Q2 2024 Lockheed Martin Corp Earnings Call
Now at this time for opening remarks and introductions.
I would like to turn the conference over to Maria to Don Vice President Treasurer, and Investor Relations. Please go ahead.
Maria: Thank you Louis and good morning, I'd like to welcome everyone to our second quarter 2024 earnings Conference call. Joining me today on the call are Jim <unk>, Our chairman, President and Chief Executive Officer, and Jay Malave, Our Chief Financial Officer.
Your conference will begin momentarily. Please continue to hold.
Speaker Change: Statements made in today's call that are not historical facts are considered forward looking statements and are made pursuant to the safe Harbor provisions of Federal Securities Law.
Speaker Change: Actual results may differ materially from those projected in the forward looking statements. Please see today's press release and our SEC filings for a description of some of the factors that may cause actual results to differ materially from those in the forward looking statements. We've posted charts on our website today that we plan to address during the call to supplement our comments. These.
[inaudible]
Speaker Change: <unk> 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.
Speaker Change: Good day and welcome everyone to the Lockheed Martin Second Quarter 2024 O&E Conference Call.
Speaker Change: Today's call is being recorded. If you would like to ask a question, please press 1 then 0 now. At this time, for opening remarks and introductions,
Jim: Thanks Maria Good morning, everyone. Thank you for joining us on our second quarter 2024 earnings call.
Speaker Change: I would like to turn the conference over to Maria Richard-Owen, Vice President, Treasurer and Investor Relations. Please go ahead.
Speaker Change: Over the past few months Lockheed Martin's people systems and platforms have again demonstrated their ability to enhance security and eastern Europe, the Red Sea and the middle East.
Maria Ricciardone Lee: Thank you, Lois, and good morning. I'd like to welcome everyone to our second quarter 2024 earnings conference call. Joining me today on the call are Jim Taiclet, our Chairman, President and Chief Executive Officer, and Jay Malave, our Chief Financial Officer.
Speaker Change: From a Pac threes critical role in air defense to the aegis combat system with AI augmentation.
Speaker Change: The F 35, with this advanced sensor and data management capabilities.
Speaker Change: Statements made in today's call that are not historical facts are considered forward-looking statements and are made pursuant to the safe harbor provisions of federal securities law.
Speaker Change: Our company has made major contributions to allied and partner defense.
Speaker Change: We continue to demonstrate the impact of our 21st century security strategy by harnessing the latest digital technologies to continuously improve mission effectiveness strengthening in scaling the defense production system.
Speaker Change: Actual results may differ materially from those projected in the forward-looking statements. Please see today's press release and our SEC filings for a description of some of the factors that may cause actual results to differ materially from those in the forward-looking statements.
Speaker Change: And expanding industrial cooperation among our allies and partners.
Speaker Change: We've posted charts on our website today that we plan to address during the call to supplement our comments.
Speaker Change: Consequently demand for our defense technology solutions remains robust.
James D. Taiclet: These charts also include information regarding non-GAAP measures that may be used in today's call. Please access our website at www.lockheedmartin.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.
Speaker Change: With a backlog of nearly $160 billion.
Speaker Change: Greater than two times, our annual revenue.
Speaker Change: Our strong performance so far in 2024 extends beyond glass backlog as well.
James D. Taiclet: Thanks, Maria. Good morning, everyone. Thank you for joining us on our second quarter 2024 earnings call.
Speaker Change: Giving us confidence to raise our 2020 for full year outlook for sales segment operating profit and EPS.
James D. Taiclet: Over the past few months, Lockheed Martin's people, systems, and platforms have again demonstrated their ability to enhance security in Eastern Europe , the Red Sea, and the Middle East.
Speaker Change: In the second quarter sales increased 9% year over year, and 5% sequentially and reflected growth in all four of our business segments.
Speaker Change: From the PAC-3's critical role in air defense, to the Aegis Combat System with AI augmentation, to the F-35 with its advanced sensor and data management capabilities,
Speaker Change: The supply chain continues to improve and defense outlays also continue to increase.
Speaker Change: Our focus on operational execution helped us achieve segment operating margins of 11, 3% up 20 basis points compared to last year's second quarter and free cash flow of more than $1 5 billion.
Speaker Change: Our company has made major contributions to allied and partner defense.
Speaker Change: We continue to demonstrate the impact of our 21st century security strategy by harnessing the latest digital technologies to continuously improve mission effectiveness.
Speaker Change: And increased both year over year and sequentially.
Jean Marie will talk more about the specifics of the quarterly results in a moment, but suffice it to say we are pleased with our financial performance and momentum so far in 2024.
Speaker Change: Strengthening and Scaling the Defense Production System
Speaker Change: and expanding industrial cooperation among our allies and partners.
Jean Marie: I'm, especially happy to report the progress we have made on the F 35 program.
Speaker Change: Consequently, demand for our defense technology solutions remains robust.
Jean Marie: As announced last week, we began deliveries of the first technology refresh three or tier three configured F 35 aircraft to the U S government.
Speaker Change: with a backlog of nearly $160 billion.
Speaker Change: greater than two times our annual revenue.
Speaker Change: Our strong performance so far in 2024 extends beyond BLAST's backlog as well.
Jean Marie: The tier three upgrade and further block four enhancements represent a critical evolution and capability and their full development remains a top priority for us.
Speaker Change: Giving us confidence to raise our 2024 Full Year Outlook for Sales, Segment Operating Profit, and EPS.
Jean Marie: These and further software updates over the life of the program will ensure the F. 35 remains an effective deterrent to aggression and the cornerstone of joint all domain operations now in decades into the future.
Speaker Change: In the second quarter, sales increased 9% year-over-year and 5% sequentially.
Speaker Change: and reflected growth in all four of our business segments.
Speaker Change: The supply chain continues to improve and defense outlays also continue to increase.
Jean Marie: We continue to produce at a rate of 156 aircraft per year and expect to deliver 75 to 100 aircraft in the second half of 2024 over.
Speaker Change: Our focus on operational execution helped us achieve segment operating margins of 11.3% of 20 basis points compared to last year's second quarter, and free cash flow of more than $1.5 billion, and increased both year over year and sequentially.
Jean Marie: Over 95% of tier three capabilities are currently being flight tested and we look forward to delivering full tier III combat capability to the customer in.
Jean Marie: In addition, we expect deliveries of F 35 aircraft to exceed production for the next few years, Jay will talk about the financial aspects of our current status in a moment.
Speaker Change: Jay and Maria will talk more about the specifics of the quarterly results in a moment. But suffice it to say, we are pleased with our financial performance and momentum so far in 2024.
Jean Marie: Continued.
Jay: Close collaboration with the joint program office or the <unk> as it's known and across our industry partners has been and will be essential to meet and exceed the expectations of this critical national defense program at a timely and cost effective manner.
Jesus Malave: I'm especially happy to report the progress we have made on the F-35 program.
Speaker Change: As announced last week, we began deliveries of the first Technology Refresh 3, or TR-3, configured F-35 aircraft to the U.S. government.
Speaker Change: I met with my F 35 industry CEO colleagues in Fort worth recently to set plans for enhancing the cooperation on our software and hardware and test integration processes, among other initiatives to increase speed and efficiency in the program.
Speaker Change: The TR-3 upgrade and further Block 4 enhancements represent a critical evolution in capability and their full development remains a top priority for us.
Speaker Change: These and further software updates over the life of the program will ensure the F-35 remains an effective deterrent to aggression and the cornerstone of joint all-domain operations now and decades into the future.
Speaker Change: The tier three hardware and software provide a significant upgrade in computing power that enables major improvements in capability to our ehrman sailors and marines as well as to our partner and Allied nations.
Speaker Change: We continue to produce at a rate of 156 aircraft per year and expect to deliver 75 to 100 aircraft in the second half of 2024.
Speaker Change: International customers continue to recognize the superior capabilities of this the most advanced fighter aircraft in the World and key aircraft node and the Dod's joint all domain architecture.
Speaker Change: Over 95% of TR-3 capabilities are currently being flight tested, and we look forward to delivering full TR-3 combat capability to the customer.
Speaker Change: On the International front, Israel announced a third quarter F 35, as increasing their fleet by 50%.
Speaker Change: In addition, we expect deliveries of F-35 aircraft to exceed production for the next few years. Jay will talk about the financial aspects of our current status in a moment.
Speaker Change: Greece is in the final stages of discussions with U S government to procure the F 35, and we continue to see interest from Romania, as well as a potential new customer.
Jesus Malave: Continued close collaboration with the Joint Program Office, or the JPO, as it's known, and across our industry partners has been and will be essential to meet and exceed expectations of this critical national defense program in a timely and cost-effective manner.
Beyond the F 35, as the quarterback of joint all domain operations, our ongoing collaboration with the U S. Military during major exercises with deployed operational units exemplifies our commitment and ability to enhance readiness and integrated capabilities across all of our customers' missions and priorities.
Speaker Change: I met with my F-35 industry CEO colleagues in Fort Worth recently to set plans for enhancing the cooperation on our software and hardware and test integration processes, among other initiatives to increase speed and efficiency in the program.
Speaker Change: In June new advanced capabilities from across Lockheed Martin contributed to the 10th iteration of U S. Indo Pacific Command Valiant Xi'an exercise.
Speaker Change: The TR-3 hardware and software provide a significant upgrade in computing power that enables major improvements in capability to our airmen, sailors, and marines, as well as to our partner and allied nations.
Speaker Change: During this exercise there are several significant milestones demonstrating how we are continually improving our forces capabilities and enhancing our deterrence posture.
Speaker Change: One example is that we successfully integrated digital command and control capabilities or the Indo Pacific Command joint fires network.
Speaker Change: International customers continue to recognize the superior capabilities of this, the most advanced fighter aircraft in the world and key aircraft node in the DoD's joint all domain architecture.
Speaker Change: Enhancing real time decision, making for commanders and operational agility for the for us.
Speaker Change: On the international front, Israel announced a third squadron of F-35As, increasing their fleet by 50%.
Speaker Change: Our operational planning data fusion engine was employed to coordinate joint operations using live real time data producing actual tasking orders at combat relevant speed.
Speaker Change: Greece is in the final stages of discussion with the U.S. government to procure the F-35, and we continue to see interest from Romania as well as a potential new customer.
Speaker Change: And another example from the same exercise Lockheed Martin space and Lockheed Martin Aeronautics jointly demonstrated the ability to autonomous fully optimize intelligence surveillance and reconnaissance or ISR collection and enhance their imagery for quick automated target detection and classification.
Speaker Change: Beyond the F-35 is the quarterback of Joint All-Domain Operations.
Speaker Change: Our ongoing collaboration with the U.S. military during major exercises with deployed operational units exemplified our commitment and ability to enhance readiness and integrate capabilities across all of our customers' missions and priorities.
Speaker Change: Facilitating data delivery across a wide range of space based in airborne platforms like never before.
Speaker Change: In June , new advanced capabilities from across Lockheed Martin contributed to the 10th iteration of U.S. Indo-Pacific Command's Valiant Shield exercise.
Speaker Change: In addition, the U S Army tested our precision strike missile or prism against a moving maritime target in the Pacific Ocean.
Speaker Change: This next generation missile enables further improve range and precision to deter potential adversaries from even greater distances.
Speaker Change: During this exercise, there were several significant milestones demonstrating how we are continually improving our forces capabilities and enhancing our deterrence posture.
Speaker Change: According to the Army. This test is a significant step in the prism programs progress.
Speaker Change: One example is that we successfully integrated digital command and control capabilities with the Indo-Pacific Commands Joint Fires Network.
Speaker Change: We've also moved toward realizing the 20 <unk> century security joint all domain vision with the signing of a landmark agreement with Australia's Department of defense to build their future joint Arab Battle management system.
Speaker Change: Enhancing real-time decision-making for commanders and operational agility for the force.
Speaker Change: Our operational planning data fusion engine was employed to coordinate joint operations using live, real-time data, producing actual tasking orders at combat-relevant speed.
Speaker Change: Call. It project are 6500 phase one.
Speaker Change: As we've discussed before this system will provide the Australian defense force with leading edge integrated air and missile defense capability using next generation technologies to combat high speed threats and establish Australia's integrated air and missile defense as one of the most highly advanced in the world.
Speaker Change: In another example from the same exercise, Lockheed Martin Space and Lockheed Martin Aeronautics jointly demonstrated the ability to autonomously optimize intelligence
Speaker Change: Surveillance and Reconnaissance, or ISR, collection and enhance their imagery for quick, automated target detection and classification.
Speaker Change: We also continued to demonstrate 20, <unk> century security and other innovative ways.
Speaker Change: Facilitating data delivery across a wide range of space-based and airborne platforms like never before.
Speaker Change: In May our Skunk works tactical artificial intelligence team successfully execute executed their second set of flight tests for the University of Iowa, Operator performance Laboratory.
Speaker Change: In addition, the U.S. Army tested our Precision Strike Missile, or PRISM, against a moving maritime target in the Pacific Ocean.
Our AI fluid El 29 jet aircraft by means of heading speed and altitude Command center <unk> to the onboard autopilot then to the plains flight controls.
Speaker Change: This next generation missile enables further improved range and precision to deter potential adversaries from even greater distances.
Speaker Change: According to the Army, this test is a significant step in the PRISM program's progress.
Speaker Change: This test has shown our AI team can rapidly develop iterate and integrate artificial intelligence technology for autonomous flight operations.
Speaker Change: We've also moved toward realizing the 21st century security joint all-domain vision with the signing of the landmark agreement with Australia's Department of Defense to build their future joint air battle management system.
Speaker Change: We're also making great progress in another leading edge defense Tech initiative hypersonic strike.
Speaker Change: They call it Project AIR 6500 Phase 1.
Speaker Change: Which is a critical element of deterrence in today's world.
Speaker Change: As we've discussed before, this system will provide the Australian Defence Force with leading-edge integrated air and missile defence capability.
Speaker Change: As announced by the Department of Defense in June.
Speaker Change: The U S Navy and U S. Army completed an end to end all up round flight test of the common hypersonic missile core to the Navy's conventional prompt strike or Cps and the Army's long range hypersonic weapons programs.
Speaker Change: Using next-generation technologies to combat high-speed threats and establish Australia's integrated air and missile defense as one of the most highly advanced in the world.
Speaker Change: The test marked a major step forward for the nation's development of hypersonic systems by Lockheed Martin.
Speaker Change: We also continue to demonstrate 21st century security in other innovative ways.
Speaker Change: In May, our Skunk Works Tactical Artificial Intelligence team successfully executed their second set of flight tests.
Speaker Change: Pivoting to the supply chain, we continue to explore opportunities to drive our concept of anti fragility across the global defense industrial base.
Speaker Change: for the University of Iowa Operator Performance Laboratory.
Speaker Change: For example, we recently signed a collaborative memorandum of understanding with Ryan Mittal to work together on land air and naval opportunities.
Speaker Change: Our AI flew an L-29 jet aircraft by means of heading, speed, and altitude commands sent directly to the onboard autopilot, then to the plane's flight controls.
Speaker Change: One of our first initiatives is the new global mobile artillery rocket system or <unk>.
Speaker Change: This test has shown our AI team can rapidly develop, iterate, and integrate artificial intelligence technology for autonomous flight operations.
Speaker Change: Let's say highly interoperable to pod launches system intended to fire the ml Rs based munitions.
Speaker Change: Combining these combat proven systems will help address the growing demand for long range rocket capabilities in Europe and elsewhere.
Speaker Change: We're also making great progress in another leading-edge defense tech initiative, Hypersonic Strike, which is a critical element of deterrence in today's world.
Speaker Change: On our <unk> three program International collaboration remains strong as well.
Speaker Change: As announced by the Department of Defense in June ,
Speaker Change: Including development of indigenous capabilities with the opening of our Pac three MSE launched two production line in Poland as well as the memorandum of understanding with Grupo Esher in Spain to provide an opportunity to manufacture Pac three MSE parts for worldwide customers span.
Speaker Change: The U.S. Navy and U.S. Army completed an end-to-end all-upground flight test of the Common Hypersonic Missile.
Speaker Change: of the Navy's Conventional Prompt Strike, or CPS, and the Army's Long-Range Hypersonic Weapons Programs.
Speaker Change: Spain, and the United States also formalized an agreement for Spain to purchase Pac three MSE missiles and related support, making Spain Pac threes, 16th partner nation.
Lockheed Martin: The test marked a major step forward for the nation's development of hypersonic systems by Lockheed Martin.
Speaker Change: Pivoting to the supply chain, we continue to explore opportunities to drive our concept of anti-fragility across the global defense industrial base.
Speaker Change: Yeah.
Speaker Change: I'd also like to briefly discuss the latest status of the U S defense budget the <unk>.
Speaker Change: For example, we recently signed a collaborative memorandum of understanding with Ryan Mittal to work together on land, air, and naval opportunities.
Speaker Change: Also prove their version of the FY 'twenty five defense appropriations. So the focus now shifts to the Senate, where the process continues before the reconciliation phase later this year.
Speaker Change: One of our first initiatives is the new Global Mobile Artillery Rocket System, or GMARS. This is a highly interoperable two-pod launcher system intended to fire the MLRS-based munitions.
We believe our portfolio is well aligned to current and future customer mission priorities, including air superiority with the F 35, the CH 53, K and Blackhawk are you age 60 M.
Speaker Change: Combining these combat-proven systems will help address the growing demand for long-range rocket capabilities in Europe and elsewhere.
Speaker Change: Our integrated air and missile defense with Pac three and GI hypersonic with Cps and the LR HW I just mentioned a minute ago.
Speaker Change: On our PAC-3 program, international collaboration remains strong as well.
Speaker Change: In tactical strike weapons munitions with jazz them, RASM prism javelin and gamblers.
Speaker Change: Including development of indigenous capabilities with the opening of a PAC-3 MSC launch tube production line in Poland, as well as a memorandum of understanding with Group Oecia in Spain to provide an opportunity to manufacture PAC-3 MSC parts for worldwide customers.
Speaker Change: Ultimately, we look forward to conclusion of the USG appropriations process and the continued utilization of the existing supplemental funding.
Speaker Change: On the international front I was encouraged by conversations I had at the recent NATO summit, a few weeks ago in Washington.
Speaker Change: Spain and the United States also formalized an agreement for Spain to purchase PAC-3 MSC missiles and related supports, making Spain PAC-3's 16th partner nation.
International Partners and allies remains steadfast in their pursuit of elevated defense spending to strengthen the overall integrated the turns posture of the alliance given the tragic and ongoing conflict in Ukraine.
Speaker Change: I'd also like to briefly discuss the latest status of the U.S. defense budget.
Speaker Change: The House approved their version of the FY25 defense appropriations, so the focus now shifts to the Senate, where the process continues before the reconciliation phase later this year.
I'll now turn it over to Jay for award highlights and additional commentary on our financial results.
Jay: Thanks, Jim similar to last quarter, I will provide an overview of our consolidated financials and touch on a handful of operational items before handing off to Maria who will cover business area of financials, and then I'll come back to discuss the updated outlook.
Speaker Change: We believe our portfolio is well aligned to current and future customer mission priorities, including air superiority with the F-35, the CH-53K and Blackhawk or UH-60M,
Jay: Starting on chart four the positive momentum we had to begin the year continued into the second quarter with sales up 9% to over $18 billion led by RMS and MFC.
Speaker Change: Our integrated air and missile defense with PAC-3 and NGI, hypersonics with CPS and the LRHW I just mentioned a minute ago, and tactical strike weapons and munitions with JASM, LRASM, PRISM, JAVELIN, and Gimlers.
Maria: As Jim mentioned throughput remains strong, reflecting an improving supply chain and internal operating cadence.
Maria: Operating profit of $2 billion was up 10% year over year and consolidated margins were 11, 3% with all four business areas achieving double digit return on sales. The first time since the third quarter of 2022.
Speaker Change: Ultimately, we look forward to the conclusion of the USG appropriations process and the continued utilization of the existing supplemental funding.
Speaker Change: On the international front, I was encouraged by conversations I had at the recent NATO summit a few weeks ago in Washington.
Maria: Net favorable profit adjustments in the quarter were higher than prior year and were 21% of segment operating profit driving the stronger margins.
Speaker Change: International partners and allies remain steadfast in their pursuit of elevated defense spending to strengthen the overall integrated deterrence posture of the alliance, given the tragic and ongoing conflict in Ukraine.
Maria: GAAP earnings per share of $6 85 increased 3% year over year, driven by higher profit and lower share count, partially offset by severance and impairment charges and rms's Sikorsky higher interest expense and lower pension income.
Speaker Change: I'll now turn it over to Jay for award highlights and additional commentary on our financial results.
Jesus Malave: Thanks, Jim. Similar to last quarter, I'll provide an overview of our consolidated financials and touch on a handful of operational items before handing off to Maria, who will cover business area financials. And then I'll come back to discuss the updated outlook.
Maria: On the new business front, we recorded over $17 billion of orders in the second quarter.
Maria: For a book to Bill ratio just below one.
Maria: We generated $1 $5 billion of free cash flow in the quarter, bringing our year to date total to just under $2 8 billion.
Jesus Malave: Starting on chart 4, the positive momentum we had to begin the year continued into the second quarter, with sales up 9% to over $18 billion, led by RMS and MFC.
Maria: And we continue to make the necessary investments in innovation and infrastructure to position the company and our customers for future success with $400 million $405 million in research and development and $370 million in capital expenditures in the second quarter.
Maria Ricciardone Lee: As Jim mentioned, throughput remains strong, reflecting an improving supply chain and internal operating cadence.
Maria: Finally, we returned over 100% of our free cash flow to shareholders via share repurchases and dividends.
Maria Ricciardone Lee: Segment operating profit of $2 billion was up 10% year-over-year, and consolidated margins were 11.3%. With all four business areas achieving double-digit return on sales, the first time since the third quarter of 2022.
Maria: Now I'll touch on a few business activities in more detail.
Speaker Change: The order strength continued at MFC with a book to Bill over two in the quarter led by the $4 billion plus Army award spanning multi year path III delivery requirements and supporting our production ramp projections.
Speaker Change: Net favorable profit adjustments in the quarter were higher than prior year and were 21% of segment operating profit, driving the stronger margins.
Speaker Change: Gap earnings per share of $6.85 increased 3% year-over-year, driven by higher profit and lower share count, partially offset by severance and impairment charges at RMS and Sikorsky, higher interest expense, and lower pension income.
Maria: In Poland officials signed a letter of acceptance to purchase 400, <unk> the largest international order in program history, providing another ally with the latest generation Jasmine variant.
Maria: That's a core ski it's platforms remain in high demand as the U S State Department announced approval for foreign military sales of Blackhawk's to Austria, Brazil and Sweden.
Speaker Change: On a new business front, we recorded over $17 billion of orders in the second quarter.
Speaker Change: for a book-to-bill ratio just below 1.
Speaker Change: We generated $1.5 billion of free cash flow in the quarter, bringing our year-to-date total to just under $2.8 billion.
Maria: This opens the door to the potential sale of 36 Blackhawks, adding 12 helicopters each.
Speaker Change: And we continue to make the necessary investments in innovation and infrastructure to position the company and our customers for future success, with $405 million in research and development and $370 million in capital expenditures in the second quarter.
Maria: To each country's existing black.
Maria: Blackhawk fleet.
Maria: In addition, the government of Greece signed a letter of offer and acceptance for 35, <unk> 60, and Blackhawk helicopters. These.
Speaker Change: These upgraded aircrafts will support the Hellenic Ministry of Defense's ongoing modernization it will serve as a dependable multi role helicopter with unmatched interoperability to support vital national and Allied security missions.
Speaker Change: Finally, we returned over 100% of our free cash flow to shareholders via share repurchases and dividends.
Speaker Change: Now I'll touch on a few business activities in more detail.
Speaker Change: The order strength continued at MFC, with a book-to-bill over 2 in the quarter, led by the $4 billion plus Army awards spanning multi-year Pac-3 delivery requirements, and supporting our production ramp projections.
Speaker Change: And the space domain late last month, NASA selected Lockheed Martin to develop and build the nation's next generation whether satellite constellation for Noah.
Speaker Change: Known as geostationary extended observations are Geo XO.
Speaker Change: And Poland officials signed a letter of acceptance to purchase 400 JASM-ERs, the largest international order and program history.
Speaker Change: This award builds on our prior work with environmental sensing technologies, which recently culminated with the launch of <unk>, which will leverage advanced instruments and rapid updates to provide crucial data for weather forecasting severe storm tracking and climate monitoring.
Speaker Change: Providing another ally with the latest generation JASM variant.
Speaker Change: At Sikorsky, its platforms remain in high demand as the U.S. State Department announced approval for foreign military sales of Blackhawks to Austria, Brazil, and Sweden.
Speaker Change: Let me stop here and hand, it over to Maria to get into the business area of financial detail.
Maria: Thanks, Jay today, I'll discuss second quarter year over year results for the business areas, starting with Aeronautics on chart five.
Speaker Change: This opens the door to the potential sale of 36 Blackhawks, adding 12 helicopters each.
Speaker Change: to each country's existing Blackhawk fleet.
Second quarter sales in your AUM were up 6% year over year. The increase was primarily due to higher volumes across F 35, and the continued production ramp on the F 16 program.
Speaker Change: In addition, the government of Greece signed a letter of offer and acceptance for 35 UH-60M Black Hawk helicopters.
Speaker Change: These upgraded aircraft will support the Hellenic Ministry of Defense's ongoing modernization and will serve as a dependable multi-role helicopter with unmatched interoperability to support vital national and allied security missions.
Maria: Segment operating profit increased 5% with higher volume and favorable mix in offset by lower profit booking rate adjustments.
Speaker Change: Regarding aircraft deliveries, we resumed F 35 deliveries in Q3 as Jim shared and we've delivered our 1000th F 35.
Speaker Change: In the space domain, late last month, NASA selected Lockheed Martin to develop and build the nation's next-generation weather satellite constellation for NOAA.
James: On F 16, we delivered four in the second quarter and are targeting around 20 for the year for 130, James we delivered.
Speaker Change: known as Geostationary Extended Observations or GeoXO.
James: Five in the quarter, reaching a milestone of 2700 deliveries of this critical tactical Air lifter.
Speaker Change: This award builds on our prior work with environmental sensing technologies, which recently culminated with the launch of GOES-U, which will leverage advanced instruments and rapid updates to provide crucial data for weather forecasting, severe storm tracking, and climate monitoring.
James: And expect around 20 deliveries for the year.
Speaker Change: Turning to missiles and fire control in chart six MFC had another strong quarter with sales up 13% from the prior year driven by production ramps on a handful of our precision fires programs within the tactical and strike missile segment, primarily guided multiple launch rocket system gamblers.
Speaker Change: All right, let me stop here and hand it over to Maria to get into the business area financial detail.
Maria Ricciardone Lee: Thanks Jay. Today I'll discuss second quarter year-over-year results for the business areas starting with aeronautics on chart 5.
And long range anti ship missiles RASM.
Maria Ricciardone Lee: Second quarter sales at Arrow were up 6% year-over-year. The increase was primarily due to higher volumes across F-35 and the continued production ramp on the F-16 program.
Speaker Change: Segment operating profit increased 21% year over year due to higher profit booking rate adjustments led by the Pac three and Apache programs and margins return to Q2, 14, 5%, which is more in line with historical rates.
Maria Ricciardone Lee: Segment operating profit increased 5% with higher volume and favorable mix being offset by lower profit booking rate adjustments.
Speaker Change: MFC backlog reached a record level of almost $35 billion in Q2 supported by continued global demand for several of our missile ammunition programs Key awards, including the Pac Three award that Jim mentioned as well as $1 $3 billion in combined awards for launchers, including high Mars and empty.
Speaker Change: Regarding aircraft deliveries, we resumed F-35 deliveries in Q3, as Jim shared, and we've delivered our 1000th F-35.
Speaker Change: On F-16, we delivered four in the second quarter and are targeting around 20 for the year. For 130J, we delivered...
Speaker Change: 70 upgrades and a $500 million follow on production contract for Jaguar and Hellfire to support U S and international customers.
Speaker Change: Five in the quarter, reaching a milestone of 2,700 deliveries of this critical tactical airlifter, and expect around 20 deliveries for the year.
Speaker Change: On the delivery front I'll highlight a few of the key program quantities in the quarter.
Speaker Change: Turning to Missiles and Fire Control on Chart 6.
Speaker Change: MFC had another strong quarter, with sales up 13% from the prior year, driven by production ramps on a handful of our Precision Fires programs within the Tactical and Strike Missile segment.
We delivered 100 Pac three interceptors more than 2000 gamblers rockets over 'twenty 700, Hellfire missiles, and 11 high Mars system.
Speaker Change: Primarily Guided Multiple Launch Rocket System, Gimlers, and Long-Ranged Anti-Ship Missile, LRASM.
Speaker Change: Shifting to rotary and mission systems on chart seven.
Speaker Change: Sales increased 17% in the quarter to over $4 5 billion, primarily driven by higher volume.
Speaker Change: Segment operating profit increased 21% year-over-year due to higher profit booking rate adjustments, led by the PAC-3 and Apache programs, and margins returned to 14.5%, which is more in line with historical rates.
Speaker Change: At integrated warfare systems, and sensors on radar and laser programs as well as the Canadian surface combatant program.
Speaker Change: Sikorsky programs also saw higher volume led by Black Hawk and CH 53 K.
Speaker Change: MFC backlog reached a record level of almost $35 billion in Q2, supported by continued global demand for several of our missile and munition programs.
Speaker Change: Also of note in the quarter, we delivered five F 70 helicopters to international customers, which resulted in about $115 million of revenue on a passage of title T O T thesis.
Speaker Change: Key awards included the PAC-3 award that Jay mentioned, as well as $1.3 billion in combined awards for launchers, including HIMARS and M270 upgrades.
Speaker Change: Operating profit increased 9% year over year due to higher volume, partially offset by lower profit booking rate adjustments.
Speaker Change: and a $500 million follow-on production contract for JAGM and Hellfire to support U.S. and international customers.
Speaker Change: Now for a brief summary of helicopter deliveries. In addition to the five F 70 helicopters I mentioned Sikorsky delivered five Blackhawks for combat rescue helicopters and one VH 92 presidential helicopter in the quarter.
Speaker Change: On the delivery front, I'll highlight a few of the key program quantities in the quarter.
Speaker Change: We delivered 100 PAC-3 interceptors, more than 2,000 Gimler's rockets, over 2,700 Hellfire missiles, and 11 HIMARS systems.
On the delivery front, a few of the key program quantities in the second quarter.
Speaker Change:
Speaker Change: Shifting to Rotary Emission Systems on Chart 7.
Yes, sorry about that let's go to Steve <unk>.
Speaker Change: Sales increased 17% in the quarter to over $4.5 billion, primarily driven by higher volume at integrated warfare systems and sensors on radar and laser programs, as well as the Canadian Surface Combatants Program.
Speaker Change: Finally, Ms space on chart eight sales increased 1% year over year. The growth was driven by higher volume on strategic and missile defense programs, primarily hypersonic and fleet ballistic missile F. P. M. Partially offsetting this growth was lower volume on classified programs and Orion.
Speaker Change: Sikorsky programs also saw higher volume, led by Blackhawk
Jay: Operating profit increased 11% compared to Q2, 2023, driven by favorable mix and higher profit booking rate adjustments now I'll turn it back over to Jay to wrap up our prepared remarks, alright, Thanks, Maria and let's let's shift over to the outlook on chart nine.
Speaker Change: Also of note in the quarter, we delivered five S-70 helicopters to international customers, which resulted in about $115 million of revenue on a passage of title POT basis.
Jay: Given our strong year to date performance sustained backlog position and improving visibility into key programs, we're raising our expectations for Lockheed Martin's 2024 financial outlook for sales segment operating profit and earnings per share.
Speaker Change: Operating profit increased 9% year-over-year due to higher volume, partially offset by lower profit booking rate adjustments.
Speaker Change: Now for a brief summary of helicopter deliveries. In addition to the five F-70 helicopters I mentioned, Sikorsky delivered five Blackhawks, four Combat Rescue Helicopters, and one VH-92 Presidential Helicopter in the quarter.
Jay: We're increasing sales by $1 $75 billion at the midpoint and tightening the range to 75 to $71 5 billion.
Jay: The midpoint reflects a solid 5% growth from 2023 with increases across all four business areas.
Speaker Change: On the delivery front, a few of the key program quantities
Jay: Also increasing segment operating profit segment operating profit expectation based on the higher sales with a new range of 735 to $7 $5 billion and anticipate consolidated segment operating profit margins to remain at 10, 5%.
Speaker Change: Yeah. Sorry about that. Let's go to space.
Speaker Change: Finally, with space on chart 8, sales increased 1% year over year. The growth was driven by higher volume on strategic and missile defense programs, primarily hypersonics and fleet ballistic missile, FBM. Partially offsetting this growth was lower volume on classified programs and Orion.
Jay: But this area margins remain consistent with our prior guidance at Arrow NMFC RMS is down about 50 basis points at the midpoint and space is up 40 basis points at the midpoint.
Jesus Malave: Operating profit increased 11% compared to Q2 2023, driven by favorable mix and higher profit booking rate adjustments. Now I'll turn it back over to Jay to wrap up our prepared remarks. All right. Thanks, Maria. And let's shift over to the outlook on chart nine.
Jay: The RMS reduction is driven by Sikorsky as the business faces continued cost pressure in absorption headwinds the impact of which have exceeded benefits from its cost reduction programs.
Jay: And virtually space is benefiting from solid performance and proactive cost reduction efforts.
Jesus Malave: Given our strong year-to-date performance, sustained backlog position, and improving visibility into key programs, we're raising our expectations for Lockheed Martin's 2024 financial outlook for sales, segment operating profit, and earnings per share.
Jay: Moving to earnings per share on chart 11.
Jay: We are increasing the midpoint by 35 to.
Jay: 26, 35 with a range of 26 10 to $26 60 for the full year.
Jesus Malave: We're increasing sales by $1.75 billion at the midpoint and tightening the range to $70.5 to $71.5 billion.
Jay: Primary drivers of the change are shown on this chart with increases coming from incremental profit of 49 and other below the line items of 13.
Jesus Malave: The new midpoint reflects a solid 5% growth from 2023 with increases across all four business areas.
Jay: Partially offsetting those items are the RMS charges totaling 29.
Jay: From the severance actions and the asset write downs taken in the second quarter.
Jesus Malave: We're also increasing segment operating profit expectation based on the higher sales with a new range of $7.35 to $7.5 billion and anticipate consolidated segment operating profit margins to remain at 10.5%.
Jay: As Jim mentioned, we're encouraged by the F 35 delivery restart and continuous progress being made towards delivering full combat capability.
Speaker Change: We're holding our free cash flow expectation in the range of <unk>.
Speaker Change: $6 to $6 3 billion.
Jesus Malave: Business area margins remain consistent with our prior guidance at AERO and MFC, while RMS is down about 50 basis points at the midpoint and SPACE is up 40 basis points at the midpoint.
Speaker Change: Which absorbs the potential unfavorable impact from longer deferrals of final F 35 delivery payments.
Speaker Change: This is made possible by proactive actions taken across the company to offset these potential headwinds.
Jesus Malave: The RMS reduction is driven by Sikorsky as the business faces continued cost pressure and absorption headwinds, the impact of which have exceeded benefits from its cost reduction programs.
Speaker Change: On the cash deployment side, we still expect over $3 billion of IR R&D and capital investments.
Speaker Change: While the dividend along with the expected 4 billion of share repurchases maintain attractive shareholder returns.
Jesus Malave: Conversely, space is benefiting from solid performance and proactive cost reduction efforts.
Jesus Malave: Moving to earnings per share on chart 11, we're increasing the midpoint by $0.35 to $26.35 with a range of $26.10 to $26.60 for the full year.
Speaker Change: Lastly on backlog, we continue to expect backlog to grow in 2024, even with the higher sales outlook, which provides a line of sight to future growth.
Jesus Malave: Primary drivers of the change are shown on this chart with increases coming from incremental profit of 49 cents and other below the line items of 13 cents.
Speaker Change: Before I wrap I'd like to highlight a few other key assumptions regarding the updated outlook first.
Speaker Change: We expect F 35 lot 18, 19 to be awarded this year maintaining program funding and continuity.
Jesus Malave: Partially offsetting those items are the RMS charges totaling $0.29 from the severance actions and the asset write-downs taken in the second quarter.
Speaker Change: Second we continue to expect $325 million of losses on the MFC classified program of which $100 million has been recognized year to date.
Jesus Malave: As Jim mentioned, we're encouraged by the F-35 delivery restart and continuous progress being made towards delivering full combat capability.
Speaker Change: And third this outlook does not assume any pension contributions in 2024.
Jesus Malave: We're holding our free cash flow expectation in the range of $6 to $6.3 billion.
Speaker Change: So in summary on chart 12, our solid first half results give us confidence in raising the full year outlook for sales profit and EPS, while holding the cash flow outlook, reflecting our ongoing efforts to deliver predictable and improving operating and financial performance as is expected of us.
Jesus Malave: which absorbs a potential unfavorable impact from longer deferrals of final F-35 delivery payments.
Speaker Change: This is made possible by proactive actions taken across the company to offset these potential headwinds.
Speaker Change: On the cash deployment side, we still expect over $3 billion of IR&D and capital investments.
Speaker Change: It all starts with a relentless focus on executing to our programmatic commitments and delivering critical 20, <unk> century security mission capabilities.
Speaker Change: While the dividend, along with the expected $4 billion of share repurchases, maintain attractive shareholder returns.
We strive to continuously improve.
Speaker Change: To that end, we are investing in our people processes and systems to the <unk> transformation with the goal of unlocking step changes in efficiency velocity and program execution that deliver security capabilities and ahead of ready speed to our customers.
Speaker Change: Lastly, on backlog, we continue to expect backlog to grow in 2024, even with the higher sales outlook, which provides a line of sight to future growth.
Speaker Change: Before I wrap, I'd like to highlight a few other key assumptions regarding the updated outlook. First, we expect F-35 Lot 18-19 to be awarded this year, maintaining program funding and continuity.
Speaker Change: And we're confident that these management priorities and actions convert to a compelling long term value proposition for customers and shareholders alike without lowest let's open up the call for Q&A.
Speaker Change: Second, we continue to expect $325 million of losses on the MFC Classified Program, of which $100 million has been recognized year to date.
Speaker Change: Thank you and if you wish to ask a question. Please press one zero on your Touchtone phone you will hear an announcement, indicating that you've been placed into queue and you may remove yourself from queue at any time by a person of one Goldman Sachs.
Speaker Change: And third, this outlook does not assume any pension contributions in 2024.
Speaker Change: So in summary on chart 12, our solid first half results give us confidence in raising the full year outlook for sales, profit, and EPS while holding the cash flow outlook.
Speaker Change: If you use the speaker phone or Bluetooth. Please pickup your handset before pressing that number once again, if you have a question. Please pass them London zero at this time.
Speaker Change: Reflecting our ongoing efforts to deliver predictable and improving operating and financial performance as is expected of us.
Speaker Change: Your first question comes from the line of Christine <unk> from Morgan Stanley. Please go ahead.
Speaker Change: It all starts with a relentless focus on executing to our programmatic commitments and delivering critical 21st century security mission capabilities, where we strive to continuously improve.
Hi, Jim gave Marie.
Christine: Great. He's from Farnborough that 16 is a lie.
Christine: In the background right now so Paulo apologies for the run rate in the background.
Speaker Change: To that end, we are investing in our people, processes, and systems through the 1LMx transformation.
Speaker Change: Got it.
Christine: That's helped us out of freedom Christine good.
Speaker Change: I mean, it's a crazy var beautiful aircraft here.
Speaker Change: With the goal of unlocking step changes in efficiency, velocity, and program execution that deliver security capabilities in ahead-of-ready speed to our customers.
The delivery guidance for the F 35 in the second half of this year is still fairly wide can you talk about the scenarios, where there are lower and upper.
Speaker Change: And we're confident that these management priorities and actions convert to a compelling long-term value proposition for customers and shareholders alike.
Speaker Change: What would have to happen for you to hit the lower end of the range and also with production at 156 per year.
Speaker Change: With that, Lois, let's open up the call for Q&A.
Speaker Change: What is it deliberate production catch up for the program.
Lois: 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 into queue, and you may remove yourself from queue at any time by pressing the 1 then 0 again.
Christine: So Christine I'll start.
Christine: And emphasize that we're going to do this unwind and conduct the deliveries with safety and quality as our number one priority. So just starting with that foundation, we actually have the ability.
Lois: If you're using a speakerphone or Bluetooth, please pick up your handset before pressing the number. Once again, if you have a question, please press 1 then 0 at this time.
Christine: Two.
Christine: Add resources, which have already been identified and designated and Thats test pilots maintenance team.
Speaker Change: The first question comes from the line of Kristine Liwag from Morgan Stanley . Please go ahead.
Christine: Software and hardware engineers to get the flight tests done that we need to.
Kristine Liwag: Hi Jim, Jay, Maria. Greetings from Farnborough. The F-16 is flying in the background right now, so apologies for the roar in the background.
Christine: To be at the higher end of that range, but we want to make sure that if it's weather if it's.
Christine: Pilot.
Crew rest issues anything like that we will accommodate for those but we should we have the resources in place I will say that should enable us to get to the higher end of that range. If you will yes, let me just add just to reiterate Kristine we expect anywhere between 75 to 110, yes with less than six months left as it is a wide range.
Speaker Change: Let's call it the Sound of Freedom, Kristine.
Speaker Change: I mean it's a crazy roar of beautiful aircraft here. The delivery guidance for the F-35 in the second half of this year is still fairly wide.
Speaker Change: Do you talk about the scenarios where there are lower and upper, what would have to happen for you to hit the lower, upper end of the range? And also, you know, with production at 156 per year, when should delivery and production catch up for the program?
Speaker Change: I would say over the next few months, we'll get we'll get much better insights into the induction and flow of aircrafts.
Speaker Change: Going into the <unk>.
Test.
Speaker Change: And production cycle really bringing in <unk>.
Speaker Change: So Kristine, I'll start and emphasize that we're going to do this unwind and conduct the deliveries.
Speaker Change: Aircraft that are parked as well as aircraft that are coming outside of the from the production flow and as we get those learnings will be able to get a better assessment of.
Speaker Change: What the delivery requirements will be and what we expect for the year and so it will take US a couple of months just to make sure we get that process learned out it's well planned, but we actually have the demonstrated in actual practice as far as the future for in terms of reducing on the backlog of aircraft and our target is anywhere between 12 months to 18.
Kristine Liwag: Add resources which have already been identified and designated.
Kristine Liwag: and that's Test Pilots, Maintenance Team.
Speaker Change: software and hardware engineers to get the flight test done that we need to to be at the higher end of that range, but we want to make sure that you know what if it's weather if it's you know pilot
Speaker Change: Aircraft deliveries per months and really to burn down the aircraft backlog and so that will take us a number of years here to get through that we've already made progress so far.
Speaker Change: crew rest issues anything like that we will accommodate for those but you know we should we have the resources in place I'll say that should enable us to get to the higher end of that range if you will
Speaker Change: Since the announcement of the restart we've delivered 10 aircraft as of as of Monday yesterday, six with the tier three configuration and four with the tier two configuration. So we think we're off to a very good start, but again, we really need to have.
Speaker Change: Yeah, let me just add, you know, just to reiterate, Kristine, we expect anywhere between 75 to 110. Yes, with less than six months left, it is a wide range.
Speaker Change: Monitor their operating cadence of being able to bring aircraft from two different flows into one test.
Speaker Change: I would say over the next few months, we'll get much better insights into the induction and flow of aircraft.
Flight test flow and again, we'll tighten that up later on in the year.
Speaker Change: Going into the test and production cycle, really bringing in...
Thank you. The next question is from Kai Pan from PD Cowen. Please go ahead.
Speaker Change: You know, aircraft that are parked as well as aircraft that are coming outside from the production flow.
Kai Pan: Yes. Thanks, so much. So I think you did say that next year, you're going to deliver more F 35, and you will produce and I think at one point you mentioned you get paid 7 million upon each delivery walk us through you mentioned also the deferral.
Speaker Change: And as we get those learnings, we'll be able to get a better assessment of what the delivery requirements will be and what we expect for the year. So it'll take us a couple of months just to make sure we get that process learned out. It's well planned, but we actually have to demonstrate it in actual practice.
Speaker Change: As far as, you know, the future from terms of reducing on the backlog of aircraft, you know, our target is anywhere between 12 to 18.
Speaker Change: <unk> of some payments.
Speaker Change: So next year, what happens to accrued revenues, because I think with higher deliveries I assume the <unk>.
Speaker Change: Aircraft Deliveries Per Month
Speaker Change: and really to burn down the aircraft backlog, and so that'll take us a number of years here to get through that. We've already made progress so far. Since the announcement of the restart, we've delivered 10 aircraft as of Monday yesterday.
Speaker Change: Final delivery payment basically as incremental even though.
Speaker Change: Under POC the work itself should be relatively level and then secondly, the cash flow impact I know that there's a deferral on the payments, but if it was really 707 million that's.
Speaker Change: 6 with the TR-3 configuration and 4 with the TR-2 configuration.
Speaker Change: So we think we're off to a very good start, but again we really need to have a, just monitor the operating cadence of being able to...
Speaker Change: Italy, a substantial cash flow plus thanks, so much.
Kai Pan: Okay Kai.
Speaker Change: to bring aircraft from two different flows into one.
Let me let me just say first of all as Jim mentioned restarting delivery was an important first step towards delivering the fully combat capable aircraft.
Speaker Change: Flight Test Flow. And again, we'll tighten that up later on in the year.
Kai Pan: Aircraft.
Speaker Change: The withhold the aircraft with hold his final delivery payment is a timing item as you mentioned and we're working with the customer to finalize the terms of those final delivery payments, we're making excellent progress, but it would be immature premature to give the details of that because it remains subject to negotiation.
Speaker Change: Thank you. The next question is from Cai Van Rummer from TD Cowen. Please go ahead.
Speaker Change: Yes, thanks so much.
Speaker Change: So I think he did say that next year you're going to deliver more F-35s than you will produce.
Speaker Change: And I think at one point you mentioned that you get paid.
Speaker Change: 7 million upon each delivery. Walk us through, you mentioned also the deferral.
Suffice it to say that you will see a timing benefit over the next few years as we deliver but I think we still need to work through and finalize this agreement with the customer as far as the the revenue I really wouldn't see expect much of an incremental benefit in terms of revenue we continue to build at a $1.
Speaker Change: of some payments. So next year, what happens to accrued revenues? Because I think with higher deliveries, I assume the final delivery payment basically is incremental, even though, you know, under POC, the work itself
Speaker Change: Six rate, we are seeing production a little bit higher this year, but for the most part we should expect that to be I think fairly stable and yes, we will see incremental activity in terms of test activity, which does increased penetration in a percent complete basis, but I don't really view that being all that material and so I would just.
Speaker Change: Should be relatively level. And then secondly, the cash flow impact. I know that there's a deferral on the payments, but if it was really $7 million, that's potentially a substantial cash flow plus. Thanks so much.
Speaker Change: Okay, Cai, let me let me just say, you know, first of all, as Jim mentioned, restarting delivery was an important first step really towards delivering the fully combat capable aircraft.
Speaker Change: Hold the production, we will expect F 35 to grow mostly from Sustainment next year and in years to come.
I think it's important to mention as well that we are the headwind on these final delivery payments or here in 2024, we're holding our outlook. So we're absorbing that with with better performance in the rest of the portfolio. Yes, we will see the timing benefits downstream, but as I mentioned before we have to get just the whole delivery cadence straight.
Speaker Change: Aircraft withholding final delivery payment is a timing item as you mentioned. We are working with the customer to finalize the terms of those final delivery payments.
Speaker Change: We're making excellent progress, but it would be immature or premature to give the details of that because it remains subject to negotiation. Suffice it to say that you will see a timing benefit over the next few years as we deliver, but I think we still need to work through and finalize this agreement with the customer.
Speaker Change: And I just want to make sure I had it straight in terms of the last question, we're targeting anywhere between 12 to 18 months to fully deliver.
Speaker Change: On these parked aircrafts and as I mentioned, we just need to learn out the process over the next few months here and get to be able to give better guidance on that.
Speaker Change: As far as the revenue, I really wouldn't expect much of an incremental benefit in terms of revenue.
Speaker Change: Thanks, so much.
Scott <unk>: Thank you. Our next question is from the line of Scott <unk> from Deutsche Bank. Please go ahead.
Speaker Change: We continue to build at a 156 rate. We are seeing production a little bit higher this year. But for the most part, we should expect that to be, I think, fairly stable.
Hey, good morning.
Good morning.
Scott <unk>: Jay you've been seeing some nice momentum on revenue and now youre seeing some of it on margins as well I guess at what point do you think you'll be ready to start talking about it maybe a better medium term free cash flow per share growth outlook.
Speaker Change: And yes, we'll see incremental activity in terms of test activity, which does increase penetration in a percent complete basis.
Speaker Change: But I don't really view that being all that material, and so I would just hold to production. We'll expect F-35 to grow mostly from sustainment next year and in the years to come.
Speaker Change: Mid single digit rate you've been talking about for a while do you just need to lap. These pension headwinds next year in <unk>, but more growth acceleration then you're there.
Speaker Change: I'm just curious.
Speaker Change: Thinking about that thanks.
Speaker Change: I think it's important to mention as well...
Speaker Change: Yeah No I appreciate the question.
Speaker Change: The headwind on these final delivery payments are here in 2024. We're holding our outlook, so we're absorbing that.
Speaker Change: Said.
Speaker Change: Over the last few months and really the last year or so.
Speaker Change: Our goal has been to increase absolute free cash flow in the low single digit clip and then that augmented with share repurchase would get us to a mid single digit free cash flow per share expectation that.
Speaker Change: with better performance in the rest of the portfolio. Yes, we will see the timing benefits downstream. But as I mentioned before, we have to get just the whole delivery cadence straight. And I just want to make sure I had it straight in terms of the last question. We're targeting...
Speaker Change: And that remains the outlook will go through.
Speaker Change: Our multiyear forecast over the next few months here and we'll be able to give you a better update in the October timeframe I think given the fact that we're at a higher level in 2024 is a positive and we continue to expect to grow in 2025 office higher baseline. So that ended up itself should result in a higher cash flow baseline as well, but there's a lot of.
Speaker Change: You know, anywhere between 12 to 18 months to fully deliver on these parked aircraft. And as I mentioned, we just need to learn out the process over the next few months here to be able to give better guidance on that.
Speaker Change: Thanks so much.
Speaker Change: Thank you. Our next question is from the line of Scott Deuschle from Deutsche Bank. Please go ahead.
A lot of work to be done between now and then and so I would like to have the benefit of going through that in more detail and we'll update that to you at least preliminarily in October.
Scott Deuschle: Hey, good morning.
Scott Deuschle: Good morning.
Scott Deuschle: Jay, you've been seeing some nice momentum on revenue and now you're seeing some of it on margins as well. I guess at what point do you think you'll be ready to start talking about maybe a better medium term free cash flow per share growth outlook?
Speaker Change: Yeah.
Speaker Change: That's great. Thank you.
Speaker Change: Thank you. The next question is from Gavin Parsons from UBS. Please go ahead.
Gavin Parsons: Thanks, Good morning.
Gavin Parsons: Good morning.
Speaker Change: and this mid-single-digit rate you've been talking about for a while. Do you just need to lap these pension-headed ones next year and see a bit more growth acceleration and then you're there?
Speaker Change: Maybe sticking on revenue just yet.
Speaker Change: As I've talked about supply chain kind of being a bottleneck.
Speaker Change: I'm just curious for how you're thinking about that. Thanks.
Gavin Parsons: Is the upside more on the demand front or on the unlocking of the supply chain side and in the latter can you just talk a little bit more about supply chain and what you expect going forward in the second half because I think the second half implies a lot less growth.
Jesus Malave: Yeah, no, I appreciate the question. You know, we've said over the last few months, really the last year or so, that our goal has been to increase absolute free cash flow in the low single-digit clip, and then that augmented with share repurchase would get us to a mid-single-digit free cash flow per share expectation.
Speaker Change: Well I'd say, it's a combination of both we ended the year in 2023 with $160 billion backlog, which was a record. We ended here the second quarter at 158 was slightly below where it ended at a record.
Jesus Malave: That remains.
Jesus Malave: of the Outlook. We'll go through our multi-year forecast over the next few months here.
Jesus Malave: We'll be able to give you a better update in the October time frame.
Speaker Change: With significantly higher sales than we thought through the first half of the year.
Jesus Malave: I think given the fact that we're at a higher level in 2024 is a positive, and we continue to expect to grow in 2025 off this higher baseline.
Speaker Change: We expect our continue as I mentioned in my prepared remarks that we continue to expect the backlog to increase at the end of this year, which gives us more visibility into further growth in 'twenty five and beyond so we're we're very bullish on where that stands from a backlog standpoint as far as supply chain. We did see improvement we are seeing continued improvement there.
Jesus Malave: So that in and of itself should result in a higher cash flow baseline as well. But there's a lot of work to be done between now and then, and so I would like to have the benefit of going through that in more detail, and we'll update that to you at least preliminarily in October .
Speaker Change: That's great. Thank you.
Speaker Change: <unk> and on time delivery.
Speaker Change: Part shortages continue to come down having said that there are still areas, where we're particularly where we're ramping up some of our major programs, where we still have.
Speaker Change: Thank you. The next question is from Gavin Parsons from UBS. Please go ahead. Thanks. Morning.
Gavin Eric Parsons: Good morning.
Gavin Eric Parsons: I'd be sticking on revenue. You guys have talked about supply chain kind of being a bottleneck.
Speaker Change: Some work to be done there and we're still going through many of the initiatives and actions that proactive actions that we've talked about in the past, which is some in sourcing on some capabilities dual sourcing where it makes sense.
Gavin Eric Parsons: Is the upside more on the demand front or on the unlocking of the supply chain side and if the latter, can you just talk a little bit more about supply chain and what you expect going forward in the second half? Because I think the second half implies a lot less growth.
Speaker Change: Also we have deployed and we continue to deploy personnel to provide onsite assistance and our suppliers and of course. We also will continue to look at a product redesign, but I'd say by and large we are seeing an improvement in our supply chain, which also gives us confidence for that continued growth in the future.
Speaker Change: I'd say it's a combination of both. We ended the year of 2023 with a $160 billion backlog, which was a record. We ended here the second quarter at 158, slightly below where it ended at a record.
Speaker Change: Kevin I'll, just give you some qualitative background on on demand side.
Speaker Change: with significantly higher sales than we thought through the first half of the year.
Speaker Change: Our strategy includes driving the latest digital technologies kind of through an open architecture standard based system to the Dod and by doing that and making our products services platforms.
Speaker Change: We expect, as I mentioned in my prepared remark, that we continue to expect the backlog to increase at the end of this year, which gives us more feasibility into further growth in 2025 and beyond. So we're very bullish on where that stands from a backlog standpoint.
Speaker Change: Client or in line with those future concepts of open architecture and standards.
Speaker Change: As far as supply chain, we did see improvement. We are seeing continued improvement there.
Speaker Change: Pull through those products services and platforms. So we're starting to see that already.
Speaker Change: and On Time Delivery.
Speaker Change: The part shortages continue to come down.
Speaker Change: Having said that, there are still areas where we're, particularly where we're ramping up some of our major programs.
And we're demonstrating whether its exercises or in real conflict like in the Red Sea.
Speaker Change: where we still have some work to be done there. And we're still going through many of the initiatives and proactive actions that we've talked about in the past.
Speaker Change: Doing things like over the air updates to the aegis system, which is decades old but it can be improved very quickly now.
Speaker Change: Just like when you get a download overnight on your Tesla, we can do a download overnight over the air on the aegis radar.
Speaker Change: which is some insourcing on some capabilities, dual sourcing where it makes sense.
Speaker Change: Also, we have deployed and we continue to deploy personnel to provide on-site assistance out of suppliers, and of course, we will continue to look at product redesign. But I'd say, by and large, we are seeing an improvement in the supply chain, which also gives us confidence for that continued growth in the future.
Speaker Change: Tom back control system, and double or triple the effectiveness against things like low flying drones and cruise missiles. So we're actually implementing those kinds of things on a standard space.
Speaker Change:
Speaker Change: Architecture into our products and services today, which I expect will continue to pull them through.
Speaker Change: And Gavin, I can just give you some qualitative background on demand side. You know, our strategy includes, you know, driving, you know, the latest digital technologies through an open architecture, standard based system.
Speaker Change: Great I appreciate the detail.
Speaker Change: Thank you. Our next question is from Pete Skibinski Global.
Speaker Change: Please go ahead.
Pete Skibinski: Hey, good morning, guys good morning.
Speaker Change: to the DoD and by doing that and making our product services platforms compliant or in line with those future concepts of open architecture and standards.
Speaker Change: Missiles and fire control.
Pete Skibinski: About what was appropriate in the 'twenty four baseline budget in the Ukraine supplemental how much order flow is still to come there for you guys that MFC and also just if we think about the.
Speaker Change: to pull through those products, services, and platforms.
Speaker Change: So, we're starting to see that already.
Pete Skibinski: The growth cadence there you talked about $750 million a year in the past youre going to be well above that this year. So I'm just wondering if that is that cadence.
Speaker Change: and we're demonstrating whether it's exercises or in real conflict like in the Red Sea.
Speaker Change: doing things like over-the-air updates to the Aegis system which is decades old but it can be improved very quickly now just like when you get a download overnight on your Tesla we can do a download overnight over the air on the Aegis radar
It's going to come back into play at 25 on the higher baseline. Thanks.
Speaker Change: Sure I mean, there's still plenty of runway in orders at MFC and as I mentioned the book to Bill in the quarter was above two and we still expecting additional orders at the end of the year, particularly in Jassem RASM in.
Speaker Change: [inaudible]
Speaker Change: In the second half here.
Speaker Change: There is still even on the supplemental theres some opportunity there.
Speaker Change: Two to continue to build their backlog and so.
We've talked about 750, youre right theyre going to be above that this year, we see continued growth.
Speaker Change: ...architecture into our products and services today, which I expect will continue to pull them through.
Speaker Change: They are next year and theyre going to be again, the highest grower within Lockheed Martin for the next three to five years. So we're pretty bullish on that much of that is already in the backlog, but there's still plenty more.
Speaker Change: Great, appreciate the detail.
Speaker Change: Thank you. Our next question is from Pete Skibitski from Alambeck Global. Please go ahead.
Speaker Change: More to come in terms of build continuing to build that backlog. The key for US is to make sure that we can meet the demand and ramp up all of these programs.
Peter John Skibitski: Hey, good morning, guys.
Speaker Change: Guys, that missile's in fire control.
Speaker Change: You know, if you think about what was appropriate in the 24 baseline budget and the Ukraine supplemental...
Peter John Skibitski: How much order flow is still to come there for you guys at MNFC?
Speaker Change: To our customers requirements and the team has been laser focused on making sure. They can do that and you're seeing the benefits of that this year with their sales coming in higher so again, we keep our head down continue to deliver.
Speaker Change: And also just, you know, if we think about the growth cadence there, you talked about $750 million a year in the past, you're going to be well above that this year. So I'm just wondering if that cadence, you know, is going to come back into play in 2025 on the higher baseline. Thanks.
Speaker Change: The demand is both domestic and international NMFC and again theyre going to be a significant source of growth for Lockheed Martin for the next three to five years.
Speaker Change: Sure, I mean, there's still plenty of runway and orders at MFC. As I mentioned, you know, the book to bill in the quarter was above two, and we're still expecting additional orders at the end of the year.
Speaker Change: Pete It's Jim again on a qualitative perspective.
I tell our teams and our executives internally where in the aerospace and defense.
Industry, but we're in the deterrent business right. So if you step back and say what contributes to deterrence from NMFC for example.
Speaker Change: Particularly in JASM Larazum.
Speaker Change: in the second half here. There's still, even on the supplementals, there's some opportunity there to continue to build their backlog. And so, you know, we've talked about $750,000. You're right, they're going to be above that this year. We see continued growth.
Speaker Change: And I think anybody at several Osha Clint Eastwood movie will know that if we run out of ammunition youre in a lot of trouble right. So part of deterrence is showing that a you have enough ammunition stocks to prevail.
Speaker Change: They are next year, and they're going to be, again, the highest grower.
Speaker Change: within Lockheed Martin for the next three to five years. So we're pretty bullish on that.
Speaker Change: Sustain your operations from.
Speaker Change: From an aggressor. That's the first thing second thing is you also.
Speaker Change: Much of that is already in the backlog, but there's still plenty more to come in terms of continuing to build that backlog.
Speaker Change: It is helpful to demonstrate that you can produce at rate and ramp that rate quickly. That's our anti fragility program and the third piece of it is you can produce and repair.
Speaker Change: The key for us is to make sure that we can meet the demand and ramp up all these programs to our customers' requirements. And the team has been laser-focused on making sure they can do that, and you're seeing the benefits of that this year with their sales coming in higher.
Speaker Change: <unk> and other products and the local theater and not have to bring them all the way back to the U S to fix them or to drive that production up that's the third part of our strategy. So everything we do is based on deterrence and strengthening that and MFC has a huge role in making sure that average series know that we've got enough stocks.
Speaker Change: So, you know, again, we keep our head down, continue to deliver. The demand is both domestic and international at MFC, and again, they're going to be a significant source of growth for Lockheed Martin for the next three to five years.
Speaker Change: In MFC type products, and we can ramp that rate and we can produce in different places and repair in different places should they act and that's really kind of a qualitative underpinning of what Jay was talking about.
Speaker Change: And Pete, it's Jim. Again, on a qualitative perspective.
Peter John Skibitski: I tell our teams and our executives internally...
Speaker Change: We're in the aerospace and defense.
Speaker Change: industry, but we're in the deterrence business, right? So if you
Speaker Change: Appreciate it guys. Thank.
Speaker Change: Thank you.
Speaker Change: The next question is from Seth Sigman from Jpmorgan. Please go ahead.
Peter John Skibitski: Step back and say what contributes to deterrence from an MFC, for example.
Speaker Change: And I think anybody that's ever watched a Clint Eastwood movie will know that if we run out of ammunition, you're in a lot of trouble, right? So part of deterrence is showing that, A, you have enough ammunition stocks,
Seth Sigman: Hey, thanks, very much and.
Speaker Change: Good morning.
Just.
Speaker Change: Quick one sorry about the background noise here.
Speaker Change: Just a quick one on kind of big picture I think J I think you've said in the past that.
Speaker Change: to prevail and sustain your operations.
Speaker Change: There was good potential for growth to be at least as strong as 2024, and 2025 and good potential for that growth rate to accelerate.
Speaker Change: from an aggressor.
Speaker Change: That's the first thing. Second thing is, you also...
Speaker Change: It's helpful to demonstrate that you can produce at rate and ramp that rate quickly. That's our anti-fragility program.
Is that still the case off of the higher revenue base and a higher growth rate here in 2025 and 24.
Speaker Change: And the third piece of it is you can produce and repair.
Speaker Change: MFC and other products in the local theater and not have to bring them all the way back to the U.S. to fix them or to drive that production up. That's the third part of our strategy.
Speaker Change: It's a good question Seth and as I mentioned before we're going just going through our process too.
Les: Les on our multi year outlook, including 2025 here over the next few months.
Speaker Change: So everything we do is based on deterrence and strengthening that, and MFC has a huge role in making sure that adversaries know that we've got enough stocks in MFC-type products, and we can ramp that rate, and we can produce in different places and repair in different places.
Speaker Change: I would tell you is that the backlog visibility that we have would support another year similar to 2024.
We have to go through though in the operational the practical operational capability to deliver that is something we have to go through and so demand is there we have to make sure the supply can meet that as well.
Speaker Change: Should they act? And that's really kind of a qualitative underpinning of what Jay was talking about.
Speaker Change: Pretty significant step change.
Speaker Change: Appreciate it, guys. Thank you.
Speaker Change: Over really a two year span on some of these ramp programs that we're dealing with and as I mentioned before we're still dealing with some programs that are still working through trying to get up to the ramp rates.
Speaker Change: The next question is from Seth Seifman from J.P. Morgan. Please go ahead.
Seth Michael Seifman: Hey, thanks very much and good morning. Probably just a quick one. Sorry about the background noise here.
Seth Michael Seifman: Just a quick one and kind of big picture, I think, Jay, I think you've said in the past that there was good potential for growth to be at least as strong as 2024 and 2025 and
Speaker Change: Okay.
Speaker Change: And our next question is from Sheila.
Speaker Change: Sheila <unk> from Jefferies. Please go ahead.
Sheila: Good morning, guys. Thank you.
Speaker Change: Maybe if we could talk about profitability. If we look at first half profitability of 10 seven.
Jesus Malave: you know, good potential for that growth rate to accelerate. Is that still the case off of the higher revenue base and higher growth rate here in 2025, in 2024?
Speaker Change: Second half implied in the low 10 can you walk through some of the moving pieces.
Speaker Change: Maybe in terms of supply chain productivity I know volumes are lower and how we think about the exit rate for the year.
Jesus Malave: It's a good question, Seth. And as I mentioned before, you know, we're going, just going through our process to lay out our multi-year outlook, including 2025, here over the next few months. What I would tell you is that the backlog visibility that we have would support another year similar to 2024.
Speaker Change: Yes, the second half of the year Sheila is the most significant.
Speaker Change: <unk> would be the program loss at MFC that we have to record in the second half.
Speaker Change: So as I mentioned in my prepared remarks, we've recorded about $100 million here year to date and second half we expect about another $225 million, so that will put pressure.
Jesus Malave: You know, we have to go through, though, and the operational, the practical operational capability to deliver that is something we have to go through. And so the demand is there. We have to make sure the supply can meet that as well. That's a pretty significant step change.
Speaker Change: On margins in the back half the second piece I would say is that we would even though we had a.
Speaker Change: Very strong and solid profit adjustment first half that slows down a little bit in the back half of the year just based on program timing the timing of risk retirements and so just the risk retirements and profit adjustments are not all linear.
Jesus Malave: over really a two year span on some of these ramp programs that we're dealing with. And as I mentioned before, we're still dealing with some programs that are still working through trying to get up to those ramp rates.
Speaker Change: There are different aspects of our program lifecycle.
Speaker Change: But what I would say is we.
Jesus Malave: And our next question is from Sheila Kahyaoglu from Jefferies. Please go ahead.
Speaker Change: We feel comfortable with where we're headed we've talked about.
Speaker Change: 2020 for being a low watermark for all net net margins and we expect it to improve gradually over the next few years and we still feel confident that can take place.
Sheila Karin Kahyaoglu: Good morning guys, thank you. Maybe if we could talk about profitability, if we look at first half profitability of 10-7.
Sheila Karin Kahyaoglu: Second half implied in the low 10s. Can you walk through some of the moving pieces, maybe in terms of supply chain productivity? I know volumes are lower and how we think about the exit rate for the year.
Speaker Change: Thank you.
Alright, thank you.
Speaker Change: Next question is from Ken Herbert from RBC capital markets. Please go ahead.
Sheila Karin Kahyaoglu: The second half of the year, Sheila, the most significant would be the program loss at MFC that we have to record in the second half.
Ken Herbert: Yes, hi, good morning, I, just wanted to see and apologize if I missed this but can you comment on your view and how youre thinking about that now moving forward and what we might be thinking about in terms of the next catalyst for you on this particular program.
Sheila Karin Kahyaoglu: So, you know, as I mentioned in my prepared remarks, we have recorded about a hundred million dollars here year-to-date.
Jim: Sure Ken it's Jim here, so when it comes to and that is a program of we're not authorized at industry to speak to the details of that so you'd have to go to the U S government to to.
Sheila Karin Kahyaoglu: In the second half, we expect about another $225 million, so that will put pressure on
Sheila Karin Kahyaoglu: on margins in the back half. The second piece I'd say is that we would, even though we had a very strong and solid profit adjustment first half, that slows down a little bit in the back half of the year just based on program timing, the timing of risk retirements.
Speaker Change: To get insight into that particular program.
But I can tell you what we're doing to prepare for the next generation combat aircraft.
Sheila Karin Kahyaoglu: And so, you know, just the risk retirements and profit adjustments are not all linear. They occur at different aspects of a program life cycle.
Speaker Change: So some of those are.
Speaker Change: On the investment front.
Speaker Change: Since 1919, 'twenty or 2021 rather.
Sheila Karin Kahyaoglu: But, you know, what I would say is we feel comfortable with where we're headed. We've talked about 2024 being a low-water mark for all net-net margins, and we expect it to improve gradually over the next few years, and we still feel confident that can take place.
Speaker Change: We opened the gates on for Hi Tech facilities that have the clearance.
Speaker Change: The security clearance capability to produce and Gad type components, let's call them alright.
Speaker Change: Thank you.
Speaker Change: And Florida Skull course of California open a new major factory that I was there to see.
Speaker Change: All right. Thank you. The next question is from Ken Herbert from RBC Capital Markets. Please go ahead.
Speaker Change: We have it in Alabama, two in Georgia. So we have these accredited facilities up and running ahead of the demand and we're working on programs and products and that classified.
Kenneth George Herbert: Yeah, hi, good morning. I just wanted to see, and apologies if I missed this, but can you comment on your view of NGAD and how you're thinking about that now moving forward and what we might be thinking about in terms of the next catalyst for you on this particular program?
Speaker Change: US capability space. So we've already got these facilities up and running.
James D. Taiclet: Sure Ken, it's Jim here. So when it comes to NGAD as a program,
Speaker Change: The resource we have is human and.
Speaker Change: In Skunk works Marietta and in Fort worth and other places that can design test build using our digital transformation engineering technologies.
James D. Taiclet: We're not authorized in the industry to speak to the details of that, so you'd have to go to the U.S. government to...
James D. Taiclet: to get insight into that particular program. But I can tell you what we're doing to prepare for the next generation combat aircraft.
Speaker Change: And the digital twin these kind of components aircraft and others that might go into it and Gad concept. So I can just tell you that Lockheed Martin is ready to produce we're ready to design ready to build.
James D. Taiclet: So some of those are on the investment front.
James D. Taiclet: Since 1921, or 2021 rather, we opened the gates on four
Speaker Change: We're in the process of <unk>.
Speaker Change: Making sure we're capable in the arenas that the air force and the Navy youre going to need us to be.
James D. Taiclet: High Tech Facilities
James D. Taiclet: that have the clearance...
Speaker Change: So that's really all we can say about that but I can assure you that we are competitive and ready to go in this space.
James D. Taiclet: Security Clearance Capability to Produce...
James D. Taiclet: and GAD-type components, let's call them, all right? One of them's in Florida. Scott works in California, opened a new major factory that I was there to see.
Speaker Change: If and when the government pulled the trigger on a real competition and whats what somebody would be able to produce we can do it.
James D. Taiclet: We have it in Alabama, too, and Georgia. So we have these accredited facilities up and running ahead of the demand, and we're working on programs and products in that classified capability space.
Speaker Change: Thank you and the next question comes from the line of Rob Spingarn.
Speaker Change: <unk> research. Please go ahead.
Rob Spingarn: Hey, good afternoon, or I guess, it's still morning.
Rob Spingarn: I wanted to ask you about on F 35, and congrats on the on the resumption of deliveries, but when we think about tier three and on the production side of the equation.
James D. Taiclet: So, we've already got these facilities up and running. The other resource we have is Human, in Skunk Works, Marietta, and in Fort Worth and other places.
Speaker Change: How is the supply chain in terms of being able to supply enough material in integrated core processors on time for you to maintain the $1 56 per year. So as the mix goes more toward all tier three how well prepared as the supply chain for that.
James D. Taiclet: that can design, test, and build using our digital transformation engineering technologies and a digital twin, these kind of components, aircraft and others that might go into an NGAD concept.
Speaker Change: So we got together Rod as I mentioned, a few minutes ago in our prepared remarks, and Fort worth about a month ago with the Ceos of the half.
James D. Taiclet: So, I can just tell you that...
James D. Taiclet: Lockheed Martin is ready to produce. We're ready to design. We're ready to build. We are in the process of...
James D. Taiclet: Making sure we're capable in the arenas that the Air Force and the Navy are going to need us to be.
Speaker Change: For those companies that contribute to this.
Speaker Change: A significant way.
James D. Taiclet: So that's really all we can say about that, but I can assure you that we are competitive and ready to go in this space if and when the government pulls a trigger on a real competition and wants somebody to be able to produce, we can do it.
Speaker Change: We communicated.
Speaker Change: The importance of exactly what you're speaking to which is not just a core processor, but theres a range a number of other components.
Speaker Change: All of these companies that need to may.
Speaker Change: Maintain or increase their production rates and modernize their equipment, along the way and so that communication of those suppliers has been made they know our plans were well integrated more integrated than we ever have I think when it comes to test in <unk>.
Speaker Change: Thank you. And the next question comes from the line of Rob Spingarn from Milius Research. Please go ahead.
Robert Michael Spingarn: Hey, good afternoon, or I guess it's still morning, but...
Robert Michael Spingarn: I wanted to ask you about, on F-35, and congrats on the resumption of deliveries, but when we think about TR-3, and on the production side of the equation,
Speaker Change: Planning and design iterative software across multiple companies et cetera. So we're in a position and our suppliers are telling us they will meet the demand.
Robert Michael Spingarn: How is the supply chain in terms of being able to supply enough material and integrated core processors on time for you to maintain the 156 per year? So as the mix goes more toward all TR3, how well prepared is the supply chain for that?
Speaker Change: We'll monitor them and continue to but you can put people in their sites when we need to to make sure that happens, but we've got the.
The major suppliers together and they understand the demand rate quality level, we need and a better integration plan for.
Robert Michael Spingarn: So we got together, Rob, as I mentioned a few minutes ago in the prepared remarks in Fort Worth.
Speaker Change: Test and development.
Speaker Change: We have built going forward.
Speaker Change: And Jim just following on to that how do we think about the cadence for retrofit from from tier two to three.
Speaker Change: We communicated the importance of exactly what you're speaking to, which is not just the core processor, but there's a range, a number of other components that we're looking at, and we're going to be talking about that in a little bit. Thank you. Thank you. Thank you.
Speaker Change: So youre right Rob that this is designed for backward integration if you will.
Speaker Change: A schedule that U S government comes up with for tier three.
Speaker Change: Across all of these companies that need to maintain or increase their production rates.
Speaker Change: There maybe.
Speaker Change: It will be up to them as to the cadence the investment rate et cetera, but over a period of time, there will be a great number of originally built TR two aircrafts that will get converted.
Speaker Change: and modernize their equipment along the way. And so that communication of those suppliers has been made. They know our plans. We're well-integrated, more integrated than we ever have, I think, when it comes to test and...
Speaker Change: There's some hardware.
Speaker Change: Our approach to that is this the kind of thing you expect to be talking about soon or this is a few years out we should be focused on.
Speaker Change: Planning and Design, Iterative Software across multiple companies, etc.
Speaker Change: New production aircraft for now tier three yes.
Speaker Change: So we're in a position and our suppliers are telling us they will meet the demand.
Again this is a U S government policy decisions. So it is better.
Speaker Change: Request that kind of.
Speaker Change: We will monitor them and continue to even put people in their sites when we need to.
Rob Spingarn: Commentary from them, Rob, but we are again ready to do it at the rate that we expect that they can come at us with.
Speaker Change: to make sure that happens. But we've got the major suppliers together and they understand the demand, rate, quality level we need, and a better integration plan for test and development that we have built going forward.
Speaker Change #100: Great. Thanks, so much thank.
Speaker Change #101: Thank you.
Speaker Change #103: The next question is from Noah <unk>.
Speaker Change #102: From Goldman Sachs. Please go ahead.
Noah: Hey, good morning, everyone. Good morning.
Speaker Change: And Jim, just following on to that, how do we think about the cadence for retrofit from TR two to three?
Jay: Jay could you give us the updated.
Speaker Change #105: If you snap the line today are just ballpark as you see it.
James D. Taiclet: So you're right, Rob, that this is designed for backward integration, if you will. There'll be a schedule that the U.S. government comes up with for TR-3.
Speaker Change #106: Cash flow pension contribution and cash recovery for at least 25, and I guess, if you had it and we're willing to give it beyond that would be helpful. And then I guess.
Speaker Change: It will be up to them as to the cadence, the investment rate, etc. But over a period of time, there will be a great number of originally built TR-2 aircraft that will get converted.
Speaker Change #107: Can you can you talk through the pieces of how you grow absolute dollar free cash flow in 'twenty five given.
Speaker Change #108: The pension headwind you have and how it compares to how quickly you can grow the segment EBIT.
Speaker Change #109: Yeah. So on on Cas recovery this year were little bit under say $1 $7 billion, we expect that to step down by in the range of about $100 million, you'll probably stay at that level for the next few years after that.
Speaker Change: Is this the kind of thing you expect to be talking about soon, or this is a few years out, we should be focusing on new production aircraft for now, TR-3? Yeah, so, again, this is a U.S. government policy decision, so it's better to request that kind of...
Speaker Change #109: As far as absolute free cash flow in terms of the buildup and the components to being able to continue to grow yes, we've talked about pension being a headwind we've talked about being in the range of about $1 billion.
Speaker Change: Commentary from them, Rob, but we're, again, ready to do it at the rate that we expect that they come at us with.
Speaker Change: Great. Thanks so much. Thank you.
Speaker Change #109: The areas that we expect to drive cash flow growth would be continued earnings growth.
Speaker Change: The next question is from Noah Poponak from Goldman Sachs. Please go ahead.
Speaker Change #110: You discussed their net income growth.
Noah Poponak: Hey, good morning everyone. Good morning.
Speaker Change #110: In addition to some of these benefits and the timing on the F 35.
Noah Poponak: Jay, could you give us the updated, I guess if you snapped the line today, or just ballpark as you see it, cash flow?
Speaker Change #110: We've talked also about just working capital in general and even when you put F 35 aside.
Noah Poponak: Pension Contribution and CAS Recovery for at least $25, and I guess if you had it and were willing to give it beyond that would be helpful. And then I guess, can you talk through the pieces of how you grow absolute dollar-free cash flow in $25?
Speaker Change #111: What we're looking at and going after is our contract asset. If you look here in the second quarter that was a nearly $14 billion balance.
Speaker Change #111: That we have.
Speaker Change #111: It represented in the rain and I put that in terms of efficiency around 70 to 72 days.
Speaker Change: given the pension headwind you have and how it compares to how quickly you can grow the segment of it.
Speaker Change #111: Of sales running through the balance at the moment.
Speaker Change #111: Since 2020, or so that's grown from about 55 days, so theres an element of their in kind of the F 35, and what we've gone through over the past couple of years, there, but theres also been growth outside of the F. 35 that represents a lot of opportunity for us to convert into faster billings at a level that we've been able to demonstrate in the past and that's we've been focused.
Speaker Change: Yeah, so on CAS recovery, you know, this year we're a little bit under, say, $1.7 billion. We expect that to step down by in the range of about $100 million and probably stay at that level for the next few years after that.
Speaker Change: As far as absolute free cash flow in terms of the build up of the components to being able to continue to grow, yes, you know, we talked about our pension being ahead when we talked about being in the range of about a billion dollars.
Speaker Change #111: With all of the business areas in terms of driving that on a multiyear basis back down to what we've been able to demonstrate.
Speaker Change #111: The next thing I'll say, so besides working capital and contract assets are being our biggest opportunity is the reduction of payments related to the tax R&D capitalization. So we'll get in the range I would say about $150 million.
Speaker Change: The areas that we expect to drive cash flow growth would be continued earnings growth, as you discussed, or net income growth, in addition to some of these benefits and the timing on the F-35.
Speaker Change #111: Of benefit just through lower payments there. So when you bring all these things together, we think that they generate a path to overcome.
Speaker Change: We've talked also about just working capital in general, and even when you put F-35 aside, what we're looking at and going after is our contract asset. If you look here in the second quarter, that was a nearly $14 billion balance.
Speaker Change #111: What we're seeing in the pension and drivers to this target of low single digits not easy it's not a slam dunk, but we've got a path to be able to do that and that's what we're driving today to be able to deliver next year and beyond.
Speaker Change: that we had and that's represented in the rain and I'll put that in terms of efficiency around 70-72 days of sales running through the balance at the moment.
Speaker Change #112: Thank you. The next question is from the line of Peter or Matt.
Speaker Change #113: From Baird. Please go ahead.
Speaker Change: Since 2020 or so, that's grown from about 55 days.
Matt: Yeah. Thanks good.
Matt: Good morning, everyone Jim Jaye.
Speaker Change: So there's an element of there and kind of the F-35 and what we've gone through over the past couple years here But there's also been growth outside of the F-35
Matt: Maybe this is just for you on the.
Speaker Change #115: Just talking about you've talked a lot about MFC.
Speaker Change #116: MFC as production.
Production ramp that youre going to have over the next couple of years, just how does this all tie in with the <unk>.
Speaker Change: That represents a lot of opportunity for us to convert into faster billings at a level that we've been able to demonstrate in the past. And that's what we've been focused with on all of the business areas in terms of driving that on a multi-year basis back down to what we've been able to demonstrate.
Speaker Change #117: Collaborative agreements you got with Ryan Mattel now tax free.
Speaker Change #117: Production opening up in Poland and India.
Jim Jaye: Jim also mentioned, Spain.
Speaker Change #119: An agreement there just can you give us an update on Pac three what the growth.
Speaker Change: The next thing I'll say, besides working capital and contract assets, our biggest opportunity is the reduction of payments related to the tax R&D capitalization.
Speaker Change #120: Kind of expansion it looks like now and same I guess on some high margin and jazz them with the with some of those growth rates look like Im sure a lot of these agreements enable part of country requirements for industrial cooperation you mentioned, Poland. Jim mentioned, Germany also Australia and those are enablers for us to build up this backlog and drive.
Speaker Change: So we'll get in the range, I'd say about $150 million of benefit just through lower payments there. So when you bring all these things together, we think that they generate...
Speaker Change #100: Taiclet, Jesus Malave, Maria Lee
Speaker Change #121: As demand on the Pac three specifically, we expect to get to 550 in.
Speaker Change #121: In 2025, and then to 650 by 2027.
Speaker Change #119: So all of these orders and these partnerships that were.
Speaker Change #119: Signing up were all enablers towards to be able to to produce and deliver at those rates and it's not just Pac three we've talked about GMO IRS going from 10000 to.
Speaker Change #100: Thank you. The next question is from the line of Peter Arment.
Peter J. Arment: From Baird, please go ahead.
Peter J. Arment: Yeah, thanks. Good morning, everyone. That's Jim Jay. Hey, Jay, maybe this is just for you on the...
Speaker Change #119: 14000, we've talked about javelin going from 2000 to about 4000, we've talked about Jasmine lower RASM going from about 700, a year to 1100 a year. So all of these orders that we're seeing all of these customer engagements that we have both domestic and international are all enablers to drive these rates that were.
Peter J. Arment: You know, just talking about, you've talked a lot about MST's, you know, production ramp that you're going to have over the next couple of years, just how does this all tie in with, you know, the collaborative agreement you got with Ryan Mattel now at PAC-3, you know, production opening up in Poland, and I think...
Speaker Change #102: also mentioned Spain, an agreement there, can you give us an update on PAC-3, what the growth kind of expansion looks like now, and same I guess on some HIMARS and JASM, what some of those growth rates look like.
Speaker Change #119: We are building two and so what they do is filling the bucket to bring us to that backlog that's necessary for us to generate those sales.
Speaker Change #119: We're on track to that.
Speaker Change #103: Sure, you know, a lot of these agreements enable, you know, they're part of in-country requirements for industrial cooperation. You mentioned Poland, you mentioned Germany, also Australia.
Speaker Change #119: Okay.
Speaker Change #119: The next question comes from the line of Jason Gursky from Citi Research. Please go ahead.
Jason Gursky: Yes, good morning, everybody.
Speaker Change #104: And those are enablers for us to build up this backlog and drive this demand. On the PAC-3 specifically...
Jason Gursky: Jim I wanted to just through a big picture one at you and and maybe have you kind of wrap all of this together.
Speaker Change #105: We expect to get to 550 in 2025 and then up to 650 by 2027.
Jim Jaye: What youre seeing both in the near.
Jim Jaye: And then the long term and maybe just get your sense of maybe.
Speaker Change #105: And so all of these orders and these partnerships that we're signing up are all enablers to us to be able to produce and deliver at those rates.
Jim Jaye: With a few more quarters here.
Jim Jaye: Hindsight some of the lessons learned from the conflict in Ukraine.
Speaker Change #105: And it's not just PAC-3, we've talked about GMLRS.
Jim Jaye: <unk>.
Jim Jaye: At Lockheed have learned from that.
Speaker Change #105: Going from 10,000 to 14,000. We've talked about Javelin going from 2,000 to about 4,000. We've talked about Jasmine and Larazum going from about 700 a year to 1,100 a year.
Speaker Change #123: Whether you're kind of investing in any new areas as a result of that and kind of the feedback loop that youre getting from your customer both here in the United States as well as some of our Allied nations as well are we seeing the development of a new set of requirements and investment areas and kind of where are you spending.
Speaker Change #105: So, all of these orders that we're seeing, all these customer engagements that we have, both domestic and international, are all enablers to drive to these rates that we're building to. And so, what they do is fill in the bucket to bring us to that backlog that's necessary for us to generate those sales.
Speaker Change #123: And how are you going about doing it just a big picture one.
Speaker Change #124: Here, we are middle of.
Speaker Change #124: 24, what do we learn from Ukraine, and what are we doing.
Speaker Change #105: And we're interrupted now.
Speaker Change #125: So Jason I would say that there is a wide range of lessons from the Ukraine conflict unfortunate as it is but there is learning from it one is that.
Speaker Change #105: The next question will come from the line of Jason Gursky from City Research. Please go ahead.
Jason Michael Gursky: Good morning, everybody. Jim, I wanted to just throw a big picture one at you and maybe have you kind of wrap all of this together and kind of what you're seeing both in the near and in the long term and maybe just get your sense of, you know, maybe
Speaker Change #124: Traditional.
Speaker Change #124: <unk>.
Speaker Change #124: Systems, if you will.
Speaker Change #124: Like javelin at the initial invasion.
Speaker Change #124: Made a significant.
Speaker Change #124: Contribution.
Speaker Change #124: Two the initial defense of Ukraine, because it was a classic armor attack and armor supported infantry attack.
Jim: With a few more quarters here of hindsight some of the lessons
Speaker Change #124: Our armored vehicles that we're spearheading the drive to Keith.
Jim: Learned from the conflict in Ukraine.
Speaker Change #124: And when those vehicles got out in front of their support system.
Jim: What you at Lockheed have learned from that.
Jim: whether you're kind of investing in any new areas as a result of that and kind of the feedback loop that you're getting from your customer both here in the United States as well as some of our
Speaker Change #124: That the javelin for example made a tremendous difference in stopping that attack short right. So you have a traditional system.
Speaker Change #126: <unk> was designed for.
Speaker Change #108: Allied Nations as well. Are we seeing, you know, a development of a new set of requirements and investment areas and kind of where are you spending and how are you going about doing it? Just a big picture, what do, you know, here we are middle of 24, what have we learned from Ukraine and what are we doing?
Speaker Change #126: Yes.
Speaker Change #126: Land warfare traditional land warfare. If you will that was highly effective. So we did learn from that now there's jamming both ways. There is electronic warfare cyber and.
Speaker Change #126: Mike.
Speaker Change #126: Tell my team.
Mike: High School wrestling coach that for every move there's a countermove. So if a jam GPS we we tweak the system either satellite or the receiver or have an alternative form of navigation are targeting and we react to that so on one hand traditional systems are still effective on the other hand, you have to be able to adapt quickly I'd say that was the main lesson there.
Speaker Change #108: Systems, if you will.
Speaker Change #109: like Javelin at the initial invasion made a significant contribution.
Mike: Another one similar situation.
Speaker Change #128: Pac three again decades.
Speaker Change #109: to the initial defense of Ukraine because of the classic armor attack and armor supported infantry attack.
Speaker Change #128: And service.
Speaker Change #128: And now there's a hypersonic missile threat from.
Speaker Change #128: Russia, which was launched on a number of occasions.
Speaker Change #128: I think all of those occasions.
Speaker Change #109: I mean, there were armored vehicles that were spearheading the drive to Kiev.
None of those missiles were successfully reaching their target because the factory was modified to be able to address the hypersonic missile threat.
Speaker Change #109: and when those vehicles got out in front of their support system
Speaker Change #109: that the Javelin, for example, made a tremendous difference in stopping that attack short, right? So you have a traditional system that was designed for, you know,
Speaker Change #128: And then we'll go to the kind of the other side of the issue, which is OK drones became a more important.
Speaker Change #128: Element of land warfare than it had been before NMC warfare actually Ukrainians U C.
Speaker Change #109: Ground, Land Warfare, Traditional Land Warfare, if you will.
Speaker Change #128: <unk> see vehicles to significant extent and success.
Speaker Change #109: that was highly effective. So we did learn from that. Now there's jamming both ways. There's electronic warfare. There's cyber.
Speaker Change #128: Also drones and unmanned aerial vehicles too. So this is not the first time those kinds of systems.
Speaker Change #110: I tell my team, like your high school wrestling coach said, for every move, there's a counter move. So if you jam GPS, we tweak the system, either the satellite or the receiver, or have an alternative form of navigation or targeting, and we react to that. So on one hand, traditional systems are still effective. On the other hand, you have to be able to adapt quickly. I'd say that was the main...
Speaker Change #128: Been used.
Speaker Change #128: Prior conflicts, including in the Middle East and the counterterrorism, whereas if you will.
Speaker Change #128: The training took it to a new level literally thinking capital shifts with unmanned aerial systems. So there were lessons there too.
Speaker Change #128: That's something our company is quite involved with a lot of it's classified whether its kinetic or surveillance.
Speaker Change #110: Lesson there.
Speaker Change #110: Another one, similar situation.
Speaker Change #128: Unmanned aerial systems, but we're learning from those two so.
Speaker Change #111: Pack three, again, decades in service.
Speaker Change #128: We've worked with drones is smaller.
Speaker Change #111: And now there's a hypersonic missile threat from Russia, which was launched on a number of occasions. I think on all of those occasions, none of those missiles were successfully reaching their target because the PAC-3 was modified to be able to address the hypersonic missile threat.
Speaker Change #128: Ones that had.
Speaker Change #128: Marine can.
Speaker Change #128: Pat from a backpack.
Speaker Change #128: And launched by hand too.
Speaker Change #129: Aircraft size Jones, if you will so we're involved in that game and we did take the lessons.
From the Ukraine, more and that's traditional systems are still essential.
Speaker Change #111: And then, you know, we'll go to the other side of the issue, which is, okay, drones became a more important element of land warfare than they had been before, and in sea warfare, actually. The Ukrainians used autonomous sea vehicles.
Speaker Change #129: At bulk and scale and secondly, they have to be much more adaptable than they ever had before and that kind of supports our digital technology.
Speaker Change #129: Effort and campaign as they look to use those best digital technologies to make those legacy systems, better and better all the time and not wait for a conflict to our forces to do that.
Speaker Change #111: to significant extent and success, and also drones and unmanned aerial vehicles too. So this is not the first time, you know, those kinds of systems have been used, you know.
Great Hey, Lewis I think we've come to the top of the hour. So I'll turn it back over to Jim for some final thoughts. Thanks, Maria So far we close I'd like to thank our Lockheed Martin team is dedicated.
Speaker Change #111: in prior conflicts, including in the Middle East, in the counterterrorism wars, if you will. But the Ukrainians took it to a new level, literally sinking capital ships with unmanned aerial systems. So there were lessons there, too. That's something our company's quite involved with. A lot of it's classified, whether it's kinetic or surveillance.
Speaker Change #130: Efforts advanced our customers' missions and propelled our solid results this quarter as you heard from J R.
Speaker Change #131: Our capabilities are recognized around the world as the best in Defense Tech.
Speaker Change #131: And that is thanks to our employees hard work dedication and commitment to continued innovation with.
Speaker Change #132: With 20, <unk> century security technologies I, just described our robust backlog and focus on transforming our operations to our internal digital transformation program.
Speaker Change #111: Unmanned Aerial Systems, but we're learning from those too. So we work with drones as small as ones that a Marine can unpack from a backpack and launch by hand to aircraft-sized drones, if you will. So we're involved in that game, and we did take the lessons.
Speaker Change #132: Our company has a strong foundation for growth for years to come.
Speaker Change #132: So I look forward to speaking with you again on our next call in October and lowest that concludes our call for today.
Speaker Change #133: 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 #111: from the Ukraine war. And that's traditional systems are still essential.
Speaker Change #111: at bulk and scale. And secondly, they have to be much more adaptable than they ever had to be before. And that kind of supports our digital technology effort and campaign to say, let's use those best digital technologies to make those legacy systems better and better all the time, and not wait for a conflict to force us to do that.
Speaker Change #132: Okay.
Speaker Change #111: Great. Hey, Lois, I think we've come to the top of the hour, so I'll turn it back over to Jim for some final thoughts.
Jim: Thanks Maria. So before we close, I'd like to thank our Lockheed Martin team who's dedicated
Jim: Efforts advanced our customers' missions and propelled our solid results this quarter, as you heard from Jay. Our capabilities are recognized around the world as the best in defense tech, and that is thanks to our employees' hard work, dedication, and commitment to continued innovation.
Jim: With 21st century security technologies, I just described our robust backlog and focus on transforming our operations for our internal digital transformation program.
Jim: Our company is a strong foundation for growth for years to come.
Jim: So I look forward to speaking with you again on our next call in October , and Lois, that concludes our call for today.
Lois: 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 #112: We're sorry, your conference is ending now. Please hang up.
Speaker Change #112: [inaudible]
Speaker Change #113: Good day and welcome everyone to the Lockheed Martin Second Quarter 2021 Conference Call.
Maria Ricciardone Lee: Today's call is being recorded. If you would like to ask a question, please press 1 then 0 now. At this time, for opening remarks and introductions, I would like to turn the conference over to Maria Richard-Owen, Vice President, Treasurer, and Investor Relations. Please go ahead.
Maria Ricciardone Lee: Thank you, Lois, and good morning. I'd like to welcome everyone to our second quarter 2024 earnings conference call. Joining me today on the call are Jim Taiclet, our Chairman, President and Chief Executive Officer, and Jay Malave, our Chief Financial Officer.
Speaker Change #114: Statements made in today's call that are not historical facts are considered forward-looking statements and are made pursuant to the safe harbor provisions of federal securities law.
Speaker Change #114: Actual results may differ materially from those projected in the forward-looking statements. Please see today's press release and our SEC filings for a description of some of the factors that may cause actual results to differ materially from those in the forward-looking statements.
Speaker Change #114: We've 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.lockheedmartin.com and click on the investor relations link to view and follow the charts.
Speaker Change #114: With that, I'd like to turn the call over to Jim.
Jim: Thanks Maria. Good morning everyone. Thank you for joining us on our second quarter 2024 earnings call.
Speaker Change #115: Over the past few months, Lockheed Martin's people, systems, and platforms have again demonstrated their ability to enhance security in Eastern Europe , the Red Sea, and the Middle East.
Speaker Change #115: From the PAC-3's critical role in air defense, to the Aegis Combat System with AI augmentation, to the F-35 with its advanced sensor and data management capabilities,
Speaker Change #115: Our company has made major contributions to allied and partner defense.
Speaker Change #115: We continue to demonstrate the impact of our 21st century security strategy by harnessing the latest digital technologies to continuously improve mission effectiveness.
Speaker Change #115: Strengthening and Scaling the Defense Production System
Speaker Change #115: and expanding industrial cooperation among our allies and partners.
Speaker Change #115: Consequently, demand for our defense technology solutions remains robust.
Speaker Change #115: with a backlog of nearly $160 billion.
Speaker Change #115: greater than two times our annual revenue.
Speaker Change #115: Our strong performance so far in 2024 extends beyond BLAST's backlog as well.
Speaker Change #115: Giving us confidence to raise our 2024 Full Year Outlook for Sales, Segment Operating Profit, and EPS.
Speaker Change #115: In the second quarter, sales increased 9% year-over-year and 5% sequentially.
Speaker Change #115: and reflected growth in all four of our business segments.
Speaker Change #115: The supply chain continues to improve and defense outlays also continue to increase.
Speaker Change #115: Our focus on operational execution helped us achieve segment operating margins of 11.3% of 20 basis points compared to last year's second quarter, and free cash flow of more than $1.5 billion, an increase both year-over-year and sequentially.