Q1 2024 Lockheed Martin Corp Earnings Call

April 23, 2024

Okay.

Operator: Good day, and welcome everyone to the Lockheed Martin First Quarter 2024 Earnings Results Conference Call. Today's call is being recorded. If you would like to ask a question, please press 1 then 0.

Speaker Change: Good day and welcome everyone to the Lockheed Martin first quarter 'twenty 'twenty four earnings results Conference call.

Speaker Change: Today's call is being recorded if you would like to ask a question. Please press. The one then zero now at this time for opening remarks, and introduction I would like to turn the call over to Maria but to Dawn based President Treasurer and Investor Relations. Please go ahead.

Maria: Thank you and good morning, I'd like to welcome everyone to our first quarter 2024 earnings conference call.

Maria: Joining me today on the call are Jim <unk>, our chairman, President and Chief Executive Officer, and Jay Malave, Our Chief Financial Officer.

Maria: 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 Securities Law 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.

Maria Ricciardone Lee: The Bulletproof Executive 2013, We posted charts on our website today that we plan to address during the call to supplement. These charts also include information regarding non-GAAP measures that may be used. Please access our website at www.lockheedmartin.com and click on the Investor Relations link to view and follow the charts. Thanks, Maria. Good morning, everyone.

Maria: We posted 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 Jim.

Maria: Yeah.

Jim: Thanks, Maria Good morning, everyone and thank you for joining us on our first quarter 2024 earnings call.

Jim: I'd like to begin todays discussion with a brief overview of our quarterly financial results.

Jim: The U S Department of defense budget.

Jim: Status updates on some key programs.

And recent advancements made to support our vision of 20, <unk> century security and integrates the latest digital technologies.

Speaker Change: Then Jay and Maria will provide more detailed information about quarterly highlights and financials.

James D. Taiclet: The increasingly unstable geopolitical environment in the world today makes it essential for industry and government to strengthen our nation's capabilities to deter and defend against further aggressive behavior against the U.S. and our allies. We here at Lockheed Martin are continuing to invest heavily to improve our design and production capabilities while actively partnering with leading companies inside and outside the A&D industry to incorporate a wide range of technologies. As a result, we delivered robust revenue growth across the company, and we maintained a robust backlog of $159 billion, reflecting alignment between our advanced technology solutions and our customers' key missions and priorities. These first quarter results reinforce our confidence in our ability to achieve the full year financial expectations we shared in the most recent earnings.

Speaker Change: The increasingly unstable geopolitical environment in the world today makes it essential for industry and government to strengthen our nation's capabilities to deter and defend against further aggressive behavior against the U S and our allies.

Speaker Change: We here at Lockheed Martin are continuing to invest heavily to improve our design and production capabilities, while actively partnering with leading companies inside and outside the A&D industry to incorporate a wide range of technologies.

Speaker Change: As a result, we delivered robust revenue growth across the company and we maintained a robust backlog of $159 billion, reflecting alignment between our advanced technology solutions, and our customers' key missions and priorities.

Speaker Change: These first quarter results reinforce our confidence in our ability to achieve the full year financial expectations. We shared in the most recent earnings call.

James D. Taiclet: Moreover, the approved FY24 defense budget reflected many positives for Lockheed Martin and was consistent with national defense strategy priorities, too. Highlights include robust funding for munitions for multi-year procurement, continued investment in hypersonics and classified activities, and ongoing support for programs such as Black Hawk, the CH-53K Heavy Lift Helicopter, the Fleet Ballistic Missile, C-130, and F-35. There are also additions to the original budget submission, including F-35 aircraft, C-130s, and Combat Rescue Helicopters. The initial budget request for FY25, while still very early in the process, continues support for many of these same major programs, including the F-35, CH-53K, UH-60M, and others, in addition to emphasis on advanced munitions programs such as JASM-LRASM, PRISM, JAVELIN, Gimlers, and PAC-3, as well as hypersonic conventional prompt strike and the long-range hypersonic

Speaker Change: Moreover, the approved FY 'twenty for defense budget reflected many positives for Lockheed Martin consistent with National Defense strategy priorities too.

Speaker Change: Highlights include robust funding from munitions multiyear procurement continued investment in the hypersonic and classified activities and ongoing support for programs such as Blackhawk CH 53, K heavy lift helicopter fleet ballistic missile C 130 in F 35.

Speaker Change: They were also additions to the original budget submission, including F 35 aircraft C 130, <unk> and combat rescue helicopters.

Speaker Change: The initial budget request for FY 'twenty five while still very early in the process continued support of many of these same major programs, including the F 35, CH 53, K U H 60 am and others.

In addition to emphasis on advanced munitions programs, such as Jasmine lorazepam.

Speaker Change: Prism javelin gamblers, and Pac three as well as hypersonic conventional prompt strike in the long range hypersonic weapon.

James D. Taiclet: In addition to that, Next Generation Interceptors are getting support, which I'll address more in a moment. And this week, funding of $95 billion for Ukraine, Israel, and Indo-Pacific security supplementals passed the House and is currently under consideration in the Senate.

Speaker Change: In addition to that the next generation interceptors, getting support which I'll address more in a moment.

Speaker Change: And this week funding of $95 billion for Ukraine, Israel, and Indo Pacific Security supplemental passed the house and is currently under consideration in the Senate.

James D. Taiclet: We expect the FY25 presidential budget request and additive supplemental funding will provide a strong underpinning for future growth over the next several years for our company, giving us further confidence in our long-range plan. While demand for these key programs remains elevated, it is also essential that our program performance in terms of quality, safety, cost, and schedule gets and stays at the highest level. On our most significant programs, I, Jay, and my senior executive team are personally and directly involved.

Speaker Change: We expect FY 'twenty five presidential budget request and additive supplemental funding will provide a strong underpinning for future growth over the next several years for our company.

Speaker Change: Giving us further confidence in our long range plan.

While demand for these key programs remains elevated it is also essential that our program performance in terms of quality safety costs and schedule gets and stays at the highest level.

Speaker Change: On our most significant programs I J and my senior executive team are personally and directly involved.

James D. Taiclet: On the F-35, we remain focused on program execution in terms of concurrent development, production, and sustainment, and we are bringing all relevant resources across our company and collaborating closely with our customers and suppliers to fully implement the TR3 capabilities that everybody's looking forward to getting. These capabilities based on the new core processor, data storage unit, and pilot display will ensure that the F-35 is not only the most capable and effective fighter aircraft in the world, but it will also further advance its abilities to act as the air domain quarterback of joint-all domain operations for the U.S. and its allies.

Speaker Change: On the F 35, we remain focused on program execution in terms of concurrent development production and Sustainment.

Speaker Change: And we're bringing all relevant resources across our company and collaborating closely with our customers and suppliers to fully implement the tier three capabilities that everybody is looking forward to getting.

Speaker Change: These capabilities based on the new core processor data storage unit and pilot display will ensure that the F. 35 is not only the most capable and effective fighter aircraft in the world.

But it will also further advanced its abilities to act as the air domain quarterback of joint all domain operations for the U S and its allies.

James D. Taiclet: We're encouraged by the solid progress made over the last few months towards resuming deliveries, including improvement in aircraft mission system capabilities and system stability as we advance from prior software versions towards a combat training-capable configuration. Flight testing of this configuration is now underway, and we're on a path we expect to be on with regard to maturing the system with approximately 95% of TR-3 capabilities in this flight test program.

Speaker Change: We're encouraged by the solid progress made over the last few months towards resuming deliveries, including improvement in aircraft mission system capabilities and system stability as we advance from prior software versions towards the combat training capable configuration.

Speaker Change: Flight testing of this configuration is now underway and we're on a path we expect to be on with regard to maturing the system with approximately 95% of tier three capabilities in this flight test program.

James D. Taiclet: The test results to date support our expected timeline of delivering the first TR-3 combat training capable aircraft in the third quarter, and then transitioning to a fully combat capable aircraft in 2025. As planned, there will be continual software updates to support further capability insertions during the Block 4 program and beyond. While there were no final deliveries of F-35 jets in the first quarter, we're maintaining our production rate and continue to expect an aircraft delivery range for 2024 between 75 and 110, which requires timely receipt of the necessary hardware from TR3 suppliers along the way.

Speaker Change: The test results to date support our expected timeline of delivering the first tier three combat training capable aircraft in the third quarter, and then transition to a fully combat capable aircraft in 2025.

Speaker Change: As planned there will be continual software updates to support further capability insertions over the block four program and beyond.

Speaker Change: While there were no final deliveries of F 35 jets in the first quarter were.

Speaker Change: We're maintaining our production rate and continue to expect an aircraft delivery range for 2024 between 75 and 110.

Speaker Change: Which requires timely receipt of the necessary hardware from tier three suppliers along the way.

James D. Taiclet: The F-35's advanced combat and interoperability capabilities continue to create strong demand for the aircraft internationally, too. In the quarter, the Czech Republic became the 18th nation to join the F-35 global team with a signed letter of offer and acceptance, making it official its intent to procure 24 F-35s.

Speaker Change: You have 35 advanced combat and interoperability capabilities.

Speaker Change: <unk> to create strong demand for the aircraft internationally too.

Speaker Change: In the quarter, the Czech Republic became the 18th nation to join the F 35 global team with a signed letter of offer and acceptance, making it official.

Speaker Change: Its intent to procure 24 F 30 fives.

James D. Taiclet: In addition, the U.S. State Department approved a potential foreign military sale to Greece for up to 40 F-35s, and Singapore announced its intent to purchase 8 F-35As to complement the 12 F-35Bs to which it has already previously committed. Also, in the lower air domain, while we're disappointed in the cancellation of the Future Attack Reconnaissance Aircraft Program, or FARA, Sikorsky remains committed to delivering innovative and reliable aviation capabilities to our domestic and global customers. With a strong foundation of more than $20 billion in backlog, bolstered by expected and funded growth in the heavy-lift CH-53K helicopter program. Korsky's multi-year outlook is stable.

In addition, the U S State Department approved the potential foreign military sale to Greece for up to 40 F 30, Fives, and Singapore announced its intent to purchase eight F 35 days to complement the 12 F 35, BS to which it is already previously committed.

Also in the lower air domain, while we are disappointed in the cancellation of the future attack reconnaissance aircraft program or farra Sikorsky remains committed to delivering innovative and reliable aviation capabilities to our domestic and global customers with a strong foundation of more than $20 billion in backlog.

Speaker Change: Bolstered by expected and funded growth in the heavy lift CH 50, <unk> helicopter program Sikorsky multi year outlook is stable.

James D. Taiclet: We're also encouraged by the Army's renewed commitment to Blackhawk production and modernization, as well as our ability to address mission gaps through capability upgrades that leverage Lockheed Martin's broad portfolio of solutions in the lower air domain, things such as autonomy, AI, et cetera. Turning now to Missile Defense Missions, which, given recent world events, are becoming more critical than ever, we continue to lead the industry. Last week, the Missile Defense Agency, or MDA, selected Lockheed Martin to deliver the new homeland missile defense capability for the United States, which is called the Next Generation Interceptor, or NGI.

Speaker Change: We're also encouraged by the army has renewed commitment to black Hawk production and modernization as.

Speaker Change: As well as our ability to address mission gaps with capability upgrades that leverage Lockheed Martin's broad portfolio of solutions and the lower air domain things such as autonomy AI et cetera.

Speaker Change: Turning now to missile defense missions, which given recent world events are becoming more critical than ever we continue to lead the industry.

Speaker Change: Last week, the missile Defense agency, our MTA selected Lockheed Martin to deliver the new homeland missile defense capability for the United States, which is call. It the next generation interceptor and Gi.

James D. Taiclet: As the MDA's NGI prime contractor, Lockheed Martin will provide the most modern, reliable, and technically advanced interceptor in the history of this system. This program was a one LMX, that's our digital transformation, born digital program, meaning we embrace model-based engineering, digital tools, processes, and technologies from the very, very start of this program.

Speaker Change: The Mbas and Gi Prime contractor Lockheed Martin will provide the most modern reliable and technically advanced interceptor and the history of this system.

Speaker Change: This program was a one <unk> our digital transformation.

Speaker Change: Born digital program, meaning we embraced model based engineering digital tools processes and technologies from the very very started this program.

James D. Taiclet: Now as it continues on its path to the critical design review, integration with broader weapons system, and flight tests, I'm proud of the Lockheed Martin team that enabled all of this. We were MDA's early down selection before it was even on their schedule because we were so far in front to get this essential homeland defense capability off to a fast start. Earlier this quarter, the Long-Range Discrimination Radar, or LRDR, completed final acceptance and was officially handed over to the Missile Defense Agency in preparation for an operational capability baseline decision, and what that means is the final transition to active service for that radar to help defend the country.

Speaker Change: Now as it continues on its path of the critical design review integration with broader weapons system and flight tests I'm proud of the Lockheed Martin team that enabled all of this.

Speaker Change: We were we were mda's early down select before it was even on their schedule because we're so far in front to get this essential homeland defense capability off to a fast start.

Speaker Change: Earlier this quarter, the long range discrimination radar or LR. Dr completed final acceptance and was officially hand it over to the missile Defense agency in preparation for an operational capability baseline decision and what that means is final transitioned to active service for that radar to help defend the <unk>.

James D. Taiclet: The LRDR is a cutting-edge national asset, providing the benefits of both low- and high-frequency radars to search, track, and discriminate incoming missiles, with an open system approach enabling the customer to add incremental capabilities such as hypersonic defense. Those located up in Alaska are in a prime location where we can sense early what any attack might look like and respond to it.

Speaker Change: Countries the.

Speaker Change: <unk> is a cutting edge national asset, providing the benefits of both low and high frequency radars to search track and discriminate incoming missiles.

Speaker Change: With an open system approach, enabling the customer to add incremental capabilities such as hypersonic defense. This is located up in Alaska and the prime location, where we can sense early what any attack might look like and respond to it what that really does those create an elevated deterrent to.

James D. Taiclet: What that really does, though, is create an elevated deterrence to any kind of attack like that. So it's really great to have LRDR about ready to go. Now both NGI and LRDR will be critical elements within the overall Homeland Defense mission, and they're going to be integrated into the broader defense architecture with a battle management system that we call Command, Control, Battle Management, and Communication, or as the military calls it, C2BMZ.

Speaker Change: Any kind of attack like that so it's really great to have Dr about ready to go online.

Now both <unk> and <unk> will be critical elements will then the overall homeland defense mission.

Speaker Change: They're going to be integrated into the broader defense architecture with a battle management system, We call command control Battle management, and communications or is that military causes situ BMC.

James D. Taiclet: So that's the system that's going to be used to integrate the radars, the missiles, and allow us to defend the country. In April, Lockheed Martin was selected for a potential 10-year, $4 billion follow-on C2BMC Next Generation contract with the MDA, demonstrating, again, our leadership position in battle management systems for homeland defense. Under this contract, we'll continue to modernize and expand the system's capabilities to enhance global integration, improve space domain awareness, and optimize sensor connectivity and data fusion to levels never done before, all of which will create the most complete picture of these incoming threats, as I just spoke about a minute ago.

Speaker Change: So that's the system, that's going to be used to integrate our radars missiles and allow us to defend the country and.

Speaker Change: In April at Lockheed Martin was selected for a potential 10 year 4 billion follow on <unk> next generation contract with the MDA, demonstrating again, our leadership position and Battle management systems for Homeland Defense.

Speaker Change: Under this contract we will continue to modernize and expand the system's capabilities to enhance global integration improved space domain awareness and optimized sensor connectivity and data fusion to levels never done before all of which will create the most complete picture of these incoming threats as I just spoke about a minute ago.

James D. Taiclet: In addition, we also continue to advance our 21st century security solution through collaboration with strategic commercial partners across the tech, telecom, microprocessor, and other industries to support the national economy. Citing just one example, we announced Lockheed Martin will work with Intel to support the Simulated Transition for Advanced Microelectronics Packaging, or STAMP, program for the Office of the Undersecretary of Defense for Research and Engineering. This CHIPS Act-related collaboration will provide a revolutionary leap in defense system capabilities using high-performance, U.S.-built semiconductors.

Speaker Change: Separately, we also continue to advance our 20 <unk> century security solution through collaboration with strategic commercial partners across the Tech Telecom microprocessor and other industries to support the National Defense.

Speaker Change: Citing just one example, we announced Lockheed Martin will work with Intel to support the simulated transition for advanced micro loan microelectronics packaging or staff program for the office of the under Secretary of Defense for Research and Engineering. This chips Act related collaboration will provide a revolutionary.

Speaker Change: Leap in defense systems capabilities using high performance use Phil semiconductors.

James D. Taiclet: Over the next 18 months, we will integrate our latest sensor open system architecture technology with Intel semiconductors with the intent to ultimately implement, test, and complete production through the U.S. Navy's Lockheed Martin MH-60 Romeo helicopter program. I'll now turn it over to Jay for award highlights and some additional commentary on our financial results. Jay?

Speaker Change: Over the next 18 months.

We'll integrate our latest sensor open system architecture technology with Intel semiconductors with the intent to ultimately implement test and complete production through the U S. Navy's Lockheed Martin MH 60 Romeo helicopter program.

Speaker Change: I'll now turn it over to Jay for word highlights and some additional commentary on our financial results. Okay. Thanks, Jim I'll cover the consolidated results and touch on some additional highlights before handing it off to Maria who will discuss the quarterly financials by business area, and then I'll come back to discuss the outlook and close out the remarks.

Jay: Thanks, Jim. I'll cover the consolidated results and touch on some additional highlights before handing it off to Maria, who will discuss the quarterly financials by business area, and then I'll come back to discuss the outlook and close out the remarks. Starting with chart four, we had a strong start to the year. First quarter sales of $17.2 billion increased 14% year over year, led by MFC and RMS.

Jesus Malave: Starting with sharp for we had a strong start to the year first quarter sales of $17 2 billion increased 14% year over year led by MFC and Rms.

Jesus Malave: The results benefited from an extra calendar week compared to 2023 normalized year over year sales growth was a solid 5%.

Jesus Malave: We saw strong labor and material throughput indicative of an improving supply chain.

Jesus Malave: We'll continue to work closely with our supply chain partners to enhance quality and performance proactively and as needed expand the breadth and depth of our engagement and supplier locations.

Jay: While the results benefited from an extra calendar week compared to 2023, normalized year-over-year sales growth was a solid 5%. We saw strong labor and material throughput, indicative of an improving supply chain, and will continue to work closely with our supply chain partners to enhance quality and performance proactively, and, as needed, expand the breadth and depth of our engagement at supplier locations. Segment operating profit of $1.7 billion was up 4% year-over-year, with margins of 10.1%, and included the anticipated $100 million reach forward loss associated with the classified missile program at MFC.

Jesus Malave: Segment operating profit of $1 $7 billion was up 4% year over year with margins of 10, 1% in.

Jesus Malave: It included the anticipated $100 million reach forward loss associated with the classified missile program at MFC.

Jesus Malave: Excluding this charge Lockheed Martin segment margins were 10, 7%.

Jesus Malave: Primarily reflecting year over year lower profit adjustments.

Jesus Malave: GAAP earnings per share of $6 39.

Jesus Malave: We're down 3% as year over year benefits from higher profit and lower share count were more than offset by higher interest expense lower pension income and mark to market gains.

Jesus Malave: Book to Bill in the first quarter was just below one notably space booked several large national security orders in the quarter, including SDA tracking layer and other significant classified awards contributing to a book to bill ratio of one eight and record backlog of $33 billion at space.

Jay: Excluding this charge, Lockheed Martin segment margins were 10.7%, primarily reflecting year-over-year lower profit adjustments. Gap earnings per share of $6.39 were down 3% as year-over-year benefits from higher profit and lower share count were more than offset by higher interest expense, lower pension income, and mark-to-market gains.

Jesus Malave: We generated $1 $3 billion of free cash flow in the quarter after investing $360 million in research and development and $380 million and capital expenditures.

Jesus Malave: Share repurchases were $1 billion, and we returned $780 million through our dividend.

Jesus Malave: Shifting over to additional highlights in the quarter. We're pleased with the progress we're making on the F. 16 program. The first three F 16 block 70 jets varied from Greenville, South Carolina to Bahrain in March.

Jay: Billed a bill in the first quarter was just below 1. Notably, Space booked several large national security orders in the quarter, including the SDA tracking layer and other significant classified awards, contributing to a book-to-bill ratio of 1.8 and a record backlog of $33 billion at Space. We generated $1.3 billion of free cash flow in the quarter after investing $360 million in research and development and $380 million in capital expenditures. Share repurchases were $1 billion, and we returned $780 million through our dividend. Shifting over to additional highlights in the quarter, we are pleased with the progress we are making on the F-16 program. The first three F-16 Block 70 jets were ferried from Greenville, South Carolina, to Bahrain in March.

Jesus Malave: To date Lockheed Martin has produced five F 16 block 70 Jets for Bahrain with additional 11 in various stages of production and testing.

We also presented the first two F 16 block 70 aircrafts to Slovakia, as Deputy Prime Minister and Minister of Defense Underscoring the deepening partnership between the two countries.

Jesus Malave: In addition, the state Department notified Congress of authorization of the sale of 40 F sixteens and related upgrades and support to <unk>.

Jesus Malave: The latest deal builds on our long relationship and history with Turkish Air Force.

Jesus Malave: We are confident the F 16 block 70, and Viper upgrade package provide advanced 20, <unk> century security capabilities with affordable operating and lifecycle costs for Turkey.

Jay: To date, Lockheed Martin has produced five F-16 Block 70 jets for Bahrain, with an additional 11 in various stages of production and testing. We also presented the first two F-16 Block 70 aircraft to Slovakia's Deputy Prime Minister and Minister of Defense, underscoring the deepening partnership between the two countries. In addition, the State Department notified Congress of authorization of the sale of 40 F-16s and related upgrades and support to Turkey. The latest deal builds on our long relationship and history with the Turkish Air Force.

Jesus Malave: We also continue to upgrade our weapon systems for longer range standoff capability in February in the U S. The extended range ER variant of GMO IRS guided multiple launch rocket system achieved success in its first operational test.

Jesus Malave: <unk> Army filed fire too unitary warhead, EOG GMO IRS variance with a high <unk> launcher, demonstrating precision and advancing this capability closer to production.

Jesus Malave: The U S Army almost all awarded Lockheed Martin the fourth production contract for early operating capability precision strike missiles known as prism.

Jay: We are confident the F-16 Block 70 and Viper upgrade package provide advanced 21st century security capability with affordable operating and life cycle costs for Turkey. We also continue to upgrade our weapons systems for longer-range standoff capability. In February, the extended-range ER variant of the GMLR-S Guided Multiple Launch Rocket System achieved success in its first operational test. The U.S. Army fired two Unitary Warhead ERGMORS variants with a HIMARS launcher, demonstrating precision and advancing this capability closer to production.

Jesus Malave: This award will allow for a significant increase in production quantities to meet army demand for long range surface to surface missiles.

Jesus Malave: And the hypersonic.

Jesus Malave: Following the recent end to end flight test, we completed the test program of the Air launched rapid response weapon or R. W with full confidence and its revolutionary capabilities.

Jesus Malave: We have demonstrated successful all up round and performance on multiple occasions.

Jesus Malave: <unk> provides the U S with the earliest air launch.

Jesus Malave: Fully qualified production ready supersonic solution hypersonic solution I'm, sorry, and Lockheed Martin is prepared to quickly deliver additional technical tactical operational and leave behind hypersonic strike assets that can be rapidly deployed to the U S military.

Jay: The U.S. Army also awarded Lockheed Martin the fourth production contract for early operating capability precision strike missiles, known as PRISM. This award will allow for a significant increase in production quantities to meet Army demand for long-range surface-to-surface and hypersonics. Following the recent end-to-end flight test, we completed the test program of the Air-Launched Rapid Response Weapon, or ARRW, with full confidence in its revolutionary capabilities

Jesus Malave: We also continued to advance hypersonic straight strike capability and the land and sea domains through the long range hypersonic weapon and conventional prompt strike programs.

Jesus Malave: Both solutions have a full year milestones ahead, as we progress towards operational capability.

Jesus Malave: Shifting the integrated air and missile Defense Arena, the aegis weapon system successfully executed one of the most complicated ballistic missile defense test in the first quarter when the system tracks and intercepted a medium range ballistic missile amidst multiple decoys.

Jay: We have demonstrated successful all-around, end-to-end performance on multiple occasions. ARRW provides the U.S. with the earliest air launch, fully qualified production-ready supersonic solution and hypersonic solution. And Lockheed Martin is prepared to quickly deliver additional tactical, operational, and leave-behind hypersonic strike assets that can be rapidly deployed to the U.S. military. We also continue to advance hypersonic strike capability in the land and sea domains through the Long Range Hypersonic Weapon and Conventional Prompt Strike Program.

Jesus Malave: The test employ the latest updates to the system and demonstrates the reliability of aegis to operate in a dynamic threat environment and.

Jesus Malave: And we're constantly evolving the aegis system. This quarter, we made further progress on our efforts to integrate with <unk> III to enable an affordable combat proven iam D capability for maritime engagements and expand the mission capability of our systems I'll pause here and let me turn it over to Maria to cover the business areas.

Maria: Okay. Thanks Jay.

Maria: Today, I will discuss first quarter year over year results for the business areas.

Jay: Both solutions have a full year of milestones ahead as we progress towards operational capability. Shifting the integrated air and missile defense arena, the Aegis weapons system successfully executed one of the most complicated ballistic missile defense tests in the first quarter when the system tracked and intercepted a medium-range ballistic missile amidst multiple decoys.

Maria: Turning with Aeronautics on chart five.

Maria: First quarter sales at <unk> were over $6 $8 million up 9% year over year, and that's 1% normalized for the extra week in 2024.

Maria: The increase was primarily due to higher volumes across F 35, and Skunk works and the continued production ramp on the F 16 program.

Maria: Segment operating profit is comparable year over year with higher volume being offset by lower margin development contract mix and lower net profit adjustments mainly on the F 35.

Jay: The test employed the latest updates to the system and demonstrates the reliability of Aegis to operate in a dynamic threat environment, and we're constantly evolving the Aegis system. This quarter, we made further progress on our efforts to integrate with PAC-3 to enable an affordable, combat-proven IAMD capability for maritime engagements and expand the mission capability of our system. I'll pause here and turn it over to Maria to cover the business area. Thanks, Jay.

Maria: Aeronautics backlog remains at a healthy $57 billion.

Maria: Which includes 373 F 30, fives, ADC $1 30 days and 132 F sixteens supporting growth into 2025 and beyond.

Maria: Turning to missiles and fire control on chart six sales.

Sales increased 25% from the prior year, 16% normalized for the extra week driven by production ramps on tactical and strike missile programs, primarily GNL Rs, Hi, Morris and Jasmine RASM integrated Air and missile Defense also saw higher volume on Tac <unk> and Fad.

Maria: Today I will discuss first quarter year-over-year results for the business, starting with aeronautics and chart. First quarter sales at Arrow were over $6.8 billion, up 9% year-over-year, and that's 1% normalized for the extra week and two weeks. The increase was primarily due to higher volumes across F-35s. The Bulletproof Executive 2013, Segment operating profit is comparable year-over-year, with higher volume being offset by lower-margin development contracts.

Maria: As expected segment operating profit decreased 18% year over year, primarily due to the $100 million loss on the classified program gene mentioned previously.

Maria: Normalizing for the loss Mfc's margins would have been 13, 7%.

Maria: Now I'd like to provide a quick update on our annual production capacity plans for key programs.

Maria: <unk> III is currently at 500 missiles.

Maria: Growing to 550 in 2025 and $6 50 by 2007.

Maria: GNL Rs currently is at 10000 missiles growing to 14000 by 2025.

Maria: CASM RASM currently at about 650 missiles growing Q1100 by 2026 and high Mars currently at 72 launchers growing too.

Maria: 96 next year.

Maria: Shifting shifting Q rotary and mission systems insurance Senate.

Maria: Sales increased 16% in the quarter, 8% normalized for the extra week, driven by higher volume across the entire portfolio, including radar and laser programs within integrated warfare systems and sensors various programs within <unk> ISR and the CH 53, K and seahawk programs within <unk>.

Our scheme.

Maria: Operating profit increased 23% due to higher volume and favorable contract mix, partially offset by lower profit adjustments.

Maria: Integrated Air and Missile Defense also saw higher volume on PAC-3. However, as expected, segment operating profit decreased 18% year-over-year, primarily due to the $100 million loss on the classified program Jay mentioned previously. Normalizing for the loss, MFC's margins would have been 13.7%. Now, I'd like to provide a quick update on our annual production capacity plans for key programs. PAC-3 is currently at 500, growing to 550 in 2025 and 650 by 2050. GMLRS is currently at $10,000, growing to 14,000 by 2020. Jazm L'Rasm currently at about, growing to 1,100 by 2020, and Highmars, currently at 72, growing to 90, although shifting to Rotary Emission Systems.

Maria: Finally with space on chart <unk>.

Maria: Sales increased 10% year over year, 2% normalized for the extra week to approximately $3 3 billion.

Maria: Growth was driven by higher volume on the fleet ballistic missile program and ramp ups on hypersonic and next generation interceptor programs within strategic and missile defense as well as higher volume on space Development Agency transport and tracking layer programs within National security space.

Maria: Operating profit increased 16% compared to Q1 2023, driven by higher volume in <unk> equity earnings partially offset by lower net profit adjustments primarily on the Nextgen <unk> IR program.

Maria: Now I'll turn it back to Jay to wrap up our prepared remarks, thanks, Maria let's turn to the outlook on chart nine our expectations for Lockheed Martin's 2024 financial outlook remain unchanged from what we said in January with a strong first quarter results positioning us well to achieve the consolidated full year outlook. We continue to expect free cash flow to be in the <unk>.

Maria: Sales increased 16% in the quarter, 8% normalized for the ex-, driven by higher volume across the entire portfolio, including radar and laser programs within integrated warfare, various programs within C6ISR, and the CH53K and CHOC programs. Operating profit increased 23% due to higher volume and favorable, Partially Offset by Low, Finally, with space on chart eight. Sales increased 10% year-over-year, 2% normalized for the extra week, to approximately $3.3 billion.

Maria: A 6% to $6 3 billion, including over $3 billion.

Maria: Of independent research and development and capital investments, while the dividend along with the expected $4 billion of share repurchases support our return to shareholders targeting a mid single digit free cash flow per share growth over the longer term.

Speaker Change: Alright to closeout and summarize on chart 10, we are off to a solid start in 2024 and remain laser focused on execution to our customer and programmatic commitments, while building momentum towards delivering our full year guidance.

Maria: The growth was driven by higher volume on the Fleet Ballistic Missile Program and ramp-ups on hypersonic and next-generation interceptor programs within strategic and missile systems, as well as higher volume on space development agency transport and tracking layer within the National Space Development Agency. Operating profit increased 16% compared to Q1 2023, driven by higher volume in ULA equity. Partially offset by a lower Net Profit Adjustment, primarily on the NextGen OPI. Now I'll turn it back to Jay to wrap. Thanks, Maria.

Speaker Change: Through our one <unk> transformation, we are reengineering, our internal processes by providing the automation and capabilities needed to drive efficiency.

Speaker Change: Kris velocity and enhanced key captures and programs one ela Max will enable us to combine the depth and breadth of our portfolio with the expertise and dedication of our people to drive 20, <unk> century security solutions for our customers and.

Speaker Change: And continue to create value for our shareholders without lowest let's open up the call for Q&A.

Speaker Change: Thank you and if you wish to ask a question. Please press the London zero on your Touchtone phone you will hear in announcing data, indicating that <unk> been placed into queue and you may remove yourself from queue at any time by person of one zero again.

Jay: Let's turn to the outlook on chart nine. Our expectations for Lockheed Martin's 2024 financial outlook remain unchanged from what we said in January, with a strong first quarter results positioning us well to achieve the consolidated full year outlook. We continue to expect free cash flow to be in the range of $6 to $6.3 billion, including over $3 billion of independent research and development and capital investment.

Speaker Change: Speaker phone or Bluetooth please.

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

Speaker Change: Our first question is from the line of Doug Harned from Bernstein. Please go ahead.

Douglas Stuart Harned: Great. Thank you and good morning, good morning.

Douglas Stuart Harned: I'd like to start to make sure we have a good understanding of the F 35, right now with <unk>.

Operator: While the dividend, along with the expected $4 billion of share repurchases, support our return to shareholders, targeting a mid-single digit free cash flow per share growth over the longer term. All right, to close out and summarize on Chart 10, we're off to a solid start in 2024 and remain laser focused on execution on our customer and programmatic commitments while building momentum towards delivering our full year guidance. Through our OneLMx transformation, we are re-engineering our internal processes by providing the automations and capabilities needed to drive efficiency, increase velocity, and enhance key captures and programming.

Douglas Stuart Harned: <unk> three as you said and the Air Force has talked about this as well and it looks like that timelines move back to some point in Q3, and there's just been a great deal of slippage in the timeline over the last few years.

Douglas Stuart Harned: Block four has been delayed in the new budget is cut deliveries in 2025, and 26 are sensibly to avoid having to do later block for upgrades.

Douglas Stuart Harned: I mean, you've been able to keep production and revenues up.

Douglas Stuart Harned: Although deliveries and cash.

Douglas Stuart Harned: Payments are off but how.

Douglas Stuart Harned: How can we get confident in the trajectory and perhaps.

Douglas Stuart Harned: Jim maybe you could talk about what a positive or more negative scenario might look like for production and deliveries over the next two years.

Douglas Stuart Harned: What it would mean for the revenue and cash trajectory.

Jim: Sure Doug so.

Jim: I think it's important to understand that we're doing as I said earlier concurrent development and production.

Operator: One LMX will enable us to combine the depth and breadth of our portfolio with the expertise and dedication of our people to drive 21st century security solutions for our customers and continue to create value for our shareholders. With that, Lois, let's open up the call to questions. Thank you, and if you wish to ask a question, please press 1 then 0 on your touchtone phone. You will hear an annunciator indicating that you've been placed in the queue... And you may remove yourself from the queue at any time by pressing 1, 0 again. If you use a speakerphone or Bluetooth...

Jim: And then advancing the Sustainment Cape.

Jim: Capability as well all at the same time.

Jim: Most of these.

Jim: Complex programs go through a period of development and then production run largely off of that design base or that engineered base of what the aircraft's post to look like and how it is going to perform the F. 35 is different in a sense that development has been going on since the day of the.

Jim: Graham started years and years ago, and it's going on today now the good news about that is you have step function increases in capability.

Douglas Stuart Harned: Please pick up your handset before pressing the number. Once again, if you have a question, please press one, then zero at this time. Our first question is from the line of Doug Harned from Bernstein. Please go ahead.

Every few years.

Jim: And as a result of the F 30, fives capacity to do that.

Jim: The government just came out and extended the expected service life of the aircraft another decade or two I think it was so so this is a good thing, but it's also extremely difficult thing to do and even to predict schedule right. It's our responsibility to hold cost and schedule.

Operator: Great. Thank you. Good morning.

James D. Taiclet: Morning. I'd like to start to make sure we have a good understanding of the F-35 right now with TR-3. As you said, the Air Force has talked about this as well, and it looks like that timeline's moved back to some point in Q3. And there's just been a great deal of slippage in the timeline over the last few years.

Jim: But we are.

Jim: We don't control all the variables, let me just say and Thats. Okay were still OEM were still responsible and so what we've run into on tier three is just the level of complexity.

Douglas Stuart Harned: Block 4 has been delayed, and the new budget has cut deliveries in 2025 and 2026 ostensibly to avoid having to do later Block 4 upgrades. However, you've been able to keep production and revenues up, although deliveries and cash payments are off. But how can we get confident in the trajectory? Jim, maybe you could talk about what a positive or, you know, more negative scenario might look like for production and deliveries over the next two years and what it would mean for the revenue and cash trajectory. Sure, Doug. So...

Jim: In executing this step function increase.

Jim: That's pretty.

Jim: I would say novel or dramatic.

Jim: What the team is doing at our company is we're integrating a series of <unk>.

Jim: Components devices software.

Jim: And managing and integrating all of that and so what's happening now is we're wringing out all of the.

Jim: Software through all of the new hardware.

Jim: And integrating it into all the aircrafts assists us other systems and that's taken longer than our team predicted.

Jim: The way, we're going to get at that is if you think of it as it release one in our release too and we've got a lot of confidence in this stage Doug released one if you can think of it that way is what we're calling.

James D. Taiclet: I think it's important to understand that we're doing, as I said earlier, concurrent development and production, and then advancing the sustainment capability as well, all at the same time. Uh, most of these... Complex programs go through a period of development and then a production run largely off of that. The F-35 is different in the sense that development has been going on since the day the program started years and years ago, and it's still going on today.

Jim: Along with the U S government.

Jim: A combat training capable aircraft, meaning.

Jim: We can get these jets in the hands of squadron wing and.

Jim: Regional commanders, so that they can start training their pilots on them.

Jim: And training their maintenance organizations and also getting their bases and infrastructure.

Jim: Spare parts pools, and everything else sort of.

James D. Taiclet: Now, the good news about that is you have step function increases in capability every few years. And as a result of the F-35's capacity to do that, the government just came out and extended the expected service life of the aircraft another decade or two. So this is a good thing, but it's also an extremely difficult thing to do, and even to predict the schedule, right? It's our responsibility to hold cost and schedule, but we're. We don't control all the variables, let me just say, and that's okay.

Jim: In operational shape, if you will.

Jim: Once we get the final software load for the fully combat capable version of tier three.

Jim: Sometime in the next few months.

Jim: Then those aircrafts could be deployed into actual combat operations and youll have to training the maintenance.

Jim: The ringing out.

Jim: The operational.

Jim: Patterns and procedures on how to actually fly the jet and combat so wed likely to be able to do it sooner, but this is the schedule, we're on and I would say for the combat training capable aircraft. We're highly confident based on the test results. So far that those will be deliverable in the third quarter.

James D. Taiclet: We're still the OEM, and we're still responsible. And so what we've run into on TR3 is just the level of complexity, and executing the step function increase, uh... that's pretty, I'd say, novel or dramatic.

Speaker Change: Jay you want us anything else about cash flow and yes sure Doug.

Jesus Malave: I'll just add you know as Jim mentioned, this combat training capable capability and configuration.

Jesus Malave: As Jim mentioned supports the training of the squadron standing up the new squadrons.

James D. Taiclet: What the team is doing at our company is integrating a series of components, devices, software, and managing and integrating all of that. And so what's happening now is... We are running all the software through all of the new hardware and integrating it into all the aircraft's other systems. And that's taken longer than our team predicted. The way we're gonna get at that is if you think of it as a release one and a release two, and we've got a lot of confidence at this stage, Doug.

Jesus Malave: And decreasing the amount of time of aircraft are parked all of that what that does is really avoids any type of significant disruption.

Jesus Malave: So what this does is really keep our production on track here in 2024 and beyond as well as Jim mentioned in 2025, we'll have.

Jesus Malave: Further capability inserted and we'll actually start delivering inserting block four type of capability as well and you may have heard you referenced comments made.

James D. Taiclet: Release one, if you think of it that way, is what we're calling, along with the US government, a combat training capable aircraft, meaning we can get these jets in the hands of squadron, wing, and regional commanders so that they can start training their pilots on them, and training their maintenance organizations, and also getting their bases and infrastructure, spare parts pools, and everything else in operational shape, if you will. Once we get the final software load for the fully combat-capable version of TR-3 sometime in the next few months, then those aircraft could be deployed in actual combat operations, and you'll have the training, the maintenance, the ringing out, the operational. Patterns and procedures on how to actually fly the jet in combat.

Jesus Malave: From the U S military.

Jesus Malave: <unk>.

Jesus Malave: Blocked for re imagined and what that would entail as an insertion schedule, that's really tied to.

Jesus Malave: Executable plan that can be provided by industry. So we can avoid these types of disruptions and so when you look at it in the short term could there be pressure on the last 15 to 17 contract profitability and potential movement around in cash flow, yes, but I think over the longer term and the medium term I think we're working in coordination with our customer.

Jesus Malave: To make sure that we can deliver the capabilities the customer wants to put on and executable schedule and if we're able to do that and we should be able to keep the program on track from a production standpoint.

Jesus Malave: Thank you. Our next question is from Peter <unk> from Barclays. Please go ahead.

Peter: I'm, sorry, David mind exactly yes.

Peter: Morning, David.

David: Thanks for taking the question.

Peter: So since since Q4.

James D. Taiclet: So we'd like to be able to do it sooner, but this is the schedule we're on. And I'd say for the combat training-capable aircraft, we're highly confident, based on the test results so far, that those will be deliverable in the third quarter. Jay, do you want to say anything else about cash flow? Yeah, sure, Doug, I'll just add.

Peter: We have a 24 budget looks like we're going to get a very large supplemental you want <unk>.

Peter: How might all of those things together.

Peter: Teens, how youre thinking about where you kind of fall in.

Peter: The revenue guide this year and the potential for.

Peter: Revenue growth and 25 to accelerate kind of off this this low single digit level.

Jay: You know, as Jim mentioned, this combat training capability and configuration support the training of the squadron, standing up to new squadrons, and decreasing the amount of time the aircraft are parked. What that does is really avoid any type of significant disruption. And so what this does is really keep our production on track here in 2024 and beyond as well. As Jim mentioned, in 2025, we'll have further capability inserted, and we'll actually start delivering an insertion Block 4 type of capability as well. And you may have heard your reference comments made by the U.S. military, and they discussed a Block 4 reimagined.

Peter: David.

David: As we mentioned in this quarter, we started off pretty solid just on an apples to apples basis, 5% growth in the first quarter lines up pretty well with our mid point guidance range, which is two to two 5% and the high end of that range being say around three 5%. So we are well positioned to to deliver on that expectation.

David: It is possible similar to last year that we could see some upside towards the higher end of the sales guide range there. So.

David: Again really good start to that enables that as we think about 2025, what you saw in the budget. What we're seeing here in the supplemental gives us higher confidence that will continue to grow we talked about our growth.

Jay: And what that would entail is an insertion schedule that's really tied to an executable plan that can be provided by industry so we can avoid these types of disruptions. And so when you look at it in the short term, could there be pressure on the lot 15 through 17 contract profitability and potential movement around in cashflow? Yes, but in the longer term and in the medium term, I think we're working in coordination with our customer to make sure that we can deliver the capabilities the customer wants, but on an executable schedule. And if we're able to do that, then we should be able to keep the program on track from a production point of view. Thank you. The next question is from Peter Strauss from Barclays. Please go ahead. Good morning.

Starting in 2023, a year earlier than we had originally anticipated accelerating in 2024, and then giving us more confidence that we'll see at least the same if not more growth in 2025, we will give you.

David: Later in the year, we will give you a much better update in terms of what we're seeing right now all of this bodes well to our sustained growth in terms of what we've been driving to not only in 25 or beyond 25 as well.

Speaker Change: And the next question.

Speaker Change: The next question is from the line of Peter <unk> from Baird. Please go ahead.

Peter: Yeah. Thanks, Good morning, Jim Jaye.

Peter: P J.

Peter: Missiles and fire control can you talk maybe about the confidence in your margins margin guidance for the year just given the <unk> margin performance was certainly the lowest that we've seen in many years and we know the classified losses are supposed to expected to continue but you've got kind of this inflicting topline I think called out all the production increases and just.

Peter: Due to the losses, just get smaller in the classified or we're going to see some some offsets just because of the higher volume maybe you could just give more color on kind of your expectations on the margin performance profile going forward. Thanks sure. Peter MFC was a little light because of two factors first as we mentioned we did have the $100 million.

Peter Strauss: Thanks for taking the question. Since Q4, we have a 24 budget, and it looks like we're going to get a very large supplemental. You won NGI. How might all those things together change how you're thinking about, you know, where you kind of fall in the revenue guide this year and the potential for, you know, revenue growth in 25 to accelerate kind of off this, this low single-digit level. David, as we mentioned, for this quarter, we started off pretty solid, just on an apples-to-apples basis, 5%. Growth in the first quarter lines up pretty well with the midpoint guidance range, which is 2% to 2.5%, and the high end of that range being, say, around 3.5%.

Peter: Loss provision that we recorded in addition to that there the profit adjustments were lighter.

Peter: Year over year by about $20 million and so that's a function really of calendar <unk> calendar <unk>.

Speaker Change: We'll see profit adjustments throughout.

Peter: Throughout the rest of the year improve and so getting us back to what we had guided to.

Peter: As a reminder, we are anticipating.

Peter: It's fully integrated in our <unk>.

Peter: Guidance for MFC that we would have additional or could have additional losses in the back half of the year associated with this classified program and so on.

Peter: Our guide would it implies.

Peter: From where we are today, we recorded a $100 million is in the range of another $225 million in the back half of the year.

That would be provided for in this expectation now going beyond that we've talked about this and I'll just deal with the question upfront in terms of can timing change and it's possible that we could record additional losses here in 2024, depending on other factors as the year goes on this factors such as <unk>.

Jay: So we're well positioned to deliver on that expectation. You know, it is possible, similar to last year, that we could see some upside towards the higher end of the sales guide range there. So again, a really good start that enables that.

Jay: As we think about 2025, what you saw in the budget, and what we're seeing here in a supplemental, gives us higher confidence that we'll continue to grow. We talked about growth starting in 2023, a year earlier than we had originally anticipated, accelerating in 2024, and then giving us more confidence that we'll see at least the same, if not more, growth in 2025. We'll give you, you know, later in the year, a much better update in terms of what we're seeing.

Technical milestone achievement through the through the balance of the year discussions with our customers visibility to funding.

Peter: Visibility to funding so all of those factors go into the determination and whether you have to recognize a loss earlier.

Peter: Youll see that.

Peter: Coming out in our 10-Q.

Peter: Actually range the potential losses on this program, which would be in excess additional losses in excess of $1 billion. So at least you could have an opportunity to size it but the timing of which is still to be determined and we've got about $225 million at least in embedded in our guide for the balance of the year.

Jay: But right now, all this bodes well for our sustained growth in terms of what we've been driving to, not only in 25, but beyond 25 as well. The next question is from the line of Peter Arment from Baird. Please go ahead.

Peter: Going back to MFC for the year, if you really take apart their expectation.

Peter: The impact of this at $325 million of losses in the year anticipated.

Peter: They're offsetting a fair amount of that in their guide I mean, the impact of that is 270 basis points alone and a total full year guide is down about 210, and so youre seeing offsetting improvement within MFC, it's not entirely one for one but their underlying performance has been solid and we expect that to continue.

Peter J. Arment: Yeah, thanks. Good morning, Jim and Jay. Hey, Jay, on missiles and fire control, can you talk maybe about the confidence in your margin guidance for the year? Just given that the 1Q margin performance was certainly the lowest that we've seen in many years, and we know the classified losses. The Bulletproof Executive 2013, all that, all the production increases. You know, do the losses just get smaller in the classified? Are we going to see some offsets just because of the higher volume?

Jim Jaye: And Peter it's Jim.

Jim Jaye: I used to fly these aircrafts for the SaaS and I can assure you that capability.

Jim Jaye: Being developed here at MFC in a classified program.

Jim Jaye: We will have very very long legs theres going to be many many years, we believe of orders to follow so yes for a quarter for the year, maybe for a couple of years, we're going to absorb the loss provisions that Jay described but I think if you look under the area under the curve.

Jay: Maybe you just get more color on kind of your expectations for the margin performance, you know, profile. Sure, Peter. MFC was a little light because of two factors.

Jim Jaye: The lifecycle is going to be significantly positive and so we want to get there as efficiently as we can.

Jay: First, as we mentioned, we did have the $100 million loss provision that we recorded. In addition to that, their profit adjustments were lighter year over year by about $20 million. And so that's a function really of calendarization. We'll see profit adjustments throughout the rest of the year improve. And so getting us back to what we had guided to. Just as a reminder, we're anticipating, and that was fully anticipated in our guidance for MFC, that we would have additional or could have additional losses in the back half of the year associated with this classified program.

Jim Jaye: Long run franchise program that I think the U S government is going to support for a very long time right. I think it is important to keep that in mind. We spent a lot of time talking about timing of losses and things like that and the magnitude of it.

Jim Jaye: But we also spend a lot of time internally going through just where we are in the progress of the program as well as the business case and I can assure you the business cases accretive.

Jim Jaye: Two it above our cost of capital and as Jim mentioned is going to provide strong returns for many years to come.

Jim Jaye: Our next question is from Matt Akers from Wells Fargo. Please go ahead.

Jay: And so, you know, what our guide, what it implies from where we are today, we've recorded $100 million. There's in the range of another $225 million in the back half of the year, which would be provided for in this expectation. Now, going beyond that, you know, we've talked about this, and I'll just deal with the question up front in terms of whether timing can change.

Matthew Carl Akers: Yeah, Hey, guys. Good morning. Thanks, Good morning, I wanted to ask a couple on the Nextgen intercept there when I guess, one just how are you.

Matthew Carl Akers: We're able to win I think ahead of when the original bounce.

Matthew Carl Akers: Expected then also.

Matthew Carl Akers: There's sort of a big contract like that so we always get questions on potential charges, because we've seen some of that happen in the industry. So just your confidence that you've got all the costs there sort of sized correctly.

Matthew Carl Akers: So.

Matthew Carl Akers: The company made a better about three years ago to say, Okay. We've got a digital transformation program.

Jay: And it's possible that we could record additional losses here in 2024, depending on other factors as the year goes on. There are factors such as technical milestone achievement through the balance of the year, discussions with our customers, and visibility to funding. So all of those factors go into the determination and whether you have to recognize a loss earlier. You'll see in our 10-Q that we've actually ranged the potential losses on this program, which would be in excess of, additional losses in excess of a billion dollars. So at least you can have an opportunity to size it, the timing of which is still to be determined.

Matthew Carl Akers: That is going to take the whole company to this model based engineering system and Thats all the way from requirements acceptance from the government to Sustainment years and years down the road.

Matthew Carl Akers: And we spoke this before it's about a $6 billion eight to 10 year program to convert the entire company.

Matthew Carl Akers: To a model based engineering production and Sustainment operation.

Matthew Carl Akers: And Gi was one of the Pathfinder programs.

Matthew Carl Akers: Picked to implement this because there is no legacy to convert right Theres no old blueprint to try to figure out how to make three dimensional which is something by the way. We are doing for C 130, and other programs right now, but we could get off to a fast start on <unk> because it was isn't this born digital.

Jay: We've got about $225 million at least embedded in our guide for the balance of the year. Going back to MFC for the year, if you really take apart their expectation, the impact of this at $325 million of losses in the year anticipated, they're offsetting a fair amount of that in their guide. I mean, the impact of that is 270 basis points alone, and their total full year guide is down about 210.

Matthew Carl Akers: Category three.

Matthew Carl Akers: Right from the proposal we were using these digital technologies, <unk> CAD and everything else.

Matthew Carl Akers: And sharing data with the government in that fashion and they were able to receive it and we could therefore, thereby accelerate the schedule and contain the cost.

Jay: And so you're seeing offsetting improvement within MFC. It's not entirely one for one, but their underlying performance has been solid, and we expect that to continue. And Peter, it's Jim.

Matthew Carl Akers: The development and ultimately the production too by using these tools.

Matthew Carl Akers: There were three original players in this one dropped out fairly early.

James D. Taiclet: I used to fly these aircraft for the USAF, and I can assure you that the capability that's being developed here at MFC in a classified program will have very, very long legs. There are going to be many, many years, we believe, of orders to follow. So yeah, for a quarter, for the year, maybe for a couple years, we're going to absorb the loss provisions that Jay described, but I think if you look at the area under the curve for the lifecycle, it's going to be significantly positive.

Matthew Carl Akers: Second was in kind of this final phase if you will a down select and.

Matthew Carl Akers: We were just ready to go and provided our proposal ahead of schedule.

Matthew Carl Akers: Other player has to my knowledge provided a proposal also.

Matthew Carl Akers: <unk>.

Matthew Carl Akers: And then the government was able to make a decision based on that but I think because of our speed and our ability to demonstrate.

<unk> cost over time.

Matthew Carl Akers: One in kind of one early if you will I'll, let Jay talk more about financials, but.

Jesus Malave: What I can assure you is the process of this bid did.

James D. Taiclet: So we want to get there as efficiently as we can. This is a long-run franchise program that I think the U.S. government is going to support for a very long time. Right, I think it's important to keep that in mind. We spent a lot of time talking about the timing of losses and things like that and the magnitude of them. But we also spent a lot of time internally going through just where we are in the progress of the program, as well as the business case.

Jesus Malave: Did not require us to dive to the bottom on costs. So Jay do you want to take it from there sure.

We're currently performing already under contract and we.

Jesus Malave: Contract will continue.

Jesus Malave: We've talked about this before we've completed a preliminary design review in September of 2023, and we're on track for critical design review in 2025 and under the current under the current contract as well as building test assets. So that will just continue under this under this down select.

James D. Taiclet: And I can assure you the business case is accretive, to it above our cost of capital. And, as Jim mentioned, it's gonna provide strong returns for many years. Our next question is from Matt Akers from Wells Fargo. Please go ahead. Yeah, hey, guys. Good morning.

Jesus Malave: As far as pricing and cost the current contracted because of development contracts cost plus contract. It's low margin as you would expect.

Jesus Malave: But nothing abnormal as far as future.

Jesus Malave: Bidding that we provided for future types of contracts there were various elements or different types of contract structures.

Matthew Carl Akers: Thanks for the question. I want to ask a couple on the next gen interceptor win. I guess, you know, one, just how you were able to win, I think, ahead of when the original downflect was expected.

Jesus Malave: The customer asked for we provided those to the customer none of which was based on aggressive pricing or bidding as Jim mentioned, we've talked about this in the past and we've taken a middle of the road approach to our pricing and this is no different.

James D. Taiclet: And also, you know, whenever there's sort of a big contract like this, we always get questions on, you know, potential charges because we've seen some of that happen in the industry. So I just want you to be confident that you've got the cost there sort of correct. So the company made a bet about three years ago to say, OK, we've got a digital transformation program that is going to take the whole company to this model-based engineering system.

Speaker Change: Thank you. The next question is from.

Speaker Change: From Bank of America. Please go ahead.

Speaker Change: Good morning, guys.

Speaker Change: Good morning.

Speaker Change: With with <unk> off.

Speaker Change: Off the table and it looks like.

The Florida program.

Speaker Change: Support how are you how are you thinking about the outlook for the vertical lift business.

Speaker Change: Where could we see some upside.

Speaker Change: Other competitions Youre out there.

Speaker Change: How should we think about that.

Speaker Change: So.

Speaker Change: Ron This is Jim here.

James D. Taiclet: And that's all the way from requirements, acceptance from the government, to sustainment years and years down the road. And we've scoped this before. It's about a $6 billion, 8- to 10-year program to convert the entire company to a model-based engineering production and sustainment operation. NGI was one of the Pathfinder programs picked to implement this because there's no legacy to convert, right? There are no old blueprints to try to figure out how to make it three-dimensional, which is something, by the way, we are doing for C130 and other programs right now.

Speaker Change: As we kind of roll into the 20 <unk> century, what our company is trying to do is not just look at things through the programmatic lens or the I'll call. It vertical kind of column, but also through horizontally through the actual mission and figure out what technologies can accomplish the mission that will enable our COO.

Speaker Change: Core basic platforms to be successful as well and that's how we're looking at it at the rotary business.

Speaker Change: <unk> is not just as Sikorsky anymore. It is Sikorsky plus all of Lockheed Martin right and Thats one of the reasons, we're able to work with U S. Army Congress in the broader U S government to increase support for let's say Blackhawk for example.

James D. Taiclet: But we could get off to a fast start on NGI because it was in this born-digital category. Right from the proposal, we were using these digital technologies, you know, 3D, CAD, and everything else, and sharing data with the government in that fashion, and they were able to receive it. And we could thereby accelerate the schedule and contain the cost of the development and, ultimately, the production, too, by using these tools. There were three original players in this; one dropped out fairly early, and the second was in kind of this final phase, if you will, of downselect.

Speaker Change: In spite of the fact that pharma has been cancelled and there is a another vertical lift program.

The form of flora, which is going to be a tilt rotor. So their missions that the blackhawk will be extremely well suited for.

Speaker Change: In the rotary lower it's really the lower air demand, it's not just for rotorcraft. So how do we pair those rotorcraft, a traditional blackhawk, let's call. It by modernizing the Blackhawk with digital technology to do what the Air Force would call CCA collaborative combat aircraft, meaning you can in the lower air domain.

Speaker Change: Ty drones and unmanned air crew.

James D. Taiclet: And we were just ready to go, and we provided our proposal ahead of schedule. The other player, to my knowledge, also provided a proposal. And then the government was able to make a decision based on that. But I think because of our speed and our ability to demonstrate, you know, manageable costs over time, we won and kind of won early, if you will. I'll let Jay talk more about the finances, but what I can assure you is the process of this bid did not require us to dive to the bottom on cost. So Jay, do you want to take it from there?

Speaker Change: Crude aircraft two of Blackhawk, using digital technology, and we've demonstrated that already.

Speaker Change: Can actually make the Blackhawk itself autonomous with no pilots and it being flown from a command center to do high risk missions. So.

Speaker Change: We're looking at the mission and saying what can we do all across Lockheed Martin whether it's through sensor fusion AI.

Speaker Change: <unk> G space based.

Speaker Change: Sensor assets to make the Blackhawk for example, a much longer life platform are much more relevant platform and actually a very efficient platform compared to say the <unk>.

Jay: Sure. We're currently performing already under a contract, and that contract will continue. We've talked about this before.

Speaker Change: Laura aircrafts.

Speaker Change: Be able to do some of the missions anyway. So we have a strong confidence then in Sikorsky itself and the platforms that it does produce.

Jay: We've completed a preliminary design review in September of 2023, and we're on track for critical design review in 2025 and under the current contract as well as building test assets. As far as pricing and costs are concerned, the current contract, because of development contracts, cost plus contract, it's low margin, as you would expect, but nothing, again, abnormal. As far as future, you know, bidding that we provided for future types of contracts, there were various elements or different types of contract structures the customer asked for. We provided those to the customer, none of which was based on aggressive pricing or bidding, as Jim mentioned.

Speaker Change: And that includes CH, 53, K, which I mentioned.

Speaker Change: The seahawk wishes of Blackhawk, that's configured for maritime operations that is pretty high tech as well and so we feel really solid as I think Jay said in his remarks on Sikorsky future with a backlog of $20 billion and the ability to modernize these really reliable.

Speaker Change: In production aircraft to do new things and with missions in digital technology, and other and integrate with other parts of <unk> and our partners to make those platforms relevant in the future. So I'll stop there Jay if anyone else wants sure just a couple of things as Jim mentioned, a stable outlook is the best way to describe it as Jim.

Speaker Change: <unk> CH 50, <unk> really the pillar and those revenues between now and 2027 2020 are going to double and so while we will see declines in other programs such as combat rescue helicopter some declines on on Black Hawk and others. The CH 53, K will really offset all of those declines we do.

Jay: We've talked about this in the past, and we've taken a middle-of-the-road approach to our pricing, and this is no different. Thank you. The next question is from Ron Epstein from Bank of America. Please go ahead. Good morning, Beth.

Ronald Jay Epstein: Good morning. With FARA off the table, and it looks like the FLARA program has decent support, how are you thinking about the outlook for the vertical lift business? Where could we see some upside? What other competitions are out there?

Speaker Change: To go through a rebalance of rebound a little bit of a rebalance of the workforce because.

The mix of development work versus production work is different than what we'd originally anticipated. So we'll go through that but I think the business as I mentioned will be is pretty stable.

James D. Taiclet: Yeah, absolutely. Thank you. So, you know, Ron, this is Jim here.

Speaker Change: We're also as Jim mentioned, a continue to have dialogue and just investments in black Hawk modernization, which will maintain its relevancy, particularly in the <unk> environment and so so of course, we continue to see opportunities for for not only the base missions that blackhawk performs but other missions as well and those dialogue.

James D. Taiclet: As we kind of roll into the 21st century, what our company is trying to do is not just look at things through the programmatic lens or the vertical kind of column, but also horizontally through the actual mission and figure out what technologies can accomplish the mission that will enable our core basic platforms to be successful as well. And that's how we're looking at the rotary business, not just at Sikorsky anymore.

Speaker Change: Our ongoing with with the army to determine what would be the best fits for those and so as I mentioned from a revenue standpoint over the next five years. It will actually go up over the next few years, a little bit come back down, but pretty much flat to where it is today.

James D. Taiclet: It is Sikorsky plus all of Lockheed Martin, right? And that's one of the reasons we're able to work with the US Army, Congress, and the broader US government to increase support for, let's say, Blackhawk, for example, in spite of the fact that FARA is being canceled and there's another vertical lift program in the form of FLARA, which is going to be a tilt rotor. So there are missions that the Blackhawk will be extremely well suited for in the rotary lower domain. It's really the lower air domain.

Speaker Change: So stability I think is the best way to describe it.

Speaker Change: And our next question is from Rob Spingarn from Melius Research. Please go ahead.

Robert Michael Spingarn: Thank you and good morning.

Robert Michael Spingarn: Good morning, if we if we put the impact of tier three to the side.

On the last call you underscored the importance of the supply chain and producing F 30, fives at a rate of 156.

Robert Michael Spingarn: And one of the things that's made the F 35 program, so well supported by Congress and international countries as the breadth of the supply chain, but is the complexity and scale of the supply chain limiting the potential and affordability of the program.

James D. Taiclet: It's not just for rotorcraft. So how do we pair those rotorcraft, a traditional Blackhawk, let's call it, by modernizing the Blackhawk with digital technology to do what the Air Force would call CCA, collaborative combat aircraft, meaning you can, in the lower air domain, tie drones and uncrewed aircraft to a Blackhawk using digital technology. And we've demonstrated that already.

Robert Michael Spingarn: And on future fighter aircraft programs, whether it be and get our FAA Xx might we expect Lockheed to do more of the work in house production work in house, when compared to a 35%.

Robert Michael Spingarn: So it's.

Speaker Change: Great topic, Rob and so let's start with the origination of the F. 35 program. It was intended as you said to be.

James D. Taiclet: You can actually make the Blackhawk itself autonomous, with no pilots in it being flown from a command center to do high-risk missions. So we're looking at the mission and saying, what can we do all across Lockheed Martin, whether it's through sensor fusion, AI, 5G, or space-based sensor assets, to make the Blackhawk, for example, a much longer-lived platform, a much more relevant platform, and actually a very efficient platform compared to, say, the FLARA aircraft that won't be able to do some of the missions anyway?

Speaker Change: A wide based.

Speaker Change: Allied program I think it was seven literally partners, but essentially treaty partners that we're going to all get together and contribute their industrial capacity and financial.

Speaker Change: Capacity to this program given its importance in complexity and the scale that people are contemplating. So yes, we have a pretty broad supply chain. There were a couple of times when.

Speaker Change: That's gotten a little tough for the program Covid was one of those so we had delayed deliveries out of the UK because the factories, there or an open although ours were so we will be mitigating any future programs that we have.

James D. Taiclet: So we have a strong confidence then in Sikorsky itself and the platforms that it does produce, and that includes the CH-53K, which I mentioned, and the Seahawk, which is a Black Hawk that's configured for maritime operations and is pretty high-tech as well. And so we feel really solid, as I think Jay said in his remarks, on Sikorsky's future with a backlog of 20 billion and the ability to modernize these really In production aircraft to do new things with missions and digital technology and integrate with other parts of LM and our partners to make those platforms relevant in the future. So I'll stop there.

Speaker Change: We are eager to have international production and Sustainment partners, and we're going to expand that but we're also going to apply some anti fragility methodologies.

Speaker Change: Those initiatives going forward.

Speaker Change: No one really thought of Covid of course, but now that we've had that example, we need to know we know we need to have second and maybe third sources and geographic diversity it would be a positive thing.

Speaker Change: From that perspective, so it will just be a.

Speaker Change: Little more broadly thoughtful about how we do this having.

Speaker Change: Having single sources outside the U S is probably not the best idea, there's an affordability issue around that too. So we'll just have to balance everything out so based on its origination and essentially the commitment of the countries to the program.

Jay: Jay, do you have anything else you want to say? Sure, just a couple of things, as Jim mentioned. A stable outlook is the best way to describe it. As Jim mentioned, CH-53K is really the pillar.

Jay: And those revenues between now and 2027, 2028 are going to double. And so while we will see declines in other programs, such as the Combat Rescue Helicopter, some declines on Blackhawk, and others, the CH-53K will really offset all those declines. We do have to go through a rebalance, a little bit of a rebalance of the workforce because the mix of development work versus production work is different than what we'd originally anticipated. So we'll go through that.

Speaker Change: Do have that sort of spread out supply chain.

Speaker Change: With a couple of weeks spot Senate.

Speaker Change: Well, it's another weak spots canopies right.

Speaker Change: To make a glass canopy will with this kind of stress in the kind of.

Speaker Change: Precision that's needed and putting it on F 35 cannot be together versus enough for which I used to look out a little bit.

Speaker Change: Highly complex hard to produce single source one of the big Degraders that we have so again, we're going to learn from that whether it's domestic or international supplier.

Jay: But I think the business, as I mentioned, is pretty stable. We're also, as Jim mentioned, continuing to have dialogue and just investments in Blackhawk modernization, which will maintain its relevancy, particularly in the JADC-2 environment. And so, of course, you continue to see opportunities for not only the base missions that Blackhawk performs but other missions as well. Those discussions are ongoing with the Army to determine what would be the best fits for those.

Speaker Change: Going forward.

Speaker Change: In addition, as you pointed out.

We are.

Speaker Change: Heavily in sourcing when we can and Lockheed Martin has the best technology, we're looking hard at making sure that we can control as much of the supply chain that is feasible and reasonable based on whatever program. It is.

Speaker Change: And so for example on.

Speaker Change: And Gi that looks at MSC.

Speaker Change: Lockheed Martin space collaboration to make sure that the most critical sensor components that we could produce in the company effectively and efficiently or the ones that were selected okay.

Jay: And so, as I mentioned, from a revenue standpoint, over the next five years, it'll actually go up a little bit in the next few years, but it will be pretty much flat to where it is today. And so stability, I think, is the best way to describe it. Our next question is from Rob Spingarn from Melias Research. Please go ahead.

So youre topic is really great one we intend to actually.

Speaker Change: Geographically.

Speaker Change: Further diversify our.

Speaker Change: Supply chain, but really based on this anti fragility concept of having two or three sources either different parts of the world different companies.

Speaker Change: Logistical chains things like that.

Robert Michael Spingarn: Thank you. Good morning. Jim, if we put the impact of TR3 to the side, on the last call, you underscored the importance of the supply chain in producing F-35s at a rate of 156. And one of the things that's made the F-35 program so well supported by Congress and international countries is the breadth of this supply chain. But is the complexity and scale of the supply chain limiting the potential and affordability of the program?

Speaker Change: We will run into some supply chain issues as much as we have some pilot programs, including F 35 offices.

Speaker Change: Okay.

Speaker Change: Next question is from Rob Stallard from vertical research. Please go ahead.

Robert Alan Stallard: Thanks, so much good morning, good morning.

Robert Alan Stallard: Jim.

Robert Alan Stallard: <unk> had some comments on contract structures and the way, perhaps your customers are dealing with the defense industry. In recent years I was wondering if theres been any sort of residents from your commentary and any willingness early willingness from the customer to look at this in a fresh way.

Speaker Change: So let me focus on digital.

Speaker Change: Service contracting because I think thats it.

Robert Michael Spingarn: And on future fighter aircraft programs, whether it be NGAD or FAXX, might we expect Lockheed to do more of the work in-house, the production work in-house when compared to the F-35? So it's a great topic, Rob. And so let's start with the origination of the F-35 program. It was intended, as you said, to be wide-based.

Speaker Change: A really ripe opportunity area for the Dod to work with industry and not just the traditional defense primes, if you will but broader industry too we want to play on subscription basis ourselves, we want to bring in partners that will only.

Speaker Change: B, our suppliers on a subscription basis, so in terms of say.

Speaker Change: <unk> connectivity services backhaul, those kinds of things AI, which needs constant refreshing and modeling.

James D. Taiclet: I think it was seven literally partners, essentially treaty partners that were going to all get together and contribute their industrial capacity and their finances. The Bulletproof Executive 2013, So yeah, we have a pretty broad supply chain. There were a couple times when that's gotten a little tough for the program. COVID was one of those.

Speaker Change: We will do a lot of the AI in house, but we're not going to be possible to do all of it.

Speaker Change: We want to bring in partners, we've announced a couple of them like Nvidia and IBM. They want to work with us. So I do think we're starting to get interest inside government on how to do this.

Speaker Change: Proposed frankly ourselves, which will open up.

Speaker Change: Opportunity for a lot of other companies.

James D. Taiclet: So we had delayed deliveries out of the UK because the factories there weren't open, although ours were. So we will be mitigating any future programs that we have. And we're eager to have international production and sustainment partners, and we're gonna expand that. But we're also going to apply some anti-fragility methodologies to those initiatives going forward. Now, no one really thought of COVID, of course, but now that we've had that example, we know we need to have second and maybe third sources. And geographic diversity would be a positive thing, from that perspective.

Speaker Change: In different sectors.

Speaker Change: An adjacent acquisition process within the Dod for digital services.

Speaker Change: Alongside the traditional Vod acquisition process for largely physical goods like aircraft ships et cetera.

Speaker Change: There is interest in that we haven't.

Speaker Change: Got it over the line so to speak.

But I think theres a lot of advocacy costs brought industry to do that.

Speaker Change: Starting to be in Congress, and other places and Vod as well.

Speaker Change: With that we want to drive an open architecture system.

Speaker Change: So that U S government has a lot of diversity and its potential suppliers because we're all working off of the same standards base as.

James D. Taiclet: So we'll just be, you know, a little more broadly thoughtful about how we do this. Having single sources outside the U.S. is probably not the best idea. There's an affordability, you know, issue around that, too, so we're just going to have to balance everything. So based on its origination and essentially the commitment of the countries to the program, we do have that sort of spread out supply chain with a couple of weak spots in it. Look, another weak spot, canopies, right? How hard is it to make a glass canopy?

Speaker Change: As far as Apis interfaces frequencies, using those kinds of things and synchronize that as much as we can with commercial industry. So we can use more of their IP and more of their resources and more of their people. So.

Speaker Change: There's a lot of opportunity here.

Speaker Change: And we're getting starting to get some traction on it but it's going to take a little bit of time to get those processes and those those standards bodies put in place, but we're we're actually on it than we are.

Speaker Change: Partners and teammates and agree with us.

I'll just add Rob that we have seen some some changes where the contract structure is more closely aligned with the capability that's being requested.

James D. Taiclet: Well, with this kind of stress and the kind of precision that's needed and putting an F-35 canopy together versus an F-4, which I used to look out of a little bit. High complex, hard to produce, single source, one of the big degraders that we have, so again, we're gonna learn from that whether it's a domestic or international supplier uh... going forward. In addition, as you pointed out, we are heavily insourcing when we can, and Lockheed Martin has the best technology.

Speaker Change: And the assessment of the technology maturation of that capability.

Speaker Change: So youre not seeing as many of these kind of high risk.

Speaker Change: Fixed price development contracts that really don't work well for anybody because they don't optimize solution and they typically end up poorly for the contractor.

Speaker Change: And so we have seen those changes.

Speaker Change: Again, there are case by case, but I can tell you that at least what we're seeing particularly in the higher risk higher technology type risk.

James D. Taiclet: We're looking hard at making sure that we can control as much of the supply chain that is feasible and reasonable based on whatever program it is. And so, for example, on NGI, that was at MSC. The Lockheed Martin space collaboration to make sure that the most critical sensor components that we could produce in the company effectively and efficiently were the ones that were selected.

Speaker Change: Arenas we are.

Speaker Change: Being a shift in contracting to contracting vehicles that are just more relevant to those circumstances.

Speaker Change: And Rob maybe to support just another minute or J speaking about.

Speaker Change: In a more direct way here.

Speaker Change: I have a view as you may have heard that.

Speaker Change: Having a even a cost based development project or a program.

James D. Taiclet: And so your topic is a really great one. We intend to actually go geographically. Further diversify our supply chain, but really based on this anti-fragility concept of having two or three sources, either different parts of the world, different companies, different logistical chains, things like that, where we won't run into some supply chain issues as much as we have on some prior programs, including F-35. Next question is from Rob Stallard from Vertical Research. Please go ahead. Thanks so much. Good morning.

Speaker Change: With a fixed price set of.

Early production options.

Speaker Change: It is a tough thing to intellectually get my at least my arms around which is.

Speaker Change: Committing to cost and price.

Speaker Change: On an object that really hasnt been fully invented yet and were shot.

Speaker Change: Looking really really hard if thats at any opportunity that's presented to us in that context as a company. So that is one area, where again highlight what Jay speaking about more of an alignment of what can industry deliver on a reasonable risk basis.

Robert Alan Stallard: Um, Jim, last quarter you had some comments... Contract Structures and the way perhaps your customers have been dealing with Myles Walton, Peter Arment, Myles Walton, Myles Walton, Myles Walton. So, let me focus on digital service contracting, because I think that's a really ripe opportunity area for the DoD to work with industry, not just the traditional defense funds, if you will, but broader industry, too We want to play on a subscription basis ourselves.

Speaker Change: And so the government can get a successful program out of it frankly.

Speaker Change: And not have massive write offs in industry or cost overruns or.

Speaker Change: Long scheduled delays.

Speaker Change: We think it's constructive to get some more of that alignment that Jay described.

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

George D. Shapiro: Yes. Good morning, a couple of quick ones for you Jay.

George D. Shapiro: First quarter normalized growth was 5% and even at the high end you are looking for three and a half half percent. So with this being the fastest growing quarter in what slows down obviously normalizing for the fourth quarter and then the second question is the guide for other net was $400.

James D. Taiclet: We want to bring in partners that will only be our suppliers on a subscription basis. So in terms of, say, 5G connectivity services, backhaul, those kinds of things, AI, which needs constant refreshing and modeling. We will do a lot of the AI in-house, but it's not going to be possible to do all of it. We want to bring in partners. We've announced a couple of them, like NVIDIA and IBM.

George D. Shapiro: First quarter is only negative 61, so I was expecting you might lower that number for the year.

Speaker Change: So what was the reason why you didn't lower it.

Speaker Change: Alright, George Thank you on the quarterly profile for sale as you mentioned Craig on normalized basis.

James D. Taiclet: They want to work with us, so I do think we're starting to get interest inside Government on how to do this.

Speaker Change: 5% growth here in the first quarter.

George D. Shapiro: It will slow down to low single digit in the second and third and we're thinking that the fourth quarter, probably flattish to maybe slightly down you might recall that the fourth quarter of 2023 ended up being stronger than we were originally expecting and so our compare in the fourth quarter of this year will be a little bit tougher.

James D. Taiclet: We proposed, frankly, ourselves, which will open up, you know, opportunities for a lot of other companies, in different sectors, an adjacent acquisition process within the DoD for digital services, alongside the traditional DOD acquisition process for largely physical goods like aircraft, ships, etc. There's interest in that, but we haven't... We've gotten it over the line, so to speak, but I think there's a lot of advocacy across broad industry to do that, and it's starting to be in Congress and other places, and DOD as well.

George D. Shapiro: So youre talking.

George D. Shapiro: Second and third quarter is probably 2% to 3% type of growth numbers with a flattish year over year in the fourth quarter as far as other net.

George You got me there, there's probably some opportunity in their caliber.

James D. Taiclet: Along with that, we want to drive an open architecture system so that the U.S. government has a lot of diversity in its potential suppliers because we're all working off of the same standards base as far as APIs, interfaces, frequencies used, and those kinds of things and synchronize that as much as we can with the commercial industry so we can use more of their IP and more of their resources and more of their people.

George D. Shapiro: Calibrate that and we'll update the guide in the second quarter for.

George D. Shapiro: For the full year, but it's probably more prudent to just wait till we're halfway through the year and just make an assessment of the entire outlook, we'll just leave it there.

George D. Shapiro: And our next question is from Noah <unk>.

Noah: MS sacks. Please go ahead.

Noah: Hey, good morning, everyone. Good morning.

James D. Taiclet: So I think that there's a lot of opportunity here and we're starting to get some traction on it, but it's going to take a little bit of time to get those processes and those standards bodies put in place. We're already on it, and we have some partners and teammates.

Noah:

Noah: You've talked about Pentagon terms of trade and contract structure here.

Noah: Mentioned.

Noah: And Gis.

Noah: Cost plus development.

Noah: But you also mentioned they asked for.

Noah: See multiple contract structures curious what they asked to see.

Jay: You know, I'll just add, Rob, we have seen some changes where the contract structure is more closely aligned with the capability that's being requested and the assessment of the technology maturation of that capability. And so, you know, you're not seeing as many of these kind of high-risk, uh... fixed-price development contracts that really don't work well for anybody because they don't optimize the solution, and they typically end up poorly for the contract. And so we have seen those changes, you know, again, they're case by case, but I can tell you that at least what we're seeing, particularly in the higher risk, higher And Rob, maybe to support for just another minute what Jay is speaking about.

Noah: Where you landed on those maybe interim windows between development and production.

And then Jay.

Noah: The loss, making classified program in MFC.

Noah: What year do you expect that to be profitable on an annual basis, and just to confirm that theres, one programming that position correct not more than one.

Speaker Change: Yes, that's correct.

Speaker Change: No just just one program.

Speaker Change: I think right now our outlook, we'd say probably.

'twenty, probably 2028 is where we would expect that to flip to positive again, it's a question of the timing.

Speaker Change: The recognition of the losses, but if you assume kind of more of a linear approach from here on out will be about 2028.

As far as <unk>, just again, the different contracting vehicles are ranging anywhere from cost plus to fixed price incentive.

Speaker Change: There is no conflict.

James D. Taiclet: The Bulletproof Executive 2013, I have a view, as you may have heard, that having a cost-based development project or program, with a fixed price set, early production option, is a tough thing to intellectually get my at least my arms around, which is, Committing to cost and price on an object that really hasn't been fully invented yet. And we're looking really, really hard if that's any opportunity that's presented to us in that context as a company.

Speaker Change: Customer has selected exactly which vehicle wants to pursue so theres nothing actually under contract for the next phase or phases right now we're going to continue to perform under the current contract as I mentioned, we've got critical design review in 2025 will also as part of this contract that to provide some test assets and between now and then I'm sure, we'll still have discussions and.

Speaker Change: It's getting future phases on contract I know the principle behind what Jay and I are speaking to here is that.

Speaker Change: We want to be agnostic ultimately from a risk adjusted basis whatever contract format.

James D. Taiclet: So that is one area where, again, to highlight what Jay's speaking about, more of an alignment of what industry can deliver on a reasonable risk basis. And so the government can get a successful program out of it, frankly, and not have massive write-offs in industry or cost overruns or long schedule delays. We think it's constructive to get some more of that alignment. Our next question is from George Shapiro from Shapiro Research. Please go ahead.

Speaker Change: Government would like to employ in these matters. So if it's going to be any kind of I'll say, a highest risk would be again.

Speaker Change: Fixed price production on something Thats not been designed yet.

Speaker Change: We will put a high risk premium in the future.

Speaker Change: <unk>.

Speaker Change: Those kinds of requests of the government and what's interesting is there is they're asking for multiple types on N Gi and that's going to give them an opportunity to see what what contract risk.

George D. Shapiro: Yes, good morning. A couple quick ones for you, Jay. If the first quarter's normalized growth was 5%, and even at the high end, you're looking for 3.5%, so will this be the fastest growing quarter, and what slows down? And I'm obviously normalizing for the fourth quarter. And then the second question is the guide for other net was $400 million. The first quarter was only negative 61. So I was expecting you might lower that number for the year. And so why didn't you lower it?

Speaker Change: Transfer to industry is now going to cost at least in Lockheed Martin's case, because we will reply on that basis to say if you want us to have this kind of contract we have to have a risk premium is significantly higher but let's just say a pure cost based contract to give you a greatest contrast, and thats just the principle, we're going to use from now on so.

Speaker Change: If you want a certain price point is government.

Speaker Change: We will provide you.

Speaker Change: Contract format that will get you that price, but if you wanted to ship more risk to industry Youll see a higher risk premium comeback in our proposal. If you will so that's the principle, we are using and that will continue to use.

Jay: Thanks. All right, George, thank you. On the quarterly profile for sales, as you mentioned, Craig, on a normalized basis, 5% growth here in the first quarter, I'd say it will slow down to a low single digit in the second and third. And we're thinking that the fourth quarter will probably be flattish to maybe slightly down. You might recall that the fourth quarter of 2023 ended up being stronger than we were originally expecting.

Speaker Change: Louis I think we have time for one more question.

Speaker Change: Close to the top of the outflow sneak one more and then we'll be done.

Speaker Change: Thank you and that question will come from Amit.

Amit: From Seaport Research partners. Please go ahead.

Amit: Good morning. Thanks.

Amit: Two part quite quick two part question on C to BMC I want to know if you could discuss the P&L impact in terms of timing and margins secondly, more broadly.

Amit: Mike discuss a bit about how this fits with the.

Amit: With your strategy for pulling admission centric programs and what the opportunity set there is.

Jay: And so our comparison in the fourth quarter of this year would be a little bit tougher. And so, you know, you're talking in the second and third quarters about two to 3% type of growth numbers with a flat issue over a year in the fourth quarter. As far as other net, you know, George, you got me there. There's probably some opportunity in there.

Amit: Mhm.

Amit: Yes.

Amit: Okay.

Amit: We've been under contract some follow on for Us.

Amit: What I can do which is I don't recall off hand, exactly what the annual revenues are broken Murray a follow up on you, but this again is just a continuation.

Jay: You know, we'll calibrate that, and we'll update the guide in the second quarter for the full year. But it's probably more prudent to just wait till we're halfway through the year and just make an assessment of the entire outlook. And we'll just leave it. And our next question is from Noah Poponak from Goldman Sachs. Please go ahead. Hey, good morning, everyone.

Amit: Of those activities there and so no significant change I don't think from a revenue standpoint or margin expectation RMS for this and so from the mission centric approach that this is actually a pretty good example of that rich and pulling through or extending existing programs right and so what.

Amit: We're trying to show is that.

Amit: You can map data flows through a full mission right, which generally includes and now cyber by the way upfront. So you have a cyber track then you have to have a sensing capability.

Noah Poponak: Morning, Noah, um, You've talked about the Pentagon terms of trade and contract structure here, and you mentioned NGI as cost-plus development. But you also mentioned they asked to kind of see multiple contract structures. Curious what they asked to see, where you landed on those maybe interim windows between development and production. And then, Jay, the...

Amit: To have a way to get censored data whether it comes from a satellite or submarine back into the command and control system.

Amit: Along with that you have to have targeting and tracking.

Amit: Quality data that comes from beyond just the sensing of an object. It's a target you have to be able to track the target in a way that you can then guys a projectile to it.

Jay: The Loss Making Classified Program in MFC. What year do you expect that to be profitable on an annual basis? And just to confirm, there's one program in that position, correct? Not more than one? Yeah, that's correct. Noah, just one program.

And take it out or put a cyber attack against it.

Amit: Or laser or whatever the effects will be.

Amit: And so.

Jay: And, you know, I think right now our outlook would say probably, in, if you're in a 20, probably 2028 is where we would expect that to flip to positive. Again, it's a question of the timing of the recognition of the losses, but if you assume kind of a more linear approach from here on out, it'd be about 2028. As far as NGI is concerned, just again, the different contracting vehicles are ranging anywhere from cost plus to fixed price incentives.

Amit: The term of art for that is not pretty it's called the kill chain.

Amit: We want to put these change together in diverse ways that are that are again anti fragile, which means if you take out one link in that chain you don't.

Amit: You don't eliminate your ability to complete the mission and so that's where we're looking at data flows.

Amit: In addition to physical flows if you will right.

Amit: And if we can.

Amit: Help create an open architecture system that can provide multiple routes of data flows that can affect missions.

Jay: There is no, the customer hasn't selected exactly which vehicle he wants to pursue, so there's nothing actually under contract for the next phase or phases. Right now, we're going to continue to perform under the current contract. As I mentioned, we got a critical design review in 2025. We'll also, as part of this contract, have to provide some test assets. We'll have discussions in terms of getting future phases on contract. Noah, the principle behind what Jay and I are speaking about here is that we want to be agnostic, ultimately, from a risk-adjusted basis on whatever contract format that the government would like to employ in these matters.

Amit: Then we will be able to have kind of a head start on our platforms and designing to those and that's what we're doing with Blackhawk for example, thats what were doing using the <unk> system. The <unk> radar and ultimately the NCI missile will be based on a similar architecture wed like that architecture to be common al.

Amit: Outside of Lockheed Martin as well as inside because that will open up more suppliers to us and also provide the government more competitive options. So this is all coming together.

James D. Taiclet: So if it's going to be any kind of, I'll say the highest risk would be, again, fixed-price production on something that's not been designed yet. We will put a high-risk premium in the future and have on those kinds of requests from the government. And what's interesting is they're asking for multiple types on NGI, and that's going to give them an opportunity to see what contract risk, Transfer to industry is now going to cost, at least for Lockheed Martin.

Amit: Just a question here at the end, but because it is very intentional.

Speaker Change: Okay. Thanks Maria.

Maria: Thanks to everybody on the call.

Speaker Change: I want to.

Speaker Change: It's also express my appreciation to everybody at Lockheed Martin for their relentless focus on this operational execution I mentioned driving innovation and excellence and we're all doing this.

Part of our customers Thats the reason.

Speaker Change: We have a vision for 20 <unk> century security that we think we will keep the turns high in an increasingly complex.

James D. Taiclet: Because we will reply on that basis to say, if you want us to have this kind of contract, we have to have a risk premium that's significantly higher than, let's just say, a pure cost-based contract to give you the greatest contrast.

Speaker Change: And threatening global environment as.

Speaker Change: As a company we have a strong backlog as you've heard we're driving operating discipline across the whole organization and this continuous improvement mindset. We have so all of that is designed to position our company for you as shareholders for future growth and attractive and reliable returns to shareholders over a long period of time. So thank you all again for joining us today and we.

James D. Taiclet: And that's just the principle we're going to use from now on. So if you want a certain price point as a government, we will provide you with a contract format that will get you that price. But if you want to shift more risk to industry, you'll see a higher risk premium come back in our proposal, if you will. So that's the principle we're using. Lois, I think we have time for one more question. Let's try one more.

Speaker Change: Look forward to speaking with you on our next earnings call in July lowest that concludes our call. Thanks.

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

Speaker Change: Yeah.

Operator: Thank you, and that question will come later. Safran from Seaport Research Partners, please go ahead. Good morning, thanks. Two part quick, quick, two part question on C2BMC.

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

Richard Tobie Safran: I want to know if you could discuss the P&L impact in terms of timing and margins. Second, and more broadly, I thought you might discuss a bit about how this fits with your strategy for pulling in mission-centric programs and what the opportunities that there are. Okay, for timing, you know, we're, we've been under contract, so follow on for us, and what I could do, Rich, is, I don't recall offhand exactly what the annual revenues are, but I can have Maria follow up on you. But this, again, is just a continuation of those activities there.

Jay: So no significant change, I don't think, from a revenue standpoint or margin expectation at RMS. And so from the mission-centric approach, this is actually a pretty good example of that, Rich, in pulling through or extending existing programs, right? And so what we're trying to show is that you can map data flows through a full mission, right, which generally includes, and now cyber, by the way, up front. So you have a cyber track, then you have to have a sensing capability.

James D. Taiclet: You then have to have a way to get censored data, whether it comes from a satellite or a submarine, back into the command-and-control system. Along with that, you have to have targeting and tracking quality data that comes from beyond just the sensors. [inaudible] The term of art for that is not pretty; it's called a kill chain.

James D. Taiclet: We want to put these chains together in diverse ways that are, again, anti-fragile, which means if you take out one link in that chain, you don't eliminate your ability to complete the mission. And so that's where we're looking at data flows in addition to physical flows, if you will, right? And if we can help create an open architecture system that can provide multiple routes of data flows that can affect missions, then we will be able to have a kind of a head start on our platforms in designing for those. And that's what we're doing with Blackhawk, for example. That's what we're doing using the C2BMC system, the LRDR radar, and ultimately, the NGI missile will be based on a similar architecture.

Speaker Change: [music].

James D. Taiclet: We'd like that architecture to be common, outside of Lockheed Martin as well as inside because that'll open up more suppliers to us and also provide the government with more competitive options. So this is all coming together, and I'm kind of glad you asked the question here at the end, but because it's very interesting. Okay. Thanks, Maria.

Maria Ricciardone Lee: Thanks to everybody on the call. I want to also express my appreciation to everybody at Lockheed Martin for their relentless focus on this operational execution I mentioned, driving innovation and excellence. We're all doing this in support of our customers, that's the reason. We have a vision for 21st century security that we think will keep deterrence high in an increasingly complex and threatening global environment. As a company, we have a strong backlog, as you heard. We're driving operating discipline across the whole organization and this continuous improvement mindset we have.

James D. Taiclet: So all that's designed to position our company for you as shareholders for future growth and Attractive and Reliable Returns to Shareholders over a Long Period of Time. So thank you all again for joining us today and we look forward to speaking with you on our next earnings call in July. Lois, that concludes our call.

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

Operator: ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? © 2020 The University of Georgia College of Agricultural and Environmental Sciences UGA Extension Department of Agriculture, Good day and welcome everyone to the Lockheed Martin First Quarter 2020 FAR 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 Ricciardone Lee: At this time, for opening remarks and introductions, I would like to turn the call over to Maria Bergeron, Vice President, Treasurer, and Investor Relations. Please go ahead. Thank you, Lois, and good morning. I'd like to welcome everyone to our first call. Joining me today on the call are Jim Taiclet, our chairperson. Statements made in today's call that are not, and are made pursuant to the safe harbor provisions of federal law. The Bulletproof Executive 2013, for a description of some of the factors that may cause actual results to differ materially from those... We posted charts on our website today that we plan to address during the call. These charts also include information regarding non-GAAP measures that may be used. Please access our website at www.lockheedmartin.com and click on the Investor Relations link to view and follow the charts. Thanks, Maria. Good morning, everyone.

James D. Taiclet: And thank you for joining us on our first quarter 2024 earnings call. I'd like to begin today's discussion with a brief overview of our quarterly financial results and the state of the U.S. Department of Defense budget. Status updates on some key programs and recent advancements made to support our vision of 21st century security that integrates the latest digital technology. Then Jay and Maria will provide more detailed information about quarterly highlights and financial... The increasingly unstable geopolitical environment in the world today makes it essential for industry and government to strengthen our nation's capabilities to deter and defend against further aggressive behavior against the U.S. and our allies.

James D. Taiclet: We here at Lockheed Martin are continuing to invest heavily to improve our design and production capabilities while actively partnering with leading companies inside and outside the A&D industry to incorporate a wide range of technologies. As a result, we delivered robust revenue growth across the company, and we maintained a robust backlog of $159 billion, reflecting alignment between our advanced technology solutions and our customers' key missions and priorities. These first quarter results reinforce our confidence in our ability to achieve the full year financial expectations we shared in the most recent earnings.

Speaker Change: [music].

James D. Taiclet: Moreover, the approved FY24 defense budget reflected many positives for Lockheed Martin, consistent with national defense strategy priorities, too. Highlights include robust funding for munitions for multi-year procurement, continued investment in hypersonics and classified activities, and ongoing support for programs such as Black Hawk, CH-53K Heavy Lift Helicopter, the Fleet Ballistic Missile, C-130, and F-35. There were also additions to the original budget submission, including F-35 aircraft, C-130s, and Combat Rescue Helicopters.

Speaker Change: Good day and welcome everyone to the Lockheed Martin first quarter 2025 earnings result conference call.

Maria Ricciardone Lee: Today's call is being recorded if you would like to ask a question. Please press. The one then zero now at this time for opening remarks, and introduction I would like to turn the call over to Maria, but Sudan, Vice President Treasurer and Investor Relations. Please go ahead.

James D. Taiclet: The initial budget request for FY25, while still very early in the process, continues support for many of these same major programs, including the F-35, CH-53K, UH-60M, and others, in addition to emphasis on advanced munitions programs such as JASM-LRASM, PRISM, JAVELIN, Gimlers, and PAC-3, as well as hypersonic conventional prompt strike and the long-range hypersonic And this week, funding of $95 billion for Ukraine, Israel, and Indo-Pacific security supplementals passed the House and is currently under consideration in the Senate.

Maria Ricciardone Lee: Thank you Alex and good morning, I'd like to welcome everyone to our first quarter 2024 earnings conference call.

Maria Ricciardone Lee: Joining me today on the call are Jim <unk>, our chairman, President and Chief Executive Officer, and Jay Malave, Our Chief Financial Officer.

Maria Ricciardone Lee: 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 Securities laws 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.

Maria Ricciardone Lee: Those in the forward looking statements.

Maria Ricciardone Lee: We posted 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 Jim.

James D. Taiclet: We expect FY25 Presidential Budget Requests and Supplemental Supplemental Funding will provide a strong underpinning for future growth over the next several years for our company, giving us further confidence in our long-range plan. However, while demand for these key programs remains elevated, it is also essential that our program performance in terms of quality, safety, cost, and schedule gets and stays at the highest level. On our most significant programs, I, Jay, and my senior executive team are personally and directly involved.

Jim Jaye: Thanks, Maria Good morning, everyone and thank you for joining us on our first quarter 2024 earnings call.

Jim Jaye: Like to begin todays discussion with a brief overview of our quarterly financial results. The state of the U S Department of defense budget.

Jim Jaye: That is updates on some key programs.

James D. Taiclet: On the F-35, we remain focused on program execution in terms of concurrent development, production, and sustainment, and we are bringing all relevant resources across our company and collaborating closely with our customers and suppliers to fully implement the TR3 capabilities that everybody's looking forward to getting. These capabilities based on the new core processor, data storage unit, and pilot display will ensure that the F-35 is not only the most capable and effective fighter aircraft in the world, but it will also further advance its abilities to act as the air domain quarterback of joint all-domain operations for the U.S. and its allies.

Jim Jaye: In recent advancements made to support our vision of 20, <unk> century security and integrates the latest digital technologies.

Jim Jaye: Then Jay and Maria will provide more detailed information about quarterly highlights and financials.

Jim Jaye: The increasingly unstable geopolitical environment in the world today makes it essential for industry and government to strengthen our nation's capabilities to deter and defend against further aggressive behavior against the U S and our allies.

Here at Lockheed Martin are continuing to invest heavily to improve our design and production capabilities, while actively partnering with leading companies inside and outside the A&D industry to incorporate a wide range of technologies.

Jim Jaye: As a result, we delivered robust revenue growth across the company and we maintain a robust backlog of $159 billion, reflecting alignment between our advanced technology solutions, and our customers' key missions and priorities.

Jim Jaye: These first quarter results reinforce our confidence in our ability to achieve the full year financial expectations. We shared in the most recent earnings call.

James D. Taiclet: The test results to date support our expected timeline of delivering the first TR-3 combat-training-capable aircraft in the third quarter, and then transitioning to a fully combat-capable aircraft in 2025. As planned, there will be continual software updates to support further capability insertions during the Block 4 program and beyond. While there were no final deliveries of F-35 jets in the first quarter, we're maintaining our production rate and continue to expect an aircraft delivery range for 2024 between 75 and 110, which requires timely receipt of the necessary hardware from TR3 suppliers along the way.

Jim Jaye: Moreover, the approved FY 'twenty for defense budget reflected many positives for Lockheed Martin consistent with National Defense strategy priorities too high.

Jim Jaye: Highlights include robust funding from munitions multiyear procurement continued investment in the hypersonic and classified activities and ongoing support for programs such as Blackhawk CH 53, K heavy lift helicopter the fleet ballistic missile C 130 in F 35.

Jim Jaye: There were also additions to the original budget submission, including F 35 aircraft C 100, <unk> and combat rescue helicopters.

The initial budget request for FY 'twenty five while still very early in the process continued support of many of these same major programs, including the F 35, CH 53, K U H 60, <unk> and others.

James D. Taiclet: The F-35's advanced combat and interoperability capabilities continue to create strong demand for the aircraft internationally too. In the quarter, the Czech Republic became the 18th nation to join the F-35 global team with a signed letter of offer and acceptance, making it official its intent to procure 24 F-35s.

Jim Jaye: In addition to emphasis on advanced munitions programs, such as Jasmine Lorazepam Prism javelin gamblers and Pac three.

Jim Jaye: As well as hypersonic conventional prompt strike in the long range hypersonic weapon.

Jim Jaye: In addition to that the next generation interceptors, getting support which I'll address more in a moment.

Jim Jaye: And this week funding of $95 billion for Ukraine, Israel, and Indo Pacific Security supplemental passed the house and is currently under consideration in the Senate.

Jim Jaye: We expect FY 'twenty five presidential budget request and additive supplemental funding will provide a strong underpinning for future growth over the next several years for our company, giving us further confidence in our long range plan.

While the demand for these key programs remains elevated it is also essential that our program performance in terms of quality safety costs and schedule gets and stays at the highest level.

Jim Jaye: On our most significant programs I J and my senior executive team are personally and directly involved.

James D. Taiclet: We're also encouraged by the Army's renewed commitment to Blackhawk production and modernization, as well as our ability to address mission gaps through capability upgrades that leverage Lockheed Martin's broad portfolio of solutions in the lower air domain, things such as autonomy, AI, et cetera. Turning now to Missile Defense Missions, which, given recent world events, are becoming more critical than ever. We continue to lead the industry. Last week, the Missile Defense Agency, or MDA, selected Lockheed Martin to deliver the new homeland missile defense capability for the United States, which is called the Next Generation Interceptor, or NGI.

Jim Jaye: On the F 35, we remain focused on program execution in terms of concurrent development production and Sustainment and.

Jim Jaye: And we are bringing all relevant resources across our company and collaborating closely with our customers and suppliers to fully implement the tier three capabilities that everybody is looking forward to getting.

Jim Jaye: These capabilities based on the new core processor data storage unit and pilot display will ensure that the F. 35 is not only the most capable and effective fighter aircraft in the world.

Jim Jaye: But it will also further advanced its abilities to act as the air domain quarterback of joint all domain operations for the U S and its allies.

Jim Jaye: We're encouraged by the solid progress made over the last few months towards resuming deliveries, including improvement in aircraft mission system capabilities and system stability as we advance from prior software versions towards the combat training capable configuration.

Jim Jaye: Flight testing of this configuration is now underway and we're on a path we expect to be on with regard to maturing the system with approximately 95% of tier three capabilities and this flight test program.

Jim Jaye: The test results to date support our expected timeline of delivering the first tier three combat training capable aircraft in the third quarter, and then transition to a fully combat capable aircraft in 2025.

Jim Jaye: As planned there will be continual software updates to support further capability insertions over the block four program and beyond.

Jim Jaye: While there were no final deliveries of F 35 jets in the first quarter.

Jim Jaye: We're maintaining our production rate and continue to expect an aircraft delivery range for 2024 between 75 and 110.

James D. Taiclet: And what that means is the final transition to active service for that radar to help defend the country. The LRDR is a cutting-edge national asset, providing the benefits of both low- and high-frequency radars to search, track, and discriminate incoming missiles, with an open system approach enabling the customer to add incremental capabilities such as hypersonic defense. This is located up in Alaska in a prime Location where we can sense early what any attack might look like and respond to it. What that really does, though, is create an elevated deterrence to any kind of attack like that.

Jim Jaye: Which requires timely receipt of the necessary hardware from tier three suppliers along the way.

Jim Jaye: Yes, 35 advanced combat and interoperability capabilities continue to create strong demand for the aircraft internationally too.

In the quarter, the Czech Republic became the 18th nation to join the F 35 global team with a signed letter of offer and acceptance, making it official.

Jim Jaye: Its intent to procure 24 F 30 fives.

Jim Jaye: In addition, the U S State Department approved the potential foreign military sale to Greece for up to 40 F 30, Fives, and Singapore announced its intent to purchase eight F 35 days to complement the <unk> F 35, BS to which it is already previously committed.

James D. Taiclet: So it's really great to have LRDR about ready to go online. Now both NGI and LRDR will be critical elements within the overall Homeland Defense mission. And they're going to be integrated into the broader defense architecture with a battle management system that we call Command, Control, Battle Management, and Communication, or as the military calls it, C2BM. So that's the system that's going to be used to integrate the radars, the missiles, and allow us to defend the country. In April, Lockheed Martin was selected for a potential 10-year, $4 billion follow-on C2BMC Next Generation contract with the MDA, demonstrating, again, our leadership position in battle management systems for homeland defense.

Jim Jaye: Also in the lower air domain, while we're disappointed in the cancellation of the future attack reconnaissance aircraft program or Farra, Sikorsky remains committed to delivering innovative and reliable aviation capabilities to our domestic and global customers with a strong foundation of more than $20 billion in backlog.

Jim Jaye: Bolstered by expected and funded growth in the heavy lift CH 50, <unk> helicopter program <unk>.

Jim Jaye: <unk> multi year outlook is stable.

Jim Jaye: We're also encouraged by the army has renewed commitment to black hog production and modernization.

As well as our ability to address mission gaps with capability upgrades that leverage Lockheed Martin's broad portfolio of solutions and the lower air domain things such as autonomy AI et cetera.

Jim Jaye: Turning now to missile defense missions, which given recent world events are becoming more critical than ever we continue to lead the industry.

James D. Taiclet: Under this contract, we'll continue to modernize and expand the system's capabilities to enhance global integration, improve space domain awareness, and optimize sensor connectivity and data fusion to levels never done before, all of which will create the most complete picture of these incoming threats, as I just spoke about a minute ago. In addition, we also continue to advance our 21st century security solution through collaboration with strategic commercial partners across the tech, telecom, microprocessor, and other industries to support the national economy. Citing just one example, we announced Lockheed Martin will work with Intel to support the Simulated Transition for Advanced Microelectronics Packaging, or STAMP, program for the Office of the Undersecretary of Defense for Research and Engineering.

Jim Jaye: Last week, the missile Defense agency, our MDA selected Lockheed Martin to deliver the new homeland missile defense capability for the United States, which is call. It the next generation interceptor and Gi.

Jim Jaye: As the Mbas and Gi Prime contractor Lockheed Martin will provide the most modern reliable and technically advanced interceptor and the history of this system.

Jim Jaye: This program was a one <unk> our digital transformation.

Jim Jaye: <unk> digital program, meaning we embraced model based engineering digital tools processes and technologies from the very very started this program.

Jim Jaye: Now as it continues on its path of the critical design review integration with broader weapons system and flight tests I am proud of the Lockheed Martin team that enabled all of this we were we were mdas early down select before it was even on their schedule because we're so far in front to get this essential homeland defense capability after a <unk>.

Jim Jaye: Fast start.

Jim Jaye: Earlier this quarter.

Jim Jaye: The long range discrimination radar our LR, Dr completed final acceptance and was officially hand it over to the missile Defense agency in preparation for an operational capability baseline decision and what that means is final transitioned to active service for that radar to help defend the country.

James D. Taiclet: This CHIPS Act-related collaboration will provide a revolutionary leap in defense systems capabilities using high-performance, U.S.-built semiconductors, and over the next 18 months, will integrate our latest sensor open system architecture technology with Intel semiconductors with the intent to ultimately implement, test, and complete production through the U.S. Navy's Lockheed Martin MH-60 Romeo helicopter program. I'll now turn it over to Jay for award highlights and some additional commentary on Jay?

Jim Jaye: <unk> is a cutting edge national asset, providing the benefits of both low and high frequency radars to search track and discriminate incoming missiles.

Jim Jaye: With an open system approach, enabling the customer to add incremental capabilities such as hypersonic defense. This is located up in Alaska.

Jim Jaye: Prime location.

Jay: Thanks, Jim. I'll cover the consolidated results and touch on some additional highlights before handing it off to Maria, who will discuss the quarterly finances by business area, and then I'll come back to discuss the outlook and close out the remarks. Starting with chart four, we had a strong start to the year. First quarter sales of $17.2 billion increased 14% year over year, led by MFC and RMS.

Jim Jaye: We can sense early what any attack might look like and respond to it but that really does those create an elevated deterrence to any kind of attack like that so it's really great to have <unk> about ready to go online.

Jim Jaye: Now both <unk> and <unk> will be critical elements will then the overall homeland defense mission.

Jim Jaye: And theyre going to be integrated into the broader defense architecture with a battle management system, We call command control Battle management and communications.

Jim Jaye: Or is that military calls it <unk> so.

Jim Jaye: That's the system, that's going to be used to integrate our radars missiles and allow us to defend the country and.

Jim Jaye: In April at Lockheed Martin was selected for a potential 10 year $4 billion follow on <unk> next generation contract with the MDA, demonstrating again, our leadership position and Battle management systems for Homeland Defense.

Jim Jaye: Under this contract will continue to modernize and expand the system's capabilities to enhance global integration improved space domain awareness and optimized sensor connectivity and data fusion to levels never done before all of which will create the most complete picture of these incoming threats as I just spoke about a minute ago.

Jim Jaye: Separately, we also continue to advance our 20 <unk> century security solution through collaboration with strategic commercial partners across the Tech Telecom microprocessor and other industries to support the National Defense.

Jim Jaye: Citing just one example, we announced Lockheed Martin will work with Intel to support the simulated transition for advanced micro loan microelectronics packaging or staff program for the office of the under Secretary of Defense for Research and Engineering. This chips Act related collaboration will provide a revolutionary.

Jay: Book-to-bill in the first quarter was just below 1. Notably, Space booked several large national security orders in the quarter, including the SDA tracking layer and other significant classified awards, contributing to a book-to-bill ratio of 1.8 and a record backlog of $33 billion at Space. We generated $1.3 billion of free cash flow in the quarter after investing $360 million in research and development and $380 million in capital expenditures. Share repurchases were $1 billion, and we returned $780 million through our dividend. Shifting over to additional highlights in the quarter, we are pleased with the progress we are making on the F-16 program. The first three F-16 Block 70 jets were ferried from Greenville, South Carolina, to Bahrain in March.

Jim Jaye: Leap in defense systems capabilities using high performance use bill semiconductors.

Over the next 18 months.

Jim Jaye: We will integrate our latest sensor open system architecture technology with Intel semiconductors with the intent to ultimately implement test and complete production through the U S. Navy's Lockheed Martin MH 60 Romeo helicopter program.

Jim Jaye: I'll now turn it over to Jay for warrant highlights and some additional commentary on our financial results. Okay. Thanks, Jim I'll cover the consolidated results and touch on some additional highlights before handing it off to Maria who will discuss the quarterly financials by business area, and then I'll come back to discuss the outlook and close out the remarks.

Jesus Malave: Starting with chart four we had a strong start to the year first quarter sales of $17 2 billion increased 14% year over year led by MFC and Rms.

Jay: To date, Lockheed Martin has produced five F-16 Block 70 jets for Bahrain, with an additional eleven in various stages of production and testing. We also presented the first two F-16 Block 70 aircraft to Slovakia's Deputy Prime Minister and Minister of Defense, underscoring the deepening partnership between the two countries. In addition, the State Department notified Congress of authorization of the sale of 40 F-16s and related upgrades and support to Turkey. The latest deal builds on our long relationship and history with the Turkish Air Force.

Jesus Malave: While the results benefited from an extra calendar week compared to 2023 normalized year over year sales growth was a solid 5%.

Jesus Malave: We saw strong labor and material throughput indicative of an improving supply chain.

Jesus Malave: Segment operating profit of $1 $7 billion was up 4% year over year with margins of 10, 1% in.

Jay: We are confident the F-16 Block 70 and Viper upgrade package provide advanced 21st century security capabilities with affordable operating and life cycle costs for Turkey. We also continue to upgrade our weapons systems for longer-range standoff capability. In February, the extended-range ER variant of the GMLR-S Guided Multiple Launch Rocket System achieved success in its first operational test. The U.S. Army fired two Unitary Warhead ER-GMLRS variants with a HIMARS launcher, demonstrating precision and advancing this capability closer to production.

Jesus Malave: And included the anticipated $100 million reach forward loss associated with the classified missile program at MFC.

Jesus Malave: Excluding this charge Lockheed Martin segment margins were 10, 7%.

Jesus Malave: Primarily reflecting year over year lower profit adjustments.

Jesus Malave: GAAP earnings per share of $6 39.

We're down 3% as year over year benefits from higher profit and lower share count were more than offset by higher interest expense lower pension income and mark to market gains.

Jesus Malave: We generated $1 3 billion of free cash flow in the quarter after investing $360 million in research and development and $380 million and capital expenditures.

Jay: We have demonstrated successful all-around, end-to-end performance on multiple occasions. ARRW provides the U.S. with the earliest air-launched, fully qualified production-ready supersonic solution and hypersonic solution. And Lockheed Martin is prepared to quickly deliver additional tactical, operational, and leave-behind hypersonic strike assets that can be rapidly deployed to the U.S. military. We also continue to advance hypersonic strike capability in the land and sea domains through the long-range hypersonic weapon and conventional prompt strike program.

Jesus Malave: Share repurchases were $1 billion, and we returned $780 million through our dividend.

Jesus Malave: Shifting over to additional highlights in the quarter. We're pleased with the progress we're making on the F. 16 program. The first three F 16 block 70 Jets ferry from Greenville, South Carolina to Bahrain in March to.

Jesus Malave: To date Lockheed Martin has produced five F 16 blocks 70 jets for Bahrain with additional 11 in various stages of production and testing.

Jesus Malave: We also presented the first two F 16 blocks 70 aircrafts to Slovakia, as Deputy Prime Minister and Minister of Defense Underscoring the deepening partnership between the two countries.

Jesus Malave: In addition, the state Department notified Congress of authorization of the sale of 40 F sixteens and related upgrades and support to trachea.

Jesus Malave: The latest deal builds on our long relationship and history with Turkish Air Force.

Jesus Malave: We are confident the F 16 blocks 70, and Viper upgrade package provide advanced 20, <unk> century security capabilities with affordable operating and lifecycle cost for trachea.

Jesus Malave: U S Army filed fire too unitary warhead, <unk> variance with a high <unk> launcher, demonstrating precision and advancing this capability closer to production.

Maria: Today I will discuss first quarter year-over-year results for the business, starting with aeronautics and chart. First quarter sales at Arrow were over $6.8 billion, up 9% year over year, and that's 1% normalized for the extra week. The increase was primarily due to higher volumes across F-35s. The Bulletproof Executive 2013, Segment operating profit is comparable year-over-year, with higher volume being offset by lower-margin development contracts.

Jesus Malave: The U S Army almost so awarded Lockheed Martin the fourth production contract for early operating capability precision strike missiles known as prism.

Jesus Malave: This award will allow for a significant increase in production quantities to meet army demand for long range surface to surface missiles.

Jesus Malave: And the hypersonic.

Jesus Malave: Following the recent end to end flight test, we completed the test program of the Air launched rapid response weapon or <unk> with full confidence and its revolutionary capabilities.

Maria: Aeronautics backlog remains at a healthy $57 billion, which includes 373 F-35s, 80 C-130Js, and 132 F-35s. The Bulletproof Executive 2013, Turning to Missiles and Fire Control, Sales increased 25% from the prior year, 16% normalized for the extra week, driven by production ramps on tactical and strike missile programs, primarily GMLRS, HIMARS, and JASMINE Integrated Air and Missile Defense also saw higher volume on PAC-3. However, as expected, segment operating profit decreased 18% year-over-year, primarily due to the $100 million loss on the classified program Jay mentioned previously.

Jesus Malave: We have demonstrated successful all up around end to end performance on multiple occasions.

Jesus Malave: <unk> provides the U S with the earliest air launch.

Jesus Malave: We also continued to advance hypersonic straight strike capability and the land and sea domains through the long range hypersonic weapon and conventional prompt strike programs.

Jesus Malave: Both solutions have a full year milestones ahead, as we progress towards operational capability.

Jesus Malave: Shifting the integrated air and missile Defense Arena, the aegis weapon system successfully executed one of the most complicated ballistic missile defense test in the first quarter when the system tracked and intercepted a medium range ballistic missile amidst multiple decoys.

Maria: Normalizing for the loss, MFC's margins would have been 13.7%. Now, I'd like to provide a quick update on our annual production capacity plans for key programs. PAC-3 is currently at 500, growing to 550 in 2025, and GMLRS currently is at $10,000, growing to 14,000 by 2020. Jazm L'Rasm is currently at about, growing to 1,100 by 2020, and Highmars is currently at 72, growing to 90. Shifting to Rotary Emission Systems, I'm, Sales increased 16% in the quarter, 8% normalized for the extra year, driven by higher volume across the entire portfolio, including radar and laser programs within integrated warfare, various programs within C6ISR, and the CH53K and CHOC programs. Operating profit increased 23% due to higher volume and favorable, Partially offset by lower.

Jesus Malave: The test employ the latest updates to the system and demonstrates the reliability of aegis to operate in a dynamic threat environment.

Okay. Thanks, Jay today, I will discuss first quarter year over year results for the business areas, starting with Aeronautics and chart five.

Maria Ricciardone Lee: First quarter sales at <unk> were over $6 8 million up 9% year over year, and that's 1% normalized for the extra week in 2020 for the.

Maria Ricciardone Lee: The increase was primarily due to higher volumes across F 35, and Skunk works and the continued production ramp on the F 16 program.

Maria Ricciardone Lee: Segment operating profit is comparable year over year with higher volume being offset by lower margin development contract mix and lower net profit adjustments mainly on the F 35.

Maria Ricciardone Lee: Aeronautics backlog remains at a healthy $57 billion, which includes 373 F 30, fives ADC $1 30 days and 132 F sixteens supporting growth into 2025 and beyond.

Maria: Finally, with space on chart eight, sales increased 10% year-over-year, 2% normalized for the extra week, to approximately $3.3 billion. The growth was driven by higher volume on the Fleet Ballistic Missile Program and ramp-ups on hypersonic and next-generation interceptor programs within strategic and missile systems, as well as higher volume on space development agency transport and tracking layer within the National Space Development Agency. Operating profit increased 16% compared to Q1 2023, driven by higher volume in ULA equity. Partially offset by a lower Net Profit Adjustment, primarily on the NextGen OPI. Now I'll turn it back to Jay to wrap. Thanks, Maria.

Maria Ricciardone Lee: Turning to missiles and fire control on chart six sales increased 25% from the prior year, 16% normalized for the extra week driven by production ramps on tactical and strike missile programs, primarily GNL Rs, Hi, Mars and Jonathan the RASM integrated Air and missile defense.

Maria Ricciardone Lee: We also saw higher volume on <unk> III and <unk>.

Maria Ricciardone Lee: As expected segment operating profit decreased 18% year over year, primarily due to the $100 million loss on the classified program K mentioned previously.

Maria Ricciardone Lee: Normalizing for the loss Mt's margins would have been 13, 7%.

Maria Ricciardone Lee: Now I'd like to provide a quick update on our annual production capacity plans for key programs.

Maria Ricciardone Lee: <unk> III is currently at 500 missiles growing to 550 in 2025 and $6 50 by 2007.

Maria Ricciardone Lee: GNL Rs currently is at 10000 missiles growing to 14000 by 2025.

Maria Ricciardone Lee: <unk> RASM currently at about 650 missiles growing Q1100 by 2026 and Highmark currently at 72 launchers growing too.

Maria Ricciardone Lee: <unk> 96 next year.

Maria Ricciardone Lee: Shifting shifting Q rotary and mission systems insurance Senate.

Maria Ricciardone Lee: Sales increased 16% in the quarter, 8% normalized for the extra week, driven by higher volume across the entire portfolio, including radar and laser programs within integrated warfare systems and sensors various programs within <unk> ISR and the CH 53, K and seahawk programs within <unk>.

Jay: While the dividend, along with the expected $4 billion of share repurchases, support our return to shareholders, targeting a mid-single digit free cash flow per share growth over the longer term. All right, to close out and summarize on Chart 10, we're off to a solid start in 2024 and remain laser focused on execution on our customer and programmatic commitments while building momentum towards delivering our full year guidance. Through our OneLMx transformation, we are re-engineering our internal processes by providing the automations and capabilities needed to drive efficiency, increase velocity, and enhance key captures and programming.

Maria Ricciardone Lee: Ski.

Maria Ricciardone Lee: Operating profit increased 23% due to higher volume and favorable contract mix, partially offset by lower profit adjustments.

Maria Ricciardone Lee: Finally with space on chart eight.

Maria Ricciardone Lee: Sales increased 10% year over year, 2% normalized for the extra week to approximately $3 3 billion.

Maria Ricciardone Lee: <unk> growth was driven by higher volume on the fleet ballistic missile program and ramp ups on hypersonic and next generation interceptor programs within strategic and missile defense as well as higher volume on space Development Agency transport and tracking layer programs within National security space.

Jay: One LMX will enable us to combine the depth and breadth of our portfolio with the expertise and dedication of our people to drive 21st century security solutions for our customers and continue to create value for our shareholders. With that, Lois, let's open up the call to questions. Thank you, and if you wish to ask a question, please press 1 then 0 on your touchtone phone. You will hear an annunciator indicating that you've been placed in the queue..., and you may remove yourself from the queue at any time by pressing the 1, 0 again. This could be the speaker phone or Bluetooth.

Maria Ricciardone Lee: Operating profit increased 16% compared to Q1 2023, driven by higher volume and <unk> equity earnings partially offset by lower net profit adjustments primarily on the Nextgen <unk> program now I will turn it back to Jay to wrap up our prepared remarks, thanks, Maria let's turn to the outlook on <unk>.

Jesus Malave: Nine are expectations for Lockheed Martin's 2024 financial outlook remain unchanged from what we said in January with a strong first quarter results positioning us well to achieve the consolidated full year outlook. We continue to expect free cash flow to be in the range of $6 to $6 3 billion.

Operator: Please pick up your handset before pressing the number. Once again, if you have a question, please press one then zero at this time. Our first question is from the line of Doug Harned from Bernstein. Please go ahead.

Jesus Malave: Including over $3 billion of.

Jesus Malave: Of independent research and development and capital investments, while the dividend along with the expected 4 billion of share repurchases support our return to shareholders targeting a mid single digit free cash flow per share growth over the longer term.

Douglas Stuart Harned: Great. Thank you. Good morning.

Operator: Morning. I'd like to start to make sure we have a good understanding of the F-35 right now with TR-3. As you said, the Air Force has talked about this as well, and it looks like that timeline's moved back to some point in Q3. And there's just been a great deal of slippage in the timeline over the last few years. Block 4 has been delayed, and the new budget has cut deliveries in 2025 and 2026 ostensibly to avoid having to do later Block 4 upgrades.

Jesus Malave: Right the closeout and summarize on chart 10, we're off to a solid start in 2024 and remain laser focused on execution to our customer and programmatic commitments, while building momentum towards delivering our full year guidance.

Jesus Malave: Through our one <unk> transformation, we are reengineering, our internal processes by providing the automation and capabilities needed to drive efficiency increased velocity and enhanced key captures and programs one ela Max will enable us to combine the depth and breadth of our portfolio with the expertise and dedication.

Operator: Now, you've been able to keep production and revenues up, although deliveries and cash payments are off, but how can we get confident in the trajectory? And perhaps, Jim, maybe you could talk about what a positive or, you know, more negative scenario might look like for production and deliveries over the next two years and what it would mean for the revenue and cash trajectory. Sure, Doug.

Jesus Malave: Of our people to drive 20, <unk> century security solutions for our customers.

Jesus Malave: And continue to create value for our shareholders without lowest let's open up the call for Q&A.

Thank you and if you wish to ask a question. Please press the London zero on your Touchtone phone.

Speaker Change: Yeah, and announce data, indicating that <unk> been placed into queue and you may remove yourself from queue at any time by person of one zero again.

James D. Taiclet: So... I think it's important to understand that we're doing, as I said earlier, concurrent development and production, and then advancing the sustainment capability as well, all at the same time. Uh, most of these... Complex programs go through a period of development and then a production run, largely off of that Designed Base, or that Engineered Base, of what the aircraft's supposed to look like and how it's going to perform

Speaker Change: Speaker phone or Bluetooth please.

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

Speaker Change: Our first question is from the line of Doug Harned from Bernstein. Please go ahead.

Douglas Stuart Harned: Great. Thank you and good morning, good morning.

Douglas Stuart Harned: I'd like to start to make sure we have a good understanding of the F 35, right now with <unk>.

James D. Taiclet: The F-35 is different in the sense that development's been going on since the day the program started years and years ago, and it's going on today. Now, the good news about that is you have step function increases in capability every few years. And as a result of the F-35's capacity to do that, the government just came out and extended the expected service life of the aircraft another decade or two, I think it was.

Block four has been delayed in the new budget is cut deliveries in 2025, and 26 extensively to avoid having to do later block for upgrades.

I mean, you've been able to keep production and revenues up although deliveries and cash.

Douglas Stuart Harned: Payments are off but.

Douglas Stuart Harned: How can we get confident in the trajectory and perhaps.

Douglas Stuart Harned: Jim maybe you could talk about what a positive or more negative scenario might look like for our production and deliveries over the next two years.

James D. Taiclet: So this is a good thing, but it's also an extremely difficult thing to do, and even to predict the schedule, right? It's our responsibility to hold cost and schedule, but we're. We don't control all the variables, let me just say, and that's okay. We're still the OEM; we're still responsible. And so what we've run into on TR3 is just a level of complexity, and executing the step function increase, uh... that's pretty, I'd say, novel or dramatic.

Jim Jaye: What it would mean for the revenue and cash trajectory.

Jim Jaye: Sure Doug so.

I think it's important to understand that we're doing as I said earlier concurrent development and production.

Jim Jaye: And then advancing the Sustainment Cape.

Capability as well all at the same time.

Jim Jaye: Most of these.

Jim Jaye: Complex programs go through a period of development and then production run largely off of that.

James D. Taiclet: What the team is doing at our company is integrating a series of, you know, components, devices, software, and managing and integrating all of that. And so what's happening now is we are running all the software through all of the new hardware and integrating it into all the aircraft's other systems. And that's taken longer than our team predicts. The way we're gonna get at that is if you think of it as a release one and a release two, and we've got a lot of confidence in this stage, Doug.

Jim Jaye: Design base or that engineered base of what the aircraft's post to look like and how it is going to perform.

The F 35 is different in a sense that development has been going on since the day of the program started years and years ago and it's going on today now the good news about that is you have step function increases in capability.

Jim Jaye: Every few years.

Jim Jaye: And as a result of the F 30, fives capacity to do that.

James D. Taiclet: Release one, if you think of it that way, is what we're calling, along with the US government, you know, a combat training capable aircraft. Meaning, We can get these jets in the hands of squadron, wing, and regional commanders so that they can start training their pilots on them, and training their maintenance organizations, and also getting their bases and infrastructure, spare parts pools, and everything else sort of in operational shape, if you Once we get the final software load for the fully combat-capable version of TR-3 sometime in the next few months, then those aircraft could be deployed into actual combat operations, and you'll have the training, the maintenance, the ringing out, the Operational, patterns, and procedures on how to actually fly the jet in combat.

Jim Jaye: The government just came out and extended the expected service life of the aircraft another decade or two I think it was so.

Jim Jaye: So this is a good thing, but it's also extremely difficult thing to do and even to predict schedule right. It's our responsibility to hold cost and schedule.

But we are.

We don't control all the variables, let me just say and Thats. Okay were still OEM were still responsible and so what we've run into on tier three is just the level of complexity.

Jim Jaye: And executing a step function increase.

Jim Jaye: That's pretty.

Jim Jaye: I would say novel are dramatic.

Jim Jaye: What the team is doing at our company is we're integrating.

Jim Jaye: Series of.

Jim Jaye: Components devices software and.

Jim Jaye: In managing and integrating all of that and so what's happening now is we're wringing out all of the.

Jim Jaye: Software through all of the new hardware.

Jim Jaye: And integrating it into all of the aircraft assists us other systems and that's taken longer than our team predicted.

Jim Jaye: The way, we're going to get at that is if you think of it as a released one in our release too and we've got a lot of confidence in this stage Doug.

Jim Jaye: Release, one if you can think of it that way is what we're calling.

Jay: As Jim mentioned, this combat training capability and configuration support the training of the squadron, standing up to new squadrons, and decreasing the amount of time the aircraft are parked. What that does is really avoid any type of significant disruption. And so what this does is really keep our production on track here in 2024 and beyond as well. As Jim mentioned, in 2025, we'll have further capability inserted, and we'll actually start delivering and deploying Block IV type capability as well. And you may have heard your reference comments made by the U.S. military, and they discussed a Block IV reimagined.

Jim Jaye: Along with the U S government.

Jim Jaye: Combat training capable aircraft, meaning.

Jim Jaye: We can get these jets in the hands of squadron wing and.

Jim Jaye: Regional commanders, so that they can start training their pilots on them.

Jim Jaye: And training their maintenance organizations and also getting their bases and infrastructure.

Jim Jaye: Spare parts pools, and everything else sort of.

Jim Jaye: In operational shape, if you will.

Once we get the final software load for the fully combat capable version of tier three.

Jim Jaye: Sometime in the next few months.

Jim Jaye: Then those aircrafts could be deployed into actual combat operations and youll have to training the maintenance.

Jim Jaye: Wringing out the.

The operational.

Patterns and procedures on how to actually fly the jet and combat so we'd like to be able to do it sooner, but this is the schedule. We're on and I would say for the combat training cable aircraft. We're highly confident based on the test results. So far that those will be deliverable in the third quarter.

Jay: And what that would entail is an insertion schedule that's really tied to an executable plan that can be provided by industry so we can avoid these types of disruptions. And so when you look at it in the short term, could there be pressure on the lot 15 through 17 contract profitability and potential movement around in cash flow? Yes, but in the longer term and in the medium term, I think we're working in coordination with our customer to make sure that we can deliver the capabilities the customer wants, but on an executable schedule. And if we're able to do that, then we should be able to keep the program on track from a production point of view. Thank you. The next question is from Peter Strauss from Barclays. Please go ahead. Good morning.

Jim Jaye: Jay you want to say anything else about cash flow and yes sure Doug I'll just I'll just add you know as Jim mentioned this combat training capable capability and configuration.

Jesus Malave: As Jim mentioned supports the training of the squadron standing up the new squadrons.

Jesus Malave: And decreasing the amount of time of aircrafts are parked all of that what that does is really avoids any type of significant disruption and so what this does is really keep our production on track here in 2024 and beyond as well as Jim mentioned in 2025, we'll have.

Jesus Malave: Further capability inserted and we'll actually start delivering inserting block four type of capability as well and you may have heard you referenced comments made.

Jesus Malave: From the U S military.

Jesus Malave: <unk>.

Our block four re imagined and what that would entail as an insertion schedule, that's really tied to be.

Jesus Malave: We executed the plan that can be provided by industry. So we can avoid these types of disruptions and so when you look at it in the short term could there be pressure on the last 15 to 17 contract profitability and potential movement around in cash flow, yes, but I think over the longer term and the medium term I think we're working in coordination with our cost.

<unk> to make sure that we can deliver the capabilities the customer wants to put on an executable schedule and if we're able to do that and we should be able to keep the program on track from a production standpoint.

Jesus Malave: Thank you. Our next question is from Peter <unk> from Barclays. Please go ahead.

Peter: Thanks, David Good morning, exactly yes.

Peter: Good morning, David Good morning, Thanks for taking the question.

Peter: So since since Q4.

Peter: We have a we have a 24 budget looks like we're going to get a very large supplemental you won in Gi.

Peter: How might all of those things together.

Peter: Teams, how youre thinking about where you kind of fall in.

Peter: The revenue guide this year and the potential for.

Peter: Revenue growth in 'twenty five to accelerate kind of office this low single digit level.

Peter: David.

Peter: As we mentioned in this quarter, we started off pretty solid just on an apples to apples basis, 5% growth in the first quarter lines up pretty well with our mid point guidance range, which is two to two 5% and the high end of that range being say around three 5%. So we are well positioned to to deliver on that expectation.

Peter: It is possible similar to last year that we could see some upside towards the higher end of the sales guide range there. So.

Peter: Again really good start to that enables that as we think about 2025, what you saw in the budget. What we're seeing here in the supplemental gives us higher confidence that will continue to grow we talked about our growth.

Peter J. Arment: Yeah, thanks. Good morning, Jim and Jay. On missiles and fire control, can you talk maybe about the confidence in your margin guidance for the year? Just given that the 1Q margin performance was certainly the lowest that we've seen in many years, and we know the classified losses, The Bulletproof Executive 2013 call that all the production increases. You know, do the losses just get, you know, smaller in the classified? Are we going to see some offsets just because of the higher volume? Maybe you just give more color on kind of your expectations for the margin performance, you know, profile. Sure, Peter.

Peter: Starting in 2023, a year earlier than we had originally anticipated accelerating in 2024 and is giving us more confidence that we'll see at least the same if not more growth in 2025, we will give you.

Peter: Later in the year, we will give you a much better update in terms of what we're seeing right now all of this bodes well to our sustained growth in terms of what we've been driving to not only in 25 or beyond 25 as well.

Speaker Change: And the next question.

Speaker Change: The next question is from the line of Peter Arment from Baird. Please go ahead.

Peter J. Arment: Yeah. Thanks, Good morning, Jim Jaye.

Peter J. Arment: P J.

Jay: MFC was a little light because of two factors. First, as we mentioned, we did have the $100 million loss provision that we recorded. In addition to that, their profit adjustments were lighter year over year by about $20 million. And so that's really a function of calendarization. We'll see profit adjustments throughout the rest of the year improve, and so get us back to what we had hoped for. Just as a reminder, we're anticipating, and that was fully anticipated in our guidance for MFC, that we would have additional or could have additional losses in the back half of the year associated with this classified program. And so, you know, what our guidance implies from where we are today, we've recorded $100 million.

Peter J. Arment: Missiles and fire control can you talk maybe about the confidence in your margins margin guidance for the year just given the <unk> margin performance was certainly the lowest that we've seen in many years and we know the classified losses are supposed to expected to continue but you've got kind of this inflicting topline I think called out all the production increases and just.

Peter J. Arment: Due to the losses, just get smaller in the classified or we're going to see some some offsets just because of the higher volume maybe you could just give more color on kind of your expectations on the margin performance profile going forward. Thanks sure. Peter MFC was a little light because of two factors first as we mentioned we did have the $100 million.

Peter J. Arment: Loss provision that we recorded in addition to that there the profit adjustments were lighter.

Peter J. Arment: Year over year by about $20 million and so that's a function really of calendar <unk> calendar <unk>.

Speaker Change: We'll see profit adjustments throughout.

Peter J. Arment: Throughout the rest of the year improve and so getting us back to what we had guided to.

Peter J. Arment: As a reminder, we are anticipating.

Peter J. Arment: It's fully anticipated in our <unk>.

Jay: There's in the range of another $225 million in the back half of the year, which would be provided for in this expectation. Now going beyond that, you know, we've talked about this, and I'll just deal with the question up front in terms of can timing change, and it's possible that we could record additional losses here in 2024, depending on other factors as the year goes on. There are factors such as technical milestone achievement through the balance of the year, discussions with our customers, and visibility to funding.

Peter J. Arment: <unk> for MFC that we would have additional or could have additional losses in the back half of the year associated with this classified program and so on.

Peter J. Arment: Our guide would it implies.

Peter J. Arment: From where we are today, we recorded a $100 million is in the range of another $225 million in the back half of the year.

Peter J. Arment: That would be provided for in this expectation now going beyond that we've talked about this so I'll just deal with the question upfront in terms of can timing change and it's possible that we could record additional losses here in 2024, depending on other factors as the year goes on this factors such as <unk>.

Peter J. Arment: Technical milestone achievement through the through the balance of the year discussions with our customers visibility to funding.

Jay: So all of those factors go into the determination and whether you have to recognize a loss earlier. You'll see in our 10-Q that we've actually ranged the potential losses on this program, which would be in excess of, additional losses in excess of a billion dollars. So at least you can have an opportunity to size it, the timing of which is still to be determined.

Peter J. Arment: Visibility to funding so all of those factors go into the determination and whether you have to recognize a loss earlier.

Peter J. Arment: You'll see that coming.

Peter J. Arment: Coming out in our 10-Q that we've actually range the potential losses on this program, which would be in excess additional losses in excess of $1 billion. So at least you are going to have an opportunity to size it.

Peter J. Arment: <unk> of which is still to be determined and we've got about $225 million at least in embedded in our guide for the balance of the year.

Jay: We've got about $225 million, at least embedded in our guide for the balance of the year. Going back to MFC for the year, if you really take apart their expectation, the impact of this at $325 million of losses in the year anticipated, they're offsetting a fair amount of that in their guide. I mean, the impact of that is 270 basis points alone, and their total full-year guide is down about 210. And so you're seeing offsetting improvement within MFC. It's not entirely one for one, but their underlying performance has been solid, and we expect that to continue. And Peter, it's Jim.

Peter J. Arment: Going back to MFC for the year, if you really take apart their expectation.

Peter J. Arment: The impact of $325 million of losses in the year anticipated there.

Are there offsetting a fair amount of that in their guide I mean, the impact of that is 270 basis points alone and a total full year guide is down about 210, and so youre seeing offsetting improvement within MFC, it's not entirely one for one but their underlying performance has been solid and we expect that to continue.

Jim Jaye: And Peter it's Jim.

Jim Jaye: I used to fly these aircrafts for the SaaS and I can assure you that capability.

Jim Jaye: Being developed here at MFC in a classified program.

Jim Jaye: We will have very very long legs, theres going to be many.

Jim Jaye: Many years, we believe of orders to follow so yes for a quarter for the year, maybe for a couple of years, we're going to absorb the loss provisions that Jay described but I think if you look into the area under the curve.

Jim Jaye: The lifecycle is going to be significantly positive and so we want to get there as efficiently as we can.

James D. Taiclet: And so we want to get there as efficiently as we can. This is a long-run franchise program that I think the U.S. government is going to support for a very long time.

Jay: I think it's important to keep that in mind. You know, we spent a lot of time talking about the timing of losses and things like that and the magnitude of it. But we also spent a lot of time internally going through just where we are in the progress of the program, as well as the business case. And I can assure you the business case is accretive, to it above our cost of capital. And, as Jim mentioned, it's gonna provide strong returns for many years. Our next question is from Matt Akers from Wells Fargo. Please go ahead. Yeah, hey guys. Good morning.

Jim Jaye: But we also spend a lot of time internally going through just where we are in the progress of the program as well as the business case and I can assure you the business cases accretive.

Jim Jaye: Two it above our cost of capital and as Jim mentioned is going to provide strong returns for many years to come.

Jim Jaye: Our next question is from Matt Akers from Wells Fargo. Please go ahead.

Yeah, Hey, guys. Good morning, Thanks for the good morning, I wanted to ask a couple on the Nextgen intercept there when I guess, one just how you were.

Matthew Carl Akers: Thanks for the question. I want to ask a couple on the next gen Interceptor win. I guess, you know, one, just how you were able to win, I think, ahead of when the original downflect was expected.

Matthew Carl Akers: We're able to win I think ahead of when the original downplay.

James D. Taiclet: And also, you know, whenever there's sort of a big contract like this, we always get questions on, you know, potential charges because we've seen some of that happen in the industry. So just your confidence that you've got the cost there sort of sized correctly. So the company made a bet about three years ago to say, OK, we've got a digital transformation program that is going to take the whole company to this model-based engineering system.

Matthew Carl Akers: As expected then also whenever there is sort of a big contract like that so we always get questions on potential charges, because we've seen some of that happening in the industry. So just your confidence that you've got the costs there sort of sized correctly.

Matthew Carl Akers: So.

Matthew Carl Akers: The company made a better about three years ago to say, Okay. We've got a digital transformation program.

James D. Taiclet: And that's all the way from requirements acceptance from the government to sustainment years and years down the road. And we've scoped this before. It's about a $6 billion, 8- to 10-year program to convert the entire company, to a model-based engineering production and sustainment operation. NGI was one of the Pathfinder programs, uh... picked to implement this because there's no legacy to convert right there's no old blueprints to try to figure out how to make three-dimensional which is something by the way we are doing for C130 and other programs right now but we could get off to the fast start on NGI because it was in this born digital category right from the proposal we were using these digital technologies you know 3D, CAD and everything else uh... and sharing data with the government in that fashion and they were able to receive it and we could thereby accelerate the schedule and contain the cost uh... of the development and ultimately the production too by using these tools, There were three original players in this. One dropped out fairly early.

Matthew Carl Akers: And we've scoped this before it's about a $6 billion eight to 10 year program to convert the entire company.

Matthew Carl Akers: To a model based engineering production and Sustainment operation.

Matthew Carl Akers: And Gi was one of the Pathfinder programs.

Matthew Carl Akers: Gory right from the proposal we were using these digital technologies, <unk>, CAD and everything else and.

Matthew Carl Akers: And sharing data with the government in that fashion and they were able to receive it.

Matthew Carl Akers: And we can therefore, thereby accelerate the schedule and contain the cost.

The development and ultimately the production too by using these tools.

Matthew Carl Akers: Yeah.

Matthew Carl Akers: There were three original players in this one dropped out fairly early.

James D. Taiclet: The second was in kind of this final phase, if you will, of down-selecting. And we were just ready to go, and provided our proposal ahead of schedule. The other player, to my knowledge, also provided a proposal, and then the government was able to make a decision based on that. But I think because of our speed and our ability to demonstrate, you know, manageable costs over time, we won, and kind of won early, if you will.

Matthew Carl Akers: The second was in kind of this final phase if you will a down select.

Matthew Carl Akers: And we were just ready to go and provided our proposal ahead of schedule.

Matthew Carl Akers: The other player has to my knowledge provided a proposal also.

Matthew Carl Akers: And then the government was able to make a decision based on that but I think because of our speed and our ability to demonstrate a manageable cost over time.

Matthew Carl Akers: We won in kind of one early if you will.

Jay: I'll let Jay talk more about the finances, but what I can assure you is the process of this bid did not require us to dive to the bottom on cost. So Jay, do you want to take it from there?

Matthew Carl Akers: I'll, let Jay talk more about financials, but.

What I can assure you is the process of this bid.

Matthew Carl Akers: Did not require us to dive to the bottom on costs. So Jay do you want to take it from there sure.

Jay: Sure. We're currently performing already under a contract, and that contract will continue. We've talked about this before. We completed a preliminary design review in September of 2023, and we're on track for critical design review in 2025, and under the current contract, as well as building test assets. As far as pricing and costs are concerned, you know, the current contract, because of development contracts, cost plus contract, it's a low margin, as you would expect, but nothing, again, abnormal.

Jesus Malave: We're currently performing already under contract and we have that.

Jesus Malave: That contract will continue we have talked about this before we've completed a preliminary design review in September of 2023, and we're on track for critical design review in 2025 and under the current under the current contract as well as building test assets. So that will just continue under this under this down select.

Jesus Malave: As far as pricing and cost the current contracted because of the development contracts cost plus contract. It's low margin as you would expect.

Jay: As far as future, you know, bidding that we provided for future types of contracts, there were various elements or different types of contract structures that the customer asked for. We provided those to the customer, none of which was based on aggressive pricing or bidding, as Jim mentioned.

Jesus Malave: But nothing abnormal as far as future.

Jesus Malave: Bidding that we provided for future types of contracts there were various elements or different types of contract structures the cut.

Jesus Malave: <unk> asked for we provided those to the customer none of which was based on aggressive pricing or bidding as Jim mentioned, we've talked about this in the past and we've taken a middle of the road approach to our pricing and this is no different.

Speaker Change: Thank you the next.

Speaker Change: <unk> is from Ron Epstein from Bank of America. Please go ahead.

Ronald Jay Epstein: Good morning, guys.

Ronald Jay Epstein: With FARA off the table, and it looks like the FLARA program has decent support, how are you thinking about the outlook for the vertical lift business? Where could we see some upside? What other competitions are out there?

Ronald Jay Epstein: Morning.

Ronald Jay Epstein: With with firearm off the table and it looks like.

Speaker Change: The Florida program.

Ronald Jay Epstein: To support how do you how are you thinking about the outlook for the vertical lift business.

Where could we see some upside.

Ronald Jay Epstein: Other competitions Youre out there.

James D. Taiclet: Yeah, absolutely. Thank you. So, you know, Ron, this is Jim here.

Ronald Jay Epstein: How should we think about that.

Ronald Jay Epstein: So.

James D. Taiclet: As we kind of roll into the 21st century, what our company is trying to do is not just look at things through the programmatic lens, or I'll call it a vertical kind of column, but also horizontally through the actual mission and figure out what technologies can accomplish the mission that will enable our core basic platforms to be successful as well. And that's how we're looking at the rotary business. It isn't just at Sikorsky anymore.

Ronald Jay Epstein: Brian This is Jim here.

Jim Jaye: As we kind of roll into the 20 <unk> century.

Jim Jaye: The company is trying to do is not just look at things through the programmatic lens or the I'll call. It vertical kind of column, but also through horizontally through the actual mission and figure out what technologies can accomplish the mission.

Jim Jaye: That will enable our core basic platforms to be successful as well and that's how we're looking at it.

Jim Jaye: Rotary business.

Jim Jaye: Is not just as Sikorsky anymore. It is Sikorsky plus all of Lockheed Martin right and Thats one of the reasons, we're able to work with U S. Army Congress in the broader U S government to increase support for let's say Blackhawk for example.

Jim Jaye: In spite of the fact that pharma has been cancelled and there is a another vertical lift program.

Jim Jaye: Our form of flora, which is going to be a tilt rotor. So their missions that the blackhawk will be extremely well suited for.

Jim Jaye: In the rotary lower it's really the lower air demand, it's not just for rotorcraft. So how do we pair those rotorcraft, a traditional blackhawk, let's call. It by modernizing the black Hawk with digital technology to do what the Air Force would call CCA collaborative combat aircraft, meaning you can in the lower air domain.

James D. Taiclet: It's not just for rotorcraft. So how do we pair those rotorcraft, a traditional Blackhawk, let's call it, by modernizing the Blackhawk with digital technology to do what the Air Force would call CCA, Collaborative Combat Aircraft, meaning you can, in the lower air domain, tie drones and uncrewed aircraft to a Blackhawk using digital technology. And we've demonstrated that already.

Jim Jaye: Ty drones, and unmanned air and crude aircraft two of Blackhawk using digital technology, and we've demonstrated that already.

Jay: You can actually make the Blackhawk itself autonomous, with no pilots in it being flown from a command center to do high-risk missions. So we're looking at the mission and saying, what can we do all across Lockheed Martin, whether it's through sensor fusion, AI, 5G, or space-based sensor assets to make the Blackhawk, for example, a much longer-lived platform, a much more relevant platform, and actually a very efficient platform compared to, say, the Flora aircraft that won't be able to do some of the missions anyway?

Jim Jaye: You can actually make the Blackhawk itself autonomous with no pilots and it being flown from a command center to do high risk missions. So we're looking at the mission and saying what can we do all across Lockheed Martin whether it's through sensor fusion AI <unk>.

Jim Jaye: <unk> G space based.

Jim Jaye: Sensor assets to make the Blackhawk for example, a much longer life platform are much more relevant platform and actually a very efficient platform compared to say the <unk>.

Jim Jaye: Laura aircrafts.

Jay: So we have a strong confidence then in Sikorsky itself and the platforms that it does produce, and that includes the CH-53K, which I mentioned, and the Seahawk, which is a Black Hawk that's configured for maritime operations and is pretty high-tech as well. And so we feel really solid, as I think Jay said in his remarks, on Sikorsky's future with a backlog of 20 billion and the ability to modernize these really In production aircraft, to do new things with missions and digital technology and integrate with other parts of LM and our partners to make those platforms relevant in the future.

Jim Jaye: Be able to do some of the missions anyway. So we have a strong confidence then in Sikorsky itself and the platforms that it does produce.

Jim Jaye: And that includes CH, 53, K, which I mentioned.

Jim Jaye: The seahawk wishes of Blackhawk, that's configured for maritime operations that is pretty high tech as well and so we feel really solid as I think Jay said in his remarks.

Jim Jaye: On Sikorsky future with a backlog of $20 billion and the ability to modernize these really reliable.

Jim Jaye: In production aircraft to do new things with missions in digital technology, and other and integrate with other parts of <unk> and our partners to make those platforms relevant in the future. So I'll stop there Jay if anyone else wants sure just a couple of things as Jim mentioned, a stable outlook is the best way to describe it as Jim.

Jay: So I'll stop there. Jay, if there is anything else you want to say, Sure, just a couple of things, as Jim mentioned. A stable outlook is the best way to describe it. And as Jim mentioned, CH-53K is really the pillar.

Speaker Change: <unk> CH 50, <unk> really the pillar and those revenues between now and 2027 and 2020 are going to double and so while we will see declines in other programs such as combat rescue helicopter some declines on on Black Hawk and others. The CH 53, K will really offset all of those declines we do.

To go through a rebalance of rebound a little bit of a rebalance of the workforce because.

Speaker Change: The mix of development work versus production work is different than what we'd originally anticipated. So we'll go through that but I think the business as I mentioned will be is pretty stable.

Jay: But I think the business, as I mentioned, is pretty stable. We're also, as Jim mentioned, continuing to have dialogue and fair investments in Blackhawk modernization, which will maintain its relevancy, particularly in the JADC2 environment. And so, of course, you continue to see opportunities for not only the base missions that Blackhawk performs but other missions as well. Those discussions are ongoing with the Army to determine what would be the best fits for those.

We're also as Jim mentioned, a continue to have dialogue and just investments in black Hawk modernization, which will maintain its relevancy, particularly in the <unk> environment and so so of course, we continue to see opportunities for not only the base missions that blackhawk performs but other missions as well and those dialogue.

Our ongoing with with the army to determine what would be the best fits for those and so as I mentioned from a revenue standpoint over the next five years. It will actually go up over the next few years, a little bit come back down, but pretty much flat to where it is today.

Jay: And so, as I mentioned, from a revenue standpoint, over the next five years, it'll actually go up a little bit in the next few years, then come back down, but pretty much flat to where it is today.

Jay: And so stability, I think, is the best way to describe it. And our next question is from Rob Spingarn from Milius Research. Please go ahead. Thank you. Good morning.

Speaker Change: So stability I think is the best way to describe it.

Speaker Change: And our next question is from Rob Spingarn from Melius Research. Please go ahead.

Jim, putting the impact of TR3 to the side, on the last call, you underscored the importance of the supply chain in producing F-35s at a rate of 156. And one of the things that's made the F-35 program so well-supported by Congress and international countries is the breadth of this supply chain. But is the complexity and scale of the supply chain limiting the potential and affordability of the program? And on future fighter aircraft programs, whether it be NGAD or FAXX, might we expect Lockheed to do more of the work in-house, the production work in-house, when compared to the F-35? So it's a great topic, Rob.

Robert Michael Spingarn: Thank you and good morning.

Robert Michael Spingarn: Good morning.

Robert Michael Spingarn: If we put the impact of tier three to the side.

Robert Michael Spingarn: On the last call you underscored the importance of the supply chain in producing F 30, fives at a rate of 156.

Robert Michael Spingarn: One of the things that's made the F 35 program, so well supported by Congress.

Robert Michael Spingarn: And international countries as the breadth of the supply chain.

Robert Michael Spingarn: But as the complexity and scale of the supply chain limiting the potential and affordability of the program and on future fighter aircraft programs, whether it be and get our FAA Xx.

Robert Michael Spingarn: We expect Lockheed to do more of the work in house production work in house, when compared to a 35%.

Speaker Change: So it's a great topic, Rob and so let's start with the origination of the F. 35 program. It was intended as you said to be.

And so let's start with the origination of the F-35 program. It was intended, as you said, to be a wide-based attack. I think it was seven literally partners, essentially treaty partners that were going to all get together and contribute their industrial capacity and their finances. Page PAGE of NUMPAGES www.verbalink.com So yeah, we have a pretty broad supply chain. There were a couple of times when that got a little tough for the program. COVID was one of those.

Speaker Change: A wide based.

That's gotten a little tough for the program Covid was one of those so we had delayed deliveries out of the UK because the factories, there or an open although ours were so we will be mitigating any future programs that we have.

So we had delayed deliveries out of the UK because the factories there weren't open, although ours were. So we will be mitigating any future programs that we have. And we're eager to have international production and sustainment partners, and we're gonna expand that. But we're also going to apply some antifragility methodologies to those initiatives going forward. Now, no one really thought of COVID, of course, but now that we've had that example, we know we need to have second and maybe third sources, and geographic diversity would be a positive thing from that perspective.

Speaker Change: We are eager to have international production and Sustainment partners, and we're going to expand that but we're also going to apply.

Speaker Change: Some anti fragility methodologies to.

Speaker Change: Those initiatives going forward.

So we'll just be a little more broadly thoughtful about how we do this. Having single sources outside the US is probably not the best idea. There's an affordability issue around that too, so we're just gonna have to balance everything. So based on its origination and essentially the commitment of the countries to the program, we do have that sort of spread out supply chain with a couple of weak spots in it. Look, another weak spot, canopies, right? How hard is it to make a glass canopy?

Speaker Change: From that perspective, so we will just be a.

Speaker Change: Little more broadly thoughtful about how we do this having.

Speaker Change: Having single sources outside the U S is probably not the best idea, there's an affordability issue around that too. So we're just have to balance everything out so based on its origination and essentially the commitment of the countries to the program.

Speaker Change: Do have that sort of spread out supply chain.

Speaker Change: With a couple of weak spots in it.

Speaker Change: Another weak spots canopies right.

Well, with this kind of stress and the kind of precision that's needed and putting an F-35 can't be together versus an F-4, which I used to look out of a little bit. High complex, hard to produce, single source, one of the big degraders that we have, so again, we're going to learn from that whether it's a domestic or international supplier uh... going forward. In addition, as you pointed out, we are heavily insourcing when we can, and Lockheed Martin has the best technology.

Speaker Change: To make a glass canopy will with this kind of stress in the kind of.

Speaker Change: Precision that's needed and putting it on F 35 cannot be together versus enough for which I used to look out a little bit.

Speaker Change: Highly complex hard to produce single source one of the big Degraders that we have so again, we're going to learn from that whether it's domestic or international supplier.

Speaker Change: Going forward.

Speaker Change: In addition, as you pointed out.

Speaker Change: We are heavily.

We're looking hard at making sure that we can control as much of the supply chain that is feasible and reasonable based on whatever program it is. And so, for example, on. NGI, that was at MSC, Lockheed Martin Space Collaboration to make sure that the most critical sensor components that we could produce in the company effectively and efficiently were the ones that were selected. Okay, and so your topic is a really great one.

Speaker Change: And so for example on.

Speaker Change: And Gi that looks at MSC.

Lockheed Martin space collaboration to make sure that the most critical sensor components that we could produce in the company effectively and efficiently. We're the ones that were selected okay.

Speaker Change: So youre topic is really great one we intend to actually.

We intend to actually... further diversify our supply chain, but really based on this anti-fragility concept of having two or three sources, either different parts of the world, different companies, different logistical chains, things like that, where we won't run into some supply chain issues as much as we have on some prior programs, including the F-35.

Speaker Change: Geographically.

Speaker Change: Further diversify our supply.

Speaker Change: Jane but really based on this anti fragility concept of having two or three sources either different parts of the world different companies.

Speaker Change: <unk>.

Speaker Change: A logistical chains things like that.

We will run into some supply chain issues as much as we have on some prior programs, including F 35 offices.

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