Q3 2024 Northrop Grumman Corp Earnings Call

Unknown Executive: Good day, ladies and gentlemen, and welcome to Northrop Grumman's third quarter of 2024 conference call. Today's call is being recorded.

Unknown Executive: Good day, ladies and gentlemen, and welcome to Northrop Grumman's third quarter 2024 conference call. Today's call is being recorded.

Good day, ladies and gentlemen, and welcome to Northrop Grumman's third quarter 2024 Conference call. Today's call is being recorded my name is Josh and I will be your operator today at this time all participants are in a listen only mode. I would now like to turn the call over to your host Mr. Todd Ernst Vice President Investor.

Unknown Executive: My name is Josh, and I will be your operator today. At this time, all participants are in a listen-only mode.

Josh: My name is Josh, and I will be your operator today. At this time, all participants are in a listen-only mode.

Todd Ernst: I would now like to turn the call over to your host, Mr. Todd Ernst, Vice President, Investor Relations.

Todd Ernst: I would now like to turn the call over to your host, Mr. Todd Ernst, Vice President Investor Relations. Mr. Ernst, please proceed. Thanks, Josh, and good morning, everyone, and welcome to Northrop Grumman's third quarter of 2024 conference call. Before we start, matters discussed on today's call, including guidance and outlooks for 2024 and beyond, reflect the company's judgment based on information available at the time of this call. They constitute forward-looking statements pursuant to safe harbor provisions of federal securities laws. For looking statements involve risks and uncertainties, including those noted in today's press release and our SEC filing.

Unknown Executive: Mr. Ernst, please proceed.

Relations Mr. Ernst Please proceed.

Kathy Warden: Thanks, Josh, and good morning, everyone, and welcome to Northrop Grumman's third quarter 2024 conference call. Before we start, matters discussed on today's call, including guidance and outlooks for 2024 and beyond, reflect the company's judgment based on information available at the time of this call. They constitute forward-looking statements pursuant to safe harbor provisions of federal securities laws. Forward-looking statements involve risks and uncertainties, including those noted in today's press release and our SEC filings. These risks and uncertainties may cause actual company results to differ materially. Today's call will include non-GAAP financial measures that are reconciled to our GAAP results in our earnings.

Todd Ernst: These risks and uncertainties may cause actual company results to differ materially. Today's call will include non-GAAP financial measures that are reconciled to our GAAP results in our earnings release. Third quarter results reflect the realignment of the SDS division from space systems to defense systems. In addition, we will refer to a presentation that is posted on our Investor Relations website.

Kathy Warden: Third quarter results reflect the realignment of the SDS division from space systems to defense systems. In addition, we will refer to a presentation that is posted on our investor relations website.

Kathy Warden: On the call today, our Kathy Warden, our Chair, CEO and President, Dave Kepher, our CFO through September 30, and Ken Cruz, our CFO as of the first of this month.

Kathy Warden: On the call today are Kathy Warden, our Chair, CEO, and President, Dave Keffer, our CFO through September 30th, and Ken Cruz, our CFO as of the 1st of this month.

Kathy Warden: At this time, I'd like to turn the call over to Kathy.

Kathy Warden: At this time, I'd like to turn the call over to Kathy.

Kathy Warden: Kathy. Thanks, Todd.

Kathy Warden: Kathy? Thanks, Todd.

Kathy Warden: Good morning, everyone, and thank you for joining us. We delivered strong operating performance again in the third quarter, building on the momentum we achieved through the first half of the year. Global events continue to highlight the need for advanced capabilities to defend and deter against increasingly complex threats. This is driving the demand for our differentiated portfolio and is evident in our results. In the third quarter, our book to bill was once again very strong, which drove backlog to a new record level. Our backlog is now $85 billion, which is more than two times our annual revenue, supporting our confidence in the future growth of this business.

Kathy Warden: Good morning everyone, and thanks. Thank you for joining us. We delivered strong operating performance again in the third quarter, building on the momentum we achieved through the first half of the year. Global events continue to highlight the need for advanced capabilities to defend and deter against increasingly complex threats. This is driving the demand for our differentiated portfolio and is evident in our results. In the third quarter, our book to bill was once again very strong, which drove backlog to a new record level. Our backlog is now $85 billion, which is more than two times our annual revenue, supporting our confidence in the future growth of this business.

Kathy Warden: Revenue has increased 6% year to date, and we are on track to achieve our full year guidance of 5% growth. The Northrop Grumman team continues to deliver critical capabilities for our customers, remains disciplined in new business pursuits, and drives cost deficiencies in our operations, resulting in this strong performance. Segment operating margins significantly increased both sequentially and year over year to 11.5% this quarter, our highest margin rate in over two years. Solid sales volume and strong operating performance for our earnings per share of $7 in the quarter and increase of 13% from last year's Q3 result.

Kathy Warden: Revenue has increased 6% year to date, and we are on track to achieve our full year guidance of 5% growth. The Northrop Grumman team continues to deliver critical capabilities for our customers, remain disciplined in new business pursuits, and drive cost efficiencies in our operations resulting in this strong performance. Segment operating margins significantly increased both sequentially and year over year to 11.5% this quarter, our highest margin rate in over two years. Solid sales volume and strong operating performance drive earnings per share of $7 in the quarter, an increase of 13% from last year's Q3 results. Free cash flow of $730 million was in line with our expectations and continues to provide us the considerable flexibility to deploy capital in support of both growing our business and our shareholder return strategy.

Kathy Warden: Free cash flow of $730 million was in line with our expectations and continues to provide us the considerable flexibility to deploy capital in support of both growing our business and our shareholder return strategy. Based on our solid year-to-date results and full year outlook, we are increasing our EPS guidance range by 75 cents. We are pleased with this performance because it's a direct result of the intentional steps we've been taking to realize continued growth and enhanced profitability. We continue to implement productivity and efficiency initiatives, including advanced production capabilities, digital engineering tools, and increased automation. We are streamlining processes, reducing rework, and improving our learning curves as we add scale.

Kathy Warden: Based on our solid year-to-date results and full-year outlook, we are increasing our EPS guidance range by 75 cents. We are pleased with this performance because it's a direct result of the intentional steps we've been taking to realize continued growth and enhanced profitability. We continue to implement productivity and efficiency initiatives, including advanced production capabilities, digital engineering tools, and increased automation. We are streamlining processes, reducing rework, and improving our learning curves as we add scale, resulting in improved program and operating performance. The impact of these initiatives was again evidenced this quarter at AS, where execution was outstanding.

Kathy Warden: So, resulting in improved program and operating performance. The impact of these initiatives was, again, evident this quarter at AS, where execution was outstanding. The mature production portion of AS for folio comprises more than half of its overall revenue, and it continues to perform very well. The B-21 program has also made solid progress in achieving ground and flight testing milestones on the development contract and is continuing to execute the aircraft production contract in line with our estimates. This is our third quarter in a row of 10% or better margins at AS due largely to our focus on total cost management and productivity.

Kathy Warden: The mature production portion of AIS' portfolio comprises more than half of its overall revenue, and it continues to perform very well. The B-21 program has also made solid progress in achieving ground and flight testing milestones on the development contract, and is continuing to execute the aircraft production contract in line with our estimates. This is our third quarter in a row of 10% or better margins at AS, due largely to our focus on total cost management and productivity. basis performance was also excellent in the quarter. As we expected, revenue was down modestly year over year based on the wind down of NGI and a restricted program.

Kathy Warden: Space performance was also excellent in the quarter. As we expected, revenue was down modestly year-over-year based on the wind down of NGI and a restricted program. But earnings were up substantially. Strong program performance was the key driver, as the team executed well, mitigating risks and realizing opportunities, leading to improved EAC trends in recent quarters. Our defense systems business continues to see broad-based demand, with a book-to-bill of 1.6 times in the quarter, building the foundation for future growth. Marching performance year-to-date is solid and consistent with our full-year outlook. While the timing of some of our shorter cycle programs affected sales this quarter, looking forward, DS is expected to be one of our fastest growing segments.

Kathy Warden: But earnings were up substantially. Strong program performance was the key driver, as the team executed well, mitigating risks and realizing opportunities, leading to improved EAC trends in recent quarters. Our defense systems business continues to see broad based demand with a book to bill of 1.6 times in the quarter, building the foundation for future growth. Margin performance year to date is solid and consistent with our full year outlook. While the timing of some of our shorter cycle programs affected sales this quarter, looking forward, DS is expected to be one of our fastest growing segments, with margin expansion opportunities as we realized increased international sales.

Kathy Warden: With margin expansion opportunities as we realized increased international sales. Like it DS, we also see continued strong demand admission systems. This segment also had a book-to-bill of 1.6 times in the quarter and robust 7% revenue growth. Mission systems is a leader in technology that's in high demand from our customers, as reflected in their top-line results. And as we've seen this business grow, we've seen mix and productivity pressures, including in supply chain deliveries. The team is making good progress with the delivered actions they've been taking to improve program performance and drive cost deficiencies. And I have confidence that we are on track to achieve higher MF margin in 2025.

Kathy Warden: Like at DS, we also see continued strong demand admission systems. This segment also had a book to bill of 1.6 times in the quarter and robust 7% revenue growth. Mission Systems is a leader in technology that's in high demand from our customers is reflected in their top line results. And as we've seen this business grow, we've seen mixed and productivity pressures, including in supply chain delivery. The team is making good progress with the deliberate actions they've been taking to improve program performance and drive cost efficiency. and I have confidence that we are on track to achieve higher MF margins in 2025.

Kathy Warden: As we look forward, we see multiple trends across our portfolio that are supportive of continued margin expansion, including improving macroeconomic conditions, stabilizing supply chain, enhanced workforce productivity, and gradual shifts in our contract mix as a number of our largest programs transition to production, and we build our international portfolio. We also expect to see continued strong demand for the platform sensors and systems we provide to allow our customers to deter adversaries and operate in the most demanding threat environment. This demand is reflected in US budgets where there's strong bipartisan support for national security priorities. And as a result, we are seeing upward pressure on distance budgets.

Kathy Warden: As we look forward, we see multiple trends across our portfolio that are supportive of continued margin expansion, including improving macroeconomic conditions, stabilizing supply chains, enhanced workforce productivity, and gradual shifts in our contract mix as a number of our largest programs transition to production and we build our international portfolio. We also expect to see continued strong demand for the platform sensors and systems we provide that allow our customers to deter adversaries and operate in the most demanding threat environment. This demand is reflected in US budgets, where there's strong bipartisan support for national security priorities. And as a result, we are seeing upward pressure on defense budgets.

Kathy Warden: Over the past several months, the Senate defense authorization and appropriations legislation proposed additional funding above the administration's fiscal year of 2025 defense budget request. And while the legislative process is still playing out, it is encouraging to see strong support for both the budget and our program. As we look at markets outside the US, we continue to expect our international sales to grow faster than the rest of our business over the next several years. There is robust international demand for defense capabilities, particularly in Europe, where most NATO members are increasing defense spending from 2022 levels. This demand is reflected in our international book to bill, which was almost two times in the third quarter.

Kathy Warden: Over the past several months, the Senate Defense Authorization and Appropriations legislation proposed additional funding above the administration's fiscal year 2025 defense budget request. And while the legislative process is still playing out, it is encouraging to see strong support for both the budget and our program. As we look at markets outside the U.S., we continue to expect our international sales to grow faster than the rest of our business over the next several years. There is robust international demand for defense capabilities, particularly in Europe, where most NATO members are increasing defense spending from 2022 levels. This demand is reflected in our international book to bill, which was almost two times in the third quarter.

Funding above the administration's fiscal year of 2025 defense budget request.

Speaker Change: And while the legislative process is still playing out it is encouraging to see strong support for both the budget and our program.

Speaker Change: As we look at markets outside the U S. We continue to expect our international sales to grow faster than the rest of our business over the next several years.

Speaker Change: There is robust international demand for defense capabilities, particularly in Europe, where most NATO members are increasing defense spending from 2022 levels.

Speaker Change: This demand is reflected in our international book to Bill, which was almost two times in the third quarter.

Kathy Warden: While executing on our current programs as an important driver of our profitable growth outlook, we also remain focused on winning new development programs. Our strategy is based on continuing to deliver technical innovations to create competitive advantages for our customers. A great example of this is our selection by the Missile Defense Agency to develop the Glyphase interceptor for GPI. This technology will address increasingly sophisticated, hypersonic missile threats. In addition, this program is a collaboration between the US and Japan, and will further strengthen the alliance with Japan and further Inji's partnership with Japanese industry.

Kathy Warden: While executing on our current programs is an important driver of our profitable growth outlook, we also remain focused on winning new development programs. Our strategy is based on continuing to deliver technical innovations to create competitive advantage for our customers. A great example of this is our selection by the Missile Defense Agency to develop the Glide Phase Interceptor, or GPI. This technology will address increasingly sophisticated hypersonic missile threats. In addition, this program is a collaboration between the U.S. and Japan and will further strengthen the alliance with Japan and further NG's partnership with Japanese industry.

Speaker Change: While executing on our current programs is an important driver of our profitable growth outlook. We also remain focused on winning new development programs are.

Speaker Change: Our strategy is based on continuing to deliver technical innovations to create competitive advantage for our customers.

Speaker Change: A great example of this is our selection by the missile Defense agency to develop the glide phase interceptor or GPI.

Speaker Change: This technology will address increasingly sophisticated hypersonic missile threats.

Speaker Change: In addition, this program is a collaboration between the U S and Japan and will further strengthen the alliance with Japan, and further <unk> partnership with Japanese industry.

Kathy Warden: Putting all of this together, as we look forward to 2025, we expect solid growth and strong performance to continue based on our record backlog and continued focus on program execution. At a company level, we project sales growth between three and four percent. This includes strong growth in three of our four segments. For space, we expect a mid single-digit decline due to the wind down on programs I referred to earlier. We continue to expect the company's segment operating margin to improve in 2025, driven by favorable macro trends, program performance, and cost discipline. Our free cash flow outlook is consistent with our prior long-term forecast, with 2025 increasing greater than 20 percent year over year.

Kathy Warden: Putting all of this together, as we look forward to 2025, we expect solid growth and strong performance to continue based on our record backlog and continued focus on program execution. At a company level, we project sales growth between three and four percent. This includes strong growth in three of our four segments. For space, we expect a mid single digit decline due to the wind down on programs I referred to earlier. We continue to expect the company's segment operating margin to improve in 2025, driven by favorable macro trends, program performance, and cost discipline. Our free cash flow outlook is consistent with our prior long term forecast, with 2025 increasing greater than 20% year over year.

Speaker Change: Putting all of this together as we look forward to 2025, we expect solid growth and strong performance to continue.

Speaker Change: Based on our record backlog and continued focus on program execution.

Speaker Change: At a company level, we project sales growth between three and 4%.

Speaker Change: This includes strong growth in three of our four segments for space, We expect a mid single digit decline due to the wind down on programs I referred to earlier.

Speaker Change: We continue to expect the company's segment operating margin to improve in 2025, driven by favorable macro trends program performance and cost discipline.

Speaker Change: Our free cash flow outlook is consistent with our prior long term forecast with 2025, increasing greater than 20% year over year.

Kathy Warden: Investing in our growing business remains the priority. We are coming through a period of peak CapEx and anticipate a reduced spending level in 2025, but still at a level above historical norms. And given our company's strong free cash flow outlook, we plan to continue our shareholder friendly capital deployment strategy, returning approximately 100% of free cash flow to shareholders next year. The dynamic global environment calls for our industry to offer our customers the technology innovations they need to compete. Northrop Grumman continues to invest in the capabilities and capacity needed to deliver that competitive edge for them.

Kathy Warden: Investing in our growing business remains a priority. We are coming through a period of peak CAPEX and anticipate a reduced spending level in 2025, but still at a level above historical norm. And given our company's strong free cash flow outlook, we plan to continue our shareholder-friendly capital deployment strategy, returning approximately 100 percent of free cash flow to shareholders next year. The dynamic global environment calls for our industry to offer our customers the technology innovations they need to compete. Northrop Grumming continues to invest in the capabilities and capacity needed to deliver that competitive edge for them.

Speaker Change: Investing in our growing business remains a priority.

Speaker Change: We're coming through a period of peak Capex and anticipate a reduced spending level in 2025, but still at a level above historical norm.

Speaker Change: And given our company's strong free cash flow outlook, we plan to continue our shareholder friendly capital deployment strategy, returning approximately 100% of free cash flow to shareholders next year.

Speaker Change: The dynamic global environment calls for our industry to offer our customers the technology innovation they need to compete.

Speaker Change: Northrop Grumman continues to invest in the capabilities and capacity needed to deliver that competitive edge for them.

Kathy Warden: We are also intensely focused on the talent in digital infrastructure that enables our performance and competitive differentiation. Our team is delivering today while also building for our future. Financially, this is translating into solid results now, a plan to rapidly expand cash flows over the next several years, and a business that is well positioned for profitable growth for the foreseeable future.

Kathy Warden: We are also intensely focused on the talent in digital infrastructure that enables our performance and competitive differentiation. Our team is delivering today while also building for our future. Financially, this is translating into solid results now, a plan to rapidly expand cash flows over the next several years, and a business that is well positioned for profitable growth for the foreseeable future.

Kathy Warden: Before turning things over, I'd like to welcome Ken Cruz, who became our CFO on October 1st. Ken will talk through our forward outlook in just a moment.

Kathy Warden: Before turning things over, I'd like to welcome Ken Cruz, who became our CFO on October 1. Kim will talk through our Forward Outlook in just a moment. But first, I'll turn the call over to Dave for a discussion of our Q3 results.

Dave Keffer: But first, I'll turn the call over to Dave for a discussion of our Q3 results.

Kathy Warden: And as I do so, recognizing this will be his last call, I'd like to thank Dave for his leadership and outstanding service to our company.

Kathy Warden: And as I do so, recognizing this will be his last call, I'd like to thank Dave for his leadership and outstanding service to our company. Dave, over to you.

David Keffer: Dave, over to you. Thanks Kathy. It's been an incredibly rewarding five years in this role and I've enjoyed the opportunity to work with you, Ken, and the whole Northrop Grumman team. I'm confident you'll continue to do great things going forward. Now looking at the Q3 results, we continued to experience enduring demand for our capabilities in support of our U.S. and international customers. As Kathy mentioned, Backlog hit a new record of $85 billion, driven by another quarter of strong book. Our international awards were particularly strong in Q3 at $2.7 billion, increasing our international backlog to almost $8 billion, the highest level in several years.

Dave Keffer: Thanks, Kathy.

Dave Keffer: It's been an incredibly rewarding five years in this role, and I've enjoyed the opportunity to work with you, Ken, and the whole North of Grumman team. I'm confident you'll continue to do great things going forward. Now looking at the Q3 results, we continue to experience enduring demand for our capabilities and support of our U.S. and international customers. As Kathy mentioned, backlog hit a new record of $85 billion, driven by another quarter of strong bookings. Our international awards were particularly strong in Q3 at $2.7 billion, increasing our international backlog to almost $8 billion. The highest level in several years.

Dave Keffer: Key awards included additional E2D aircraft for Japan, ammunition, and urgent need capabilities at DS, and radar programs at MS. We continue to have a wide range of opportunities in our global pipeline that we're optimistic we can convert into bookings and revenue over the coming years.

David Keffer: Key awards included additional E-2D aircraft for Japan, ammunition and urgent need capabilities at DS, and radar programs at MS. We continue to have a wide range of opportunities in our global pipeline. that we're optimistic we can convert into bookings and revenue over the coming year.

Dave Keffer: Turning the sales on slide four in our earnings deck, strong momentum from the first half of the year continued in Q3 throughout most of our portfolio. Sales increased by 2% in the quarter and are up 6% year to date. Q3 sales were slightly below our expectations due to a few delivery timing shifts to Q4, primarily in DS, but those do not impact the bull year outlook. Starting with aeronautics, Q3 sales were $2.9 billion, up by 4% compared to the prior year. The increase was driven by higher volume on F35, E2, and Triton, partially offset by slightly lower sales unrestricted programs. At Defense Systems, third quarter sales increased by 2%.

David Keffer: Turning to sales on slide four in our earnings deck, strong momentum from the first half of the year continued in Q3 throughout most of our portfolio. Sales increased by 2% in the quarter and are up 6% year-to-date. Q3 sales were slightly below our expectations due to a few delivery timing shifts to Q4, primarily in DS, but those do not impact the full year outlook. Starting with aeronautics, Q3 sales were $2.9 billion, up by 4% compared to the prior year. The increase was driven by higher volume on F-35, E-2, and Triton, partially offset by slightly lower sales on restricted programs. at Defense Systems, third quarter sales increased by 2%.

David Keffer: Higher sales on Sentinel and from our weapons portfolio drove the increase. As I noted, sales would have been even stronger if not for a shift into Q4 of roughly $150 million of international ammunition sales that are in our backlog. And on Sentinel, we continue to partner with the Air Force on the restructure of the program, which resulted in adjustments to the timing of certain activities as we refine the latest program schedule. Mission system sales were particularly strong in Q3, up 7% compared to the prior year. MS saw an increase in sales throughout much of its portfolio, led by higher volume on microelectronics and advanced technology programs. And space sales were lower by 3%, consistent with our expectations, due to a headwind of $224 million in the period from the wind down of our work on the restricted space and NGI program.

Dave Keffer: Higher sales on Sentinel and from our weapons portfolio drove the increase. As I noted, sales would have been even stronger if not for a shift into Q4 of roughly $150 million of international ammunition sales that are in our backlog. And on Sentinel, we continue to partner with the Air Force on the restructure of the program, which resulted in adjustments to the timing of certain activities as we refine the latest program schedule. Mission system sales were particularly strong in Q3, up 7% compared to the prior year. MS on increase in sales throughout much of its portfolio, led by higher volume on microelectronics and advanced technology programs. In space, sales were lower by 3%, consistent with our expectations, due to a headwind of $224 million in the period from the wind down of our work on the restricted space and NGI programs. The remaining space portfolio grew at mid-single digits, driven by higher sales on FDA satellite programs and other restricted work.

David Keffer: The remaining space portfolio grew at mid-single digits, driven by higher sales on SDA satellite programs and other restricted work.

Dave Keffer: Moving to the bottom line, Q3 segment operating income expanded to 11.5%. This performance was enabled by our continued focus on cost efficiencies, risk retirements, and outstanding program performance. AS operating income grew by 5%, generating an excellent operating margin rate of 10.4% in Q3. DS generated solid performance in the period, with operating income modestly lower than the prior period. Q3 operating margin rate included fewer net EAC adjustments and a change in contract mix. Mission systems operating income increased 1%, and its margin rate improved from the first half of the year to 13.8%. In space delivered a great quarter with operating income up 14%, and an OM rate of 12%.

David Keffer: Moving to the bottom line. Q3 segment operating income expanded to 11.5%. This performance was enabled by our continued focus on cost efficiencies, risk retirements and outstanding program performance. AS operating income grew by 5%, generating an excellent operating margin rate of 10.4% in Q3. DS generated solid performance in the period with operating income modestly lower than the prior period. Q3 Operating Margin Rate Included Fewer Net EAC Adjustments and a Change in Contract Make Mission Systems operating income increased 1% and its margin rate improved from the first half of the year to 13.8%. and space delivered a great quarter with operating income up 14% and an OM rate of 12%.

Dave Keffer: We continue to see improvements in space's program performance based on deliberate actions we've taken. This was reflected in the level of net favorable earnings adjustments in the period.

David Keffer: We continue to see improvements in SPACES program performance based on deliberate actions we've taken, and this was reflected in the level of net favorable earnings adjustments in the period.

Dave Keffer: Turning to slide 6, earnings per sharing Q3 increased by 13%, driven by the solid segment performance I described, as well as from higher net pension income, a lower federal tax rate, and strong performance in our marketable securities portfolio also provided an uplift. Our Q3 tax rate benefited from a net reduction in certain reserves in the period. Keep in mind for EPS comparison purposes that, in the third quarter of last year, we recognized a gain of 44 cents per share associated with the sale of a minority investment.

David Keffer: Turning to slide six, earnings per share in Q3 increased by 13% driven by the solid segment performance I described, as well as from higher net pension income. A lower federal tax rate and strong performance in our marketable securities portfolio also provided an uplift. Our Q3 tax rate benefited from a net reduction in certain reserves in the period. Keep in mind, for EPS comparison purposes, that in the third quarter of last year, we recognized a gain of 44 cents per share associated with the sale of a minority investment.

Dave Keffer: Lastly, I'll take a moment to discuss our cash performance. Third quarter free cash flow was $730 million, in line with our expectations. Year to date, we remain ahead of our free cash flow position compared to this time last year. Can we expect a strong quarter of cash generation in Q4, consistent with our historical pattern?

David Keffer: Lastly, I'll take a moment to discuss our cash performance. Third quarter free cash flow was $730 million, in line with our expectations. Year to date, we remain ahead of our free cash flow position compared to this time last year, and we expect a strong quarter of cash generation in Q4 consistent with our historical pattern.

Speaker Change: and the sale of a minority investment.

Speaker Change: Lastly, I'll take a moment to discuss our task performance. Third quarter free cash flow was $730 million in line with our expectations.

Speaker Change: You're today, we remain ahead of our free cash flow position compared to this time last year. And we expect a strong quarter of cash generation in Q4 consistent with our historical pattern. And with that, I'll hand it off to you again.

Ken Cruz: And with that, I'll hand it off to you, Ken. Thanks, Dave. And good morning, everyone. I'll spend a few moments on the Ford Outlook, beginning with our latest segment guidance on slide seven in our earnings deck. Aeronautics continues to perform at a high level. And as a result, we are increasing both its margin and sales rate guidance. We now expect sales of roughly $12 billion, reflecting a year-over-year increase of 11%. With another quarter of strong operating performance, we are increasing its operating margin rate guidance to approximately 10%. This increase reflects our confidence in this business to generate healthy margins even as B-21 scales.

Dave Keffer: And with that, I'll hand it off to you again.

Ken Cruz: Thanks, Dave, and good morning, everyone. I'll spend a few moments on the forward output, beginning with our latest segment guidance on slide 7 in our earnings deck. Aeronautics continues to perform at a high level, and as a result, we are increasing focus margin and sales rate guidance. We now expect sales of roughly $12 billion, reflecting a year-to-year increase of 11%. With another quarter of strong operating performance, we are increasing its operating margin rate guidance to approximately 10%. This increase reflects our confidence in this business to generate healthy margins, even as B21 scales. At DF, we are modically lowering our sales guidance to the high $8 billion range, reflecting a mid-single-digit year-over-year growth rate.

Speaker Change: Thanks, Dave, and good morning, everyone. I'll spend a few moments on the Ford Outlook, beginning with our latest segment guidance on slide 7 in our Ernie's deck. Arinautics continues to perform at a high level, and as a result, we are increasing focus margin and sales rate guidance.

Speaker Change: We now expect sales of roughly $12 billion, reflecting a year-reyear increase of 11%. With another quarter of strong operating performance, we are increasing its operating margin rate guidance to approximately 10%.

Speaker Change: This increased reflex are confidence in this business to generate healthy margins even as the 21 scales.

Ken Cruz: At DF, we are modestly lowering our sales guidance to the high $8 billion range, reflecting a mid-single-digit year-over-year growth rate.

Speaker Change: At DS, we are modestly lowering our sales guidance to the high $8 billion range, reflecting a mid-single digit year over year growth rate.

Ken Cruz: This update reflects our latest expectations for lower Sentinel volume this year, driven by timing connected with the program's restructuring. and we are increasing our margin rate guidance at SPACE to the mid to high 10% range while updating our expectations for margin rate at MS to high 13%.

Ken Cruz: This update reflects our latest expectations for lower Sentinel volume this year, driven by timing connected with the program's restructuring. We are increasing our margin rate guidance at Space to the mid to high 10% range, while updating our expectations for margin rate at MS to high 13%.

Speaker Change: This update reflects our latest expectations for lower Sentinel volume this year, driven by timing connected with a program's restructure.

Speaker Change: and we are increasing our margin rate guidance at space to the mid to high 10% range while updating our expectations for margin rate at MS to high 13%.

Ken Cruz: Moving to company level guidance, we are reaffirming our full-year sales guidance. At the mid point of the range, this represents a sequential increase in sales to roughly $10.9 billion in quarter four, similar to the grant we experienced during the fourth quarter of 2023. Fourth quarter sales will be driven by higher volume on the L-Rick phase of B-21, international ammo deliveries at DS, and multiple production programs at MS. Based on our successful execution of call savings initiatives and our strong program performance, we are increasing the lower end of our segment operating income range. Two four margins at MS and DS are expected to improve sequentially due to production mix and deliveries, while AS and space margins are expected to be lower sequentially due to mix and lower expected net earnings adjustments.

Ken Cruz: Moving to company level guidance. We are reaffirming our full year sales guidance. At the midpoint of the range, this represents a sequential increase in sales to roughly $10.9 billion in Q4, similar to the ramp we experienced during the fourth quarter of 2023. Fourth quarter sales will be driven by higher volume on the L-RIP phase of B-21, international ammo deliveries at DS, and multiple production programs at MS. Based on our successful execution of cost savings initiatives and our strong program performance, we are increasing the lower end of our segment operating income rate. Q4 margins at MS and DS are expected to improve sequentially due to production mix and deliveries, while AS and space margins are expected to be lower sequentially due to mix and lower expected net earnings adjustments.

Speaker Change: Moving to Company Level Guidance.

Speaker Change: We are reaffirming our full-year sales guidance.

Speaker Change: At the midpoint of the range, this represents a sequential increase in sales to roughly $10.9 billion in quarter four. Similar to the ramp we experienced during the fourth quarter of 2023.

Speaker Change: Fourth Quarter Sales will be driven by higher volume on the Elgrit Phase of B-21, International AMO Delivery that DS and multiple production programs at N.S.

Speaker Change: State Center Successful Execution of Call Savings Initiatives and our Strong Program Performance. We are increasing the lower end of our segment operating income range.

Speaker Change: 2 for a margins at MS and DS are expected to improve sequentially due to production mix and deliveries, while AS and space margins are expected to be lower sequentially due to mid and lower expected net earnings adjustments.

Ken Cruz: Altogether, our latest guidance continues to reflect a full year segment OM rate of 11% at the mid point. We are reaffirming our guidance range for free cash flow that projects greater than 15% growth at the mid point. We remain confident in our ability to generate strong and predictable cash flows. Year to date, we return $3 billion of cash to shareholders, the ad dividends and share repurchases, and we continue to expect $2.5 billion in repurchases for the full year. Lastly, we are again increasing our earnings per share expectations. Now to a range of $25.65 to $26.5, up by $75.

Ken Cruz: Altogether, our latest guidance continues to reflect a full year segment OM rate of 11% at the midpoint. We are reaffirming our guidance range for free cash flow that projects greater than 15% growth at the mid- We remain confident in our ability to generate strong and predictable cash flows. Year to date, we've returned $3 billion of cash to shareholders via dividends and share repurchases, and we continue to expect $2.5 billion in repurchases for the full year. Lackley We are again increasing our earnings per share expectation. Now to a range of $25.65 to $26.05 up by $0.75.

Speaker Change: All together, our latest guidance continues to reflect a full-year segment OM rate of 11% at the midpoint.

Speaker Change: We are reaffirming our guidance range for free cash flow that projects greater than 15% growth at the midpoint.

Speaker Change: We remain confident in our ability to generate strong and predictable cash flows.

Speaker Change: We've returned $3 billion of cash to shareholders, the dividends and share repurchases, and we continue to expect $2.5 billion in repurchases for the full year.

Speaker Change: Lepley.

Speaker Change: We are again increasing our earnings per share expectations.

Speaker Change: Now to arrange a $25.65 to $26.5 and 5 cents up by 75 cents.

Ken Cruz: This updated range reflects our confidence and continued strong segment performance, lower corporate unallocated calls, lower interest expense, and a more favorable tax rate.

Ken Cruz: This updated range reflects our confidence in continued strong segment performance, lower corporate unallocated costs, lower interest expense, and a more favorable tax Next, I wanted to take a moment to talk about pension income. Our pension plans remain in great shape, with a funded status over 100% and minimal cash contributions projected over the next several years. Our funded status drives affordability for our customers and helps support strong capital returns to our shareholders. As we've done the last few years, we've provided a net pension income sensitivity table for the upcoming year in our earnings deck. Through September 30th, asset returns had been in the low 7% range and discount rates were down modestly.

Speaker Change: This updated range reflects our confidence and continued strong segment performance, lower corporate and allocated calls, lower interest expense and a more favorable tax rate.

Ken Cruz: Next, I wanted to take a moment to talk about pension income. Our pension plans remain in great shape, with a funded status over 100% and minimal tax contributions projected over the next several years. Our funded status draws affordability for our customers and helps support strong capital returns to our shareholders. As we've done the last few years, we provided a net pension income sensitivity table for the upcoming year in our earnings deck. Through September 30th, asset returns have been in the low 7% range, and discount rates were down modestly. So, as we sit here today, there is no change to our 2025 net pension income expectations that we shared in January.

Speaker Change: Next, I wanted to take a moment to talk about pension income. Our pension plans remain in great shape, but they funded status over a hundred percent and minimal task contributions projected over the next several years.

Speaker Change: are funded status drives affordability for our customers and helps support strong capital returns to our shareholders.

Speaker Change: As we've done the last few years, we've provided a net pension income sensitivity table for the upcoming year in our earnings deck.

Speaker Change: through September 30th, AFTER Returns sent in in the low 7% range and discount rates were down modestly.

Ken Cruz: So as we sit here today, there is no change to our 2025 net pension income expectations that we shared in January. As we look forward to 2025, we remain confident in our business strategy. As Kathy outlined, and as shown on slide 10, we expect another year of solid growth, continued margin expansion, and a lower level of capital expenditure. This combination, along with lower R&D cash taxes and higher CAS recoveries, produces a recipe to rapidly grow our cash flows. At the midpoint, we expect free cash flow growth of over 20% next year. and we are Capital Deployment Strategy of investing in our business for profitable growth and returning cash to shareholders.

Speaker Change: So as we sit here today, there is no change to our 2025 net-tension income expectations that we share in January.

Ken Cruz: As we look forward to 2025, we remain confident in our business strategy, as Kathy outlined and as shown on slide 10. We expect another year of solid growth, continued margin expansion, and a lower level of capital expenditures. Discombination, along with lower R&D cash taxes and higher cash recoveries, produces a recipe to rapidly grow our cash flows. At the midpoint, we expect three cash flow growths of over 20% next year. and we are capital deployment strategy of investing in our business for profitable growth and returning cash to shareholders. Free cash flow per share is growing even faster.

Speaker Change: As we look forward to 2025, we remain confident in our business strategy. At Kathy Outline and as shown on slide 10, we expect another year of solid growth, continued margin expansion, and a lower level of capital expenditures.

Speaker Change: Discompensation along with lower R&D cash taxes and higher cash recoveries produces a rest of the two rapidly grower cash flows.

Speaker Change: at the midpoint. We expect three cash flow growth of over 20% next year.

Speaker Change: and we are capital deployment strategy of investing in our business for profitable roads and returning cash to shareholders. Free cash flow for shares growing even faster.

Ken Cruz: Free cash flow per share is growing even faster. Also, our 2025 outlook assumes that macro conditions will remain stable and the continuing resolution will have a similar duration to those of recent years. In closing, I believe our strategy will continue to create value for our customers and shareholders, and I'm confident about the opportunities we have ahead. I look forward to engaging further with the investment community over the coming quarter.

Ken Cruz: Also, our 2025 outlook assumes that macro conditions will remain stable, and the continuing resolution will have a similar duration to those of recent years.

Speaker Change: Also, our 2025 outlook assumes that macro-conditions will remain stable and the continuing resolution will have a similar duration to those of recent years.

Ken Cruz: In closing, I believe our strategy will continue to create value for our customers and shareholders, and I'm confident about the opportunities we have ahead. I look forward to engaging further with the investment community over the coming quarters.

Speaker Change: In closing, I believe our strategy will continue to create value for our customers and shareholders, and I'm confident about the opportunities we have ahead. I look forward to engaging for the investment community over the coming quarters.

Ken Cruz: I also wanted to take a moment to thank Dave for his leadership and contributions to our company and for support during this transition.

Ken Cruz: I also wanted to take a moment to thank Dave for his leadership and contributions to our company and for support during this transition.

Speaker Change: I also wanted to take a moment to thank Dave for his leadership and contributions to our company and for support during this transition.

Unknown Executive: With that, let's open the call for your questions. Thank you. Ladies and gentlemen, if you wish to ask a question, please press star followed by one one on your touch-tone telephone. Again, press star one one to ask a question.

Unknown Executive: With that, let's open the call for your questions. Thank you. Ladies and gentlemen, if you wish to ask a question, please press star followed by 1 1 on your touchtone telephone. Again, press star 1 1 to ask a question. Please limit yourself to one question and one follow up. One moment for our first question.

Speaker Change: with that. Let's open the call for your questions.

Speaker Change: Thank you, ladies and gentlemen, if you wish to ask a question, please press star, followed by one one on your touchstone telephone. Again, press star one one, to ask a question. Please limit yourself to one question and one follow up.

Robert Stallard: Please limit yourself to one question and one follow-up. One moment for our first question.

Speaker Change: One moment for our first question.

Robert Stallard: Our first question comes from Robert Stallard with Vertical Research. She may proceed. Thanks so much. Good morning. And best of luck, Dave, with your next ventures.

Robert Stallard: Our first question comes from Robert Stallard with Vertical Research. You may proceed. Thanks so much. Morning.

Speaker Change: Our first question comes from Robert Stowler with Vertical Research He May Proceed.

Kathy Warden: Best of luck, Dave, with your next ventures. Couple of contract or programs. First of all, on Sentinel, it looks like the timetable here is... But I was wondering if there was any...

Speaker Change: Thanks for watching Good Morning. Morning.

Kathy Warden: Couple of contract or program questions for you, Kathy. First of all, on Sentinel, it looks like the timetable he is moving around a bit, but I was wondering if there were any financial or practical implications as a result of this schedule change. And then secondly, on the program we won in the quarter GPI. I was wondering. I mean, it might be classified. I was wondering if you could give us a bit more detail on the contract structure for this program and how the revenues are likely to progress from here. Thank you. Great. Thanks, Rob.

Speaker Change: and the best of luck day with your next adventures.

Robert Stowler: and a couple of contract or program questions for you.

Robert Stowler: Kathy, first of all on Sentinel, it looks like the timetable here is moving around a bit. But I was wondering if there was any financial or practical implications as a result of this schedule change. And then secondly, on the program we won in the quarter GPI, I was wondering, I mean, maybe catified, I was wondering if you could give us a bit more detail of the contract structure for this program and how the revenues are likely to progress from here.

Kathy Warden: Great, thanks, Rob.

Kathy Warden: Let me start with Sentinel. As we noted in the call, both this quarter and last, we hit incorporated into our outlook for the program. The changes that will result from the non-mockerty review and the restructure process that the Air Force is going through. That restructure process has started. It is not concluded. We expect it to continue well into next year. And yet we have looked at what we believe is most likely to happen, as we do on any of our programs, and incorporated that into our estimates. And so that is the smoothing of sales that you heard us talk about in this call, which resulted from our view of what the ramp will look like as we move into 2025.

Kathy Warden: Let me start with Sentinel. As we noted in the call, both this quarter and last, we had incorporated into our outlook for the program, the changes that will result from the Nunn-McCurdy review and the restructure process that the Air Force is going through. That restructure process has started. It is not concluded. We expect it to continue well into next year, and yet we have looked at what we believe is most likely to happen, as we do on any of our programs, and incorporated that into our estimates, and so that is the smoothing of sails that you heard us talk about in this call resulted from our view of what the ramp will look like as we move into 2025.

Robert Stowler: Thank you.

Speaker Change: Great, thanks for having. Let me start with Sentinel. As we noted in the call, both this quarter and last, we hit incorporated into our outlook for the program.

Speaker Change: the changes that will result from the Nundercurty Review in the restructure process that the Air Force is going through.

Speaker Change: That Restructure Process has started as not concluded we've collected to continue well into next year.

Speaker Change: and yet we have.

Speaker Change: looked at what we believe is most likely to happen if we do on any of our programs and incorporated that into our estimates.

Speaker Change: and so that is the smoothing of sales that you've heard us talk about in this call resulted from our view of what the rampal looked like as we moved into 2025.

Kathy Warden: And we do still expect the program to grow year over year from 24 into 25, just as it did 24 over 23, so a similar profile just smoothed out a bit over a longer period of time.

Kathy Warden: And we do still expect the program to grow year over year from 24 into 25, just as it did 24 over 23. The similar profile just smoothed out a bit over a longer period of time.

Speaker Change: and we do expect the program to grow year for year from 24 into 25 just as it did 24 over 23. The similar profile just moved out of it over a longer period of time.

Kathy Warden: On GPI there, we're very pleased to be supporting the Missile Defense Agency in this area to build an interceptor that will defeat hypersonic missile threats. And you know this is a very important area for national security to be able to defend against these threats as they evolve. We are starting with a piece of work that will continue what we had been doing around risk reduction and design and move to a more mature design in this next phase, getting us eventually to a preliminary design review. And then after that we will move to the next phase of the program.

Kathy Warden: On GPI there, we're very pleased to be supporting the Missile Defense Agency in this area to build an interceptor that will defeat hypersonic missile threats. And, you know, this is a very important area for national security to be able to defend against these threats as they evolve. We are starting with a piece of work that will continue what we had been doing around risk reduction and design and move to a more mature design in this next phase, getting us eventually to a preliminary design review. And then after that, we will move to the next phase of the program.

Speaker Change: On GPI there were very pleased to be supporting the missile defense agency in this area.

Speaker Change: to build an interceptor that will defeat hypersonic missile threats. And you know this is a very important area for national security to be able to defend against these threats as they evolve.

Speaker Change: We are starting with a piece of work that will continue what we had been doing around risk reduction and design and move to a more mature design in this next phase, getting us

Speaker Change: eventually to a preliminary design review. And then after that we will move to the next phase of the program. So it is an incremental funding approach.

Kathy Warden: So it is an incremental funding approach, but this down select was important because it signifies that Missile Defense Agency likes our design and wants to continue in the development process with us.

Robert Stallard: So it is an incremental funding approach. But this down select was important because it signifies that missile defense agents be like third design and wants to continue in the development process with that. That's great, Kathy.

Speaker Change: But this down-select was important because it signifies that Missile Defense Agency likes our design and wants to continue in the development process with us.

Unknown Executive: Thank you.

Ronald Epstein: Thank you. Our next question comes from Ronald Epstein with Bank of America. He may proceed. Yeah, good morning, everyone. Yeah, Kathy, broadly, given the demand you're seeing across the businesses and the growth that you're going to have. What are you seeing in the supply chain? Are there tight points right now? Are there other places that you're worried about? You know, we've heard broadly from companies across the sector that there are still there still are supply chain issues. How are you managing it?

Speaker Change: That's great. Thank you, Kathy.

Ronald Epstein: Our next question comes from Ronald Epstein with Bank of America. He may proceed. Yes, good morning, everyone. Kathy, broadly given the demand you're seeing across the businesses and the growth that you're going to have, what are you seeing in the supply chain? Are there tight points right now? Are there places that you're worried about? You know, we've heard broadly from companies across the sector that we are still, we're still our supply chain issues. How are you managing it, and what areas are you worried about and working on? Yes, Ron, we still see supply chain challenges, mostly with capacity and productivity.

Speaker Change: Thank you.

Speaker Change: Our next question comes from Ronald Epstein with Bank of America. He may proceed. Good morning, everyone. Cathy, broadly, given the demand you're seeing across the businesses and the growth that you're going to have,

Ronald Epstein: What are you seeing in the supply chain? Are there tight points right now? Are there other places that you're worried about?

Speaker Change: We've heard broadly from companies across the sector that there still are supply chain issues. How are you managing it and what areas are you worried about and working on?

Kathy Warden: And what areas are you worried about and work Yes, Ron, we still see supply chain challenges, mostly with capacity and productivity. And let me unpack that a bit. They aren't concentrated in any one area of the business. They're broad based, and they tend now to be more supplier dependent. And so we are working with individual suppliers to help them address their particular challenges. It spans from microelectronics to our solid rocket motor business supply chain as they try to ramp to the increased capacity that we are all asking of them. It includes even some of our space and aerostructure partners in space and AS, respectively.

Speaker Change: Yes, Ron, we still see supply chain challenges, mostly with capacity and productivity. And let me unpack that a bit. They aren't concentrated in any one area of the business. They're broad-based.

Kathy Warden: And let me unpack that a bit. They aren't concentrated in any one area of the business; their broad base. And they tend now to be more supplier dependent. And so we are working with individual suppliers to help them address their particular challenges. It stands from microelectronics to our solid rocket motor business supply chain as they try to ramp to the increased capacity that we are all asking of them. And it includes even some of our space and air structure partners in space and a US respectively. And so each of our teams across the segments have their top list of suppliers that they're working with.

Speaker Change: And they tend now to be more supplier dependent. And so we are working with individual suppliers to help them address their particular challenges. It spans from microelectronics to our

Speaker Change: solid rocket motor business supply chain as they try to ramp to the increased capacity that we are all asking of them. It includes even some of our space and aerostructure.

Kathy Warden: And so each of our teams across the segment have their top list of suppliers that they're working with. We do extensive monitoring of our supply chain, so that we can hopefully see these issues coming. And then as soon as we do engage with the supplier to provide support. I don't expect that we will see all of these issues mitigated this year. It's improving and in many places stabilizing, but we are carrying risk and certainly some plans into 2025 to continue to monitor and work with our suppliers.

Speaker Change: partners in space and AS respectively. And so each of our teams across the segment have their top list of suppliers that they're working with. We do

Kathy Warden: We do extensive monitoring of our supply chain so that we can hopefully see these issues coming. And then, as soon as we do engage with the supplier to provide support, I don't expect that we will see all of these issues mitigated this year. It's improving and in many places stabilizing, but we are carrying risk and certainly some plans into 2025 to continue to monitor and work with our suppliers. Does it make sense to vertically integrate anywhere in the supplier chain so you can control some of it? We have not generally taken a strategy of vertically integrating unless we feel that there is no path forward to support the supplier in remaining viable.

Speaker Change: extensive monitoring of our supply chain so that we can hopefully see these issues coming and then as soon as we do engage with the supplier.

Speaker Change: to provide support.

Speaker Change: I don't expect that we will see all of these issues mitigated this year. It's improving and in many places stabilizing, but we are carrying risk and certainly some plans into 2025 to continue to monitor and work with our suppliers.

Kathy Warden: Does it make sense to vertically integrate anywhere in the supply chain so you can control some of it? We have not generally taken a strategy of vertically integrating unless we feel that there is no path forward to support the supplier in remaining viable. We obviously, from time to time, move away from a supplier that is not performing to another supplier. But we first try to remediate. And where we have very few or even some places sole source suppliers, our first instinct is not to enforce that. It is to support them. But there are times when ultimately we do find ourselves needing to bring capability in-house to ensure we perform on behalf of our customer commitment.

Speaker Change: Does it make sense to vertically integrate anywhere just in the supply chain so you can control some of it?

Speaker Change: We have not generally taken a strategy of vertically integrating unless we feel that there is no path forward to support the supplier.

Kathy Warden: We obviously, from time to time, move away from a supplier that is not performing to another supplier, but we first try to remediate, and where we have very few, or even some places will force suppliers. Our first instinct is not to enforce; that it is to support them. But there are times when ultimately we do find ourselves needing to bring capability in house to ensure we perform on behalf of our customer commitment.

Speaker Change: in remaining viable.

Speaker Change: We obviously, from time to time, move away from a supplier that is not performing to another supplier.

Speaker Change: Our first instinct is not to enforce that, it is to...

Speaker Change: support them, but there are times when ultimately we do find ourselves needing to bring capability in-house to ensure we perform on behalf of our customer commitment.

Unknown Executive: Thank you.

Sheila Kahyaoglu: Thank you. Our next question comes from Sheila Kahyaoglu with Jeffrey's He May Proceed. Good morning, Kathy and everyone. Thank you so much. Maybe if we could talk about the multi-year growth cadence, just looking at the backlog, pretty solid. And a competitor talked about supply chain and potentially being able to execute to close the gaps.

Sheila Kahyaoglu: Our next question comes from Sheila Kailu with Jeffries. He may proceed. Good morning, Kathy, and everyone. Thank you so much.

Speaker Change: Thank you.

Speaker Change: Our next question comes from Sheila Cayallo with Jeffrey's He May Proceed.

Sheila Kahyaoglu: Maybe as we could talk about the multi-year growth cadence, just looking at the backlog. The backlog is pretty solid. And a competitor talked about supply chain and potentially being able to execute to close the gaps.

Sheila Cayallo: Good morning, Kathy and everyone. Thank you so much. Maybe if we could talk about...

Sheila Cayallo: The multi-year growth cadence, just looking at the backlog, pretty solid. And a competitor talked about supply chain and potentially being able to execute to close the gaps.

Kathy Warden: Assuming the headwinds in space go away and just thinking about black chip programs, what type of growth should we be thinking about and targeting for Northrop over the multi-year time horizon? Yeah, well, you know, we've been growing at 5% compound annual growth since 2019. And each year, we come into the year with some opportunities and risks that we work to mitigate. And I'm very proud of the team for having been able to keep and maintain that very solid growth rate. For the last five years, as we look forward, we've guided it three to 4%, as you know, and that too has both risks and opportunities.

Kathy Warden: Even the headwinds and space go away and just thinking about box chip programs. What type of growth should we be thinking about and targeting for north or over the multi-year time horizon? Well, we've been growing at 5% compound annual growth since 2019, and each year we come into the year with some opportunities and risks that we work to mitigate. I'm very proud of the team for having been able to keep and maintain that very solid growth rate for the last five years. If we look forward, we've guided it three to four percent, as you know.

Sheila Cayallo: I've seen the headwinds in space go away, and just thinking about flagship programs, what type of growth should we be thinking about and targeting for Northrop over the multi-year time horizon?

Speaker Change: Each year we come into the year with some opportunities and risks that we work to mitigate and I'm very proud of the team for having been able to keep and maintain that very solid growth rate.

Speaker Change: for the last five years. As we look forward, we've guided at 3% to 4%, as you know, and that too has both risks and opportunities. We think it's a very balanced approach.

Kathy Warden: And that too has both risks and opportunities. We think it's a very balanced approach. If we were to see some of these supply chain challenges, ease, we could see upward pressure on that growth rate. If we are competitively successful on opportunities in our pipeline, we could see upward pressure on that growth rate. And if we are able to continue to capture international business at the rate we did in the third quarter, at two times our sales, that certainly will provide some upward pressure on that growth rate. So we are working hard to materialize those opportunities.

Kathy Warden: We think it's a very balanced approach. If we were to see some of these supply chain challenges ease, we could see upward pressure on that growth rate. If we are competitively successful on opportunities in our pipeline, we could see upward pressure on that growth rate. And if we are able to continue to capture international business at the rate we did in the third quarter, at two times our sales, that certainly will provide some upward pressure on that growth rate. So we are working hard to materialize those opportunities. There are clearly risks as well. Really, the downside is the flip side of each of those things that I just outlined.

Speaker Change: If we were to see some of these supply chain challenges ease, we could see upward pressure on that growth rate. If we are

Speaker Change: competitively successful on opportunities in our pipeline, we could see upward pressure on that growth rate.

Speaker Change: And if we are able to continue to capture international business at the rate we did in the third quarter at two times our sales, that certainly will provide some upward pressure on that growth rate. So we are working hard to materialize those opportunities.

Kathy Warden: There are clearly risks as well. Really, the downside is the flip side of each of those things that I just outlined, but we believe that three to four percent next year is a realistic starting point as we enter the year with what we know today. We don't guide beyond that, as you know, but I have said that I believe this business can continue to grow in that single-digit range. And so that is the plan that we've laid out for ourselves, and based on what we see today, we think that's achievable. Thank you.

Speaker Change: There are clearly risks as well, really the downside is the flip side of each of those things that I just outlined, but we believe that 3-4% next year is a realistic starting point as we enter the year with what we know today.

Kathy Warden: But we believe that three to 4% next year is a realistic starting point as we enter the year with what we know today. We don't guide beyond that, as you know, but I have said that I believe this business can continue to grow in that mid single digit range. And so that is the plan that we've laid out for ourselves. And based on what we see today, we think that's achievable.

Speaker Change: We don't guide beyond that, as you know, but I have said that I believe this business can continue to grow in that mid-single-digit range. And so, that is the plan that we've laid out for ourselves, and based on what we see today, we think that's achievable.

David Strauss: Our next question comes from David Strauss with Barclays; you may proceed.

Speaker Change: Thank you.

David Strauss: Our next question comes from David Strauss with Barclays, you may proceed. Good morning. Welcome, Tim. Thank you. Good morning.

Speaker Change: Thank you.

Speaker Change: Our next question comes from David Strauss with Barclays. You may proceed.

David Strauss: Good morning, welcome, Tim. Thank you. Good morning. Kathy, I wanted to see if you could just broadly touch on B21 and the progress there relative to the, you know, to the charge that you've taken. You know, kind of where you are in sign up additional LRIP lots, pricing on those, where you are with, you know, kind of locking in your suppliers. Yeah, just kind of wherever you want to take in terms of an update on B21 and then margin variation on it at AS. Thanks.

David Strauss: Thank you.

David Strauss: Kathy, I wanted to see if you could just broadly touch on B-21 and the progress there relative to the, you know, to the charge that you've, you've taken, you know, kind of where you are in signing up additional LRIP lots, pricing on those, where you are with, you know, kind of locking in your suppliers. Yeah, just kind of wherever you want to take it in terms of an update on B-21 and then margin progression on it at AS. So let me start with B21 and then I will tie it to the broader AS margin picture, because that's important in that while B21 is a key program in our company, it is not the majority of AS sales.

David Strauss: Good morning. Welcome, Tim. Thank you. Good morning.

David Strauss: Kathy, I wonder if you could just broadly touch on B-21 and the progress there relative to the, you know, to the charge that you've taken.

David Strauss: you know kind of where you are in signing up additional LRIP lots, pricing on those.

David Strauss: where you are with, you know, kind of locking in your suppliers. Yeah, just kind of wherever you want to take it in terms of an update on B-21 and then margin progression on it at AS. Thanks.

Kathy Warden: So let me start with B21 and then I will tie it to the broader AS margin picture because that's important in this. While B21 is a key program in our company, it is not the majority of AS sales, and so the rest of the picture is important in drawing out the view on margin performance for the business, which, as I said, was just outstanding. And again, this quarter with B21, we are on track for meeting the milestones associated with an award of LRIP 2. And so we are expecting that to happen in the fourth quarter.

David Strauss: Thank you.

Speaker Change: So let me start with B-21 and then I will tie it to the broader AS margin picture because that's important in that while B-21

Speaker Change: is a key program in our company. It is not the majority of AS sales, and so the rest of the picture is important in drawing out the view on margin performance for the business, which, as I said, was just outstanding again this quarter.

Kathy Warden: And so the rest of the picture is important in drawing out the view on margin performance for the business, which, as I said, was just outstanding again this quarter. With B21, we are on track for meeting the milestones associated with an award of LRIP2, and so we are expecting that to happen in the fourth quarter. We had talked to you about LRIP being awarded approximately annually, and so this is the time of year where that happens, and we expect to get that on contract. We have no change to pricing. As you know, those were priced, and we have no change to our estimate at complete based on our third quarter review.

Speaker Change: With B-21, we are on track for meeting the milestones associated with an award of LRIP 2.

Kathy Warden: We talked to you about LRIP being awarded approximately annually, and so this is the time of year where that happens, and we expect to get that on contract. We have no change to pricing, as you know. Those were price, and we have no change to our estimate complete based on our third quarter review. So we are continuing to perform as I said a few moments ago, in alignment with the plan that we have laid out for the B21. And I'm very proud of that team. It's quite a remarkable accomplishment, what they are doing both on development and production.

Speaker Change: and so we are expecting that to happen in the fourth quarter. We had talked to you about LRIPs being awarded approximately annually and so this is the time of year where that happens and we expect to get that on contract.

Speaker Change: We have no change to pricing. As you know, those were priced. And we have no change to our estimate at complete based on our third quarter review.

Kathy Warden: So we are continuing to perform, as I said a few moments ago, in alignment with the plan that we have laid out for the B21. And I'm very proud of that team. It's quite a remarkable accomplishment, what they are doing both on development and production. As we look at the broader AS through activities they've taken to manage cost and drive productivity, some really innovative work they're doing in workforce training to get new employees onto the factory floor more productive on day one and down the learning curve quicker. We have been able to really improve our performance on the more mature production programs as well, which has provided even further lift to AS and contributed to the very strong margin rates that we are seeing on that mature production portfolio.

Speaker Change: So, we are continuing to perform, as I said a few moments ago, in alignment with the plan that we have laid out for the B-21. And I'm very proud of that team. It's quite a remarkable accomplishment, what they are doing, both on development and production.

Kathy Warden: As we look at the broader AS through activities they've taken to manage cost and drive productivity, some really innovative work they're doing in workforce training to get new employees on the factory floor, more productive on day one and down the learning curve quicker. We have been able to really improve our performance on the more mature production programs that well as well, which has provided even further less to AS and contributed to the very strong margin rates that we are seeing on that mature production portfolio. We had talked a year ago about that being the vision, and I'm pleased to say that the team has executed it very well.

Speaker Change: As we look at the broader AS through activities they've taken to manage cost and drive productivity, some really innovative work they're doing in workforce training to get new employees onto the factory floor, more productive.

Speaker Change: on day one and down the learning curve quicker, we have been able to really improve our performance on the more mature production programs as well, which has provided even further lift to AS and contributed to the very strong margin rates that we are seeing on that mature production portfolio.

Kathy Warden: We had talked a year ago about that being the vision, and I'm pleased to say that the team has executed it very well.

Speaker Change: We had talked a year ago about that being the vision, and I'm pleased to say that the team has executed it very well.

Jason Gursky: Thank you.

Speaker Change: Thank you.

Speaker Change: Thank you.

Jason Gursky: Our next question comes from Jason Gursky with City. He may proceed. Hey, good morning, everyone. Thanks for taking the call. Question, Kathy, just a quick one for you on the trends that are going on there in Europe and the pipeline and the bookings that you've been seeing there given the demand. I'm just curious; the contract types that you'll be operating with, they're generally speaking, FMS versus direct commercial. What does that you know, port 10 for margins across the business is going forward? Is that makes shifts maybe a little bit more to some international work? It's a combination of contract types that we see across our international sales portfolio for our ammunition and weapons products.

Jason Gursky: Our next question comes from Jason Gursky with Citi, you may proceed. Hey, good morning, everyone. Thanks for taking the call.

Speaker Change: Thank you.

Speaker Change: Thank you.

Speaker Change: Thank you. Thank you.

Speaker Change: Our next question comes from Jason Gursky with Citi. You may proceed.

Kathy Warden: Question, Kathy, just a quick one for you on The trends going on there in Europe and the pipeline and the bookings that you've been seeing there given the demand, I'm just curious, the contract types that you'll be operating with there, generally speaking, FMS versus direct commercial, and what does that portend for margins across the businesses going forward as that makes shifts maybe a little bit more to some international work? It's a combination of contract types that we see across our international sales portfolio. For our ammunition and weapons products, we typically see those as direct commercial sales.

Jason Gursky: Hey, good morning, everyone. Thanks for taking the call. Question, Kathy, just a quick one for you on,

Jason Gursky: The trends going on there in Europe and the pipeline and the bookings that you've been seeing there given the demand.

Jason Gursky: I'm just curious, the contract types that you'll be operating with there, generally speaking, FMS versus direct commercial, and what does that look like?

Jason Gursky: you know, portend for margins across the businesses going forward as that makes shifts maybe a little bit more to some international work.

Speaker Change: It's a combination of contract types that we see across our international sales portfolio for our ammunition and weapons products. We typically see those as direct commercial sales. And for our more complex weapons systems, anything that would entail integration, for instance, IBCS.

Kathy Warden: We typically see those as direct commercial sales, and for our more complex weapons systems, anything that would entail integration, for instance, IPCS, Triton, we would see those as FMS sales. In both cases, we tend to see those as accretive to overall both segment and company margin rate as a result of us being further down the learning curve when we price those because we're building off of mature product lines. And so we expect that trend to continue as we look at the pipeline into next year because some of the weapons system sales are larger. We do see that as a bigger contributor to the growth, but DCS is also an important part of the international pipeline, and we see both growing into next year.

Kathy Warden: And for our more complex weapons systems, anything that would entail integration, for instance, IBCS, Triton, we would see those as FMS sales. In both cases, we tend to see those as accretive to overall both segment and company margin rates, as a result of us being further down the learning curve, when we price those, because we're building off of mature product lines. And so we expect that trend to continue as we look at the pipeline into next year. Because some of the weapons system sales are larger, we do see that as a bigger contributor to the growth.

Speaker Change: Triton, we would see those as FMS sales.

Speaker Change: as a result of us being further down the learning curve when we price those because we're building off of mature product lines. And so we expect that trend to continue as we look at the pipeline.

Speaker Change: into next year because some of the weapon system sales are larger. We do see that as a bigger contributor to the growth, but DCS is also an important part of the international pipeline and we see both growing into next year.

Kathy Warden: But DCS is also an important part of the international pipeline. And we see both growing into next year.

Kathy Warden: Okay, great.

Kathy Warden: Okay, great.

Kathy Warden: And then just a quick follow up, just sticking with contract types domestically, are you seeing any interesting comments or observations that you can make about the current contracting environment in the Any shifts in DOD strategy on how they're going to ask you all to get yourselves on contract going forward? I haven't seen any significant shift, but more dialogue, for sure, in terms of what contract type is appropriate for the work that is being conducted. And as a result, we have seen on particular opportunities a shift from one type to another based on industry engagement. So I think that's healthy.

Kathy Warden: And then just a quick follow, just sticking with contract types domestically, are you seeing any interesting comments or observations that you can make about the current contracting environment and any shifts in DOD strategy on how they're going to ask you all to get your sales on contract going forward? I haven't seen any significant shift, but more dialogue for sure in terms of what contract type is appropriate for the work that is being conducted, and as a result, we have seen on particular opportunities a shift from one type to another based on industry engagement. So I think that's healthy.

Speaker Change: Thank you.

Speaker Change: Okay, great. And then just a quick follow-up. Just sticking with contract types domestically, are you seeing, I don't know, any interesting comments or observations that you can make about the current contracting environment and the...

Speaker Change: Any shifts in DOD strategy on how they're going to ask you all to get yourselves on contract going forward?

Speaker Change: I haven't seen any significant shift, but more dialogue for sure.

Speaker Change: in terms of what contract type is appropriate for the work that is being conducted. And as a result, we have seen, on particular opportunities, a shift from one type to another based on industry engagement.

Kathy Warden: It's helping the government to really understand what motivates industry and what's necessary in terms of the business conditions for us to be able to invest in the way that supports the government ability to get products in a timely fashion because at the end of the day, cost is one element, but schedule is another and we want to make sure that we can deliver not only what, but when and at the process. That is a great tool. So getting the contract type right is an important ingredient to make that all work.

Kathy Warden: It's helping the government to really understand what motivates industry and what's necessary in terms of the business conditions for us to be able to invest in the way that supports the government's ability to get products in a timely fashion. Because at the end of the day, cost is one element, but schedule is another. And we want to make sure that we can deliver not only what, but when and at the price that is agreed to. So getting the contract type right is an important ingredient to make that all work.

Speaker Change: So I think that's healthy, it's helping the government to really understand what motivates industry and what's necessary in terms of the business conditions.

Speaker Change: for us to be able to invest in the way that supports the government.

Speaker Change: ability to get products in a timely fashion because at the end of the day cost is one element but schedule is another and we want to make sure that we can deliver not only what but when and at the price that is agreed to. So getting the contract type right is an important ingredient to make that all work.

Scott Tushal: Thank you. Our next question comes from Scott Tushal with Deutsche Bank; you may proceed. Hey, good morning. Good morning.

Scott Deuschle: Thank you. Our next question comes from Scott Deuschle with Deutsche Bank. You may proceed. Hey, good morning. Good morning.

Speaker Change: Thank you.

Speaker Change: Thank you.

Speaker Change: Our next question comes from Scott Dushall with Deutsche Bank. You may proceed.

Scott Tushal: Ken, was the F-35 program a driver of positive AACs that are non-exagain this quarter, and then would there be additional opportunity to expand margins on centrifugal laws over the coming years as you move to newer lots that have some better pricing on them. Thanks. Thanks for the questions, Scott. We're absolutely pleased with ASS' performance in the quarter and what drove the overall positive in terms of net earnings adjustments. It really was a portfolio approach, and so it wasn't one program alone. It was mature production programs from across that portfolio. And we expect that to be the case, and it's really showing the benefits of the deliberate actions that we're taking to drive costs out of the business to create efficiencies.

Ken Cruz: Ken, was the F-35 program a driver of positive EACs at Aeronautics again this quarter, and then would there be additional opportunity to expand margins on center fuselage over the coming years as you move forward? Newer lots that have some better pricing. So we're, thanks for the question, Scott. We're absolutely pleased with AS's performance in the quarter. And what drove the overall positive in terms of net earnings adjustments, it really was a portfolio approach. And so it wasn't one program alone. It was mature production programs from across that portfolio. And we expect that to be the case.

Scott Dushall: Hey, good morning. Good morning. Ken, was the F-35 program a driver of positive EACs at Aeronautics again this quarter? And then would there be additional opportunity to expand margins on center fuselage over the coming years as you move to, you know, newer lots that have some better pricing on them? Thanks.

Speaker Change: So we're, thanks for the question, Scott. We're absolutely pleased with AS's performance in the quarter and what drove the overall positive in terms of net earnings adjustments. It really was a portfolio approach and so it wasn't one program alone. It was mature production programs from across

Ken Cruz: And it's really showing the benefits of the deliberate actions that we're taking to drive costs out of the business to create efficiencies. And it's paying off. As we look forward, you know, our team is focused on, you know, leveraging the investments we made in our factories to drive efficiencies. And so I do anticipate opportunities across our mature production programs moving forward, leading to improved booking rates.

Speaker Change: that portfolio and we expect that to be the case and it's really showing the benefits of the

Speaker Change: deliberate actions that we're taking to drive costs out of the business to create efficiencies.

Ken Cruz: And it's paying off. As we look forward, our team is focused on leveraging the investments we made in our factories to drive efficiencies. And so I do anticipate opportunities across our mature production programs moving forward, leading to improved booking rate.

Speaker Change: are mature production programs moving forward leading to improved

Ken Cruz: However, knowing in 2025, we do have a mixed shift, particularly related to the growth on the restrictive programs, which will put pressure relative to the overall booking rates you saw in AS this year.

Ken Cruz: However, knowing in 2025, we do have a mixed shift, particularly related to the growth on the restrictive programs, which will put pressure relative to the overall booking rates you saw on AS this year. Okay.

Speaker Change: booking rates. However, knowing in 2025, we do have a mixed shift, particularly related to the growth on the restrictive programs, which will put pressure relative to the overall booking rates you saw in AS this year.

Ken Cruz: Okay, and then, Ken, maybe just, you know, what segments do you view as having the greatest opportunity to expand margins next year? And then maybe you could walk through some of the drivers there that would underpin that. Sure. So when we think about next year is we see opportunities to expand margin across three of the four segments, per my previous comments on AF. I would say, you know, given the comments that Kathy made before, the mix of international, the focus on weapon systems, I believe DS has, is one of the major drivers of that margin expansion.

Ken Cruz: And then Ken, maybe just what segments do you view as having the greatest opportunity to expand margins next year, and then maybe you could walk through some of the drivers there that would underpin that. Thanks. Sure. So when we think about next year, we see opportunities to expand margin across three of the four segments for my previous comments on ASS. I would say, you know, give us the comments that Kathy made before the mix of international, the focus on weapon systems. I believe DS has is one of the major drivers of that margin expansion. Also, too, is with MS. It's important to realize that MS is creating an immense amount of value for our company and our shareholders.

Speaker Change: Okay, and then Ken, maybe just, you know, what segments do you view as having the greatest opportunity to expand margins next year? And then maybe you could walk through some of the drivers there that would underpin that. Thanks.

Speaker Change: Sure, so when we think about next year is we see opportunities to expand margin across three of the four segments for my previous comments on AF.

Ken Cruz: Also, too, is with MSs, it's important to realize that MSs creates an immense amount of value for our company and our shareholders. They're booking close to 14%. We've seen some headwinds that as we've communicated are temporal in nature. And so as we move forward, do expect MS to continue to see accretive margins. And then long term, as we shift back more towards FFP, that margin expansion will continue to get back to the historical norms that we've seen. And then in space, I think this quarter is an absolute great reflection of space and the activities that they are taking to focus on performance, drive efficiencies into the business.

Speaker Change: I believe DS is one of the major drivers of that margin expansion. Also, too, is with MSs, it's important to realize that MSs creates an immense amount of value for our company and our shareholders.

Ken Cruz: They're booking close to 14%. And we've seen some headwinds that, as we've communicated, are temporal in nature. And so, as we move forward, do expect MS to continue to see a creative margins. And then, long term, as we shift back more towards FFP, that margin expansion will continue to get back to the historical norms that we've seen. And then in space, I think this quarter is an absolute great reflection of space and the activities that they are taking to focus on performance, drive efficiencies into the business. And so we see opportunities there to expand margins as well.

Speaker Change: They're both being close to 14%.

Speaker Change: We've seen some headwinds that, as we've communicated, are temporal in nature, and so as we move forward...

Speaker Change: Do expect MS to continue to see accretive margins, and then long-term, as we shift back more towards FFP,

Speaker Change: And then in space, I think this quarter is an absolute great reflection of space and the activities that they are taking to focus on performance, drive efficiencies into the business.

Ken Cruz: And so we see opportunities there to expand margins as well. So it's going to be a portfolio approach across those three segments and DS should be the primary driver.

Ken Cruz: So it's going to be a portfolio approach across those three segments, and DS should be the primary driver.

Speaker Change: And so we see opportunities there to expand margins as well. So it's going to be a portfolio approach across those three segments, and DS should be the primary driver.

Ken Cruz: Thank you.

Gautam Khanna: Thank you. Our next question comes from Gautam Khanna with T.D. Cowan, you may proceed. Yeah, good morning and congrats, Dave and Ken. Thank you. Hey, I'm curious on two things. One, just big picture, we got an election coming up.

Gautam Khanna: Our next question comes from God. I'm Kana with TD count, and you may proceed. Yeah, good morning and congrats, David and Ken. Thank you. I'm curious on two things. One, just big picture. We got an election coming up. Do you see any? Dramatic differences between either candidate or administration on your programs and defense broadly, and then I'll follow up.

Speaker Change: Thank you.

Speaker Change: Our next question comes from Gautam Kanna with TD Cowan. You may proceed.

Speaker Change: Yeah, good morning and congrats Dave and Ken.

Speaker Change: Thank you.

Gautam Kanna: I'm curious on two things. One, just big picture, we got an election coming up. Do you see any

Kathy Warden: Do you see any Dramatic differences between either candidate or administration on Thank you for your programs and Defense Broadly. and then I have a follow-up. Thanks, Gautam, and welcome. I do not see a significant difference. What we have seen over time is that the Defense budget more reflects the threat environment than any particular administration change and so we fully expect that again this time. The national defense strategy has remained consistent over the past several years in the last couple of administrations and we believe that's because it is responsive to the emerging threats around the globe and focused on both deterring and defending and in that regard it's well aligned to the program portfolio that Northrop Grumman has with a significant portion of our work supporting the U.S.

Gautam Kanna: dramatic differences between

Gautam Kanna: your programs and defense broadly.

Kathy Warden: Thanks, Gautam, and welcome. I do not see a significant difference. What we have seen over time is that the defense budget more reflects the threat environment than any particular administration change. And so we fully expect that again this time with the national defense strategy has remained consistent over the past several years. In the last couple of administrations. And we believe that because it is responsive to the emerging threats around the globe and focused on both deterring and defending. And in that regard, is well aligned to the program portfolio that Northrop Grumman has, with a significant portion of our work supporting the US in those builds and modernization of the nuclear triad.

Gautam Kanna: And then I have a follow-up.

Gautam Kanna: change, and so we fully expect that again this time.

Gautam Kanna: The National Defense Strategy has remained consistent.

Gautam Kanna: over the past several years in the last couple of administrations.

Gautam Kanna: We believe that's because it is responsive to the emerging threats around the globe and focused on

Gautam Kanna: both deterring and defending. And in that regard, it's well aligned to the program portfolio that Northrop Grumman has with a significant portion of our work supporting the U.S. in the

Kathy Warden: in the build and modernization of the nuclear triad but also a portfolio that very much supports the U.S. and our allies in being able to defend in conflict when called upon. So we expect those to continue to be the driving features of a national defense strategy and therefore what the budgets will support and reflect.

Kathy Warden: But also a portfolio that very much supports the US and our allies in being able to defend in conflict when called upon. So we expect those to continue to be the driving features of a national defense strategy, and therefore what the budgets will support and reflect.

Gautam Kanna: build and modernization of the nuclear triad, but also a portfolio that very much supports the U.S. and our allies in being able to defend in conflict when called upon. So we expect those to continue to be the driving

Gautam Kanna: features of a national defense strategy and therefore what the budgets will support and reflect.

Kathy Warden: Thank you. Just a quick follow-up on space beyond 2025. I mean, what do you think kind of the longer term trajectory of that revenue will be? What we've said about space beyond 2025 is that we do expect it to return to growth. And we also have said that it's growing mid single digits without the headwinds of the two programs that are winding down, so it gives you a good sense of what we think that run rate might look like coming out of 2025.

Kathy Warden: Thank you. And just a quick follow up on space beyond 2025. I mean, what do you think kind of the longer term trajectory of that? Revenue will be. What we've said about space beyond 2025 is that we do expect it to return to growth. And we also have said that it's growing mid single digits without the headwinds of the two programs that are winding down. So it gives you a good sense of what we think that run rate might look like coming out of 2025.

Gautam Kanna: Thank you.

Speaker Change: Thank you. And just a quick follow-up on space beyond 2025. I mean, what do you think kind of the longer-term trajectory of that?

Speaker Change: revenue will be.

Speaker Change: What we've said about space beyond 2025 is that we do expect it to return to growth. And we also have said that it's growing mid-single digits without the headwinds of the two programs that are winding down. So it gives you a good sense of what we think that run rate might look like coming out of 2025.

Doug Arnett: Thank you. Our next question comes from Doug Arnett with Bernstein. You may proceed.

Kathy Warden: Thank you.

Doug Arnett: Our next question comes from Doug Arnett with Bernstein. Good morning. Thank you. I wanted to follow up on the space question because it's been complicated with the movement of Senate and all of that. NGI and the Classified Program. When you look forward from here, I guess first of all, is it possible to compare apples to apples on what's changed in the space backlog over the past year, if we take out those other programs? And then can you highlight kind of what some of the the more important programs or program areas will be in getting the growth rate you're talking about?

Speaker Change: Thank you.

Doug Arnett: Good morning. Thank you.

Speaker Change: Our next question comes from Doug Arnett with Bernstein. You may proceed.

Kathy Warden: Kathy, I wanted to follow up on the space question because it's been complicated with the movement of Sentinel and NGI and the classified program. When you look forward from here, I guess, first of all, is it possible to compare apples to apples on what's changed in the space backlog over the past year if we take out those other programs? And then can you highlight kind of what some of the more important programs or program areas will be in getting the growth rate you're talking about? Sure. When you look at the move of the SDS portfolio from space to defense, it is largely the Sentinel program.

Speaker Change: Good morning, thank you.

Doug Arnett: Kathy, I wanted to follow up on the space question, because it's been complicated with the movement of Sentinel.

Doug Arnett: NGI and the CLASSIFIED program. When you when you look forward from here, I guess first of all, is it possible to compare

Doug Arnett: Thank you.

Doug Arnett: apples-to-apples on what's changed in the space backlog over the past year if we take out those other programs and then can you highlight

Doug Arnett: What some of the more important programs or program areas will be in getting the growth rate you're talking about?

Kathy Warden: Sure. When you look at the move of the SDS portfolio from space to defense, it is largely the Sentinel program. And so the backlog shifts that we made there gives you a sense of what that profile is for Sentinel. And you also can take a look at what's remaining and see that there is a very healthy. This is a very sized backlog to support the space business. And while it's made up of a number of programs, many of which are restricted, it is broad based in its nature. It is supporting ground satellite builds, it is supporting intelligence missions, as well as the Department of Defense and a significant portion of it is NASA and related civilian missions.

Doug Arnett: Sure.

Doug Arnett: SDS portfolio from space to defense.

Kathy Warden: And so the backlog shifts that we made there gives you a sense of what that profile is for Sentinel. And you also can take a look at what's remaining and see that there is a very healthy. and a signed backlog to support the space business. And while it's made up of a number of programs, many of which are restricted, it is broad-based in its nature. It is supporting ground, satellite builds; it is supporting intelligence missions as well as the Department of Defense, and a significant portion of it is NASA. NASA and related civilian missions, and so what we can say is the backlog is well diversified; it is large, and it is, in many cases, early stage programs that still have a lot of runway in front of them in terms of either future awards or production volume associated with development program.

Doug Arnett: Profile is for Sentinel and you also can take a look at what's remaining and see that there is a very healthy

Doug Arnett: sized backlogs to support the space business.

Doug Arnett: and while it's made up of a number of programs, many of which are restricted,

Doug Arnett: It is broad-based in its nature. It is supporting ground satellite builds. It is supporting

Speaker Change: Thank you.

Speaker Change: intelligence missions as well as the Department of Defense and a significant portion of it is NASA and related civilian missions and so what we can say is the backlog is well diversified

Kathy Warden: And so what we can say is the backlog is well-diversified, it is large, and it is in many cases early stage programs that still have a lot of runway in front of them in terms of either future awards or production volume associated with development programs. And then just if I can, one follow-up on defense systems. Can you give a picture at all of what your expectation is for the percentage you'll get from international over the next couple of years since It is clearly expanding. You know, Doug, I'd prefer to wait until we guide in 2025, because it is rapidly expanding.

Speaker Change: It is large, and it is, in many cases, early stage programs that still have a lot of runway in front of them in terms of either future awards or production volume associated with development programs.

Doug Arnett: And then just if I can't follow up on defense systems, can you give a picture at all of what your expectation is for the percentage you'll get from international over the next couple of years since it is clearly expanding. You know, Doug, I'd prefer to wait until we guide in 2025 because it is rapidly expanding. And as you know, at this time of year, we're still in our process of laying out the details associated with our long-range plan. And I know you're not just asking for what does that look like in a one year flip in 2025, but what does that trajectory look like over time?

Speaker Change: and then just if I can one follow-up on on defense systems

Speaker Change: Can you give a picture at all of what your expectation is for the percentage you'll get from international over the next couple years since it is clearly expanding?

Kathy Warden: And as you know, at this time of year, we're still in our process of laying out the details associated with our long range plan. And I know you're not just asking for what does that look like in a one year blip in 2025? But what does that trajectory look like over time?

Speaker Change: You know, Doug, I'd prefer to wait until we guide in 2025, because it is rapidly expanding and as you know, at this time of year, we're still in our process of

Speaker Change: Laying out the details associated with our long-range plan And I know you're not just asking for what does that look like in a one-year blip in 2025? But what does that trajectory look like over time and I'll be able to get some more color on that in the January call And would be happy to do so since it is an important part

Kathy Warden: And I'll be able to get some more color on that in the January call, and would be happy to do so since it is an important part of our growth strategy, not just in defense systems, but we believe it's material to the company overall. And two other segments, both aeronautics and mission systems have significant international growth opportunities as well. Thank you.

Doug Arnett: And I'll be able to give some more color on that in the January call and would be happy to do so since it is an important part of our growth strategy, not just in defense systems, but we believe it's material to the company overall and to other segments. Both aeronautics and mission systems have significant international growth opportunities as well. Thank you.

Speaker Change: of our growth strategy, not just in defense systems, but we believe it's material to the company overall. And two other segments, both aeronautics and mission systems have significant international growth opportunities as well.

Miles Walton: Our next question comes from Miles Walton with Wolf Research; he may proceed.

Myles Walton: Our next question comes from Myles Walton with Wolfe Research, he may proceed.

Speaker Change: Thank you.

Speaker Change: Our next question comes from Miles Walton with Wolf Research. He may proceed.

Miles Walton: One moment for our next question.

Speaker Change: One moment for our next question.

Miles Walton: Our next question comes from Ken Herbert with RBC Capital Markets; he may proceed. Hi, good morning. Kathy, I wanted to ask you a question about autonomy. You've got a number of legacy programs here as we go to a USA and look across the industry funding for autonomy and related technologies just seems to be incredibly strong. How would you characterize your portfolio in autonomy today? Where are you investing, and maybe what do you see as a couple of the big opportunities for you over the next few years? Yes, we certainly have spent a leader in autonomy and continued to be and across multiple domains and weapons systems type.

Ken Herbert: Our next question comes from Ken Herbert with RBC Capital Markets. Yeah, hi, good morning.

Speaker Change: and David Keffer. Thank you. Thank you.

Speaker Change: Our next question comes from Ken Erbert with RBC Capital Markets. You may proceed.

Kathy Warden: Kathy, I wanted to ask you a question about autonomy. You've got a number of legacy programs here. As we go to AUSA and look across the industry, funding for autonomy and related technologies just seems to be incredibly strong. How would you characterize your portfolio in autonomy today? Where are you investing? And maybe what do you see as a couple of the big opportunities for your? Yes, we certainly have been a leader in autonomy and continue to be. And across multiple domains and weapon systems types. So when you think about our history, it's largely been associated with aircraft.

Speaker Change: Yeah, hi, good morning.

Ken Erbert: Kathy, I wanted to ask you a question about autonomy. You've got a number of legacy programs here as we go to AUSA and look across the industry. Funding for autonomy and related technologies just seems to be incredibly strong.

Speaker Change: How would you characterize your portfolio and autonomy today? Where are you investing and maybe what do you see as a couple of the big opportunities for you over the next few years?

Speaker Change: Yes, we certainly have been a leader in autonomy and continue to be, and across multiple domains and weapon systems types. So when you think about art history, it's largely been associated with aircraft.

Kathy Warden: So when you think about our history, it's largely been associated with aircraft, and we clearly are a leader there in truly autonomous, not remotely piloted, but truly autonomous vehicles, having several in operations today and continue to invest in that area for the future of uncrewed aircraft. When you think about satellites, the command and control of a satellite, it is an ultimate autonomous vehicle, and more and more the opportunity set in space is around maneuverability and command and control, so we're investing near. And then finally, when you think about weapon systems, they are less expensive, uncrewed vehicles in many cases.

Kathy Warden: And we clearly are a leader there in truly autonomous, not remotely piloted, but truly autonomous vehicles, having several in operations today, and continue to invest in that area for the future of uncrewed aircraft. When you think about satellites, the command and control of a satellite, it is an ultimate autonomous vehicle. And more and more, the opportunity set in space is around maneuverability and command and control. So we're investing there. And then finally, when you think about weapon systems, they are less expensive, uncrewed vehicles in many cases. And that's not just in the weapon itself. But as we think about the role that they play in defense, so we are investing in autonomy company wide, and really drawing threads across those investments and not thinking so much about the platform, but the technology itself, which, in this case, it's more in the software and integration.

Speaker Change: We clearly are a leader there in truly autonomous, not remotely piloted, but truly autonomous vehicles, having several in operations today, and continue to invest in that area for the future of uncrewed aircraft.

Speaker Change: When you think about satellites, the command and control of a satellite, it is...

Speaker Change: an ultimate autonomous vehicle and more and more.

Speaker Change: The opportunity set in space is around maneuverability and command and control, so we're investing there. And then finally, when you think about weapon systems...

Kathy Warden: And that's not just in the weapon itself, but as we think about the role that they play in defense, so we are investing in autonomy, company-wide, and really drawing threads across those investments and not thinking so much about the platform, but the technology itself, which in this case it's more in the software and integration. One of the differentiation of our company is that we are not just hardware, we're software and integration, and we've demonstrated that through a number of leading edge programs that allow us to get the benefit of both worlds coming together at scale and in operation.

Speaker Change: They are less expensive uncrewed vehicles in many cases, and that's not just in the weapon itself, but as we think about the role that they play.

Speaker Change: in defense. So we are investing in autonomy company-wide and really drawing threads across those investments and not thinking so much about the platform, but the technology itself, which

Kathy Warden: And one of the differentiations of our company is that we are not just hardware, we're software and integration. And we've demonstrated that through a number of leading edge programs that allow us to get the benefit of both worlds coming together at scale and in operation.

Speaker Change: In this case, it's more in the software and integration, and one of the differentiations of our company is that we are not just hardware, we're software and integration, and we've demonstrated that through a number of leading-edge programs.

Speaker Change: that allow us to get the benefit of both worlds coming together at scale and in operation.

Kathy Warden: That's helpful. And as the software continues to be a driver here, do you think there's a risk that on the customer side sort of adaption or risk appetite could potentially hold back some of the opportunities here, or how do you think the customer is able to keep up with what you're able to do on the technology side? I think there's an appetite for the capability that is strong, getting through a certification program, particularly when you think about airworthiness with an autonomous vehicle is not easy, and we've done it; not many companies have, and we have, but it is a rigorous process for good reason.

Kathy Warden: That's helpful. And as the software continues to be a driver here, do you think there's risk that on the customer side, sort of adaption or risk appetite could potentially hold back some of the opportunities here? Or how do you think the customer is able to keep up with what you're able to do on the I think there's an appetite for the capability that is strong. Getting through a certification program, particularly when you think about airworthiness with an autonomous vehicle, is not easy. And we've done it. Not many companies have. And we have. But it is a rigorous process for good reasons.

Speaker Change: Could potentially hold back some of the opportunities here, or how do you think the customer is able to keep up with what you're able to do on the technology side?

Speaker Change: I think there's an appetite for the capability that is strong. Getting through a certification program, particularly when you think about airworthiness with an autonomous vehicle, is not easy, and we've done it. Not many companies have, and we have.

Kathy Warden: And it is one that should remain rigorous, and that's really where you need to be assured that your software is sufficiently protected and tested to be able to operate under conditions where you may have denied communications and jamming and other impacts to what would be rudimentary. There's a way of supporting autonomy or remote piloting, so I'm going into a little bit of detail to just share it is not an easy task. So the demand certainly is there; the ability to respond to that demand, I think, will be the pacing item for some company.

Kathy Warden: And it is one that should remain rigorous. And that's really where you need to be assured that your software is sufficiently protected and tested to be able to operate and under conditions where you may have denied communications and jamming and other impacts to what would be rudimentary ways of supporting autonomy or remote piloting. So I'm going into a little bit of detail to just share it is not an easy task. So the demand certainly is there, the ability to respond to that demand, I think will be the pacing item for some companies. Thank you.

Speaker Change: But it is a rigorous process for good reason, and it is one that should remain rigorous. And that's really where you need to be assured that your software is

Speaker Change: sufficiently protected and tested to be able to operate and under conditions where you may have

Speaker Change: denied communications and jamming and other impacts to what would be rudimentary ways of supporting autonomy or remote piloting. So I'm going into a little bit of detail to just share it is not an easy task.

Speaker Change: So, the demand certainly is there. The ability to respond to that demand, I think, will be the pacing item for some companies.

Miles Walton: Thank you.

Miles Walton: Our next question goes from Miles Walton with Wolf Research. You may proceed. Thanks. Good morning.

Myles Walton: Our next question comes from Myles Walton with Wolf Research, you may proceed. Thanks. Good morning. Dave, it sounds like 2024 free cash flow is going to be comfortably at the high end of the range based on your comments. Is that right? And then maybe Ken, on the 2025 outlook for free cash flow, the guidance or the increase is about $600 million.

Speaker Change: Thank you.

Speaker Change: Our next question comes from Miles Walton with Wolf Research. You may proceed.

Dave Keffer: Dave, it sounds like 2024 free cash flow is going to be completely at the high end of the range, based on your comments. Is that right? And then maybe Ken on the 2025 outlook for free cash flow, the guidance or the increase is about 600 million, but that looks like it's just covered with pension, capex, and taxes. So is there a working capital or maybe burn off of the 21 that's offsetting earnings?

Miles Walton: Thanks. Good morning. Dave, it sounds like 2024 free cash flow is going to be comfortably at the high end of the range based on your comments. Is that right? And then maybe Ken,

Miles Walton: On the 2025 outlook for free cash flow, the increase is about $600 million, but that looks like it's just covered with pension, CapEx, and taxes. So is there a working capital or maybe burn-off of B-21 that's offsetting earnings?

Ken Cruz: But that looks like it's just covered with pension, capex and tax So is there a working capital or maybe burn-off of B-21 that's also...

Dave Keffer: I'll be happy to start Miles on 2024 and then hand it to Ken for a discussion of periods beyond that. We didn't mean to indicate a direction toward either end of the free cash flow range for this year. As we noted, we've had a strong third quarter and year-to-date performance for free cash flow. If you look at prior year trends, you'd see a similar trend line through prior years of the quarterly progression, such that 2, 4 is expected this year as it has been in the past to be a strong free cash flow quarter, but we're not, you know, meaning to indicate a direction toward either end of the free cash flow range. We're pleased to continue to maintain that really strong range that reflects that strong growth year over year and in 2024.

David Keffer: I'll be happy to start, Myles, on 2024 and then hand it to Ken for a discussion of periods beyond. We didn't mean to indicate a direction toward either end of the free cash flow range for this year. As we noted, we've had a strong third quarter and year-to-date performance for free cash flow. I think if you look at prior year trends, you'd see a similar trend line through prior years of the quarterly progression, such that Q4 is expected this year, as it has been in the past, to be a strong free cash flow quarter. But we're not meaning to indicate a direction toward either end of the free cash flow range.

Speaker Change: I'll be happy to start, Myles, on 2024 and then hand it to Ken for a discussion of periods beyond. We didn't mean to indicate a direction toward either end of the free cash flow range for this year. As we noted, we've...

Speaker Change: had a strong third quarter and year-to-date performance for free cash flow. I think if you look at prior year trends, you'd see a similar trend line through prior years of the quarterly progression, such that Q4 is expected this year as it has been in the past to be a strong free cash flow quarter.

Ken Erbert: But we're not, you know, meaning to indicate a direction toward either end of the free cash flow range. We're pleased to continue to maintain that really strong range that reflects such strong growth year-over-year in 2024. So, Ken, over to you for any follow-up discussion on 2025. Sure. So, from a working capital perspective, as we've communicated in the past, we expect that to be relatively flat. You'll see it elevated levels right now, and that's just timing, you know, as we get through quarter four with the sales profile.

David Keffer: We're pleased to continue to maintain that really strong range that reflects such strong growth year over year in 2024.

Ken Cruz: Ken, over to you for any follow-up discussion on 25. So, from a working capital perspective, as we've communicated in the past, we expect that to be relatively flat. You'll see it elevated levels right now, and that's just timing. You know, as we get through quarter four with a sales profile, it will level to our historical norms. We expect that in 2025, and when we think about what is driving the cash flow expansion in 2025, I would put it into primary drivers. The first is operating performance. So as we expand margins and we convert those margins to cash, the other major driver is the reductions in investment from market historical peaks.

Ken Cruz: So, Ken, over to you for any follow-up discussion on 2025. Sure. So from a working capital perspective, as we've communicated in the past, we expect that to be relatively flat. You'll see it elevated levels right now, and that's just timing. You know, as we get through quarter four with a sales profile, it will level to our historical norms. We expect that in 2025. And when we think about what is driving the cash flow expansion in 2025, I would put it in two primary drivers. The first is operating performance. So as we expand margins and we convert those margins of cash, the other major driver is the reductions in investment from our historical peaks.

Ken Erbert: It will level to our historical norms. We expect that in 2025. And when we think about what is driving the...

Ken Erbert: The cash flow expansion in 2025, I would put it in two primary drivers. The first is operating performance. So as we expand margins and we convert those margins of cash, the other major driver is the reductions in investment from our historical peaks.

Ken Cruz: There are the minor benefits regarding R&D cash taxes as well as cash pension recovery, but it's really going to be driven by operations and investment levels. All right.

Ken Cruz: There are some minor benefits regarding R&D cash taxes, as well as cash pension recoveries, but it's really going to be driven by operations and investment levels. All right, thank you.

Ken Erbert: There are some minor benefits regarding R&D cash taxes as well as cash pension recoveries, but it's really going to be driven by operations and investment levels.

Seth Seifman: Thank you.

Speaker Change: All right, thank you.

Speaker Change: Thank you very much.

Seth Seifman: All right. Question comes from Seth Seifman with JP Morgan. You may proceed.

Kathy Warden: Our next question comes from Seth Seifman with J.P. Morgan, you may proceed. Thanks very much and good morning and congratulations to Dave and Ken. Thanks, Kathy, I wonder if you could talk a little bit about in, you know, within defense systems and the missiles and munitions, we saw some investment, some additional investment in solid rocket motors. And I think there's a sense that, you know, there's a lot of capacity coming into the solid rocket motor area, we saw kind of a surge in demand for missiles and munitions. But kind of, you know, how enduring is the demand level there?

Kathy Warden: Thanks very much, and good morning, and congratulations to David Ken. Kathy, I wonder if you could talk a little bit about, you know, within defense systems and the missiles and munitions. We saw some investment, some additional investment in solid rocket motors. I think there's a sense that, you know, there's a lot of capacity coming into the solid rocket motor area. We saw kind of a surge in demand for missiles and munitions, but kind of, you know, how enduring is the demand level there? And so I wonder if you could talk a little bit about how you see that, given, you know, the investments that you're making.

Speaker Change: Our next question comes from Seth Seifman with J.P. Morgan. You may proceed.

Seth Seifman: Thanks very much and good morning and congratulations to David and Ken.

Seth Seifman: Thanks. Kathy, I wonder if you could talk a little bit about, you know, within defense systems and the missiles and munitions, we saw some investment, some additional investment, in solid rocket motors.

Speaker Change: I think there's a sense that, you know, there's a lot of capacity coming into the solid rocket motor area. We saw kind of a surge in demand for missiles and munitions.

Kathy Warden: And so I wonder if you could talk a little bit about how you see that, given, you know, given the investments that you're making. Yeah, we do see that not only the US, but multiple allies are likely to need to restock pile munitions that they have donated to Ukraine. And as a result, we believe that this higher demand signal is enduring for multiple years. We have invested to lay in capacity, as you know, and increase capacity more than doubled at this point. And moving toward a tripling of capacity with some US government supported funding. And as we do that, we are working through our supply chain to ensure it's not just our capacity, but it's theirs as well, to support the entire build process.

Speaker Change: but kind of you know how enduring is the demand level there and and so I wonder if you could talk a little bit about how you see that given you know given the investments that you're making.

Kathy Warden: Yeah, we do see that not only the US, but multiple allies are likely to need to restock pile munitions that they have donated to Ukraine. And as a result, we believe that this higher demand signal is enduring for multiple years. We have invested to lay in capacity, as you know, and increase capacity more than doubled at this point and moving toward a tripling of capacity with some US government-supported funding. And as we do that, we are working through our supply chain to ensure it's not just our capacity, but it's theirs as well to support the entire build process.

Speaker Change: Yeah

Speaker Change: We do see that not only the U.S., but multiple allies are likely to need to restockpile munitions that they have donated to Ukraine, and as a result,

Speaker Change: We believe that this higher demand signal is enduring for multiple years We have invested to lay in capacity as you know and increase capacity more than doubled at this point and moving toward a tripling of capacity with some US government

Speaker Change: supported funding and as we do that we are working through our supply chain to ensure it's not just our capacity but it's theirs as well to support the entire build process.

Kathy Warden: As others are coming into the marketplace, I think there will come a time when we need to look at how much capacity is enough. We are certainly not at that place in our company at this point in time. The investments that we are making, we are committed to making. And we believe there will be plenty of demand for that capacity, but we'll continue to monitor it as we do any area where we're facilitating to ensure that we don't get out ahead of the demand signal. Great, great, thanks very much.

Kathy Warden: As others are coming into the marketplace, I think there will come a time when we need to look at how much capacity is enough. We are certainly not at that place in our company at this point in time. The investments that we are making, we are committed to making, and we believe there will be plenty of demand for that capacity. But we'll continue to monitor it as we do any area where we're facilitating to ensure that we don't get out ahead of the demand signal. Great, great.

Speaker Change: As others are coming into the marketplace, I think there will come a time when we need to look at how much capacity is enough. We are certainly not at that place in our company at this point in time. The investments that we are making, we are committed to making, and we believe there will be plenty of demand for that capacity.

Speaker Change: But we'll continue to monitor it as we do any area where we're Facilitating to ensure that we don't get out ahead of the demand signal

Kathy Warden: Thanks very much.

Unknown Executive: Thank you.

Matthew Akers: Thank you. Our next question comes from Matt Akers with Wells Fargo. Yeah, hey, good morning. And Dave, good luck. It's been nice working with you.

Speaker Change: Great, great. Thanks very much.

Matt Acres: Our next question comes from Matt Acres with Wells Fargo; you may proceed. Yeah, hey, good morning, and Dave, good luck. It's been nice to work with you. Can you talk about kind of cat-backed friends longer term? I think Kathy, you kind of mentioned in the opening remarks 25 lower, but still sort of elevated versus historical level. Is there room for that sort of move down, either absolute terms for their ad or as a percentage of sales, sort of what's driving that investment right now?

Speaker Change: Thank you.

Speaker Change: Our next question comes from Matt Akers with Wells Fargo. You may proceed.

Kathy Warden: Can you talk about kind of CapEx trends longer term? I think Kathy, you kind of mentioned in the opening remarks 25 lower, but still sort of elevated versus historical level. Is there room for that sort of move down either absolute terms further out or as a percentage of sales and sort of what, what's driving that?

Matt Akers: Hey, good morning, and Dave, good luck. It's been nice working with you.

Matt Akers: Can you talk about CapEx Friends longer term? I think Kathy, you kind of mentioned in the opening remarks 25 lower but still sort of elevated versus historical level. Is there room for that sort of move down either absolute terms further out or as a percentage of sales? Sort of what's driving that investment right now?

Kathy Warden: Yeah, I'll take that. We certainly want to ensure we're able to continue to invest in our growing business as well as return cash to shareholders. And it is true that for the last several years we have been investing more heavily in the business because the opportunities were there, and these were good opportunities that would create long-term, profitable growth for the company. As we look over the horizon, we still see opportunities to grow the business but not as capital intensive is what we have experienced, and many of the growth opportunities that we have ahead of us this decade, we have now invested in to support the program and its move to production.

Kathy Warden: Yeah, I'll take that. We certainly want to ensure we're able to continue to invest in our growing business, as well as return cash to shareholders. And it is true, for the last several years, we have been investing more heavily in the business, because the opportunities were there. And these were good opportunities that would create long term, profitable growth for the company. As we look over the horizon, we still see opportunities to grow the business, but not as capital intensive as what we have experienced. And many of the growth opportunities that we have ahead of us this decade, we have now invested in to support the program and its move to production.

Speaker Change: Yeah, I'll take that. We certainly want to ensure we're able to continue to invest in our growing business as well as return cash to shareholders. And it is true, for the last several years we have been investing more heavily in the business because the opportunities were there and these were good opportunities.

Speaker Change: that would create long-term...

Speaker Change: profitable growth for the company.

Speaker Change: As we look over the horizon, we still see opportunities to grow the business, but not as capital intensive as what we have experienced. And many of the growth opportunities that we have ahead of us this decade, we have now invested in to support.

Kathy Warden: So we naturally are seeing less pressure for cat-backs in the out years of our plan, and we are going to be responses to that by lowering our cat-backs expenditure. I believe it will still be at a historical norm level, not below that, but just not as elevated as it has been in the past several years, and we've been specific about what that looks like in 2025. We've also said that it will come further in 2026, but we haven't put more numbers to it beyond 2025.

Kathy Warden: So we naturally are seeing less pressure for CapEx in the out years of our plan. And we are going to be responsive to that by lowering our CapEx expenditure. I believe it will still be at a historical norm level, not below that, but just not as elevated as it has been in the past several years. And we've been specific about what that looks like in 2025. We've also said that it'll come down further in 2026. But we haven't put more numbers to it beyond 2025. Got it. All right, thank you.

Speaker Change: the program and its move to production. So we naturally are seeing less pressure for CAPEX in the out years of our plan and we are going to be responsive to that.

Speaker Change: by lowering our CapEx expenditure.

Speaker Change: I believe it will still be at a historical norm level, not below that.

Speaker Change: but just not as elevated as it has been in the past several years. And we've been specific about what that looks like in 2025. We've also said that it'll come down further in 2026, but we haven't put more numbers to it beyond 2025.

Unknown Executive: Thank you for one more question.

Unknown Executive: We have time for one more question.

Speaker Change: All right, thank you.

Scott Mikus: And our last question comes from Scott Mikus with Melis Research. You may proceed. Good morning. Kathy, I wanted to ask; the Air Force seems very pleased with Northrop's execution on B-21. The program or record calls for 100 production units, but Air Force has publicly stated that it's designed to be hired in Torrey as for 150 B-21s. The Air Force re-evaluating at least the man part of NGED. But that free up future funding for the Air Force to get to that desired B-21 in torrey of 150 units. Well, Scott, I think that's exactly what the Air Force is looking at.

Scott Mikus: And our last question comes from Scott Mikus with Mellius Research. Morning. Kathy, I wanted to ask the Air Force seems very I have a question on B-21. The programmer record calls for 100 production units, but Air Force has publicly stated that its desired inventory is for 150 B-21s. With the Air Force re-evaluating at least the manned part of NGAD, could that free up future funding for the Air Force to get to that desired B-21 inventory of 150 units? Well, Scott, I think that's exactly what the Air Force is looking at. They are undertaking a force structure design review, and the Secretary has been open about looking at the various options they have for increasing their force size, and has talked specifically about NGADs, and we know that B-21 is in the mix as well.

Speaker Change: We've time for one more question

Speaker Change: For more information, visit www.FEMA.gov

Speaker Change: And our last question comes from Scott Micus with Mellius Research. You may proceed.

Scott Micus: Good morning.

Scott Micus: Kathy, I wanted to ask. The Air Force seems very pleased with Northrop's execution on B-21. The programmer record calls for a hundred production units but Air Force has publicly stated that its desired inventory is for 150 B-21s.

Kathy Warden: They are undertaking a four-structure design review, and the secretary has been open about looking at the various options they have for increasing their four size and has talked specifically about NGED. And we know that B-21 is in the mix as well. It would be premature for me to suggest where that four-structure review will end up. But I do think in the coming months, we make it a better indication from the Air Force as to how they're thinking about B-21 quantities in the long run. In the short run, we remain very focused on delivering them optionality.

Speaker Change: Well, Scott, I think that's exactly what the Air Force is looking at. They are undertaking a force structure design review and

Speaker Change: and the Secretary has been open about looking at the various options they have for increasing their force size.

Speaker Change: and has talked specifically about NGAD and we know that B-21 is in the mix as well. It would be premature for me to suggest where that...

Kathy Warden: It would be premature for me to suggest where that... for structure review will end up. But I do think in the coming months, we may get a better indication from the Air Force as to how they're thinking about B-21 quantities in the long run. In the short run, we may remain very focused on delivering them optionality. The performance that we are delivering gives them a capability that is in production now, that is well below the cost targets for the platform. And we believe that that's the role of industry to give the government options as they think about their force structure.

Speaker Change: Force Structure Review will end up, but I do think in the coming months we may get a better indication from the Air Force as to how they're thinking about B-21 quantities.

Speaker Change: in the long run. In the short run, we remain very focused on delivering them optionality.

Scott Mikus: The performance that we are delivering gives them a capability that is in production now that is well below the cost targets for the platform. And we believe that that's the role of industry to give the government options as they think about their four structure. Sit with one. Thanks for taking the question.

Speaker Change: The performance that we are delivering gives them a capability that is in production now that is well below the cost target for the platform, and we believe that that's

Speaker Change: the role of industry to give the government options as they think about their force structure.

Unknown Executive: stick with one. Thanks for taking the question.

Kathy Warden: Thank you. Well, let me close by thanking the Northrop Grumman team for another outstanding quarter. They are executing our strategy. And importantly, that means that they're providing the capabilities our customers need in this incredibly dynamic environment that they face.

Kathy Warden: Thank you. Well, let me close by thanking the Northrop Grumman team for another outstanding quarter. They are executing our strategy, and importantly, that means that they're providing the capabilities our customers need in this incredibly dynamic environment that they face.

Speaker Change: Stick with one. Thanks for taking the question. Thank you.

Speaker Change: Well let me close by thanking the Northrop Grumman team for another outstanding quarter. They are executing our strategy and importantly that means that they're providing the capabilities our customers need in this incredibly dynamic environment that they face.

Kathy Warden: I also just want to take a moment to thank Kaivon Rumour and George Shapiro, neither of whom are on the call today, but I think you all know that retiring after respectively 55 and 43 years of covering this industry, which is just amazing. And we've truly enjoyed working with them both and will miss their expertise and commitment to this industry.

Kathy Warden: I also just want to take a moment to thank Kai Von Rumohr and George Shapiro, neither of whom are on the call today, but I think you all know they're retiring after respectively 55 and 43 years of covering this industry, which is just amazing, and we've truly enjoyed working with them both and will miss their expertise and commitment to this industry.

Speaker Change: I also just want to take a moment to thank Kaivon Rumer and George Shapiro, neither of whom are on the call today, but I think you all know they're retiring after, respectively, 55 and 43 years.

Speaker Change: of covering this industry, which is just amazing.

Speaker Change: and we've truly enjoyed working with them both and will miss their expertise and commitment to this industry.

Kathy Warden: So, in addition, I do want to congratulate Dave on his retirement. Not quite 55 years in the industry, but the five years with our company have been truly outstanding, and I wish you all the best in your retirement. So thanks to all of you for joining our call. We look forward to talking to you again in January, if not before. Thank you, ladies and gentlemen.

Kathy Warden: So, in addition, I do want to congratulate Dave on his retirement, not quite 55 years in the industry, but the five years with our company have been truly outstanding and wish you all the best in your retirement. So, thanks to all of you for joining our call. We look forward to talking to you again in January, if not before. Thank you.

Speaker Change: So, in addition, I do want to congratulate Dave on his retirement. Not quite 55 years in the industry, but the five years with our company have been truly outstanding and wish you all the best in your retirement.

Speaker Change: So thanks to all of you for joining our call. We look forward to talking to you again in January, if not before.

Unknown Executive: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation.

Unknown Executive: This concludes today's conference call. Thank you for your participation. Thank you very much.

Speaker Change: Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation.

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Speaker Change: For more information, visit www.FEMA.gov

Speaker Change: [music]

Speaker Change: and David Keffer's wife, Dr. Mary W. Ward. For more information, visit www.fema.gov or call 1-877-433-4243. For more information, call 1-877-433-4243.

Speaker Change: Thank you for watching

Speaker Change: [music].