospace and defense industry could invest in these areas, and we need to take advantage of that. The only way they're going to participate in a material fashion in that industry is through value pricing.

Jesus Malave: The materials, we need from a more diverse set of group of suppliers outside of solid rocket motors.

Jesus Malave: And also we are.

Looking at international opportunities to build this equipment, including in Australia, and in Poland U K and others are kind of on tap for for co production or joint ventures with us to do these things in Germany, I Should've mentioned as well so.

Jesus Malave: These are some of the approaches we're taking.

Jesus Malave: And it really comes down to these three areas which is.

Jesus Malave: How can we on one hand take basic steps anti fragility.

Jesus Malave: More suppliers more diversity.

On the supply chain.

Labor pools, better training those kinds of things.

Jesus Malave: <unk>.

Jesus Malave: Secondly, how can we in store technology to make this more reliable production system, which we just mentioned and then thirdly is how do we get international countries and take advantage of their labor forces their supply sub supply chains et cetera, and get them into the production system. So we look at this in all three areas of our company strategy and apply.

Maria Richard-Owen: They're not going to provide cost information; it's just not how their industry works. They're not delivering an airplane where you can add up all the costs that it took to make that airplane and give it to the government so they can give you the margin. So these command and control systems, and they're real programs, by the way. Defensive Bomb is one such program, AIR 6500 is one that I mentioned, and also something called Joint Fires Network, which will be deployed in the Indo-PACOM command of the U.S.

Jesus Malave: <unk> Tim missile production.

Speaker Change: Anything you want to add yes, I'll just say over the last.

Speaker Change: Year Christine.

Speaker Change: Deployed resources, so we haven't just sat back in.

Speaker Change: Waiting for improvement.

Speaker Change: Depending on the supplier depending on the issues, we have deployed manufacturing engineering resources, we've deployed quality engineering resources and program.

Speaker Change: Management resources.

As well as in certain cases, we've employed we've actually deployed hourly workers to support suppliers in certain cases, and so we've taken a all hands on deck approach, where we've seen the issues become more significant and we've done everything we can to support the suppliers and help them get through I would expect that to continue where we see.

Maria Richard-Owen: So this is where I think it will start. And then as we look at the... Mission Roadmaps that we've established and drawn out inside of Lockheed Martin and that we're now sharing and have been sharing with the U.S. services and DOD, we're looking for capability gaps where digital technology can really make a difference, right? So I'll give you one really quick one.

Speaker Change: These these bottlenecks.

Speaker Change: But as I mentioned earlier, we did see some general.

Speaker Change: Improvement, we are expecting that improvement to continue and.

Speaker Change: <unk> as a potential upside what I would point you to is if we're able to unlock and see a little bit better performance and that would drive us to the high end of our sales profit and EPS range.

Maria Richard-Owen: So if we could get a direct feed from, you know, an orbiting satellite scanning a wide swath of the Pacific to find ships and actually directly provide that data link and that information to aircraft flying in the area, then those aircraft can vector towards those targets and turn on their radars and get a much more precise location and maybe even a tracking solution to sink the ship if that's what it takes. And so that's a And so, you know, how do we value price like that? Because that's basically a data management... This is an exercise that requires what we call 5G.mil, an artificial intelligence solution within it, and the management of that data at various classifications, which is something not many companies can do. Besides those in our...

Speaker Change: Thank you. Our next question is from Matt Akers from Wells Fargo. Please go ahead.

Yeah, Hey, good morning, guys can you talk about the F 16 real quick just latest thoughts on the ramp rate here and also just margins on that program compares.

Speaker Change: So the segment now and then sort of do they get better over time as you kind of come back down the learning curve.

Speaker Change: Yes, so we delivered a five aircrafts in 2023, we would expect that to trip.

Speaker Change: Triple potentially quadruple here in 2024, and so the ramp is certainly in full force we've got over 30 aircrafts, there and whip.

Speaker Change: We ended the year and so that is I think from a delivery standpoint, increasing the production cadence has us all trending well from a profitability standpoint, you may recall, we've had some pressure because it's taken us longer to get to this point and so that put some pressure on our initial contracts here as we fully.

Maria Richard-Owen: So we can value-price something like that. And I think it'd be a capability gap that would be interesting to the Department of Defense, and they might accept value prices. But, you know, not to take too much time on this topic, but one of the things that we're really advocating for at Lockheed Martin, and we've got some friends of the court trying to work with us on this, is how do we set up an adjacent, The acquisition process in the Department of Defense fits traditional acquisition processes designed and reconstituted and originated to purchase digital services versus platforms and products. This is what the traditional act would look like.

Deliver those out and deliver on our subsequent contracts, we will see profitability improve on the F 16 over the next few years.

Speaker Change: The next question is from the line of George Shapiro from Shapiro Research. Please go ahead.

Yes, Hello, Hey, George looking at.

George D. Shapiro: Longer term perspective here, if I look at the margins like from 10 years ago.

Maria Richard-Owen: That is a heavy lift. It is also very complicated. It's what I kind of referenced earlier where you're literally going to need an act of Congress to do this, but if we want to value price as an industry, bring in commercial partners at scale, I think the government needs to consider and actually go. Let me just circle back, Sheila, on the margins in your question. I'll use MFC as an example in 2024. When you look at their headwind, their headwind is about 200 basis points of margin compression in the year 2024. However, the MFC classified program actually accounted for 230.

George D. Shapiro: MFC made 18% Aeronautics made 11.

George D. Shapiro: Space May.

George D. Shapiro: <unk> and so were obviously down and all of those categories. Overall, maybe 200 basis points. Since 10 years ago. So my question is was this due to a lot of fixed price development more aggressive bidding and now you're trying to change that so when we look towards 2025, we actually could see.

George D. Shapiro: Our margins go up from where they would be in 2024, where kind of are.

George D. Shapiro: They just lower margins overall that we expect to see from what we used to see.

Maria Richard-Owen: And so the rest of their business is actually expanding by 30 basis points. And so they're doing everything we would expect them to do in their core business. In general, across all of Lockheed Martin, the way we're approaching these headwinds is really threefold. First, we're just keeping a tight lid on overhead and indirect costs and streamlining that cost structure where the opportunities exist. The second is that we're driving cost reduction in our direct cost base through supply chain optimization, factory productivity, and also LMX-driven efficiency.

Speaker Change: George It's Jim here.

Jim: The story I told a little bit earlier today is what caused that there is margin compression in the whole industry here driven by the monopsony customer a few felt so they've got pretty good at figuring out how to.

Jim: Use their position.

Jim: In the quarter analysis of how they should negotiate contracts and I think youre seeing us.

Jim: And management of <unk>.

Jim: Companies in our traditional space I'll call it.

Our understanding this now.

Jim: The management tends to not necessarily senior management tends not to necessarily be.

Maria Richard-Owen: And then lastly, we talked about a little bit earlier in the call, just making sure that we're employing pricing discipline across all of our bidding proposals. And so those three together will help us drive to a better result in the future and give us confidence that we'll be able to expand margins even with these headwinds. Thank you. Your next question is from the line of Seth Seifman from JP Morgan. Please go ahead. Thanks very much, and good morning everyone.

Jim: Historically wedded to this business model and looking at other ways to to run these companies and so.

Jim: We are taking the shareholders' interest into account in all of the things, we've talked about which should help improve our margins.

Jim: Even though it may result in some difficult discussions with some of the customer base, we're prepared to do that.

Jim: But I think over the last 10 years as you said, there's been a decline and it needs to reverse to have a healthy industry.

Speaker Change: Okay, Hey, Louis I think we're at the top of the hour. So I'm just going to turn it back over to Jim for some final thoughts okay. Thanks Maria so.

Seth M. Seifman: Maybe one clarification and one question. Jay, on the F-35, at the end of 24, should we think about there being maybe 120 undelivered aircraft in inventory based on the production rate of 150 plus and the deliveries you've told us? That's the clarification.

Jim: So over the past 12 months again, I mentioned that people of Lockheed Martin.

Jim: Let Leslie to advance this vision, we have for 20, <unk> century security and transform our company internally.

Seth M. Seifman: And that inventory will have to be worked out over the subsequent year or two. And then, as far as the question goes, I think you talked about 10 to 20 basis points of segment margin expansion in 25. If we thought about only one lot exercised on classified missiles, that's probably 25 basis points. The margin in aeronautics seems pretty depressed at 24, so you'd think there may be some potential for expansion there. And you just talked about the efforts that you're making across the company to support margins. Are there other discrete headwinds that we're not aware of that wouldn't allow or that would prevent more than that kind of 10 to 20 basis points that you outlined?

Jim: And they created produced and delivered cutting edge capabilities that are focused on what the defense Department says has its own strategy that they call integrated the turns.

Jim: And we're trying to maintain our company values, along the way and Thats to do what's right respect others and performed with excellence.

Jim: And all of this yields positive results for our employees that work here, our customers and our suppliers and especially our shareholders. So thanks again for joining us today and we look forward to speaking with you on our next earnings call in April lowest that concludes the call. Thank you.

Speaker Change: Thank you and ladies and gentlemen that does conclude your conference for today. Thank you for your participation and for using AT&T teleconference. You may now disconnect.

Speaker Change: Yeah.

Maria Richard-Owen: Let me start with that question first, and I'll come back to the F-35. Just on the 2025 margins going forward, yes, it would be essentially one lot versus two. However, you've got to take into account the volumes that are in that lot versus the volumes that were in these first two lots. And so when you really think about it from a gross headwind, it doesn't necessarily change all that much because there are more in there.

Maria Richard-Owen: And so that's what's keeping the pressure, you know, there's not just an automatic lift because we're going from two lots to one lot in a subsequent year. On the F-35, I mean, I think what you've talked about it, Seth, is right, anywhere between 100 to 120 aircraft is, in terms of undelivered, against the 156 type of expected delivery rate. It's the right way to think about it Thank you. The next question is from the line of Ron Epstein from Bank of America. Please, I'll do the question first.

Ron Epstein: What are you thinking about the opportunity for the Blackhawk going forward? Meaning?,,,,,,,,,,, I don't know, we've kind of heard there are some challenges for future vertical lift, and what opportunities does that open? Thank you for the black, Ron, it's Jim.

James D. Taiclet: Look, look, there's the Blackhawk, and I've gotten to fly it autonomously and by hand, actually. I think it has a lot of potential. There's interest in Congress for the modernization of Black Hawk. There's a huge fleet out there, and by adding some of these digital capabilities, like autonomy and AI, to the Black Hawk, which is a really reliable platform that's out flying in units today in great numbers and across our allies, that's a real, I think, value opportunity for the armies and ring corps and others that use the helicopters. So I do think there's a lot of upside there. But I don't want to comment on anybody else's programs or how well or not they may be doing.

Maria Richard-Owen: But this is a proven, scaled vehicle that, with digital technology upgrade and insertion, can be very, very versatile, and that can be done much more rapidly than the new production of new aircraft. So I do think that there's upside there. Now, the services and Congress have to agree to that and fund those modernizations and keep those units flying, and that'll be up to them, but we're trying to provide them every opportunity to make that decision by introducing digital and other technologies like that will really make the aircraft much more capable of doing missions like air evacuation, resupply of a hot landing, Things like that that when you put them into the entire equation of completing a mission, they Please go ahead.

Speaker Change: We're sorry your conferences ending now please hang up.

Kristine Tan Liwag: Hey, Jay, Jim, there's been discussion in the public markets about the depletion of US missiles and munitions and a potential shortage. But that said, from your commentary today, it sounds like supply chain issues continue to linger, weighing on the company's ability to convert demand into revenue. So can you talk more about the additional actions you're taking to improve the supply chain's ability to get products through the system? And what metrics are you monitoring? And how much upside could you see in 2024? If things improve? I'll make a couple of comments and ask Jay to follow. The steps that we're taking to take the fragility out of the missile production system are numerous. One of them is... And it's very specific.

Maria Richard-Owen: We are endeavoring to stand up a third solid rocket motor supplier in the United States that can be additive to the industry supply chain we have today, which hasn't been performing well, right? That's one. More broadly, we're using additive manufacturing, and we're bringing in more varied suppliers into the supply chain so that we can get the materials we need from a more diverse group of suppliers outside of solid rocket. And also, we're looking at international opportunities to build this equipment, including in Australia and Poland, the UK, and others are kind of on tap, for co-production or joint ventures with us, from Germany. So,

Speaker Change: Okay.

Speaker Change: [music].

Yes.

Speaker Change: Sure.

Speaker Change: [music].

Speaker Change: Yes.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: [music].

Maria Richard-Owen: These are some of the approaches we're taking, and it really comes down to these three areas, which are... How can we, on the one hand, take basic steps of anti-fragility to more suppliers, more diversity in the supply chain? Secondly, how can we use technology to make this a more reliable product? And then thirdly, how do we get international countries and take advantage of their labor forces, their supply, subsupply chains, et cetera, and get them into the production system?

Maria Richard-Owen: So we look at this in all three areas of our core company strategy and apply it to missile. Yeah, I'll just say, you know, over the last year, Kristine, we've deployed resources, so we haven't just sat back and... are waiting for improvement. Depending on the supplier, depending on the issues, we have deployed manufacturing engineering resources, we've deployed quality engineering resources, and program management resources. As well as in certain cases, we've actually deployed hourly workers to support suppliers in certain cases.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Yes.

Speaker Change: [music].

Speaker Change: Sure.

Speaker Change: [music].

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: Yes.

Maria Richard-Owen: We are expecting that improvement to continue. And you know, in terms of potential upside, what I would point you to is that if we're able to unlock and see a little bit better performance, then that would drive us to the high end of our sales profit and EPS. Thank you. Our next question is from Matt Akers from Wells Fargo. Please go ahead. Yeah, hey, good morning.

Speaker Change: [music].

Matt Akers: Thanks, guys. Could you touch on F-16 real quick, just the latest thoughts on the ramp right here, and also just margins on that program as it compares to the segment now, and then sort of, you know, do they get better over time as you kind of come back down the learning curve? Yes, so we delivered five aircraft in 2023. We would expect that to triple or potentially quadruple here in 2024. And so the ramp is certainly in full force.

Speaker Change: Right.

Speaker Change: [music].

Speaker Change: Yes.

Okay.

Speaker Change: [music].

Maria Richard-Owen: We've got over 30 aircraft that are in WIP as we end the year. And so, you know, that is, I think, from a delivery standpoint, increasing the production cadence is all trending well. From a profitability standpoint, you may recall we've had some pressure because it's taken us longer to get to this point. And so that puts some pressure on our initial contracts.

Speaker Change: Okay.

Speaker Change: Sure.

Speaker Change: [music].

Maria Richard-Owen: Here, as we fully deliver those out and deliver on the subsequent contracts, we will see profitability improve on the F-16 over the next few years. Our next question is from the line of George Shapiro from Shapiro Research. Please go ahead.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: [music].

George D. Shapiro: Hello. I'm looking at a longer-term perspective here. If I look at the margins from 10 years ago, you know, MFC made 18%, aeronautics made 11%, and space made 13%. And so we're obviously down in all of those categories overall, maybe 200 basis points from 10 years ago.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Yes.

Okay.

George D. Shapiro: So my question is, was this due to a lot of fixed price development, more aggressive bidding, and now you're trying to change that? So when we look towards 2025, could we actually see margins go up from where they'd be in 2024? Or kind of, are they just lower margins overall that we expect to see from what we used to see? George H. Jim here.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Okay.

Okay.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Yes.

Speaker Change: [music].

George D. Shapiro: I think the story I told a little bit earlier today is what caused that. You know, there's margin compression in the whole industry here, driven by the monopsony customer, if you will. So you know, they got pretty good at figuring out how to use their position, you know, in the Porter analysis of how they should negotiate contracts. And what I think you're seeing is, you know, boards and management of companies in our traditional space, I'll call it, are understanding this now. The management tends not necessarily to be historically wedded to this business model and is looking at other ways to run these companies.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: Yes.

Okay.

Speaker Change: Yes.

Okay.

Speaker Change: [music].

Speaker Change: Sure.

Yes.

Speaker Change: Sure.

Speaker Change: Okay.

Speaker Change: Right.

Speaker Change: Okay.

Maria Richard-Owen: And so we are taking the shareholders' interest into account in all the things we talked about, which should help improve our margins, uh... even though it may result in some, you know, difficult discussions with some of the customers, we're prepared to... But I think over the last 10 years, as you said, there's been a decline and it needs to reverse. To have a help Lois. I think we're at the top of the hour, so I'm just going to turn it back over. Okay, Maria. So over the past 12 months, again, I mentioned the people of Lockheed Martin have worked relentlessly to advance this vision we have for 21st century security and transform our company internally. And they created, produced, and delivered cutting-edge capabilities that are focused on what the Defense Department says is its own strategy, which they call integrated deterrence. And we're trying to maintain our company values along the way, and that's to do what's right, respect others, and perform with excellence.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: [music] okay.

Speaker Change: Thanks.

Speaker Change: Okay.

Speaker Change: Sure.

Speaker Change: Okay.

Sure.

Speaker Change: Okay.

Okay.

Speaker Change: Okay.

Maria Richard-Owen: And all this yields positive results for our employees that work here, our customers, and our suppliers, and especially our shareholders. So thanks again for joining us today, and we look forward to speaking with you on our next earnings call in April. Lois, that concludes the call.

Speaker Change: Okay.

Speaker Change: Thank you.

Speaker Change: [music].

Operator: Thank you. Thank you. And, ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using the AT&T teleconference service. You may now disconnect. We're sorry, your conference is ending now. Please hang up.

Operator: ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? www.thevenusproject.com ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? Good day and welcome everyone to the Lockheed Martin fourth quarter and year end, 2023 Earnings Results Conference Call. Today's call is being recorded. If you would like to ask a question, please press 1 then 0 now.

Maria Richard-Owen: At this time for opening remarks and introductions, I would like to turn the call over to Maria Richard-Owen, Vice President, Treasurer, and Investor Relations. Please go ahead. Thank you, Lois, and good morning. I'd like to welcome everyone to our fourth quarter and full year 2023 earnings call. Joining me today on the call are Jim Taiclet, our Chairman, President, Sir, Gene Malave. Statements made in today's call that are not historical facts are considered forward-looking statements and are made pursuant to the safe harbor provisions of federal law. However, actual results may differ materially from those projected in the forward-looking statements, today's press release, or filing for a description. Thank you for watching. I hope you enjoyed this video. If you did, please leave a comment below and let me know.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: Sure.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Thanks.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Sure.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Perfect.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Okay.

Maria Richard-Owen: I love hearing from you. I'll see you next time...

Speaker Change: Okay.

James D. Taiclet: We posted the charts on our website today that we plan to address during the call. The charts also include information regarding non-GAAP measures that may be, Please access our website at www.myleswalton.com and click on the investor relations link to view and follow. With that, I'd like to turn the call over to Maria. Good morning, everyone, and thank you for joining us on our fourth quarter and full year 2023 earnings call. In 2023, the 122,000 men and women of Lockheed Martin, working closely with our customers, made excellent progress advancing our 21st century security strategy and delivered strong financial results for our shareholders. Turning to chart 3,

Speaker Change: Yes.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: [music].

Speaker Change: Sure.

Speaker Change: Great.

Speaker Change: Yes.

Speaker Change: [music].

Speaker Change: Perfect.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Sure.

Speaker Change: Okay.

Yes.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Good day and welcome everyone to the Lockheed Martin Boyd.

Speaker Change: Thank you Anne.

Speaker Change: <unk> <unk> earnings results conference call.

Maria Richard-Owen: Robust demand for our broad portfolio of aircraft, helicopters, satellites, radar systems, and other products, services, and advanced digital technologies boosted backlog to a record $161 billion. Full year sales of $67.6 billion increased 2% year-over-year and came in stronger than anticipated, as did earnings per share of $27.55. This positions the company to take full advantage of these future growth opportunities. We invested more than $3 billion across research and development and capital in 2023. We generated $6.2 billion of free cash flow, as expected, which resulted in year-over-year free cash flow per share percentage growth in the mid-single digits. We returned approximately 145% of free cash flow to shareholders, over $9 billion through dividends and share purchases combined.

Speaker Change: Today's call is being recorded.

If you would like to ask a question. Please press the one zero now.

Speaker Change: At this time for opening remarks, and introductions I would like to turn the call over to Jim Maria Richard Allen, Vice President Treasurer, and Investor Relations. Please go ahead.

Speaker Change: Thanks, Maria Good morning, everyone and thank you for joining us on our fourth quarter and full year 2023 earnings call.

Speaker Change: Turning to chart three.

Speaker Change: Full year sales of $67 6 billion increased 2% year over year and came in stronger than anticipated as did earnings per share of $27 55.

Speaker Change: Yes.

Speaker Change: To positioning the company to take full advantage of these future growth opportunities, we invested more than $3 billion across research and development and capital in 2023.

Speaker Change: We generated $6 $2 billion of free cash flow as expected, which resulted in year over year free cash flow per share percentage growth in the mid single digits.

Speaker Change: We returned approximately 145% of free cash flow to shareholders over $9 billion through dividends and share repurchases combined.

Speaker Change: Our ongoing dividend and expectation for $4 billion of share repurchases, we'll sustain our focus on returns to shareholders in 2024.

Maria Richard-Owen: We also set up a wholly owned subsidiary called Forward Edge ASIC to work with major semiconductor fabs to design and manufacture the cutting-edge microprocessors that we need. Second, we led the industry to broaden and strengthen the defense industrial base by making significant progress with our commercial technology collaborators to bring their innovations into service and national defense. For example, in the fourth quarter, Lockheed Martin worked together with a team including Intel, Verizon, Microsoft, Juniper Networks, Keysight, and Radisys to successfully demonstrate a secure, resilient, hybrid 5G and military data link network in a live field demonstration in Colorado. Our 5G.mil unified network solutions performed as a tactical and commercial multi-node hybrid network for Integrating Land, Air, and Space Operations.

Speaker Change: <unk> the wind should we need to.

Speaker Change: First we worked closely with our supply chain to apply anti fragility measures and increased resilience.

Speaker Change: We were teaming arrangements to expand sources of supply and by making strategic investments in startups with cutting edge technologies.

Speaker Change: We also set up a wholly owned subsidiary called forward edge AC to work with major semiconductor fabs to design and manufacture the cutting edge microprocessors that we need.

Speaker Change: Second we lead the industry to broaden and strengthen the defense industrial base by making significant progress with our commercial technology collaborators.

Speaker Change: To bring their innovations into the service and National Defense.

Speaker Change: For example, in the fourth quarter Lockheed Martin work together with a team, including Intel Horizon, Microsoft Juniper networks key site in <unk>.

Speaker Change: For integrating land air and space operations.

Speaker Change: Together, we demonstrated absolutely cutting edge system capabilities performance and operation for customers in a field setting by combining the best of our technology with those of our commercial team mates.

Maria Richard-Owen: This increases collaboration with trusted allies and partners can also help reduce the fragility and increase the capacity of defense production. Last week Lockheed Martin was awarded the Guided Weapons Production Capability Risk Reduction Activity Contract, which will provide a mechanism for swift knowledge and technology transfer and serve as a pathfinder to manufacturing our suite of guided munitions in Australia with their workforce and with contributions from their society and their economy. Turning briefly now to the status of the U.S. defense budget, the current proposed agreement being discussed with the administration and Congress would support an $886 billion top-line budget, 3% higher than in 2023. We will continue to monitor the status of the U.S. budget process and strongly believe that Lockheed Martin programs will continue to be well supported as the process unfolds. I'll now review a few notable highlights from our operation. Starting with aeronautics and the F-35.

Speaker Change: <unk> command centers and other key elements together to vastly improve their effectiveness and deterrent value across our U S and allied customers.

Speaker Change: This increase is collaboration with trusted allies and partners can also help reduce the fragility and increase the capacity of the defense production system.

Speaker Change: Last week Lockheed Martin was awarded the guided weapons production capability risk reduction activity contract.

Speaker Change: Yes.

Speaker Change: We will continue to monitor the status of the U S budget process and strongly believe that Lockheed Martin programs will continue to be well supported as the process unfolds.

Speaker Change: I will now review a few notable highlights from our operations.

Speaker Change: Starting with Aeronautics and the F 35.

We delivered 18 F 35 aircraft and the technology refresh two or tier two configuration in the fourth quarter, bringing the 2023 total to 90 Hs.

Speaker Change: We are making continued progress towards delivering the first Trs reconfigured aircraft.

Speaker Change: Today over 90% of the Trs III functionality is currently in flight test and we are further advancing the software integration to include additional aircraft admissions subsystems.

While this system maturation process continues to advance it is taking somewhat more time than we originally anticipated.

Speaker Change: Second quarter customer acceptance of delivery software. It remains our target. However, we now believe that the third quarter may be more likely scenario for tier three software acceptance.

Speaker Change: We are taking the time and attention to get this technology insertion right. The first time.

Because it will be absolutely worth it.

Speaker Change: The step function technological advances of tier three will provide our customers with the onboard digital infrastructure of data storage data processing and pilot user interface to provide unmatched capabilities for many years to come.

Maria Richard-Owen: To achieve this level of reliable capability for the long run, the resulting aircraft delivery range for 2024 is between 75 and 110, and Richard Madden. Given the increasing operational capability and digital connectivity of the aircraft as a cornerstone of all domain operations, international demand for the F-35 remains very strong. In December, the Republic of Korea made the decision to procure 20 additional F-35 aircraft. Also in December, we presented the first F-35A to the Belgian government, which will be one of more than 600 F-35s that will be stationed in Europe across NATO member bases by the 2030s. Aero also continued to advance the F-16s, as the first European F-16 training center in Romania was inaugurated in November, in partnership with Romania and the Netherlands.

These include increased types of capability for air to air and air to ground munitions advanced sensing, Jimmy and cyber security capabilities and more accurate.

Speaker Change: Accurate target recognition.

Speaker Change: Yeah.

Speaker Change: To achieve this level of reliable capability for the long run the resulting aircraft delivery range for 2024 is between 75 and 110.

Speaker Change: And requires a tier three hardware suppliers to keep pace with production demands both this year and in the future.

Speaker Change: Given the increasing operational capability and digital connectivity of the aircraft is a cornerstone of our domain operations international demand for the F 35 remains very strong.

Speaker Change: In December the Republic of Korea made a decision to procure 20 additional F 35 aircraft.

Speaker Change: Also in December we presented the first F 35 to the Belgian government, which will be one of more than 600 F. 30, fives that will be station in Europe across NATO member basis by 2030.

Speaker Change: Errol also continued to advance the F 16 is the first European F 16 training Center in Romania was inaugurated in November and a partnership with Romania, and the Netherlands.

Speaker Change: This center will provide world class training to enhance mission readiness and ensure safety of flying and operating F 16 fighter Jets.

Speaker Change: In addition, we delivered the first two Slovakian F 16 block 70 jets in the fourth quarter deliveries for Slovakia totaling 14 aircraft will continue through 2025.

Speaker Change: Aero Skunk works continues to pioneer groundbreaking innovation as well and for a change I can actually tell you about one.

Speaker Change: The X 59 experimental supersonic aircraft built by Skunk works and NASA Aeronautics was selected as one of time magazine's best inventions of 2023.

Maria Richard-Owen: The X-59 was unveiled at a rollout ceremony earlier this month and is expected to take its first flight later this year. Our MFC business has continued to push technological advancements forward as well, through the modernization of air and missile defense and precision strike capability. In the fourth quarter, we delivered the first Precision Strike Missile, or PRISM, to the U.S. Army and conducted system qualification tests for an extended-range Guided Multiple Launch Rocket System, or GMLRS, which will extend the range of the HIMARS system that many of you are familiar with. MFC also delivered the 800th FAT, that's a Terminal High Altitude Area Defense Interceptor, to the U.S. government And also, we successfully integrated the PAC-3 Patriot missile with the U.S. Army's new Air and Missile Defense Radar System to defend against cruise missiles, tactical ballistic missiles, as well as hypersonics. International demand for the PAC-3 remains strong, too. This year, Switzerland and Romania each signed letters of offer and acceptance for PAC-3 MSEs, marking 15 partner nations for this program.

Speaker Change: The X 59 is expected to transform the future of commercial supersonic flight over land by quieting, the Sonic boom one of aviation's most persistent challenges.

Speaker Change: <unk> 59 was unveiled at a rollout ceremony earlier this month and is expected to take first flight later this year.

Speaker Change: Our MFC business continued to push technological advancements forward as well through modernization of air and missile defense and precision strike capabilities.

Speaker Change: In the fourth quarter, we delivered the first precision strike missile or prism to the <unk>.

Army and conducted system qualification test foreign extended range guided multiple launch rocket system or gamblers, which will extend the range of the high Mark system that many of you are familiar with.

Speaker Change: MFC also delivered the 800 that that's a terminal high altitude area defense interceptor to the U S government in October.

Speaker Change: And also we successfully integrated the <unk> III Patriot missile with the U S Army's new Air and missile defense radar system to defend against cruise missiles tactical ballistic missiles as well as hypersonic.

Maria Richard-Owen: RMS also saw strong international interest in the fourth quarter. The U.S. Navy awarded Lockheed Martin contracts to produce eight MH-60 Romeo Seahawk helicopters for the Spanish Navy and six of them for the Norwegian government as well. To date, Sikorsky has delivered 330 MH-60 Romeo aircraft to five countries, including the United States. Sixty-seven more are on order or in production for India, Greece, South Korea, Australia, and now Spain and Norway. Also in the quarter, Sikorsky installed the U.S. Army's improved turbine engine on our Raider-X, designed for the Army's future attack reconnaissance aircraft or FARA program. This final phase of the RaiderX build brings us one step closer to completing the system that will support the Army's high-tech future missions, and we anticipate the first flight of the Raider-X in late 2024. Finally, turning to space, United Launch Alliance successfully launched the Vulcan Centaur rocket earlier in January.

Speaker Change: RMS also saw strong international interest in the fourth quarter. The U S. Navy awarded Lockheed Martin contract to produce eight MH 60, Romeo Seahawk helicopters for the Spanish Navy and six of them for the Norwegian government as well to date. So of course he has delivered 330.

Speaker Change: MH 60 Romeo aircraft of five countries, including the United States 67, more are on order or in production for India, Greece, South Korea, Australia, and now Spain, Norway.

Speaker Change: Also in the quarter Sikorsky installed the U S. Army's improve turbine engine on our Raider X designed for the Army's future attack reconnaissance aircraft or fire program.

Speaker Change: This final phase of the Raider X build brings us one step closer to completing the system that will support the Army's high tech future missions requirements and we anticipate the first flight of redirects in late 2024.

Speaker Change: Finally, turning to space.

Speaker Change: The U S Air Force awarded space at nearly $1 billion contract to develop a new reentry vehicle for the Sentinel Intercontinental ballistic missile the.

Speaker Change: The reentry vehicle or <unk> 21, a.

Maria Richard-Owen: The award follows a technology maturation and risk reduction contract, and the ICBM recapitalization contributes to modernizing strategic deterrence and reinforcing Lockheed Martin's critical technological contributions to the nuclear triad. And last week, the Space Development Agency announced Lockheed Martin was awarded an almost $900 million contract for the Tronch 2 tracking layer to provide 18 smallsats. 16 of those space vehicles are for missile warning and tracking, and two space vehicles are for missile defense infrared sensors to be on board. The first group of nine satellites is expected to launch in April 2027.

Speaker Change: And last week, the space Development Agency announced Lockheed Martin was awarded an almost $900 million contract for tranche two tracking layer to provide 18 small sats 16 of those space vehicles are for missile warning and tracking and <unk> space vehicles are permissible missile defense infrared sensors to be.

Speaker Change: Onboard the first group of nine satellites is expected to launch in April of 2027.

Speaker Change: Lot going on at Lockheed Martin all of our operations and with that I'll turn it the call over to Jay and join you later for questions.

Jesus Malave: Thanks, Jim and good morning, everyone today, I'll recap, our fourth quarter and full year 2023 financial results and provide our initial guidance for 2024 as I describe our results. Please follow along with the web charts, we have posted with our earnings release today.

Maria Richard-Owen: There is a lot going on at Lockheed Martin, with all of our operations, and with that, I'll turn the call over to Jay and join you later for questions. Thanks, Jim. And good morning, everyone.

Jesus Malave: On chart four we will start with the fourth quarter results for consolidated sales and segment operating profit.

Jesus Malave: We had a better than expected close to the year nearly matching last year's record fourth quarter sales exceeded internal expectations by close to $1 billion with the improvement largely due to material material throughput.

Jesus Malave: Leading to a less than 1% year over year decline in the quarter and a sign of improving synchronization between Lockheed Martin's demand signals and supply chain fulfillment.

Jesus Malave: The strong finish led to about two 5% sales growth for the year, which was about $2 billion stronger on an absolute basis than originally expected last January.

Maria Richard-Owen: Sales exceeded internal expectations by close to a billion dollars, with the improvement largely due to material throughput, leading to a less than 1% year-over-year decline in the quarter and a sign of improving synchronization between Lockheed Martin's demand signals and supply chain fulfillment. The strong finish led to about 2.5% sales growth for the year, which was about $2 billion stronger on an absolute basis than originally expected last January. Overall segment operating profit in the quarter was also better than expected on the higher sales volume, but it was down 1% year over year due to lower net profit adjustments and lower equity earnings.

Jesus Malave: Overall segment operating profit in the quarter was also better than expected on the higher sales volume and was down 1% year over year total due to lower net profit adjustments and lower equity earnings.

Jesus Malave: Book to Bill was 115 for the year with strength across all four segments.

Jesus Malave: Moving to earnings per share on chart five GAAP EPS grew 2% year over year with lower segment profit and higher interest expense more than offset by benefits from the lower share count and fewer mark to market losses.

Maria Richard-Owen: The bill was $1.15 for the year, with strength across all four segments. Moving to earnings per share on chart 5, GAAP EPS grew 2% year-over-year, with lower segment profit and higher interest expense more than offset by benefits from the lower share count and fewer mark-to-market losses. Excluding mark-to-market activity and other non-recurring charges, adjusted EPS was up 11 cents year-over-year, or 1%.

Jesus Malave: Excluding mark to market activity and other nonrecurring charges adjusted EPS was up 11% year over year or 1%.

Jesus Malave: For the year adjusted EPS was $27 82.

Jesus Malave: Up 2% year over year and consistent with the sales growth.

The steady improvement this year resulted in higher adjusted EPS by at about one dollar per share from our original expectations last January.

Jesus Malave: Moving to cash flow on chart, six we generated $1 $7 billion of free cash flow in the quarter and $6 2 billion for the full year helped by approximately $625 million and working capital reductions in the fourth quarter from strong and timely conversion of operational milestone achievement to billings and collections.

Maria Richard-Owen: For the year, Adjusted EPS was $27.82, up 2% year-over-year and consistent with sales growth. The steady improvement this year resulted in higher adjusted EPS by about a dollar per share from our original expectations last January. Moving to cash flow on chart 6, we generated $1.7 billion of free cash flow in the quarter and $6.2 billion for the full year.

Jesus Malave: We maintained our commitment to shareholders by returning $3 8 billion through dividends and share repurchases this quarter and over $9 billion for the year or 145% of our free cash flow.

Maria Richard-Owen: Helped by approximately $625 million in working capital reductions in the fourth quarter from strong and timely conversion of operational milestone achievement to billings and collections. We maintained our commitment to shareholders by returning $3.8 billion through dividends and share repurchases this quarter and over $9 billion for the year, or 145% of our free cash flow. Before getting into the segments, let me pause here to put the numbers in perspective. The key takeaway is that industry growth is crystallizing based on three converging demand cycles. First, to meet support requirements of the near and mid-term security environment. Second, to strengthen the effectiveness of existing security platforms and systems with improved sensing, connectivity, interoperability, and embedded intelligence.

Speaker Change: Before getting into the segments, let me pause here to put the numbers in perspective.

Speaker Change: The key takeaways that industry growth is crystallizing based on three converging demand cycles first to meet support requirements of the near and mid term security environment.

Speaker Change: We expect these demand trends to endure and drive requirements to closely match with Lockheed Martin advanced technology and systems integration capabilities.

Speaker Change: The long cycle nature of Lockheed Martin systems has in part led to slower growth, but the 2023 results show that it is materializing as evidenced by a 7% increase in ending backlog to a record 161 billion as well as our return to top line growth a year earlier than originally expected.

And we demonstrated our confidence in the company's positioning amongst these demand cycles and multi year outlook by again delivering strong shareholder returns over the past two years, we have repurchased about 12% of the current market capitalization.

Speaker Change: Okay back to the segment details and starting with Aeronautics on chart seven.

Speaker Change: As expected operating profit decreased 7% from the prior year due to lower net profit adjustments.

For the year sales were up 2% as growth in Skunk works and have 16 more than offset a low single digit decline on F 35 profit.

Speaker Change: Profit declined by 1%, primarily due to lower profit adjustments.

Book to Bill for the year was $1, one four leading to 6% growth in the backlog to $60 billion with nearly 600 aircraft across all production platforms in the backlog.

Speaker Change: Shifting the missiles and fire control on page eight sales in the quarter decreased 4% year over year, driven by lower volume of Pac three due to supplier cost timing, partially offset by production ramps on jassem and La Raza am.

Segment operating profit decreased 12% year over year as expected due to the lower volume and loss recognition related to a classified program.

Speaker Change: Operating profit was down 6% due to lower profit adjustments and the classified program loss.

Maria Richard-Owen: Booked a bill for the year was $1.14, leading to 6% growth in the backlog to $60 billion, with nearly 600 aircraft across all production platforms in the backlog. Shifting to Missiles and Fire Control on page 8, sales in the quarter decreased 4% year-over-year, driven by lower volume on Pac-3 due to supplier cost timing, partially offset by production ramps on JASM and LRASM, segment operating profit decreased 12% year-over-year as expected due to the lower volume and loss recognition related to a classified program For the year, sales decreased 1% year-over-year as growth in tactical and strike missiles were offset by program transitions at sensors and global sustainment and integrated air and missile defense supplier cost, Operating profit was down 6% due to lower profit adjustments and the classified program loss.

Speaker Change: Book to Bill for the year was $1 three leading to 12% growth in backlog to $32 billion.

Speaker Change: Driven by strong demand for tactical and strike Mrs.

Speaker Change: Blackhawks.

Speaker Change: Operating profit increased 2%, mainly due to favorable contract mix within our <unk> portfolio.

For the year sales were up 1% as growth in IW assess.

Speaker Change: From radar and Battle management system ramps more than offset declines in the other lines of business operating profit declined 2%, primarily due to lower profit adjustments.

Speaker Change: Book to Bill for the year was one four with backlog growing 8% to $38 billion.

Speaker Change: Just on strong order intake on Sikorsky platforms, as well as radar and Battle management systems.

Maria Richard-Owen: The bill for the year was $1.3, leading to 12% growth in backlog to $32 billion, driven by strong demand for tactical and strike missiles. Turning to Rotary and Mission Systems on page 9, sales declined 2% in the quarter, driven by lower volume across a handful of programs within our integrated warfare systems and sensors and training and logistics systems lines of business.

Speaker Change: On chart 10, as expected space growth moderated in the quarter with sales, increasing 3% year over year, driven by higher volume and strategic and missile defense, primarily from Nextgen interceptor as that program advances from its success successful completion of preliminary design review towards the critical does.

Speaker Change: <unk> review milestone.

Speaker Change: Operating profit increased 31% compared to 22022, driven by higher net profit adjustments across the portfolio for the year sales increased 9% with growth across all lines of businesses and.

Speaker Change: Profit grew by 10% as benefits from higher profit adjustments and volume more than offset lower ULA equity income.

Speaker Change: Space backlog grew again in fourth quarter and remains at a solid $30 billion almost 225 times sales.

Speaker Change: Now shifting to the outlook for 2024 on page 11.

Speaker Change: Before discussing our expectations I'd like to highlight a few key assumptions embedded within our guidance for the year.

Maria Richard-Owen: The booked bill for the year was $1.14 billion, with backlog growing 8% to $38 billion, based on strong order intake on Sikorsky platforms, as well as radar and battle management systems. On chart 10, as expected, space growth moderated in the quarter, with sales increasing 3% year over year. Driven by higher volume in strategic and missile defense, primarily from NextGen Interceptor, as that program advances from its successful completion of preliminary design review towards the critical design review milestone. Operating profit increased 31% compared to 2020-2022, driven by higher net profit adjustments across the portfolio. For the year, sales increased 9% with growth across all lines of business.

Speaker Change: On a 35 as Jim stated, we are targeting between 75 million to 110 deliveries commencing in the third quarter.

Speaker Change: With that framework in mind, we anticipate sales between 68, 5% and $70 billion with a midpoint that represents approximately two 5% growth.

Speaker Change: At the midpoint, we expect growth in three of the four segments with MFC, leading the way at 7% growth from a strong munitions backlog at the high end all four segments would grow.

Maria Richard-Owen: And profit grew by 10% as benefits from higher profit adjustments and volume more than offset lower ULA equity income. Space Backlog grew again in the fourth quarter and remains at a solid $30 billion, or almost 2.2.5 times sales. Shifting to the outlook for 2024 on page 11, Before discussing our expectations, I'd like to highlight a few key assumptions embedded within our guidance for the year. First, based on recent progress made in budget negotiations, we assume the U.S. government passes appropriations bills by March, consistent with the funding levels within the President's FY24 budget request, equating to approximately 3% top-line growth for the DoD. On the F-35, as Jim stated, we're targeting between 75 and 110 deliveries commencing in the third quarter. In addition, we anticipate sufficient progress being made on the MFC Classified Program to result in the recognition of losses from two production lots, amounting to approximately 50 basis points of margin headwind against our consolidated results.

Speaker Change: Segment operating profit is expected to be.

Speaker Change: Between 775% and seven $3 75 billion.

Speaker Change: <unk> at the midpoint as lower expected profit adjustments and the MFC classified losses more than offset volume benefits.

Speaker Change: Excluding the MFC classified program 50 basis point basis points impact underlying margins in the balance of the portfolio are expected to be approximately 11%.

Our net <unk> pension adjustment declines around $400 million from last year to a little less than $1 7 billion for 2024, due primarily to lower Fas pension income.

Speaker Change: The pension headwind along with lower segment profit and higher interest expense led to lower expected EPS year over year to b to b to BB to between 25.

Speaker Change: <unk> 65, and $26 35.

Speaker Change: For purposes of clarity on page 12, we've included in EPS walk at the midpoint of the range.

Speaker Change: Benefits from volume mix provide about 55.

Speaker Change: With the impact of the MFC classified program losses, netting down segment operating profit to a 35% decline.

Maria Richard-Owen: With that framework in mind, we anticipate sales between $68.5 and $70 billion, with a midpoint that represents approximately 2.5% growth. At the midpoint, we expect growth in three of the four segments, with MFC leading the way at 7% growth from its strong munitions backlog. At the high end, all four segments would grow. However, segment operating profit is expected to be between $7.175 and $7.375 billion, down at the midpoint, as lower expected profit adjustments and the MFC classified losses more than offset volume benefits. Excluding the MFC Classified Program 50 basis points impact, underlying margins in the balance of the portfolio are expected to be approximately 11%. Our net FAS-CAS pension adjustment declines around $400 million from last year to a little less than $1.7 billion for 2024, due primarily to lower FAS pension increases. The pension headwind, along with lower segment profit and higher interest expense, led to lower expected EPS year-over-year between $25,000 and $25,000.

Speaker Change: Fast Cas pension is about a $41 40 headwind with higher taxes and interest more than offset by the lower share count.

Speaker Change: Free cash flow estimate for 2020 fours range to between 6 billion and $6 3 billion.

Speaker Change: So bringing it all together we expect continued sales growth in 2024 off the higher 2023 base, some profit and EPS pressure based on loss recognition timing, but with continued solid cash generation.

Speaker Change: And capping it off with another year of capital.

Speaker Change: Deployment.

Speaker Change: So in summary on page 13, we.

Speaker Change: We closed out 2023 with record backlog and positive momentum that will carry us into 2024 with a line of sight to sustained out year growth in sales profit and free cash flow.

Speaker Change: Of course, we will continue to invest in <unk> as part of our strategy to ensure our people processes and systems remain the most advanced in the industry.

Speaker Change: And we remain committed to disciplined and dynamic capital returns to shareholders without lowest let's open up the call for Q&A.

Speaker Change: Thank you if you wish to ask a question. Please press the one zero on your Touchtone phone.

Speaker Change: You will hear time Eric.

Speaker Change: Indicating that you've been placed in the queue.

Speaker Change: You may remove yourself from queue at any time by pressure number one zero again.

Speaker Change: Using a speakerphone please.

Speaker Change: Please pickup your handset before pressing the number once again if you have a question. Please press from London zero at this time.

And our first question is from Myles Walton from Wolfe Research. Please go ahead.

Maria Richard-Owen: $26.65 and $26.35. For purposes of clarity, on page 12, we've included an EPS walk at the midpoint of the range. Benefits from volume mix provide about $0.55, with the impact of the MFC classified program losses netting down segment operating profit to a $0.35 decline. Total fast cash pension is about a $1.40 headwind, with higher taxes and interest more than offset by the lower share cost.

Myles Walton: Thanks, Good morning, I was hoping to lead off with Arrow and the F 35 in particular.

Myles Walton: Given the absence of deliveries.

Myles Walton: You continue to simply build inventory or is there a point at which you would actually have to slow down the supply chain.

Myles Walton: Okay. Thanks miles on the margins for F 35, what were seeing in 2024 are lower favorable profit adjustments and so its really two fold one of it is the F 35, where.

Maria Richard-Owen: A free cash flow estimate for 2024 is ranged between $6.0 billion and $6.3 billion. So bringing it all together, we expect continued sales growth in 2024 off the higher 2023 base, some profit pressure based on loss recognition timing, but with continued solid cash generation, and capping it off with another year of capital deployment. So in summary, on page 13.

Myles Walton: As we make progress on the.

Myles Walton: The ETR three program.

Myles Walton: As well as getting ourselves into production, it's difficult to take risks and rely on risk retirements as we are still facing this program and the progress we're making there and so we assume that the profit adjustments slowdown in 2024 on the F 35 program.

Myles Walton: There's also some headwinds on C 130 program, where we're seeing the effects of inflation and also some disruption related to supply chain. Some pressures that we've had there and so when you look at that decline year over year, you are talking about 30 basis points, I'd say half and half between <unk> and <unk>.

Maria Richard-Owen: We close out 2023 with record backlog and positive momentum that will carry us into 2024 with a line of sight to sustained out-year growth in sales, profit, and free cash flow. Of course, we will continue to invest in 1LMx as part of our strategy to ensure our people, processes, and systems remain the most advanced in the industry. And we remain committed to disciplined, dynamic capital returns to shareholders. With that said, Lois, let's open up the call for Q&A. Thank you. If you wish to ask a question, please press 1 then 0 on your touchtone phone. You will hear a tone or annunciator indicating that you've been placed into Q. You may remove yourself from Q at any time by pressing the 1, then 0 again. If you are using a speakerphone or Bluetooth, please pick up your handset before pressing the number.

Myles Walton: <unk> 35 on the production cadence for F 35, yes, we feel pretty confident in where we are.

Myles Walton: Through the third quarter.

Myles Walton: To the extent that there were any delays beyond that we would have to revisit our production cadence at that point in time, but right now all signs are pointing to.

Myles Walton: Our production and delivery restart here in acute in the third quarter.

Speaker Change: Okay. Thank you.

Speaker Change: Thank you and the next question is from the line of Scott <unk> from Deutsche Bank. Please go ahead.

Scott: Alright, Hey, good.

Scott: <unk>.

Scott: Good morning.

Scott: Jay I hate to ask on 2025, but at a high level is the 10, 5% total company margin guide for 'twenty four is that the right jumping off point for thinking about 25 or is it the 11% underlying margin or is it. The 10, 8% margin you did in 2003, just in terms of identifying jumping off point for thinking about 25, Yes, I think you do have to stop.

Scott: At the $10 5 million to jump off.

Scott: Do have a line of sight and a path to get overall back to 11%, including.

Operator: Once again, if you have a question, please press 1 then 0 at this time. And our first question is from Myles Walton from Wolf Research. Please go ahead. Thanks. Good morning.

Myles Walton: I was hoping to lead off with Arrow and the F-35 in particular. And the margins, number one, that you're looking for in 24 are down about 40 basis points. Is that primarily due to lower incentives as a result of the delays in delivery? And then more broadly, for the supply chain on the F-35, given the absence of deliveries, can you continue to simply build inventory, or is there a point at which you'd actually have to slow down the supply chain? Thanks.

Scott: Starting in 'twenty, five and not to continue to grow at that rate until we get back up to <unk> 11.

Scott: Yeah.

Speaker Change: Thank you and your next question is from Gavin Parsons.

Gavin Parsons: UBS equity research. Please go ahead.

Gavin Parsons: Hey, good morning, good morning.

Jay what is the pension contribution schedule look like beyond 2024, and do you have any any opportunity to pull that forward or use the balance sheet to offset that.

Maria Richard-Owen: Okay, thanks, Myles. On the margins for the F-35, what we're seeing in 2024 are lower favorable profit adjustments. And so it's really twofold.

Jesus Malave: A good question and that's something that we've contemplated where we are from a baseline perspective zero contributions required in 2020 for 2025, we are looking at in the range of about $1 billion of required contributions.

Maria Richard-Owen: One of them is the F-35, where, as we make progress on the ETR3 program, as well as get ourselves into production, it's difficult to take risk and rely on risk retirements as we're still facing this program and the progress we're making there. And so we assume that the profit adjustments will slow down in 2024 on the F-35 program. There are also some headwinds on the C-130 program where we're seeing the effects of inflation and also some disruption related to supply chains and pressures that we've had there. And so when you look at that decline year over year, you're talking about 30 basis points, let's say half and half between the C-130 and the F-35.

Jesus Malave: There and so.

Jesus Malave: We're always looking at whether or not there is an opportunity to pull forward.

Jesus Malave: As you mentioned the utilization of our strong balance sheet to potentially do that we haven't made any firm decisions on that but that's definitely an opportunity thats under consideration for us.

Jesus Malave: Thanks.

Jesus Malave: Yes.

Thank you and our next question is from the line of Peter Kubicki from Alembic Global. Please go ahead.

Peter Kubicki: Hey, good morning, guys.

Peter Kubicki: Morning.

Peter Kubicki: J J could you give us a sense for how much the 'twenty four guide is impacted by what looks like on the order of a six month delay here to the government budgets and still a little bit of lack of clarity on the supplemental.

Speaker Change: Yeah for the most part it's not really impacted significantly in our case, we're able to.

Speaker Change: <unk> built up inventories and then as we get the funding we were able to take that the sales and so for the most part we've kept all of our processes intact intact that becomes more difficult. If the process extends beyond March and Thats why I was very clear in my comments that we're dependent on this happening that the budget getting clarity and finalization.

Maria Richard-Owen: Thank you. And the next question is from the line of Scott Duschel from Deutsche Bank. Please go ahead. Hey, good morning.

Speaker Change: In March because going beyond that makes it very just makes it difficult for things to get on contract and you run out of runway in the year to convert those into sales.

Speaker Change: Okay I appreciate it and then anything on Big Awards Youre expecting in 'twenty, four and maybe the timing of <unk>.

Speaker Change: Well just just some key things that we're talking about from sales perspective lot 18, 19 is a big one for the F. 35 program. We also have some long lead.

Speaker Change: F 35 awards that we would be.

Speaker Change: Expecting as well.

Speaker Change: We've got things there are some classified contracts across the portfolio I can't really get into any beyond that but you are talking multi billions of dollars there.

Speaker Change: We have in our order order plan for this year there are things like our Pac three orders, which has multiple billions of dollars. Therefore 224 requirements.

Speaker Change: And also I would say hypersonic at space, particularly on Cps is another one that could approach $2 billion. So there's a number there as those get clicked off in the year, We'll certainly report on those and keep you apprised of the progress.

Speaker Change: Thank you.

Speaker Change: Okay.

Speaker Change: Thank you. The next question is from the line of Jason Gursky from Citi Research. Please go ahead.

Hey, Jay just a quick clarification and then one for Jim sorry, if I missed this but.

Maria Richard-Owen: Good morning Jay, what does the pension contribution schedule look like beyond 2024, and do you have any opportunity to pull that forward or use the balance sheet to offset that? Yeah, good question. That's something that we contemplate just where we are from a baseline perspective, with zero contributions required in 2024. In 2025, we're looking at in the range of about a billion dollars of required contributions. And so, you know, we're always looking at whether or not there's an opportunity to pull forward. As you mentioned, use the utilization of our strong balance sheet to potentially do that. We haven't made any firm decisions on that yet. But that's definitely an opportunity that's under consideration. Thanks.

Speaker Change: The deliveries that you are expecting for the F 35 this year.

The.

Speaker Change: The acceptance on <unk> III.

Speaker Change: And potentially in the third quarter can you discuss a little bit about the cadence throughout the year do you expect to deliver some F 30 fives through throughout the year.

Speaker Change: And maybe the older version of it in the first half of the year just trying to get a sense of whether you are truly doing 7500 aircraft in the second half of the year and what does that tell us about the potential for deliveries.

In 2025 can you get to 200 in that year is a bit of a catch up and then Tim for you.

Speaker Change: Overall expectations on <unk>.

Speaker Change: Bookings book to Bill for this next year based on the pipeline that Youre seeing and maybe just kind of update us on your current thoughts on the competitive environment.

Speaker Change: Fixed price versus cost plus and how you how the industry.

Speaker Change: You all are specifically are kind of reacting to the contracting environment and what's being asked of you and whether you're toggling back more towards less risky programs. Thanks.

Speaker Change: So let me, let me get into the deliveries.

Gavin Parsons: Yep. Thank you, and our next question is from the line of Pete Skibitski from Alambag Global. Please go ahead.

Speaker Change: Jason we do have a handful of deliveries that we expect in the first half but for the most part you are talking.

Speaker Change: 90% of the SP anticipated deliveries actually will happen in the back half of the year.

Pete Skibitski: Hey, good morning, guys. Jim or Jay, can you give us a sense of how much the 24 guide is impacted by what looks like, you know, on the order of a six-month delay here in the government's budget and, you know, still a little bit of a lack of clarity on the supplementals? Yeah, for the most part, Pete, it's not really impacted significantly. You know, in our case, we're able to build up inventories. And then as we get the funding, we're able to take that to sales. And so, for the most part, we've kept all of our processes intact. However, that becomes more difficult if the process extends beyond March. And that's why I was very clear in my comments that we're dependent on this happening, that the budget getting clarity and finalization in March, because going beyond that makes it very difficult for things to get on contract, and you run out of runway in the year to convert those into sales. Okay, I appreciate it.

Speaker Change: So I think Thats just the way to think about just a handful really in the first half.

Speaker Change: Maybe I'll kind of give a little bit of color and then hand it over to Jim.

Jim: For the year, we still expect there to be strong demand and we have a pretty solid line of sight to a book to bill that would be above one yet again in 2024 and so.

Jim: Obviously these things have to to materialize. The budget has to be approved and all these things have to happen, but the line of sight is there for continued growth in orders.

Jim: As well as in our backlog a couple of things to you just on the question about cost plus.

Jim: <unk> in the year and so we're actually seeing an uptick in cost plus contracts, we think which we think bodes well for in terms of.

Jim: Risk tolerance in the way some of these stronger technological types of programs will.

Jim: We will be contracted for and so I think that is generally speaking a favorable trend with the other thing that we're just to talk about.

Maria Richard-Owen: And then anything on big awards you're expecting in 24 and maybe the timing of NGAB? Well, just, you know, just some key things that we're talking about from a sales perspective. You know, Lot 18-19 is a big one for the F-35 program. We also have some long-lead F-35 awards that we would be expecting as well. We've got things, there are some classified contracts across the portfolio; I can't really get into any beyond that, but you're talking multi-billions of dollars there that we have in our order plan for this year. There are things like PAC-3 orders, which are multiple billions of dollars there for FY-24 requirements, and also I would say hypersonics at space, particularly in CPS, is another one that can approach $2 billion. So there's a number there, you know; as those get clicked off during the year, we'll certainly report on those and keep you apprised of the progress. Thank you. Thank you. The next question is from the line of Jason Gursky from City Research. Please go ahead.

Jim: What we're thinking about contractually and Jim has really led the way here as if we are employing a lot more pricing discipline and we have.

Jim: More recently and we're looking at things and ensuring that it is just a more analytical support for the way we approach pricing that we capture any types of technical logic technological.

Speaker Change: Advantages that we may have also that as we make an assessment of risk contracting vehicles appropriate to that risk within our pricing accounts for that risk as well and so that's the way we've been approaching things for for really this year going into 2024, and I'll hand, it over to Jim Yes, sure. Jay So look there's a near term and a long term.

Jim: Approach that we're taking to.

Jim: Government contracting with industry and the near term piece of it is a lot of what Jay just described really matching the pricing and the risk profile within our company I'll say I don't know what other companies are doing or how they are making their decisions, but we've recognized and I've said to our senior customer base look we're not monopsony.

Jim: Environment here, meaning there is a single buyer for.

Jim: For the most part for almost everything that we make or Boeing defense mistakes or general dynamics banks.

Jason Gursky: Hey Jay, just a quick clarification and one for Jim, and sorry if I missed this, but the deliveries that you're expecting for the F-35 this year, with the, you know, the acceptance of the P-3 happening potentially in the third quarter, can you discuss a little bit about the cadence throughout the year? Do you expect to deliver some F-35s throughout the year and maybe, you know, the older version of it in the first half of the year? Just trying to get a sense of whether you're truly doing 75 to 100 aircraft in the second half of the year, and what that tells us about, you know, the potential for deliveries in 2025. Can you get to 200 in that year as a bit of a catch-up?

Jim: And.

Jim: I guess, the government's credit and one in a way they have been taking advantage of that monopsony power. If you will.

Jim: The competitors feel that there are a must win programs for them that they will take.

Jim: Programs reviewed.

Maria Richard-Owen: And then, Jim, for you, just overall expectations on, you know, bookings, book-to-bill for this next year, based on the pipeline that you're seeing, and maybe just kind of update us on your current thoughts on the competitive environment, and, you know, fixed price versus, you know, cost-plus, and how the industry and you all specifically are kind of reacting to the contracting environment, and what's being asked of Thanks. So let me let me get into the deliveries. Jason, you know, we do have a handful of deliveries we expect in the first half, but for the most part, you're talking, 90% of the anticipated deliveries actually will happen in the back half of the year. And so I think that's just the way to think about just a handful, really, in the first half. You know, maybe I'll kind of give it a little bit of color and then hand it over to Jim.

Jim: <unk> reviewed by Congress et cetera, So I've been advocating in the near term and certainly implementing with our company. We don't have any must win programs at Lockheed Martin anymore.

Jim: If we have a good business opportunity with a balanced price risk profile, we will bid if not we will not bid.

Jim: If we hit our limit parameters, we won't go beyond those a competitor may win so be it.

Jim: And so that's our near term approach to this.

Jim: The longer term approaches.

In addition to delivering products that we in our cohorts in the traditional defense industry do so well.

Jim: We need to start migrating towards delivering capabilities right sort of capability would include either products that are already fielded and our new products, but especially digital technologies, which is why we are collaborating so with so much effort with commercial tech companies large and small because we can value price capabilities right.

Maria Richard-Owen: For the year, we still expect there to be strong demand, and we have a pretty solid line of sight to a book to bill that would be above one again in 2024. And so, you know, obviously these things have to materialize, the budget has to be approved, and all these things have to happen, but the line of sight is there for continued growth in orders as well as in our backlog. A couple things, too, and you've just done the question about cost plus. The interesting thing is that part of the margin pressure that we saw in 2023 was due to mix. Our percent of sales of cost-type contracts went from 38 percent in 2022 to 41 percent in 2023. That in itself caused some margin pressure of about 20 basis points relative to what we were anticipating for the year.

Jim: If we sell products and Thats all we do as an industry, we are kind of locked into the far the federal acquisition regulation as it is written today, which means even if fixed priced contract you've got to provide all your cost information right and you have to do it often every year, even with a multiyear fixed price and there can be adjustments. So we want to move.

Jim: Move.

Jim: As briskly as we can as an industry with our commercial partners to their kind of pricing, which is value based subscription that's going to take time, it's going to take changes in government is going to probably take literally acts of Congress to do it but that will be the thing that will make our industry healthier on one hand, other traditional defense and aerospace industry, but it'll also and.

Maria Richard-Owen: And so we're actually seeing an uptick in cost plus contracts, which we think kind of bodes well for terms of risk tolerance in the way some of these stronger technological types of programs will be contracted for. And so I think that is, generally speaking, a favorable trend. Well, the other thing that we're, you know, just talking about what we're thinking about contractually, and Jim has really led the way here, is that we just are employing a lot more pricing discipline than we have more recently. And we're looking at things and ensuring that there's just more analytical support for the way we approach pricing, so that we capture any types of technological advantages that we may have. Also, as we make an assessment of risk, A, the contracting vehicle is appropriate to that risk, but that our pricing accounts for that risk as well. And so that's the way we've been approaching things for this year going into 2024, and I'll hand it over to Jim. Yeah, sure, Jay.

Jim: Into the defense Department as part of their supply chain, but it's really tough under the bar for those companies to put time and attention and effort and to do.

So that's the long term a long term solution, but the near term solution will also continue.

Jim: Okay.

Speaker Change: Thank you. Your next question is from Doug Harned from Bernstein. Please go ahead.

Doug Harned: Good morning, Thank you.

Doug Harned: Morning.

Doug Harned: As you look at Tech refresh three.

Doug Harned: This delay and then going longer.

Doug Harned: As you really want to build out the full kind of block four capabilities with <unk>.

Doug Harned: Continue to seem to expand.

Doug Harned: First as tech refresh three takes longer.

Doug Harned: Then as you look toward the kind of multi year trajectory on block four implementation how.

James D. Taiclet: So look, there's a near term and a long term approach that we're taking to, Government contracting with industry, and the near-term piece of it is a lot of what Jay just described, really matching the pricing and the risk profile within our company, I'll say. Now, I don't know what other companies are doing or how they're making their decisions, but, you know, we've recognized, and I've said to our senior customer base, you know, look, we're in a monopsony environment here, meaning there's a single buyer, you know, for the most part, for almost everything that we make or Boeing Defense makes or General Dynamics makes, and, you know, to, I guess, the government's credit in a way, they've been taking advantage of that monopsony power, if you will, over the industry, and what's happened as a result of that over, you know, the last number of years or even decades is you have lots of programs which are over-cost, cost overruns, right, whether fixed price or cost plus, and you have schedule delays, because what that monopsony environment can do is give so much power to the buyer that some of the competitors feel that there are must-win programs for them that they will take, you know, tremendous risk on cost and pricing and tremendous cost on the ability to technically deliver these capabilities. So when you multiply those two risks together, you get a lot of cost overruns, a lot of schedule delays, programs, you know, reviewed by Congress, et cetera.

Doug Harned: Do you see delays here affecting your production rate knowing that you've been trying to produce.

Doug Harned: The full $1 56 type rate, but it's in there.

Doug Harned: That continue as you look at these challenges if they get more difficult.

Speaker Change: Look Doug it's Jim I think we can continue at this rate.

Speaker Change: <unk> from the U S services.

Jim: And our international customers Air Force's Navy's et cetera around the world is they need the aircrafts right they've got a recapitalized recapitalize the planes that they are still flying that I was trying to get when I went to pilot training and 1983 right. So this is this is essential that this production line keep up it's.

Jim: It's basically it's the recapitalization of.

Jim: The Allied fighter aircraft for US is the F 35, and so.

Jim: The key to that is full transparency and.

Jim: Realizing the reality of the situation when Youre trying to drive this much technology into air vehicle.

Jim: You've got to be honest about the schedule what can industry do what can the test and evaluation community handle.

Jim: And the various military to accept that technology and once the supply chain capacity and we're being.

Jim: Brutally honest with you.

Maria Richard-Owen: So I've been advocating for the near term and certainly implementing with our company that we don't have any must-win programs at Lockheed Martin. If we have a good business opportunity with a balanced price-risk profile, we will bid. If not, we will not bid.

Jim: Our services and our joint program office as to what we think industry can do with us and our airplane.

Jim: The industry is who makes the radar industry is who makes the.

Intellectual optical system.

Jim: The industry is who makes the electronic warfare suite, it's not us. So we have to be brutally honest is as an industry.

Maria Richard-Owen: If we hit our limit parameters, we won't go beyond those. A competitor may win. So be it.

And with our suppliers inputs to that with the government and say what is feasible to keep the production rate up I think thats starting to get traction I hope it gets more traction because we cannot afford to.

Jim: The over optimistic in the ability to deliver these technologies as rapidly as one might like there are real technical and physical challenges to doing this.

Jim: And while our commitment to the government.

Jim: Neither the service Chiefs and our allies is I will tell you honestly, what we think industry can do with the jet.

Jim: And if you want to push it beyond that I'll tell you what the risks are and what the cost might be to do it but let's agree on a feasible executable plan for exactly Doug what you talked about.

Speaker Change: Thank you. Your next question is from Sheila <unk> from Jefferies. Please go ahead.

Sheila Dang: Good morning, guys. Good morning, Tim I don't want to talk about what happened in 1983.

Sheila Dang: In terms of the puts and takes.

Speaker Change: Steve you could just talk about the 7% topline growth you guys had.

Maria Richard-Owen: It's going to probably take acts of Congress to do it, but that will be the thing that will make our industry healthier on the one hand, the traditional defense and aerospace industry, but it will also bring in commercial tech companies who are basically, if you look at the broad scope, investing 10x what we are in our industry. And we want to bring a lot of that 10x R&D and all that talent over into the Defense Department as part of their supply chain, but it's really tough under the FAR for those companies to put time and attention and effort into it. So that's the long-term, a long-term solution, but the near-term solution will also. Thank you. Your next question is from Doug Harned, from Bernstein. Please go ahead. Good morning. Thank you. This morning,

What are the biggest program drivers there between missile defense and tactical and just on the margins you've already highlighted the 50 bps.

Speaker Change: From the classified programs are there any offsets and I really appreciate your commentary about the government and how you plan to sell to them. So I was just thinking where do you think that will manifest itself in its portfolio.

Speaker Change: In your portfolio in the past.

Speaker Change: Can you give any.

Speaker Change: Yes, sure I'll start with the growth drivers.

Speaker Change: For MFC.

Speaker Change: You would expect tactical and strike missiles, so the guided.

Speaker Change: <unk> weapons.

Speaker Change: Hi, Mars Jasmine Lorazepam, all those will continue towards their march towards these ramps for by 2025 and in certain cases, 2026 and 2027. So that is the largest driver of the growth and that's followed by integrated air and missile defense really on the back of pad III. So we will start seeing a more.

Speaker Change: Significant spike in.

Speaker Change: And Pac three.

Speaker Change: Activity and deliveries over the next few years here as we get to 550 by 2025 and ultimately $6 50 by 2027. So those are the two.

Speaker Change: Really the two business through the lines of business within MFC theyre going to be driving it.

Speaker Change: Which is really should be no surprise.

Speaker Change: And when it gets to moving towards a value pricing model Sheila.

Speaker Change: The first place that's already starting to happen is in command and control.

Speaker Change: Command situational awareness information advantages our customers would call. It. So those are largely digital services right.

Maria Richard-Owen: It's Jim. I think we can continue at this rate, you know, demand from the U.S. services. And our international customers, you know, air forces, navies, et cetera, around the world need the aircraft, right? They've got to recapitalize the planes that they're still flying that I was trying to get when I went to pilot training in 1983, right?

Speaker Change: Got sensors on satellites aircraft ships radars.

Speaker Change: Scanning the sky.

Speaker Change: For Red sensors and space looking for plumes of heat when a missile is launched things like that.

Maria Richard-Owen: So this is essential that this production line keep up. It's basically the recapitalization of the, you know, the allied fighter aircraft force is the F-35. And so I think the key to that is full transparency and, you know, realizing the reality of the situation.

Speaker Change: Probably the first place where we can value price because my goal is to bring in commercial technology to do that digital.

Speaker Change: Digital data fusion evaluation, AI application et cetera, as I said, a minute ago commercial industries investing 10 X, what our aerospace and defense industry could could invest in these areas and we need to take advantage of that the only way, they're going to participate in a material fashion and that <unk>.

Maria Richard-Owen: So we have to be brutally honest as an industry and with our suppliers' inputs into that with the government and say what is feasible to keep the production rate up. I think that's starting to get traction. I hope it gets more traction because we cannot afford to be over-optimistic in the ability to deliver these technologies as rapidly as one might like. There are real technical and physical challenges to doing this. Well, our commitment to the government, to the service chiefs, and our allies is I will tell you honestly what we think industry can do with the jet, and if you want to push it beyond that, I'll tell you what the risks are and what the cost might be to do it, but let's agree on a feasible, executable plan for exactly Doug. Thank you. Your next question is from Sheila Kayaoglu from Jeffries. Please go ahead. Good morning, guys. Jim, I don't want to talk about what happened in 1983.

Speaker Change: And then as we look at mission.

Speaker Change: Emission roadmaps that we have.

Established and drawn out inside of Lockheed Martin, we're now sharing and have been sharing with the U S services and Vod, we're looking for capability gaps where digital technology can really make a difference right. So I'll give you one really quick one so if we could get a direct feed from an orbiting sat.

Speaker Change: Light scanning a wide swath of the Pacific to find ships and actually directly.

Speaker Change: Mission gap.

Speaker Change: Capability gap that we would have an anti ship.

Speaker Change: <unk> mission and so how do we value price that because that's basically a data management.

Maria Richard-Owen: Yeah, sure. I'll start with the growth drivers. And, you know, for MFC, they're what you would expect, tactical and strike missiles. So the guided, the guided weapons, the HIMARS, JASM, LORASM, all those will continue their march through these ramps by 2025 and, in certain cases, 2026 and 2027. So that is the largest driver of growth. And that's followed by integrated air and missile defense really on the back of PAC-3. So we'll start seeing a more significant spike in PAC-3 activity and deliveries over the next few years as we get to 550 by 2025 and ultimately 650 by 2027. So those are the two, really the two businesses, the lines of business within MFC that are going to be driving it, which should really be no surprise.

Speaker Change: Like that.

Speaker Change: And I think it would be a capability gap that would be interesting to the department of defense and they might accept value pricing.

Speaker Change: But.

Speaker Change: Not to take too much time on this topic, but one of the things that we're really advocating for Lockheed Martin and we've got some some friends.

Speaker Change: <unk>.

Speaker Change: The court trying to.

Speaker Change: Work with US on this is how do we set up an adjacent.

Speaker Change: The acquisition process in the department of defense to traditional acquisition process.

Maria Richard-Owen: And when it comes to moving towards a value pricing model, Sheila, the first place that's already starting to happen is in command and control, command situational awareness, information advantages, as our customers would call it. So those are largely digital services, right? We've got sensors on satellites, aircraft, ships, radars out scanning the sky, infrared sensors in space, looking for plumes of heat when a missile is launched, things

Speaker Change: This but we want to value price as an industry, bringing commercial partners at scale I think the government needs to consider and actually go do this with us.

Let me just circle back Sheila on the margins in your question I'll use MFC as an example in 2024 when you look at their headwind there headwind is about 200 basis points.

Speaker Change: Margin compression in the year 2020 for the MSC classified program.

Maria Richard-Owen: That's data, right? So how do we gather all the data from our sensors? Whatever domain they happen to be in, land, air, space, etc. How do we do intelligent data fusion?

Speaker Change: <unk> accounted for 230, and so the rest of their business is actually expanding by 30 basis points and so they're doing everything we would expect them to do in their core business.

Speaker Change: In general across all of Lockheed Martin the way we are approaching these headwinds is really threefold first we're just keeping a tight lid on overhead and indirect costs and streamlining that cost structure, where the opportunities exist.

Maria Richard-Owen: And then present commanders and decision makers with options using AI and other digital services? So this will probably be the first place where we can value price. Because my goal is to bring in commercial technology to do that digital data fusion evaluation, AI application, etc.

Speaker Change: The second is we're driving cost reduction in our direct cost base through supply chain optimization factory productivity and also one Ela Max driven efficiencies and then lastly, we talked about about a little bit earlier in the call is just making sure that were <unk>.

Maria Richard-Owen: As I said a minute ago, the commercial industry is investing 10x what our aerospace and defense industry could invest in these areas, and we need to take advantage of that. The only way they're going to participate in a material fashion in that industry is through value pricing. They're not going to provide cost information; it's just not how their industry works. They're not delivering an airplane where you can add up all the costs that it took to make that airplane and give it to the government so they can give you the margin. So these command and control systems, and they're real programs, by the way. Defensive Bomb is one such program, AIR 6500 is one that I mentioned, and also something called Joint Fires Network, which will be deployed in the Indo-PACOM command of the U.S.

Speaker Change: Flooring pricing discipline across our across our bidding proposals and so those three together will help us drive to a better result in the future and give us confidence that we'll be able to expand margins even with these headwinds.

Speaker Change: Thank you. Your next question is from the line of Sam.

Sam: From Jpmorgan. Please go ahead.

Sam: Okay, Thanks, very much and good morning, everyone.

Speaker Change: Maybe one one clarification and one question.

Speaker Change: On F 35 at the end of 'twenty four should we think about there being maybe 120 undelivered aircraft in inventory based on the production rate.

Speaker Change: 150, plus and the deliveries you've told us that.

Speaker Change: That's the clarification and that inventory, we will have to be worked out over the subsequent year or two and then as far as the question goes I think you talked about 10 to 20 basis points of segment margin expansion in 'twenty five.

Speaker Change: If we thought about only one lot exercised on classified missile, that's probably 25 basis points.

The margin in Aeronautics seems pretty depressed and 24 so.

Maria Richard-Owen: So if we could get a direct feed from, you know, an orbiting satellite scanning a wide swath of the Pacific to find ships and actually directly provide that data link and that information to aircraft flying in the area, then those aircraft can vector towards those targets and turn on their radars and get a much more precise location and maybe even a tracking solution to sink the ship, if that's what it takes. And so that's And so, you know, how do we value price like that? Because that's basically a data management... Thank you all for joining us today. Besides those in our...

You would think there may be some potential for expansion there and you just talked about the efforts that youre, making across the company to support margins or there are other discrete headwinds that were not aware of that wouldn't allow you know.

Speaker Change: That would prevent more than that kind of 10 to 20 basis points that you outlined.

Speaker Change: Yes, let me start with that question first and I'll come back to the F 35, just on the.

Speaker Change: 2025 margins going forward, yes, it would be essentially one lot versus two however, you got to take into account the volumes.

Speaker Change: That are in that lot versus the volumes that were in these first two lots and so you really think about it from a gross headwind it doesn't necessarily change all that much because there's more in there.

Speaker Change: And so thats whats keeping the pressure.

Speaker Change: <unk> is in terms of undelivered against the $1 56 type of expected delivery rate is the right way to think about it yes.

Speaker Change: Thank you. The next question is from the line of Ron Epstein from Bank of America. Please go ahead.

Speaker Change: Question.

Ron Epstein: I'll do the question first.

Ron Epstein: But what are you thinking about the opportunity for the black Hawk going forward, meaning.

Speaker Change: I don't know we've kind of heard there is some challenges on future vertical lift.

Speaker Change: What what opportunities does that open.

Speaker Change: To you for the Blackhawk.

Ryan: Ryan It's Jim.

Ryan: The Blackhawk.

Ryan: I've gotten to fly it autonomously and by hand actually.

Ryan: I think has a lot of potential there is interest in Congress for modernization of the Blackhawk is a huge fleet out there.

And by adding some of these digital capabilities like autonomy and AI to the Black Hawk, which is a really reliable platform that is offline and units today in great numbers and across our allies, that's a real I think value opportunity for the Army's.

Ryan: Cores and others that use the helicopter. So I do think there's a lot of upside there.

Ryan: Want to comment on anybody else's programs or how well or not they may be doing.

But this is a proven scaled vehicle, which with digital technology upgrade and insertion.

Ryan: Can be very very versatile and that can be done much more rapidly than new production of new aircrafts. So I do think that there is upside there now the <unk>.

Ryan: Services and Congress have to agree to that and fund those modernizations and keep those those units flying and that'll be up to them, but we are trying to provide them every opportunity to make that decision by inserting digital and other technologies like autonomy.

Maria Richard-Owen: And then lastly, we talked about a little bit earlier in the call, is just making sure that we're employing pricing discipline across our bidding proposals. And so those three together will help us drive to a better result in the future and give us confidence that we'll be able to expand margins even with these headwinds. Thank you. Your next question is from the line of Seth Seifman from JP Morgan. Please go ahead. Thanks very much, and good morning everyone.

Ryan: That will really make the aircraft much more capable in doing missions like air evacuation resupply of a hot landing zone things like that that when you put it into the entire equation of completing emission it will be a good value to consider it.

Speaker Change: Thank you and our next question is from the line of Christine Li Wang from Morgan Stanley. Please go ahead.

Speaker Change: Hey, Jim.

Speaker Change: The discussion in the public market.

Speaker Change: The depletion of you asked missiles and munitions and a potential shortage.

Speaker Change: From your commentary today, it sounds like supply chain issues continue to linger weighing on the companys ability to convert that demand into revenue.

Speaker Change: I'll make a couple of comments and ask Jay to follow.

The steps that we're taking to take the fragility out of the missile production system.

Speaker Change: Our varied one of them is.

Speaker Change: And it is very specific.

Speaker Change: We are endeavoring to standup a third solid rocket motor supplier in the United States that can be additive to the industry supply chain, we have today, which hasnt been performing well right.

Speaker Change: That's one piece more broadly we are using additive manufacturing and we're bringing in.

Speaker Change: More varied suppliers into the supply chain, so that we can get.

Speaker Change: The materials, we need from a more diverse set of group of suppliers outside of solid rocket motors.

Speaker Change: And also we are.

Speaker Change: Looking at international opportunities to build this equipment, including in Australia, and in Poland U K and others are kind of on tap for for a co production or joint ventures with us to do these things in Germany, I Should've mentioned as well so.

Maria Richard-Owen: And so that's what keeps the pressure on, you know, there's not just an automatic lift because we're going from two lots to one lot in a subsequent year. On the F-35, I mean, I think what you and the way you talked about it, Seth, are right. Anywhere between 100 to 120 aircraft is, in terms of undelivered, against the 156 type of expected delivery rate is the right way to think about it. Yes. Thank you. The next question is from the line of Ron Epstein from Bank of America. Please, so I'll do the question first.

Speaker Change: These are some of the approaches we're taking.

Speaker Change: And it really comes down to these three areas which is.

Speaker Change: How can we on one hand take basic steps and anti fragility.

Speaker Change: More suppliers more diversity.

Speaker Change: On the supply chain.

Speaker Change: Labor pools, better training those kinds of things.

Speaker Change: <unk>.

Speaker Change: Secondly, how can we in store technology to make this more reliable production system, which we just mentioned and then thirdly is how do we get international countries and take advantage of their labor forces their supply sub supply chains et cetera, and get them into the production system. So we look at this in all three areas of our company strategy and apply.

Ron Epstein: What are you thinking about the opportunity for the Blackhawk going forward? Meaning? I don't know, we've kind of heard there are some challenges for future vertical lift, and what opportunities does that open? Thank you for the block. Ron, it's Jim.

Speaker Change: <unk> Tim missile production.

Speaker Change: Anything you want to add yes, I'll just say over the last.

Speaker Change: Year Christine.

Speaker Change: We've deployed resources. So we haven't just sat back in.

Speaker Change: Waiting for improvement.

Speaker Change: Depending on the supplier depending on the issues, we have deployed manufacturing engineering resources, we've deployed quality engineering resources and our program management resources.

James D. Taiclet: Look, look, there's the Blackhawk, and... I've gotten to fly it autonomously and by hand, actually. I think it has a lot of potential. There's interest in Congress for modernizing the Blackhawk. There's a huge fleet out there.

Speaker Change: As well as in certain cases, we've employed we've actually deployed hourly workers to support suppliers in certain cases, and so we've taken a all hands on deck approach, where we've seen the issues become more significant and we've done everything we can to support the suppliers and help them get through I would expect that to continue where we see.

Maria Richard-Owen: And by adding some of these digital capabilities, like autonomy and AI, to the Blackhawk, which is a really reliable platform that's out flying in units today in great numbers and across our allies, that's a real, I think, value opportunity for the armies and Marine Corps and others that have used the helicopter. So I do think there's a lot of upside there. I don't want to comment on anybody else's programs or how well or not they may be doing, but this is a proven scaled vehicle which, with digital technology upgrade and insertion, can be very, very versatile.

Speaker Change: These these bottlenecks.

Speaker Change: As I mentioned earlier, we did see some general.

Speaker Change: Improvement, we are expecting that improvement to continue and in terms of potential upside what I would point you to is if we're able to unlock and see a little bit better performance and that would drive us to the high end of our sales profit and EPS range.

Maria Richard-Owen: And that can be done much more rapidly than new production of new aircraft. So I do think that there's upside there. Now, the services and Congress have to agree to that and fund those modernizations and keep those units flying. And that'll be up to them.

Speaker Change: Yeah.

Speaker Change: Thank you. Our next question is from Matt Akers from Wells Fargo. Please go ahead.

Matt Akers: Yeah, Hey, good morning, guys could you talk about the F 16 real quick just latest thoughts on the ramp rate here and also just margins on that program compares.

Maria Richard-Owen: But we're trying to provide them with every opportunity to make that decision by inserting digital and other technologies like autonomy that will really make the aircraft much more capable of doing missions like air evacuation, resupply after a hot landing, Things like that, that when you put them into the entire equation of completing a mission, they will be a good value. I think our next question is from the line of Kristine Liwag from Morgan Stanley. Please go ahead.

Speaker Change: So the segment now and then sort of do they get better over time as you kind of come back down the learning curve.

Speaker Change: Yes, so we delivered a five aircrafts in 2023, we would expect that to triple.

Speaker Change: Triple potentially quadruple here in 2024, and so the ramp is in certainly in full force, we've got over 30 aircrafts, there and web as.

Speaker Change: As we ended the year and so that is I think from a delivery standpoint, increasing the production cadence has all is all trending well from a profitability standpoint, you may recall, we've had some pressure because it's taken us longer to get to this point and so that put some pressure on our initial contracts here as we are.

Kristine Tan Liwag: Hey, Jay, Jim, there's been discussion in the public markets about the depletion of US missiles and munitions and a potential shortage. But that said, from your commentary today, it sounds like supply chain issues continue to linger, weighing on the company's ability to convert demand into revenue. So can you talk more about the additional actions you're taking to improve the supply chain's ability to get products through the system? And what metrics are you monitoring? And how much upside could you see in 2024? If I make a couple of comments and ask Jay to follow. The steps that we're taking to take this fragility out of the missile production system are varied. One of them is... And it's very specific.

Speaker Change: Fully deliver those out and deliver on our subsequent contracts, we will see profitability improve on the F 16 over the next few years.

Speaker Change: Our next question is from the line of George Shapiro from Shapiro Research. Please go ahead.

George D. Shapiro: Yes, Hello, Hey, George looking at a longer term perspective here, if I look at the margins like from 10 years ago.

George D. Shapiro: MFC made 18% Aeronautics made 11.

George D. Shapiro: Space May.

George D. Shapiro: <unk> and so were obviously down and all of those categories. Overall, maybe 200 basis points from 10 years ago. So my question is was this due to a lot of fixed price development more aggressive bidding and now you're trying to change that so when we look towards 2025, we actually could see.

George D. Shapiro: Our margins go up from where they would be in 2024, where kind of are.

George D. Shapiro: They just lower margins overall that we expect to see from what we used to see.

Speaker Change: George It's Tim here.

Tim: The story I told a little bit earlier today is what caused that there is margin compression in the whole industry here driven by the monopsony customer a few felt so they've got pretty good at figuring out how to.

Tim: Use their position.

Maria Richard-Owen: These are some of the approaches we're taking, and it really comes down to these three areas, which are... How can we, on the one hand, take basic steps of anti-fragility to more suppliers, more diversity in the supply chain? Secondly, how can we use technology to make this a more reliable product? And then thirdly, how do we get international countries and take advantage of their labor forces, their supply, sub-supply chains, etc., and get them into the production system?

Tim: In the quarter analysis of how they should negotiate contracts and I think youre seeing us.

Tim: And management of <unk>.

Tim: Companies in our traditional space I'll call it.

Tim: Our understanding this now.

Tim: The management tends to not necessarily senior management tends not to necessarily be.

Historically wedded to this business model and looking at other ways to to run these companies and so.

Tim: We are we are taking the shareholders' interest into account in all of the things, we talked about which should help improve our margins.

Tim: Even though it may result in some difficult discussions with some of the customer base, we're prepared to do that.

Maria Richard-Owen: So we look at this in all three areas of our core company strategy and apply it to missile. Anything you want to add? Yeah, I'll just say, you know, over the last year, Kristine, you know, we've deployed resources. So we haven't just sat back and waited for improvement. Depending on the supplier, and depending on the issues, we have deployed manufacturing engineering resources. We've deployed quality engineering resources and program management resources. As well as, in certain cases, we've actually deployed hourly workers to support suppliers in certain cases.

Tim: But I think over the last 10 years as you said, there's been a decline and it needs to reverse to have a healthy industry.

Speaker Change: Okay, Hey, Louis I think we're at the top of the hour. So I'm just going to turn it back over to Jim for some final thoughts okay. Thanks, Maria so over the past 12 months again I mentioned the people of Lockheed Martin.

Jim: Relentlessly to advance this vision, we have for 20, <unk> century security and transform our company internally.

Jim: They created produced and delivered cutting edge capabilities that are focused on what the defense Department says has its own strategy that they call integrated deterrence.

Maria Richard-Owen: And so we've taken an all-hands-on-deck approach where we've seen the issues become more significant, and we've done everything we can to support these suppliers and help them get through. I would expect that to continue where we see, you know, these bottlenecks. But, as I mentioned earlier, we did see some general improvement, and we are expecting that improvement to continue. And you know, in terms of potential upside, what I would point you to is that if we're able to unlock and see a little bit better performance, then that would drive us to the high end of our sales profit and EPS. Thank you. Our next question is from Matt Akers from Wells Fargo. Please go ahead.

Jim: And we're trying to maintain our company values, along the way and Thats to do what's right respect others and performed with excellence and all of this yields positive results for our employees that work here, our customers and our suppliers and especially our shareholders. So thanks again for joining us today and we look forward to speaking with you on our next earnings call in April <unk>.

Speaker Change: That concludes the call. Thank you.

Speaker Change: And ladies and gentlemen that does conclude your conference for today. Thank you for your participation and for using AT&T teleconference. You may now disconnect.

Matt Akers: Yeah, hey, good morning. Thanks, guys. Could you touch on F-16 real quick, just the latest thoughts on the ramp right here and also just margins on that program as it compares to the segment now and then sort of, you know, do they get better over time as you kind of come back down the learning curve? Yeah, so we delivered five aircraft in 2023. We would expect that to triple or potentially quadruple here in 2024. And so where the ramp is in, certainly in full force, we've got over 30 aircraft there in WIP as we ended the year.

Maria Richard-Owen: And so, you know, that is, I think, from a delivery standpoint, increasing the production cadence has everything trending well. From a profitability standpoint, you know, we've had some pressure because it's taken us longer to get to this point. And so that puts some pressure on our initial contracts.

George D. Shapiro: Hello, I'm looking at a longer-term perspective here. If I look at the margins from 10 years ago, MFC made 18%, aeronautics made 11%, space made 13%, and so we're obviously down in all of those categories. Overall, maybe 200 basis points from 10 years ago.

George D. Shapiro: So my question is, was this due to a lot of fixed-price development, more aggressive bidding, and now you're trying to change that? So when we look towards 2025, we could actually see margins go up from where they would be in 2024. Are they just lower margins overall that we expect to see from what we used to see? George H. Jim here. I think the story I told a little bit earlier today is what caused it.

George D. Shapiro: You know, there's margin compression in the whole industry here, driven by the monopsony customer, if you will. So, you know, they got pretty good at figuring out how to use their position, you know, in the Porter analysis of how they should negotiate contracts. And what I think you're seeing is, you know, boards and management of, you know, and all the rest, uh... even though it may result in some difficult discussions with some customers, we're prepared to... But I think over the last 10 years, as you said, there's been a decline, and it needs to reverse to have a healthy economy.

Maria Richard-Owen: Lois, I think we're at the top of the hour, so I'm just going to turn it back on. Okay, thanks Maria. So over the past 12 months, again, I mentioned the people of Lockheed Martin have worked relentlessly to advance this vision we have for 21st century security and transform our company internally. And they created, produced, and delivered cutting-edge capabilities that are focused on what the Defense Department says is its own strategy, which they call integrated deterrence.

Maria Richard-Owen: And we're trying to maintain our company values along the way, and that's to do what's right, respect others, and perform with excellence. And all this yields positive results for our employees that work here, our customers, and our suppliers, and especially our shareholders. So thanks again for joining us today, and we look forward to speaking with you on our next earnings call in April. Lois, that concludes the call. Thank you. Thank you. And ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using the AT&T teleconference service.

Q4 2023 Lockheed Martin Corp Earnings Call

Request a DemoDemo

LMT

Lockheed Martin

Earnings