Q4 2024 Northrop Grumman Corp Earnings Call

January 30, 2025

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 Relations. Mr. Ernst. Please proceed thanks.

Thanks, Josh and good morning to everyone and welcome to Northrop Grumman's fourth quarter 2020 for a conference call before.

Before we start due to technical issues with our provider we have provided a new dial in information for the analysts. So please use that to dial into the call moving.

Moving on matters discussed today on today's call, including guidance and outlooks for 2025 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 release.

In addition, we will refer to a presentation that is posted to our investor relations website on.

Speaker Change: On the call today are Kathy Warden, our chair CEO, and President and Ken Cruse, our CFO at this time I'd like to turn the call over to Kathy Kathy.

Kathy: Thanks, Todd and good morning, everyone. Thank you for joining us.

Kathy: At Northrop Grumman, we remain steadfast in our mission to innovate and deliver cutting edge technologies that enhance national security for the U S and our allies.

Kathy: We are harnessing our investments to manufacture at scale, the integrated hardware and software solution that give our customers and advantage.

Kathy: Our strategy, which is based on technology differentiation as a resulted in another year of strong financial performance.

Kathy: We set a new record backlog, including significant new competitive wins and follow on awards.

Kathy: We ended the year with a backlog of approximately $91 5 billion and a book to Bill ratio at 123 time, providing a solid foundation for future growth.

Kathy: This was driven in part by a new competitive win on the <unk> program and an award for the second I'll Rick lot on B 21 in the fourth quarter.

Kathy: Over the past three years, our book to Bill is 115 time, reflecting strong ongoing demand for our capabilities across U S and international markets.

Kathy: In the fourth quarter, we also booked $900 million for the next generation of Poland's Abcs system, bringing our international book to Bill ratio for the year to one four times given.

Kathy: Given the strong demand, we now expect our international business to accelerate and grow faster than U S sales in 2025.

Kathy: Our proven ability to grow backlog and deliver key capabilities to our customers has led to another year of strong topline growth with 2024 sales up more than 4% building on the momentum over the last five years, where our top line has grown by 30% organically.

Meanwhile, our focus on performance and driving efficiencies in our business is leading to margin expansion with segment operating margin dollars growing faster than sales and our free cash flow performance for the year was outstanding increasing 25% year over year to over $2 $6 billion at the high end.

Kathy: End of our guidance range.

Kathy: As we look forward our guidance reflects our expectation for continued solid organic growth of 3% to 4% further segment margin expansion.

Kathy: And double digit free cash flow growth again in 2025.

Kathy: This guidance is consistent with the outlook we provided in October.

Kathy: At Northrop Grumman our portfolio is well positioned to provide critical deterrence capabilities and differentiating technology that address peer threats and achieve the shared goals of equipping the world's greatest military reaching new frontiers in space and improving the ways industry and government do business with.

Kathy: Look forward to partnering with the Trump administration to accomplish these objectives.

Kathy: We expect Congress to complete FY 'twenty five appropriations this spring, which is assumed in our guidance.

Kathy: As discussions continue regarding the U S defense budget and potential additional investments we continue to see strong bipartisan support for National security.

Kathy: And global defense budgets are growing as our allies seek to counter aggressive from aggression from increasingly sophisticated threats.

This is driving an increase in demand, particularly in areas such as crude and on crude aircrafts advanced weapons and missile defense. These.

Kathy: These dynamics give us confidence in our strong international growth outlook.

Kathy: At our core we are a technology company and we are well positioned on programs that are essential to the U S and our allies National security.

Kathy: More than just an integrator, we possess technology depth throughout Northrop Grumman.

Kathy: Not only in what we produce but in how we produce at this.

Kathy: This combination allows us to compete and win on priority programs and support our customers' goals of peace through strength.

Kathy: One example is our government trusted design and development of specialized microelectronics for the department of defense through our accredited foundries.

Kathy: In our Microelectronic center, we build on our path to innovate for the future and continually disrupt our own technology to bring unmatched capabilities to the U S military.

Kathy: Our terahertz Microchip, which operates at one trillion cycles per second is the fastest in the world. According to the Guinness World record.

Kathy: This type of innovation is realized through material science, new hardware design and manufacturing techniques and advanced software development.

Kathy: All capabilities that we have built and refined over time and possess at scale. So we can deliver for our customers most challenging mission.

Kathy: As a result of having this capability our microelectronics business grew over 20% in 2024.

Kathy: And equally important it creates competitive advantages for Northrop Grumman by providing mission critical technologies that flow upward through our value chain are married with mission I software and then are designed into product areas, such as sensors communications processing and security solutions.

Kathy: We deliver these game changing capabilities as a prime contractor on platforms, we build and also offer them as a trusted supplier to other platform manufacturers.

Kathy: As technological change accelerates it becomes more important that we continue to deliver technology discriminator, whether that's tying together capabilities for family of system solutions or developing additional use cases for our <unk> AI and enhance our solutions or accelerate decision making.

Kathy: We are leveraging our own hardware and software and also partnering with leading companies in areas such as AI to ensure our customers have the most advanced equipment in the world.

Kathy: Innovation and having the capabilities to meet our customer needs are important.

But the ability to scale production and field new systems at speed are core to ultimate mission success as.

Kathy: As we've grown our capacity we've also been implementing advanced manufacturing techniques automation and digital factories across our company.

Kathy: We are designing manufacturing and sustaining our next generation systems with digital ecosystems that are improving our agility and efficiency and therefore, lowering our cost and time to field.

Kathy: These new manufacturing technologies, along with the capacity investments, we've made enable us to rapidly ramp production.

Kathy: We've done this in areas like solid rocket motors advanced weapons and satellite manufacturing.

Kathy: And these investments also allow us to more seamlessly transition major programs from design to production like we've done with the B 21.

Kathy: All of which have been and will continue to be important drivers of growth for our company.

Kathy: Next I'd like to update you on the plans we have previously shared to drive margin expansion. We continue to expect favorable mix to be a driver as we ramp on production programs and grow our international sales over the next several years.

Kathy: This we are taking proactive actions to drive efficiencies across the company.

Kathy: These actions include implementation of digital tool sets that reduce process time, automate tasks and maximize output for our technical teams.

Kathy: We're streamlining our organizational structure, optimizing our supply chain spend and reducing costs through improved utilization of our resources and facilities.

Kathy: We removed over $200 million of costs in the enterprise in 2024 alone.

Kathy: We have a laser focus on performance excellence, driven by delivering first time quality and robust risk management processes.

Kathy: Altogether these cost efficiency initiatives mix shifts and focus on performance gives us confidence we can reduce costs to the taxpayer while also enhancing segment margins as we progressed through this decade.

Kathy: This margin expansion, coupled with continued growth in our business and reduced capital investment are the drivers of our royalty year free cash flow growth outlook.

Kathy: We continue to pursue a balanced capital deployment strategy that supports our customers' requirements and returns cash to shareholders.

Kathy: Over the past two years, we've invested over $3 5 billion in capex to expand our capacity and implement the advanced manufacturing lines across our company.

Kathy: And we are planning to invest another one 5 billion in 2025.

Kathy: We've also delivered over 100% of free cash flow to shareholders last year.

We continue to believe we have the best portfolio that is aligned to our customers' highest priority missions.

Kathy: As we always do we continuously evaluate the portfolio to ensure that we are investing in the businesses that are core to achieving our strategic vision.

Kathy: This includes accessing any gaps that may emerge overtime or businesses that may make sense to exit.

Kathy: With this in mind, we have decided to exit our training services business that is part of defense systems segment.

Kathy: Today, we announced that we have signed an agreement to sell the business to Serco, Inc. For $327 million and we forecast this transaction to close towards the middle of the year.

Kathy: This is an important capability for our customers and we expect the team to continue to deliver world class training services under new leadership, allowing us to focus on our core business.

Kathy: 2024 was marked by strong program execution compelling financial performance implementation of operational improvements and impactful strategic initiatives that have positioned us for long term success.

Kathy: Our ability to capitalize on opportunities and deliver exceptional results is a direct testament to the hard work and dedication of every member of our company.

Kathy: Our strategic priorities remain focused on fostering innovation enhancing operational excellence and expanding our impact for our customers.

Kathy: So with that I'll turn the call over to Ken to discuss our fourth quarter and full year financial results as well as our 2025 guidance Ken.

Ken Cruse: Thank you Kathy and good morning, everyone as Kathy outlined we delivered another strong year of financial performance in 2024, delivering or exceeding the financial commitments that we communicated a year ago.

Ken Cruse: Sustained performance is a reflection of our strategic positioning continued focus on operational excellence and disciplined approach to financial management, we continue to see robust and enduring demand for our capabilities in both domestic and international markets, reflecting this demand we booked $17 3 billion in New awards in the fourth quarter.

Ken Cruse: <unk> and approximately 51 billion for the full year. This led to a record backlog of over 91 billion, an increase of 9% compared to last year positioning the company for continued growth moving.

Ken Cruse: Moving to topline we generated sales of $10 7 billion in quarter, four and 41 billion for the year 2024 sales increased by four 4% with growth across three of our four businesses.

Ken Cruse: Transitioning to the segment performance.

Ken Cruse: <unk> grew to $12 billion in 2024, an increase of 12% compared to the prior year sales volume increased throughout the portfolio and was driven by the production ramp on B 21, and from higher activity on the F 35 program sales.

Ken Cruse: Sales were also higher on autonomous programs, such as Triton and global Hawk, and we saw higher volume on <unk> Sustainment and modernization work.

Ken Cruse: <unk> posted sales growth of 3% driven by higher sales on Sentinel advanced weapons and ammunition programs, partially offset by lower volume due to the completion of an international training program.

Ken Cruse: Mission systems sales increased by 5% led by higher volume on advanced in Microelectronics and technology programs.

Ken Cruse: And in the space segment, 2024 sales were down modestly as expected compared to the prior year due to the wind down of a restricted program in <unk>.

Ken Cruse: As we previously stated the remaining space portfolio grew at mid single digits in 2024, driven by higher sales on space Development Agency satellite programs and numerous other programs.

Turning to the bottom line 2024 segment operating income was over $4 5 billion and our segment operating margin rate expanded to 11, 1%.

Speaker Change: Margins improved due to the proactive steps we've taken to further enhance performance and drive efficiencies across our business as Cathie described earlier in the call. This performance led to an increase in net favorable earnings adjustments totaling $350 million for the year.

Speaker Change: Strong segment performance was the driver for higher year over year earnings per share as shown on slide six in our earnings deck.

Speaker Change: 2024, Mark to market adjusted EPS was $26 eight and exceeded the high end of our guidance range provided in October.

Speaker Change: Higher net pension income and a lower share count also provided an uplift.

Speaker Change: Moving to cash we had an excellent quarter of cash generation in Q4 as is our historical pattern. Our full year operating cash flow was $4 4 billion and we invested roughly $1 8 billion in capital expenditures. This resulted in over $2 6 billion in 2020 for free cash flow near the high end of our guidance.

Speaker Change: Range and a notable 25% compared to 2023.

Speaker Change: Next I would like to provide an update on our pension results and multiyear estimates asset returns in 2024, 7% below our long term expected rate of return of seven 5% mean.

Speaker Change: Meanwhile, the Fas discount rate increased by roughly 60 basis points to 573% more than offsetting the impact from lower asset returns. The net result, along with updated census data is a 2024 mark to market after tax benefit of $332 million or $2 26 a share.

Speaker Change: Looking forward. These results translate to a slightly higher expected Cas recoveries and a reduced Fas pension benefit lowering overall net pension income compared to the prior outlook.

Speaker Change: Importantly, our pension plans remain fully funded and we continue to project minimal cash pension contributions over the next several years.

Speaker Change: Before covering our 2025 guidance I'll highlight recent changes to our portfolio. In addition to the upcoming Divesture of the training services business, which has an annual run rate of $300 million in sales the strike and surveillance aircraft services business unit has been realigned from defense systems to Aeronautics systems.

Speaker Change: Effective January one of this year.

Speaker Change: This business provides a variety of support and Sustainment activities, primarily on aircraft programs and our <unk> portfolio.

Speaker Change: Now in line with the full product life cycles of Northrop Grumman aircrafts, allowing for more seamless development and Sustainment of next generation aircraft.

Speaker Change: These actions coupled with the completion of an international training program create a portfolio that is now centered around strategic deterrent advanced weapons and missile defense.

Speaker Change: Fourth quarter and 2024 results have been reported in the prior organization structure and we've provided a few tables in our earnings release and slide deck that recast sales and margins for current and historical periods.

Speaker Change: Moving forward, we will report first quarter 2025 results and beyond and the new structure and our 2025 segment guidance also reflects the new structure inclusive of the Divesture.

Speaker Change: Turning to 2025, our segment guidance is included on slide eight in our earnings deck Aeronautics sales are expected to be in the low 13 billion representing mid single digit growth. This includes nearly $400 million of sales from the realignment previously mentioned aeronautics margins are expected in the mid to high 9%.

Speaker Change: Range and reflect higher sales on the <unk> phase of B 21.

Speaker Change: <unk> 2025 sales are projected in the low 8 billion, we expect <unk> to be our fastest growing business in 2025.

Speaker Change: With double digit organic sales growth driven by higher sales on Sentinel, BCS and our diverse weapons portfolio.

Speaker Change: Segment operating margin at <unk> is expected to grow faster than sales with an AUM rate of mid to high 9%.

Sales at mission systems are projected to grow mid single digits again in 2025 with sales, reaching approximately $12 billion and operating margins are expected to expand approximately 50 basis points to mid 14% as productivity initiatives continued to drive improved performance we.

Speaker Change: We expect sales in this space segment of roughly $11 billion.

Speaker Change: Reflecting a year over year headwind of $900 million from the wind down of our work on the restricted space and in Gi programs and.

Speaker Change: And we expect that AUM rate of high 10% of space ahead of where we ended 2024.

Speaker Change: At the company level, our 2025 guidance is consistent with the outlook. We provided on our Q3 call full year sales are expected to grow 3% to 4% on an organic basis with first quarter sales and margins comparable to Q1 of last year.

Speaker Change: Keep in mind, the first quarter year over year company sales growth will be flat due to the program wind downs and space with the majority of the year over year growth occurring in the second half of the year.

Speaker Change: Full year segment margins are projected to expand roughly 10 basis points with margins also ramping throughout the year.

Speaker Change: This year over year expansion is driven by the continuation of our efficiency and productivity initiatives as well as international growth.

Speaker Change: Our guidance for Mark to market adjusted EPS is $28 five at the midpoint up more than 7% year over year.

Speaker Change: Next I wanted to take a moment to highlight several contributing factors to this outlook.

Speaker Change: First the total fast Cas pension adjustment is projected at $800 million down $60 million compared to our prior outlook in Q3.

Speaker Change: Second we are projecting corporate unallocated expenses of $280 million this year up compared to our 2024 results and reflective of a normalized level of recurring expenses. The primary drivers of the reduced 2024 expense where state tax and environmental related benefits that are not expected to recur in 2025.

Speaker Change: Third we expect a pre tax gain from the training services divestiture of $205 million, which will also flow through corporate unallocated.

Speaker Change: Our 2025 estimated tax rate is projected at low to mid 17% and we are reaffirming our 2025 free cash flow guidance range of greater than 15% growth at the midpoint.

Speaker Change: Speaking of cash due to our strong performance in 2024, we ended the year with a cash balance of nearly $4 4 billion.

Speaker Change: In early January we repaid $1 5 billion of notes that matured this year, our investments in R&D and Capex are projected at over $2 5 billion and we expect to return 100% of our free cash flow to investors.

Speaker Change: As we look ahead there are many opportunities in front of US. The foundation, we have built sets the stage for continued growth and value creation, our investments in advanced technologies for thinking strategies and disciplined financial management and sure. We are well prepared to capitalize on emerging opportunities I am confident that together we will.

Speaker Change: We need to deliver outstanding results for all of our stakeholders.

Speaker Change: With that let's open the call to questions.

Speaker Change: Thank you.

Speaker Change: Ladies and gentlemen, if you wish to ask a question. Please press star followed by one one on your Touchtone telephone again press Star one one to ask a question. Please limit yourself to one question and one follow up one moment for questions.

Speaker Change: Our first question comes from Ronald Epstein with Bank of America, You May proceed.

Ronald Epstein: Good morning.

Speaker Change: So there's been a lot of talk lately about.

Ronald Epstein: The iron dome.

Ronald Epstein: Given the kind of work that you guys do both in space.

Ronald Epstein:

Ronald Epstein: Missile protection, and so on and so forth missile defense.

Ronald Epstein: Can you give us any thoughts on how youre thinking about iron dome.

Ron: Thanks, Ron.

Speaker Change: We welcome the urgency that the Trump administration is placing on protecting the homeland from escalating global missile threats. We think it is very timely.

Speaker Change: You have noted we do offer end to end integrated air and missile defense capabilities. Just a few example that might be relevant to our U S. Iron ore zone include capabilities that can disrupt missile launch.

Speaker Change: Capability left of launch we also have satellite based missile detection and tracking and we have interceptors for hypersonic weapons under development.

Speaker Change: This of course is all in addition to the air and missile Defense Command and control systems that we built so when you think about an architecture to defense the U S, particularly with the range that these vessels will need in the advanced threats that are emerging with hypersonic weapons. We think we're very well positioned to support that architecture.

Speaker Change: Got it and then maybe just one quick follow on.

Speaker Change: When we think about growth in 2025, how much of a contributor is b 21 in gvhd.

Speaker Change: Both will contribute to growth in 2025.

Speaker Change: Both are more modest in the growth rates that they've experienced in the past just because of the place that they are in their lifecycle and so we do continue to expect those to be less than 10% of sales in the company by continuing to gradually increase from 2004 into 'twenty five.

Speaker Change: Great. Thank you.

Speaker Change: Thank you.

Speaker Change: Our next question comes from Scott <unk> with Deutsche Bank You May proceed.

Scott: Hey, good morning, good morning.

Speaker Change: Okay.

Speaker Change: Kathy if the air force were to elect to accelerate production on B 21 would the incremental units that get accelerated.

Speaker Change: Have similar unit pricing as the existing aircraft and those lots or would that be more of an open negotiation for any accelerated tenants.

Speaker Change: We would work with the Air force to look at when those units would come into the contract.

Speaker Change: And obviously, we are accumulating more and more actual performance to help inform discussions with them about the right pricing.

Speaker Change: So it would be premature for me to comment on where we expect that to land, but it would be a discussion.

Speaker Change: And then Ken the guide implies some pretty solid margin expansion that mission systems, maybe you could talk a little bit through the specific drivers that are supporting that margin expansion. Thank you sure. Thanks for the question Scott as you've mentioned when.

Speaker Change: When we looked at two in 2025 the expansion of margin mission systems is about 50 basis points.

Speaker Change: Proud of the mission systems team, particularly if you look at 2024.

Speaker Change: Had sub as we.

Speaker Change: The business initial headwinds in Q2, and if you look at their performance since Q2, it's grown and done they have done exceptionally well ending the year with a 14, 9% booking rate in quarter four as we look forward.

Speaker Change: You need to see the performance improvements driven by multiple factors is continuing to drive cost out of the business leveraging the improvements that we made in our factories as we progress.

Speaker Change: And the business has scaled we have made sure that we've developed our team in terms of being able to operate in a more effective and efficient manner as we produce those products and then.

Speaker Change: Obviously, the various digital technologies and the focus on cost reductions and if you look at mission systems. They have focused on reduced cost and even as a percentage of G&A, we're seeing it continuously reduce and so those are some of the primary drivers that give us confidence in terms of their ability to expand margins in 'twenty five.

Speaker Change: Great. Thank you.

Speaker Change: Thank you.

Speaker Change: Our next.

Sheila: <unk> comes from Sheila <unk> with Jefferies. You May proceed.

Speaker Change: Good morning, and thank you.

Speaker Change: Kathy I think you called out in your script $900 million of headwind from MTI and classified when it comes to states.

Speaker Change: <unk> rest of the business is growing 2% how are you thinking about just growth from Leo Geo NASA programs.

Speaker Change: And as a follow up to that when does the segment return to margin expansion.

Speaker Change: Correct.

Speaker Change: So in terms of margin expansion I'll take your second question first with space is.

Speaker Change: As you have seen year over year significant improvements when we think about earnings adjustments from what we saw in 2023 to 2024, and that's focused on the performance element and they driving efficiencies and reduce costs and we continue to expect that focus and improvements from those efficiency initiatives and as I mentioned in my prepared remarks.

Speaker Change: As we do expect space to continue to expand margins and delivering 2025 above what they delivered in.

Speaker Change: In 2024 at the high 10% range.

Speaker Change: In terms of what's driving space overall growth is we do have I just wanted to clarify the $1 5 billion of 2025 sales that became a headwind with about $600 million in 2004 with $900 million and 25 that $900 million is primarily focused on the first half.

Speaker Change: Of the year, and we expect space to.

Speaker Change: Tribute to growth or return to growth towards the end of 2025, and then continue that expansion into 2026.

Speaker Change: The primary drivers of driving the growth overall is strategic comps restricted space. The continued expansion of propulsion systems.

Speaker Change: What's driving that growth.

Speaker Change: Great. Thank you.

Speaker Change: Thank you.

Speaker Change: Our next question comes from Douglas <unk> with Bernstein, you May proceed.

Speaker Change: Very good thank you.

Speaker Change: Good morning.

And the business has scaled we have made sure that we've developed our team in terms of being able to operate in a more effective and efficient manner as we produce those products and then.

Speaker Change: Yes.

Speaker Change: On defense systems.

Speaker Change: <unk> is there.

Speaker Change: To describe what the what we should think of as defense systems.

Obviously, the various digital technologies and the focus on cost reductions and if you look at mission systems. They have focus on reduced costs and even as a percentage of G&A, we're seeing it continuously reduce and so those are some of the primary drivers that give us confidence in terms of their ability to expand margins in 'twenty five.

Speaker Change: Sort of the theme there in other words, it's much different than it was just a year ago. What are you trying to do with that yes and yes.

Speaker Change: Yes.

Speaker Change: So we have transitioned that segment over the course of the last year with the divestiture of training services and the movement of the Sustainment portfolio into our business.

Great. Thank you.

Okay.

Thank you.

Speaker Change: Our next question comes from Sheila <unk> with Jefferies. You May proceed.

Speaker Change: Defense systems, now is largely a strategic missiles tactical weapons and command and control business.

Speaker Change: Good morning, and thank you.

Speaker Change: I think you've called out in your script $900 million of headwind from MTI and classified when it comes to phase.

Speaker Change: And so with that aligns their customer focus more simply it also create synergy across those three business as you would expect it's the lifecycle of missile defense. If you will and so we're excited about that but I also will say at this synergy with us to receive that Sustainment business, which is large.

Speaker Change: And probably the rest of the business is growing 2%. How are you thinking about just growth Leo Geo NASA programs.

Speaker Change: And as a follow up to that when does the segment return to margin expansion.

Speaker Change: Correct.

Speaker Change: <unk> work on either existing or soon to be fielded systems allows us to complete that lifecycle within the us business looking at sustained systems and what's required to modernize them. So we think this is beneficial to both segments in terms of the movements that we've made.

Speaker Change: So in terms of margin expansion I'll take your second question first with space is.

Speaker Change: As <unk> seen year over year significant improvements when we think about earnings adjustments from what we saw in 2023 to 2024 and that's focused on the performance element and then driving efficiencies and reduce costs and we continue to expect that focus and improvements from those efficiency initiatives and as I mentioned in my prepared remarks.

Speaker Change: And then and then related to that the rocket Motors has been a big issue kind of industry wide clearly you have your own capability there.

Speaker Change: As we do expect base to continue to expand margins and delivering 2025 above what they delivered.

Speaker Change: How do you see the rocket motor.

Speaker Change: A portion of that business both in terms of if theres any bottleneck or any constraints for what youre trying to do but also externally the ability to grow sales there.

Speaker Change: In 2024 at the high 10% range.

Speaker Change: And in terms of what's driving space overall growth is we do have I just wanted to clarify the $1 5 billion of 2025 sales that became a headwind with about $600 million in 2004 with $900 million and 25 that $900 million is primarily focused on the first half.

Speaker Change: So our solid rocket motor business sitting inside of defense systems is mostly focused on tactical weapons, and we have been growing not capacity and continue to execute funding to add to the capacity in the late 2006 timeframe.

Speaker Change: For the year and we expect space.

Speaker Change: Contribute to growth or return to growth towards the end of 2025, and then continue that expansion into 2026.

Speaker Change: We believe that the demand will be there to consume all of that capacity probably continue to require more over time, but we are taking the incremental steps to make sure that we don't get out ahead of capacity and it's a whole variety of systems that we're supporting.

Speaker Change: The primary drivers of driving the growth overall is strategic cons restricted space. The continued expansion of propulsion systems.

Speaker Change: What's driving that growth.

Speaker Change: Okay. Thank you.

Speaker Change: Often talked about is driven by stockpile replenishment of weapons that are being extended and regional conflicts, but it's also supporting new weapons that will be fielded to go into production in the later part of this decade, and so that business is very diverse in terms of its pipeline and chat.

Speaker Change: Thank you.

Speaker Change: Our next question comes from Douglas <unk> with Bernstein, you May proceed.

Douglas: Very good thank you.

Speaker Change: Good morning.

Speaker Change: Yes.

Speaker Change: On defense systems.

Speaker Change: Number of phases, there Kathy could you describe what the what we should think of as defense systems.

Speaker Change: <unk> to market.

Speaker Change: Very good thank you.

Speaker Change: Thank you.

Speaker Change: Sort of the theme there in other words, it's much different than it was just a year ago. What are you trying to do with that yes and yes.

Speaker Change: Our next question comes from Seth <unk> with Jpmorgan you May proceed.

Speaker Change: Okay. Thanks, very much and good morning, good morning.

Speaker Change: Yes.

Speaker Change: Good morning.

Speaker Change: So we have transitioned that segment over the course of the last year with the divestiture of training services and the movement of the Sustainment portfolio into our business.

Speaker Change: In this administration and also some of the folks around it.

Speaker Change: We have been pretty vocal about looking to.

Speaker Change: I'm sure you've gotten questions over the years about defense startups and commercial technology.

Speaker Change: Defense system now is largely a strategic missiles tactical weapons and command and control.

Speaker Change: It seems like there is an effort in this administration to kind of accelerate both.

Speaker Change: And so that aligns their customer focus more simply it also create synergy across those three businesses you would expect that the lifecycle of missile defense If you will.

Speaker Change: Tapping into commercial technology and tapping into the capital.

Speaker Change: That's in the commercial World I guess.

Speaker Change: How does that make you think about anything related to the portfolio and what should be an ed what shouldn't <unk>, where the focus should be.

Speaker Change: And so we're excited about that but I also will say synergy with <unk> to receive that Sustainment business, which is largely work on either existing or soon to be fielded our system allows us to complete that lifecycle within the AFC business looking at sustained systems and what.

Speaker Change: Northrop's own capital deployment.

Speaker Change: Any of those kind of big picture issues.

Speaker Change: Look first of all we embrace new entrants into this space, we often and in this case are teaming with companies that bring new ideas or new technology. It does not cause me to question our strategy on technology differentiation, but it certainly does to sharpen our <unk>.

Speaker Change: Required to modernize them. So we think this is beneficial to both segments in terms of the movements that we've made.

Speaker Change: And then and then related to that the rocket Motors has been a big issue kind of industry wide clearly you have your own capability there.

Speaker Change: Okay on where we should invest relative to the competitive landscape and as I think about how this might evolve over time.

Speaker Change: How do you see the rocket motor.

Speaker Change: Defense landscape is continuing to grow both domestically and internationally, we are advancing into new technology areas and I think there is room for all of us to work together to provide the U S and our allies, what they need.

Speaker Change: A portion of that business both in terms of if theres any bottleneck or any constraints for what youre trying to do but also externally the ability to grow sales there.

Speaker Change: So our solid rocket motor business.

Speaker Change: Great Great. Thanks, and then just as a follow up you talked about international.

Speaker Change: Inside at Defense systems is mostly focused on tactical weapons, and we have been growing that capacity and continue to execute funding to add to the capacity in the late 2006 timeframe.

Speaker Change: International growing faster this year and given the mix with space.

Speaker Change: That makes a lot of sense when we look out further I guess international had been running about $5 billion of sales. When you think longer term is there either a dollar number or a percentage that you think about like late later on in the decade.

Speaker Change: Believes that the demand will be there to consume all of that capacity probably continue to require more over time, but we are taking incremental steps to make sure that we don't get all the head of capacity and it's a whole variety of systems that were supporting its often talked about is tricky.

Speaker Change: Yeah, well this year, we're expecting growth to accelerate as I said, we expect double digit growth this year and we see a path for that continuing for multiple years based on the backlog. We've built I noted that we had a one four times book to Bill in International in 2024.

Speaker Change: I stockpile replenishment of weapons that are being extended and regional conflicts, but it's also supporting new weapons that will be fielded to go.

Speaker Change: And we have a strong pipeline of emerging across a wide variety of products I Vcs <unk> Triton just to name a few and so as those mature in the pipeline turn into awards and backlog, we could see the path to continue to grow international above U S sales growth rate.

Speaker Change: <unk> production in the later part of this decade, and so that business is very diverse in terms of pipeline and channels to market.

Speaker Change: Very good thank you.

Speaker Change: Thank you.

Speaker Change: Our next question comes from Seth Sigman with Jpmorgan you May proceed.

Speaker Change: Excellent thanks very much.

Seth Sigman: Hey, thanks, very much and good morning.

Speaker Change: Thank you.

Speaker Change: Good morning.

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

Speaker Change: Kathy is in this administration and also some of the folks around it.

Matt Akers: Hey, guys. Good morning. Thanks, Thanks for the question.

Speaker Change: Have been pretty vocal about looking to.

Matt Akers: I wanted to ask about Sentinel and just if you've heard any anything new around the program review there and as you think of kind of a long term outlook is there would you say there's risk to the downside if that program sort of get shifted out or is there risk to the upside.

Speaker Change: I'm sure you've gotten questions over the years about defense startups and commercial technology.

Speaker Change: It seems like there is an effort in this administration to kind of accelerate both.

Speaker Change: Tapping into commercial technology and tapping into the the capital.

Matt Akers: It doesn't or do you think is sort of well calibrated.

Speaker Change: It's in the commercial world.

Speaker Change: Yes.

Matt Akers: Well, let me directly answer your question first and then ill provide a little more context, we think that is well calibrated in the outlook that we have provided.

Speaker Change: Does that make you think about anything related to the portfolio and what should be what shouldn't be in it where the focus should be.

Speaker Change: Northrop's own capital deployment.

Matt Akers: Recall last year, we made some adjustments in both awards in booking rate that indicated our best estimates of the profile of how that program will be executed even through the restructure and that indeed is still what we believe today, we are working with the government on the restructure but in the meantime.

Speaker Change: Any of those kind of big picture issues yeah.

Matt Akers: We are performing and meeting important milestones on the E&P contract. The government has said that they project the <unk>.

Speaker Change: Where we should invest relative to the competitive landscape.

Restructure to take 18 to 24 months. So we are still very much in that window and we are even though they have pulse work on some small infrastructure efforts and the command and launched segment that is reflected in what we have shared with you.

Speaker Change: And as I think about how this might evolve over time.

Speaker Change: Defense landscape is continuing to grow both domestically and internationally, we are advancing into new technology areas and I think there's room for all of us to work together to provide the U S and our allies, what they need.

Matt Akers: We currently expect our 2025 Sentinel revenue to be in the mid single digit percentage of total revenue as I said and continuing to grow from 24 into 2025.

Speaker Change: Okay, great. Thanks, and then just as a follow up you talked about.

Speaker Change: International growing faster this year and given the mix with space that some.

Matt Akers: Okay. Thanks, and then I guess, the free cash flow outlook.

Speaker Change: That makes a lot of sense when we look out further I guess international had been running about $5 billion of sales.

Matt Akers: On slide 11.

Matt Akers: If I look at the years, I mean 25, much bigger step up in 'twenty two.

Speaker Change: When you think longer term is there either a dollar number or a percentage that you think about like late later on in the decade.

Matt Akers: Kevin.

Matt Akers: I know the pension starts to be kind of less of a tailwind. After this year, but just curious if there are any other kind of moving pieces that kind of the growth slows down after can you drive.

Speaker Change: Yeah, well this year, we're expecting growth to accelerate as I said.

Matt Akers: And so what Youre seeing in 2025 is a few things is the continued management of robust management of our balance sheet and the working capital.

Speaker Change: We expect double digit growth this year, and we see a path for that continuing for multiple years.

Speaker Change: On the backlog we've built I noted that we had a one four times book to Bill in International in 2024, and we have a strong pipeline emerging across a wide variety of products I B C. S. E E. Triton just to name a few and so as those mature in the pipeline turn into awards and backlog.

Matt Akers: As well as the profitable growth of the business and converting those margins to cash quickly.

Matt Akers: To your point, we also see tailwind near term from <unk>, but also our more normalized level of investments in capital and capital expenditures and then when you move past, 2025% to 26 and beyond.

Matt Akers: Have it's really driven by the overall growth of the business and continuing to manage our working capital, which I consider best in class. We are in the low single digits. When you think about adjusted working capital as a percentage of sales and so it's really making sure that we continue to stay diligent managing the balance sheet and then as we grow the business converting those margins at <unk>.

Speaker Change: We could see the path to continue to grow international above U S sales growth rate.

Speaker Change: Excellent thanks very much.

Speaker Change: Thank you.

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

Matt Akers: Hey, guys. Good morning. Thanks, Thanks for the question.

Matt Akers: Quickly, which is why more normalizes with the overall growth rate of the business.

Matt Akers: Great. Thank you.

Matt Akers: Thank you.

Speaker Change: Our next question comes from Gavin Parsons with UBS you May proceed.

Gavin Parsons: Hey, Thanks, good morning, good morning.

Matt Akers: Sort of a dozen or do you think is sort of sort of well calibrated.

Matt Akers: Sure.

Matt Akers: Aeronautics margin pressure not too much year over year in 2025, given the B 21 ramp I mean is there any change in the dilution consideration there or is that just kind of being offset by better performance in the core Aeronautics segment.

Matt Akers: Well, let me directly answer your question first and then ill provide a little more context, we think that is well calibrated in the outlook that we have provided.

Matt Akers: Recall last year, we made some adjustments in both award booking rate that indicated our best estimates of.

Matt Akers: So you've highlighted in 2024 extremely proud of the team and what they've been able to accomplish even as B 21 is continue to ramp driving efficiencies.

Matt Akers: The profile of how that program will be executed even through the restructure and that indeed is still what we believe today, we are working with the government on the restructure but in the meantime, we are performing and meeting important milestones on the E&P contract. The government has said that they project.

Matt Akers: Implementing.

Matt Akers: Performance improvement initiatives across the portfolio and we've been able to maintain earlier in the quarter early first three quarters double digit returns with quarter four slightly diluted just based on timing of mix.

Matt Akers: The restructure to take 18 to 24 months. So we are still very much in that window and we are even though they have paused work on some small infrastructure efforts and the command and launched segment that is reflected in what we have shared with you.

Matt Akers: As we look to 2025 as you hit it is we're continuing to expand on B 21.

Matt Akers: But the team has opportunities given those efficiencies to continue to drive performance improvements and allow us to maintain that mid to high 9% level returns.

Matt Akers: We currently expect our 2025 no revenue to be in the mid single digit percentage of total revenue as I said and continuing to grow from 24 into 2025.

Matt Akers: Okay, great how.

Speaker Change: How big is the microelectronics business.

Speaker Change: The Microelectronics center is.

Speaker Change: Business that feeds the rest of the portfolio as I discussed so it contains our foundries and our work in developing chips. So we actually saw most of that embedded in systems in other parts of our company or sell.

Speaker Change: Okay. Thanks, and then I guess, the free cash flow outlook.

Matt Akers: On slide 11.

Matt Akers: If I look at the years I mean 25, much bigger step up in 'twenty six 'twenty seven.

Speaker Change: Sell them directly to external entities. So the vast majority shows up in revenue in our segments and it's largely our space business and our mission systems business, where that revenue resides.

Matt Akers: The pension starts to be kind of less of a tailwind. After this year, but just curious if there are any other kind of moving pieces that kind of the growth slows down after 25.

Matt Akers: So what youre seeing in 2025 is a few things as the continued management of robust management of our balance sheet and the working capital as.

Speaker Change: A significant portion of both of those businesses that have value creation, starting in the Microelectronics Center.

Matt Akers: As well as the profitable growth of the business and converting those margins to cash quickly.

Speaker Change: It's helpful. Thank you.

Speaker Change: Thank you.

Speaker Change: Our next question comes from Peter Arment with Baird You May proceed.

Speaker Change: Yeah. Thanks, Good morning, good afternoon, Ken.

Speaker Change: Hey, Kevin Hey, Kathy North upon a really nice contract in December three $9 billion for I think the follow on for the <unk> Mercury program.

Matt Akers: It's really driven by the overall growth of the business and continuing to manage our working capital, which I consider best in class. We are in the low single digits. When you think about adjusted working capital as a percentage of sales and so it's really making sure that we continue to stay diligent in managing the balance sheet and then as we grow the business converting those margin for gas.

Speaker Change: Can you talk a little bit about that when I know, they're also with some headlines around protest can you confirm whether that.

Speaker Change: Protested or not and just how do we think about the contribution to revenues going forward. Thanks, Yeah.

Speaker Change: We call it the <unk> or <unk>.

Speaker Change: Graham, but it's C 130 day, and it will provide nuclear command and control for the.

Matt Akers: Quickly, which is why more normalizes with the overall growth rate of the business.

Speaker Change: The U S Department of Defense is contracted through the Navy was a $3 5 billion dollar award we have past the protest period.

Matt Akers: Great. Thank you.

Matt Akers: Thank you.

Speaker Change: Our next question comes from Gavin Parsons with UBS you May proceed.

Speaker Change: And we are looking forward, we have started and we are looking forward to delivering that capability. It basically has three major components to it in the AMD phase of the contract we have three systems that we will develop and build.

Gavin Parsons: Hey, Thanks, good morning.

Matt Akers: No.

Speaker Change: The demonstrator units that we will have three additional on option for test units and then outlet option award of production aircraft and so that's what is in the scope of the efforts we expect about $350 million in revenue. This first year and then growing from there.

Matt Akers: You've highlighted in 2024 extremely proud of the team and what they've been able to accomplish <unk> B 21 is continue to ramp driving efficiencies.

Matt Akers: Implementing.

Speaker Change: I appreciate that and then just as a follow up.

Speaker Change: There's been a lot of kind of discussions and back and forth of weather and get at CCA and what that what the how that's going to be reshaped and how it's north of thinking about the opportunity for either.

Matt Akers: As we look to 2025 as you hit it is we're continuing to expand on B 21.

Speaker Change: And Jan or CCA.

Speaker Change: Well, we're certainly.

Speaker Change: <unk> that space and as we have described before we believe we are well positioned to offer six generation aircraft based on our success will be 'twenty, one performance and experience to date.

Matt Akers: But the team has opportunities given those efficiencies to continue to drive performance improvements and allow us to maintain that mid to high 9% level returns.

Matt Akers: Okay, great how.

Speaker Change: How big is the microelectronics business.

Not laying any of that into our forecast at this moment given the uncertainty of timing.

Speaker Change: The Microelectronics center is.

Speaker Change: Particularly the Air Force program, we're not a prime but we are a contributor to the program through mission systems.

Speaker Change: For the Navy program, we are looking to see.

Speaker Change: How that program advances through the year and would be excited to be selected if indeed that were to happen.

Speaker Change: Sell them directly to external entities. So the vast majority shows up in revenue in our segment.

Speaker Change: I appreciate it thanks Cathy.

Speaker Change: And it's largely our space business and our mission systems business, where that revenue resides.

Speaker Change: Thank you.

Speaker Change: Our next question comes from Michael <unk> with <unk> Securities You May proceed.

Speaker Change: A significant portion of both of those businesses that have value.

Speaker Change: Hey, good morning, guys. Thanks for taking my question.

Speaker Change: Value creation, starting in Microelectronics Center.

Speaker Change: Kathy could we just go back to international you talked about the opportunities there and talked about the.

Speaker Change: It's helpful. Thank you.

Speaker Change: Thank you.

Speaker Change: Gross how that will trend through the remainder of the decade, we obviously have.

Speaker Change: Our next question comes from Peter Arment with Baird You May proceed.

Peter Arment: Yes. Thanks, good morning, good afternoon, Ken.

Speaker Change: The broad majority of NATO countries reinvesting in their own defense industrial base is there a scenario where they start to procure more domestically maybe for newer programs and I mean are you thinking about your international growth coming from existing legacy program or is there more room for partnering as is the need.

Speaker Change: Hey, Jeff Hey, Kathy North upon a really nice contract in December three and a $1 billion for I think the follow on for the E. Six Mercury program.

Speaker Change: Can you talk a little bit about that when I know they'll also with some headlines around protest can you confirm whether that do get protested or not and just how do we think about the contribution to revenues going forward. Thanks, Yeah, we call. It the tag program, but its the C 130 day and it will provide nuclear command and control for.

Speaker Change: Other countries dial up their spending.

Speaker Change: Sure.

Speaker Change: Right now we believe that there is still a strong demand for U S products by the NATO countries, particularly to be able to field capability quickly.

Speaker Change: The U S Department of Defense is contracted through the Navy was a $3 5 billion dollar award we have past the protest period and we are looking forward. We have started and we are looking forward to delivering that capability. It basically has three major components to it in the AMD phase of the contract we have three systems.

Speaker Change: While the defense industrial base in Europe is reconstituting their capabilities and so we are looking at.

Speaker Change: Our pipeline mostly inclusive.

Speaker Change: Programs of record, where there is an application for those.

Speaker Change: That we will develop and build.

Speaker Change: The demonstrator units that we will have three additional on option for test units and then Oh.

Speaker Change: With NATO countries I described earlier.

Speaker Change: <unk> and straightened all of which fall in that category, where they are now mature option program and our NATO allies can repeat them fairly quickly and get the benefit of those capabilities.

Speaker Change: Option award of production aircraft and so that's what is in the scope of the effort, we expect about $350 million in revenue. This first year and then growing from there.

Speaker Change: Got it got it that's helpful. And then just on you mentioned the new industry entrants what about.

Speaker Change: I appreciate that and then just as a follow up.

Speaker Change: How are you viewing <unk> and I know its evolving seemingly on a regular basis here and theres a lot of different tweaks, but even if we think about contracting changes moving away from cost plus you are you seeing that risk or opportunities there.

Speaker Change: And Jan or CCA.

Speaker Change: Well, we're certainly watching that space and as we have described before we believe we are well positioned to offer six generation aircraft based on our success will be 'twenty, one performance and experience to date, we are not.

Speaker Change: Net net I see more opportunity working with dose I believe we all see that there is room for cost efficiency in the way that we work together between industry and government employees embrace the opportunity to share some of our observations and ideas and.

Speaker Change: Not laying any of that into our forecast at this moment given the uncertainty of timing.

Speaker Change: Particularly the Air Force program, we're not a prime but we are a contributor to the program through mission systems.

Speaker Change: We are starting to do that.

Speaker Change: Great. Thanks.

Speaker Change: Thank you.

Speaker Change: For the Navy program, we are looking to see.

Speaker Change: Our next question goes from Richard Safran with Seaport Research Partners you May proceed.

Speaker Change: How that program advances through the year and would be excited to be selected if indeed that were to happen.

Speaker Change: Absolutely Ken good morning.

Speaker Change: So.

Speaker Change: To ask you to expand a little bit more about your rock you talk about bookings you mentioned some of this in international more generally could you discuss the 2025 major opportunities that youre looking at that we should be watching and more importantly, more specifically your expectations for full year bookings. If you think book to Bill is going to remain above onex.

Speaker Change: I appreciate it thanks Cathy.

Speaker Change: Thank you.

Speaker Change: Our next question comes from Michael to a movie with true Securities You May proceed.

Speaker Change: Hey, good morning, guys. Thanks for taking the question.

Speaker Change: Kathy can we just go back to the international you talked about the opportunities there and talked about the.

Speaker Change: Despite a growing top line I mean, you take report some pretty strong book to Bill numbers.

Speaker Change: The growth how that will trend through the remainder of the decade, we obviously have.

Speaker Change: Yes, so for the second part of the question first when we think about 2025 book to Bill we see it more around the one one time sales, particularly in fact of the strong.

Speaker Change: The broad majority of NATO countries reinvesting in their own defense industrial base is there a scenario where they start to procure more domestically maybe for newer programs and I mean are you thinking about your international growth coming from existing legacy programs or is there more room for partnering as as the <unk>.

Speaker Change: History of bookings and some of those being multi year and so we'll work against that backlog, but we will also build it back up and be roughly around one time sales when we think about growth opportunities.

Speaker Change: Fewer countries dial up their spending.

Speaker Change: Right now we believe that there is still a strong demand for U S products by the NATO countries, particularly to be able to field capability quickly why.

Speaker Change: Ed Award opportunities moving forward, we have opportunities, particularly space around restricted activities. We have it on the strategic Com side. We have continued growth as we and awards relative to be 'twenty. One as we think about advanced procurement EA continuing production activities and then omission CIS.

Speaker Change: All of the defense industrial base in Europe is reconstituting their capabilities.

Speaker Change: So we are looking at.

It's a whole host of awards across ground based sensors and airborne based sensors. When you think about airborne radar EW systems as well as communication systems.

Speaker Change: Our pipeline.

Speaker Change: Inclusive.

Speaker Change: Programs of record, where there is an application for those.

Speaker Change: With NATO countries I described earlier.

Speaker Change: And then as we just recently received <unk> CIBC us continuing to grow.

Speaker Change: C S E T and Triton all of which fall in that category, where they are now mature option program and our NATO allies can repeat them fairly quickly and get the benefit of those capabilities.

Speaker Change: 2025 as well as.

Speaker Change: Numerous awards, particularly around weapons systems and ammunition. When we look at that we're building the backlog. It continues to build we've seen about 15% growth year over year on the weapon systems side and so those awards continue to roll in as well.

Speaker Change: Got it got it that's helpful. And then just on you mentioned the new industry entrants what about.

Speaker Change: How are you viewing douche and I know its evolving seemingly on a regular basis year and theres a lot of different tweaks, but even if we think about contracting changes moving away from cost plus you are you seeing that risk or opportunities there.

Speaker Change: Okay.

Speaker Change: Let's leave it at that thank you very much.

Speaker Change: Yes.

Speaker Change: Thank you.

Jason Gursky: Our next question comes from Jason Gursky with Citi. You May proceed.

Jason Gursky: Hey, good morning, everybody.

Speaker Change: Net net I see more opportunity working with those I believe we all see that there is room for cost efficiency in the way that we work together between industry and government employees embraced the opportunity to share some of our observations and ideas.

Jason Gursky: Cathy spent.

Jason Gursky: A bit of time upfront talking about.

Jason Gursky: Strategy of the company.

Jason Gursky: I was wondering if you could just maybe comment on your top two or three priorities.

Jason Gursky: Priorities for the year and how you see yourself spending your time and prioritizing.

Speaker Change: We are starting to do that.

Jason Gursky: Okay.

Speaker Change: Great. Thanks.

Jason Gursky: The implementation of that strategy and what youre going to be really focused on this year.

Speaker Change: Thank you.

Jason Gursky: Thanks, Jason My priority is very much aligned with what I outlined I believe the administration priorities are first.

Our next question comes from Richard Safran with Seaport Research Partners you May proceed.

Richard Safran: We can talk good morning.

Jason Gursky: First to quickly to our military and should be developed by enforcing the world's means advancing technology and our strategy to provide technology differentiation.

Speaker Change: So.

Speaker Change: Like to ask you to expand a little bit more about your rock you talk about bookings you mentioned some of this in international more generally could you discuss the 2025 major opportunities that youre looking at that we should be watching and more importantly, more specifically your expectations for full year bookings. If you think book to Bill.

Jason Gursky: For the benefit of our shareholders.

Jason Gursky: Our company being able to grow but for our customers to be able to fulfill their mission is our top priority.

Jason Gursky: We also are very focused on efficiency within the company much like the administration is and we see this as an opportunity to work together and get more efficient it step function improvement and how we are able to execute work. So that we can deliver for the war fighter in a more cost effective and timely way.

Speaker Change: Can remain above onex, despite a growing top line I mean, you did report some pretty strong book to Bill numbers.

Speaker Change: Yes, so for the second part of the question first when we think about 2025 book to Bill we see it more around the one one time sales, particularly in fact of the strong.

Jason Gursky: And then of course within the company deploying our resources to the areas that make the most impact both for our shareholders and our customers and we've been very focused on doing that and making smart strategic choices or capital deployment. So those are the three areas that I'm focused on and will continue to be.

Speaker Change: History of bookings and some of those being multi year and so we'll worked against that backlog, but we will also build it back up and be roughly around one time sales when we think about growth opportunities.

Speaker Change: A warrant opportunities moving forward, we have opportunities, particularly in space around restricted activities, we have it on the strategic com side we.

Speaker Change: Right. Okay. That's great and then just following up maybe on <unk> question about that.

Speaker Change: Eco system and I think you gave.

Speaker Change: We have continued growth as we and awards relative to be 'twenty, one as we think about advanced procurement and continuing production activities and then omission systems.

Speaker Change: Some comments on your perspective on the evolving ecosystem I'm, just kind of curious of what youre hearing from the customer.

Speaker Change: And what you're seeing them say and do as it relates to.

Speaker Change: It's a whole host of awards across ground based sensors and airborne based sensors. When you think about airborne radar EW systems as well as communication systems.

Speaker Change: Maybe enabling.

Speaker Change: Some of these VC backed defense of Tech companies, bringing new technologies are we likely to see.

Speaker Change: And then <unk>.

Speaker Change: As we just recently received IV CSB CIBC us continuing to grow.

Speaker Change: Maybe I don't want to say a lowering of standards, maybe going back to the lowest cost technically acceptable claims of <unk>.

Speaker Change: In 2025 as well as.

Speaker Change: Numerous awards, particularly around weapons systems and ammunition. When we look at that we're building the backlog. It continues to build we've seen about 50% growth year over year on the weapon systems side and so those awards continue to roll in as well.

Speaker Change: Construct.

Speaker Change: What are you seeing them do as it relates to training to them.

Speaker Change: Enable some of these companies.

Speaker Change: I still very much see a broad set of acquisition strategy is being utilized across the department of defense that are matching what the government need.

Speaker Change: Okay.

Speaker Change: So let's leave it at that thank you very much.

Speaker Change: Yes.

Speaker Change: Thank you.

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

Speaker Change: Sometimes that is very capable system.

Speaker Change: Our developmental and innovative by nature in other cases it.

Jason Gursky: Hey, good morning, everybody.

Speaker Change: Cathy spent.

Jason Gursky: A bit of time upfront talking about the <unk>.

Speaker Change: It relies on technology that is lower cost more commoditized and that has been and I believe will continue to be the case in the department is implementing strategies that allow them to embrace both as they should.

Jason Gursky: Strategy of the company.

Jason Gursky: I was wondering if you could just maybe comment on your top two or three priorities.

Jason Gursky: Priorities for the year and how you see yourself spending your time and prioritizing.

Jason Gursky: The thing is.

Speaker Change: But the reality is we cannot equip the best fighting force in the World with technology that is leading the way rather than leveraging what is commercially available.

Jason Gursky: The implementation of that strategy and what youre going to be really focused on this year.

Jason Gursky: Thanks, Jason My priority is very much aligned with what I outlined I believe the administration priorities are first.

Jason Gursky: First equipping our military to be developed by reinforcing the world's means advancing technology and our strategy to provide technology differentiation.

Speaker Change: Great. Thank you.

Speaker Change: Thank you.

Okay.

Speaker Change: Our next question comes from Robert Stallard with vertical research you May proceed.

Jason Gursky: For the benefit of our shareholders.

Jason Gursky: Our company being able to grow that for our customers to be able to fulfill their mission is our top priority.

Speaker Change: Thanks, so much good morning, good morning.

Good morning.

Speaker Change: Cathy just to start off.

Jason Gursky: We also are very focused on efficiency within the company much like.

Speaker Change: On capital deployment with a perhaps more relaxed regulatory environments moving forward does that open the aperture for you with regards to potential to do more acquisitions.

Jason Gursky: This is an opportunity to work together and get more efficient in step function improvement and how we are able to execute work. So that we can deliver for the war fighter and a more cost effective and timely way and then of course within the company deploying our resources to the.

Speaker Change: Well I think it's a little early to say what the regulatory environment will look like particularly in the area of National security.

Speaker Change: Certainly there has been concerns voiced about over consolidation, we have new entrants coming into the space and so the market is opening up some but I think that there still will be a consideration as much for the department of defense for the department of Justice.

Jason Gursky: Areas that make the most impact both for our shareholders and our customers and we've been very focused on doing that and making smart strategic choices or capital deployment. So those are the three areas that I'm focused on and will continue to be.

Speaker Change: But with that said, we have been able to manage our portfolio well over these last several years the acquisition of orbital ATK of course with a terrific add to the company. We've done some recent divestitures and we will continue to be active in portfolio management in any regulatory environment, where we see opportunity to create.

Jason Gursky: Right, Okay Thats, great and then just following up maybe on <unk> question about that.

Jason Gursky: Eco system and I think you gave.

Jason Gursky: Some comments on your perspective on the evolving ecosystem I'm, just kind of curious of what youre hearing from the customer.

Jason Gursky: And what you're seeing them say and do as it relates to.

Speaker Change: Value for shareholders.

Speaker Change: Okay, and then just a quick follow up for Ken.

Speaker Change: On the two hour at the B 21 were there any accounting or cash flow impacts from that milestone.

Jason Gursky: Maybe enabling.

Jason Gursky: Some of these VC backed defense of Tech companies, bringing new technologies are we likely to see.

Speaker Change: We were awarded B 21 in Q4 and as we go through our normal detailed program reviews and EAC reviews.

Jason Gursky: Maybe I don't want to say a lowering of standards, maybe going back to the lowest cost technically acceptable claims of <unk>.

Speaker Change: No changes there and in terms of cash flow again, we took the charge in 2023, those cash flows and the associated impact occur over a long duration. When you think about the L. Rip logs and all of that is accounted for in the guidance that we provide.

Jason Gursky: Construct and what are you seeing them say it do as it relates to training to them.

Jason Gursky: Enable some of these companies.

Jason Gursky: I still very much see a broad set of acquisition strategy is being utilized across the department of defense that are matching what the government need.

Speaker Change: Okay. Thanks, so much.

Speaker Change: Thank you.

Speaker Change: Our next question comes from Gautam Khanna with TD Cowen you May proceed.

Jason Gursky: Sometimes that is very capable system.

Jason Gursky: Our developmental and innovative by nature in other cases.

Yes, good morning.

Speaker Change: Wanted to follow up on the mission systems margin expansion in 2025, I'm curious how much mix.

Jason Gursky: It relies on technology that is lower cost more commoditized and that has been and I believe we will continue to be the case and the department is implementing strategies that allow them to embrace both as they should.

Speaker Change: As a driver of it mix of cost plus moving to fixed price does that percentage change materially in 2025 versus 24.

Speaker Change: So when we think about mission systems 'twenty four to 'twenty five.

Jason Gursky: But the reality is we cannot equip the best fighting force in the World with technology that is leading the way rather than leveraging what is commercially available.

Speaker Change: Not a significant portion of it is driven by mix, it's really driven by the performance and the implementation of the efficiencies and then as we've scaled the business and as I talked about earlier, the learning and the development that has occurred that is the driver.

Jason Gursky: Great. Thank you.

Speaker Change: We do see mission systems in terms of mix shifting more towards FSP over the planning period talking about the next five years, but gradual shift in the interim.

Jason Gursky: Thank you.

Jason Gursky: Okay.

Robert Stallard: Our next question comes from Robert Stallard with vertical research you May proceed.

Thanks, So much good morning, good morning, good morning.

Speaker Change: Got you and then just a quick follow up.

Speaker Change: Cathy just to start off.

Speaker Change: If in fact, there is kind of a end to the Ukraine, Russia hostilities.

Speaker Change: On capital deployment with a perhaps more relaxed regulatory environments moving forward does that open the aperture for you with regards to potential to do more acquisitions.

Speaker Change: What impact if any would be felt in north.

Speaker Change: Over what timeframe.

Speaker Change: I assume that defense systems, but just what are you thinking about.

Speaker Change: Well I think it's a little early to say what the regulatory environment will look like particularly in the area of National security.

Speaker Change: Yes, so our revenue from tactical weapons and the kinds of systems that we would see being directly expended in Ukraine is less than 1% of revenue just to give you a broad based context and we do believe that there will be a multiyear.

Speaker Change: We're replenishing of stockpile associated with those that have been depleted. So we don't see an immediate ramification.

Speaker Change: With that said, we have been able to manage our portfolio well over these last several years the acquisition of orbital ATK of course with a terrific add to the company. We have done some recent divestitures and we'll continue to be active import more portfolio management in any regulatory environment, where we see opportunity to create.

Speaker Change: Thank you.

Speaker Change: Our next question comes from Myles Walton with Wolfe Research you May proceed.

Myles Walton: Thanks, Good morning.

Speaker Change: Value for shareholders.

Speaker Change: Ken I think when you listed the the opportunity set for 25, I don't think I heard FX X I'm, just curious other Kathy or Ken how are you feeling about the timing and potential for Northrop to be a participant.

Speaker Change: Okay, and then just a quick follow up for Ken.

Speaker Change: Two out of the B 21 were there any accounting or cash flow impacts from that milestone.

Speaker Change: No we were awarded 21 in Q4.

Ken Cruse: Yes, Myles so when I mentioned the Navy's next generation fighter, we do believe that the Navy is progressing through source selection as they had indicated and they have also shared that we are one of the companies in that.

Speaker Change: As we go through our normal detailed program reviews and EAC reviews.

Speaker Change: Changes there in terms of cash flow again, we took the charge in 2023, those cash flows and associated impacts occur over a long duration. When you think about the L. Rip loss and all of that accounted for in the guidance that we provide.

Ken Cruse: For selection. So we will continue to watch how that unfolds over the course of this year and keep you updated theres not much more I can say about it given the restricted nature of the procurement.

Speaker Change: Okay. Thanks, so much.

Speaker Change: Yeah.

Speaker Change: Thank you.

Speaker Change: Our next question comes from Gautam Khanna with TD Cowen you May proceed.

Myles Walton: Got it Okay and then maybe you can on the on the free cash flow side. Thanks for updating for 2027, there have there has been a $4 billion target for 2028.

Speaker Change: Yes, good morning.

Gautam Khanna: Wanted to follow up on the mission systems margin expansion in 2025 curious how much mix.

Myles Walton: Does the trajectory still aligned with that $4 billion in 2028 targets in the future, yes, when we look out in the future and projected cash flows we are on track to achieving the $4 billion in 2028, So no change there.

Gautam Khanna: As a driver of it mix of cost plus moving to fixed price does that percentage change materially in 2025 versus 24.

Gautam Khanna: So when we think about mission systems, 24%, 25%.

Speaker Change: Okay, great. Thanks, so much.

Myles Walton: Yeah.

Speaker Change: Josh we're going to leave it there I'll turn it over to Kathy for closing remarks.

Gautam Khanna: Not a significant portion of it is driven by mix, it's really driven by the performance and the implementation of the efficiencies and then as we've scaled the business and as I talked about earlier.

Kathy: Alright, Thanks, Todd So I want to close by acknowledging the just extraordinary accomplishments of our team in 2024, and I'm, particularly grateful for the commitment of our team members in the La area.

Gautam Khanna: Turning into development that has occurred that is the driver.

Gautam Khanna: We do see mission systems in terms of mix shifting more towards FSP over the planning period talking about the next five years, but gradual shift in the interim.

Kathy: <unk> of you know we have over 30000 employees in that area. So we're dealing with the wildfire devastation in their local community.

Kathy: And we are so appreciative that they continue to come to work every day and support our mission, our company's innovation people investments and commitment they sit at the core of this nation's ability to maintain peace through strength and so we remain focused on helping our customers succeed in their most challenging mission and we're <unk>.

Gautam Khanna: Got you and then just a quick follow up.

Gautam Khanna: If in fact, there is kind of a end to the Ukraine, Russia hostilities.

Gautam Khanna: What what impact if any would be felt in north.

Gautam Khanna: Over what timeframe.

Gautam Khanna: I assume that defense systems, but just what are you thinking about.

Kathy: Really excited about the year ahead.

Gautam Khanna: Yes, so our revenue from tactical weapons and the kinds of systems that we would see being directly expended in Ukraine is less than 1% of revenue just to give you a broad based context and we do believe that there will be a multiyear.

Kathy: Thank you for joining today's call we look forward to talking with you again soon.

Kathy: Thank you ladies and gentlemen, this concludes today's conference call. Thank you for your participation.

Gautam Khanna: We're replenishing of stockpile associated with those that have been depleted. So we don't see an immediate ramification.

Speaker Change: Thank you.

Speaker Change: Our next question comes from Myles Walton with Wolfe Research you May proceed.

Speaker Change: Thanks, Good morning.

Speaker Change: Ken I think when you listed the the.

Speaker Change: <unk> set for 25, I don't think I heard FX X I'm, just curious other catheter or Ken are you feeling about the timing and potential for Northrop to be a participant.

Speaker Change: Yes, Myles so when I mentioned, the Navy's next generation fighter.

Speaker Change: Do believes that the Navy is progressing through source selection as they had indicated they have also shared that we are one of the companies in that.

Speaker Change: First selection.

Speaker Change: We will continue to watch how that unfolds over the course of this year and keep you updated theres not much more I can say about it given the restricted nature of the procurement.

Speaker Change: Got it Okay and then maybe you can on the on the.

Speaker Change: The free cash flow side. Thanks for updating for 2027, there have there has been a $4 billion target for 2028.

Speaker Change: Does the trajectory still aligned with that $4 billion 2028 targets in the future.

Speaker Change: Yes, when we look out in the future and projected cash flows we are on track to achieving the $4 billion in 2028, So no change there.

Speaker Change: Okay, great. Thanks, so much.

Speaker Change: Hey, Josh we're going to leave it there I'll turn it over to Kathy for closing remarks.

Kathy North: Alright, Thanks, Chad so I want to close by acknowledging the just extraordinary accomplishments of our team in 2024, and I'm, particularly grateful for the commitment of our team members in the La area. I think many of you know we have over 30000 employees in that area, who are dealing with the wildfire devastation in their local community.

Kathy North: We are so appreciative that they continue to come to work every day and support our mission.

Kathy North: Our company's innovation people investments and commitment they sit at the core of this nation's ability to maintain peace through strength.

Kathy North: And so we remain focused on helping our customers succeed in their most challenging mission and we're really excited about a year ahead.

Kathy North: Thank you for joining today's call we look forward to talking with you again soon.

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

Speaker Change: Hmm.

Speaker Change: [music].

Speaker Change: Mhm.

Speaker Change: Hum.

Speaker Change: [music].

Speaker Change: Yes.

Speaker Change: [music].

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