Q1 2025 Northrop Grumman Corp Earnings Call

April 22, 2025

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, everyone before we start today matters discussed 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 Safe Harbor provisions of Federal Securities laws forward looking statements involve <unk>.

Kathy Warden: With a growing backlog and progress on award timing, we have confidence in achieving our outlook and remain focused on delivering transformative capabilities for our I'd like to take a minute to discuss the B-21 profit adjustment made in the quarter. As you saw in the earnings release, we recognized an additional $477 million pre-tax loss. This is largely relating to higher manufacturing costs, primarily resulting from a process change we made to enable a higher production rate. as well as increases in the projected material costs, some of which are related to macroeconomic impacts on material prices. While I'm disappointed with this financial impact, we continue to make solid progress on the program, demonstrating performance objectives through tests, and we are progressing through the first two lots of production.

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.

Todd: 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 Thanks, Todd and good morning, everyone. Thank you for joining us today for our first quarter earnings Conference call.

Todd: A lot has happened since our last call in January so we're looking forward to providing you an update on the quarter and our expectations for the year.

Speaker Change: We are operating in a rapidly evolving world and we are managing through a dynamic U S defense budget environment with a first of its kind full year continuing resolution.

Kathy Warden: With significant learning behind us, we are ready to deliver the Air Force this highly capable strategic deterrent.

Kathy Warden: During the quarter, we continued to make significant progress on other key programs as well. On Sentinel, the U.S. Air Force and Northrop Grumman completed a successful static fire test of the Stage 1 solid rocket motor for the missile in March. This critical milestone for the weapons system further validates the motors design and paves the way for the production and deployment of a safe, secure, and reliable strategic deterrent. We are also continuing to work with the customer to identify cost and schedule efficiencies as they evaluate requirements to balance capability, affordability, and schedule for the program. In January, the U.S.

Todd: Within this environment, we continue to see strong demand signals from our global customers.

Todd: <unk> and another record backlog in the first quarter of $92 $8 billion and Thats inclusive of strong international bookings.

Todd: As we indicated in mid February we have experienced delays in certain awards, which resulted in a slower sales ramp in the first quarter than we previously anticipated.

Todd: We expect this to improve throughout the year.

Todd: Margin rates setting aside the B 21 adjustment were in line with expectations. We have updated our 2025 financial guidance and we are reaffirming our outlook for sales and free cash flow.

Kathy Warden: Army awarded us a nearly $500 million contract for IBCS. Under this award, Northrop Grumman will expand software development and include additional AI and model-based systems engineering capabilities to allow more rapid integration for the Army and our international partners. Earlier this month, we announced the opening of a state-of-the-art production and integration facility in Alabama to support accelerated modernization plans for air and missile defense systems, including IBCS. With this investment, it doubles the size of the previous facility footprint, leverages Northrop Grumman digital ecosystem, and gives us the ability to scale production and field new capabilities at speed.

Todd: With a growing backlog and progress on award timing, we have confidence in achieving our outlook and remain focused on delivering transformative capabilities for our customers.

Todd: I'd like to take a minute to discuss the B 21 profit adjustment made in the quarter.

Todd: As you saw in the earnings release, we recognized an additional $477 million pre tax loss.

Josh: Good day, ladies and gentlemen, and welcome to Northrop Grumman's first quarter, 2025 conference call. Faith 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.

This is largely relating to higher manufacturing costs, primarily resulting from a process change we made to enable a higher production rate.

Todd: As well as increases in the projected material costs, some of which are related to macroeconomic impacts on material prices.

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

Todd: While I am disappointed with its financial impact we continue to make solid progress on the program demonstrating.

Todd Ernst: Thanks Josh and good morning everyone. Before we start today, matters discussed 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 for looking statements pursuant to safe harbor provisions of federal securities laws.

Kathy Warden: Also, we received a nearly $300 million in awards in the first quarter from the U.S. Navy to produce two additional Triton aircraft and associated support services. We are also making good progress on delivering Tritons to Australia. The first of four was delivered last year, and the second and third aircraft have completed testing with the U.S. Navy prior to delivery to the Royal Australian Air Force this year. Triton is playing a critical role surveilling high-priority areas of interest in multiple regions, and it was just announced last week that Tritons will soon be deployed from southern Japan to commence surveillance and information-gathering operations.

Todd: <unk> performance objectives through test.

Todd: And we are progressing through the first two lots of production.

Todd: With significant learning behind US we are ready to deliver the air force is highly capable strategic deterrent.

Todd Ernst: Ford-looking statements involve risks and uncertainties, including those noted in today's press release and our SEC violence. These risks and uncertainties may cause actual company results to differ materially.

Todd: During the quarter, we continued to make significant progress on other key programs as well.

Todd: On Sentinel the U S Air Force and Northrop Grumman completed a successful static fire test of the stage one solid rocket motor for the missile in March.

Todd Ernst: Today's call include non-GAAP financial measures that are reconciled to our GAAP results in our earnings relief.

Todd Ernst: In addition, we'll refer to a presentation that is posted to our Investor Relations website.

Todd: This critical milestone for the weapons system further validates the motors design and paves the way for the production and deployment of a safe secure and reliable strategic deterrent.

Todd Ernst: On the call today are Kathy Warden, our Chair, CEO , and President, and Ken Crews, our CFO . At this time, I'd like to turn the call over to Kathy. Kathy? Thanks, Todd. Good morning everyone. Thank you for joining us today for our first quarter earnings conference call.

Kathy Warden: I'd like to take the next few minutes to provide our view of the market outlook for both the industry in general and Northrop Grumman more specifically. For our industry, demand ultimately stems from the global threat environment. Over the past decade, this environment has grown increasingly complex with the re-emergence of peer adversaries, making the pace of innovation and production crucial for deterrence. As a result, our global customers are increasing their investments in national security. In the U.S., we continue to see signs that defense spending will increase, driven by a few ongoing developments. The first is finalization of a continuing resolution for the 2025 defense budget.

Todd: We are also continuing to work with the customer to identify cost and schedule efficiencies as they evaluate requirements to balanced capability affordability and schedule for the program.

In January the U S Army awarded Us a nearly $500 million contract for Ics.

Todd Ernst: We are operating in a rapidly evolving world and we are managing through a dynamic US defense budget environment with a first of its kind full year continuing resolution. Thank you very much.

Todd: Under this award Northrop Grumman will expand software development and include additional AI and model based systems engineering capabilities to allow more rapid integration for the army and our international partners.

Todd Ernst: Within this environment, we continue to see strong demand signals from our global customers, resulting in another record backlog in the first quarter of $92.8 billion, and that's inclusive of strong international booking.

Todd: Earlier this month, we announced the opening of a state of the art production and integration facility in Alabama to support accelerated modernization plan for air and missile defense system, including I B C. S.

Kathy Warden: This CR comes with several provisions that set it apart from previous ones, the most notable of which are an increase in the top line over FY24 and increased flexibility with spending accounts. Meanwhile, there is a potential for additional funding through the reconciliation process, which could add up to $150 billion to the defense budget to be allocated over multiple years. Both the House and the Senate have passed initial legislation that lays the groundwork for this additional funding. We believe much of this will be used to support investments to maintain our nation's edge against evolving global threats.

Todd Ernst: As we indicated in mid-tabuary, we've experienced delays in certain awards which resulted in a slower sales ramp in the first quarter and we previously anticipated. We expect this to improve throughout the year.

Todd: With this investment it doubles the size of the previous facility footprint Leverages Northrop Grumman digital ecosystem.

Todd: And gives us the ability to scale production and field new capabilities at speed.

Todd Ernst: Marked rates, setting aside the B-21 adjustment were in line with expectations.

Todd: Also we received a nearly 300 million toddler in awards in the first quarter from the U S. Navy to produce two additional training aircraft and associated support services.

Todd Ernst: We have updated our 2025 Financial Guidance, and we are reaffirming our outlook for sales and free cash flow.

Todd: We are also making good progress on delivering triton's to Australia.

Todd Ernst: I'd like to take a minute to discuss the B 21 profit adjustment made in the quarter.

Todd: The first of four was delivered last year and the second and third aircrafts have completed testing with the U S. Navy prior to delivery to the Royal Australian Air Force this year.

Kathy Warden: Lastly, the administration continues to repair their fiscal year 2026 budget request, and we are encouraged by recent commentary that suggests a continued strong commitment to national security funding at levels higher than prior projections. The administration has highlighted key priority areas such as the triad, missile defense and weapons systems, all of which are aligned to core capabilities of Northrop Grumman. Additionally, the significant increase in defense investment outside the U.S. is leading to a growing pipeline of requests for our products across Europe, Asia Pacific, and the Middle East, as countries seek to protect their sovereign territories and deter aggression.

Todd Ernst: As you saw on the earnings release, we recognized an additional 477 million pre tax loss. This.

Todd: Triton is playing a critical role surveilling high priority areas of interest in multiple regions.

Todd Ernst: This is largely relating to higher manufacturing costs, primarily resulting from a process change we made to enable a higher production rate.

Todd: And it was just announced last week, the Triton, which will soon be deployed from southern Japan to commence surveillance and information gathering operations.

Todd Ernst: As well as increases in the projected material cost some of which are related to macro economic impacts on material prices.

Todd: I'd like to take the next few minutes to provide our view of the market outlook for both the industry in general and Northrop Grumman more specifically.

Todd Ernst: While I'm disappointed with the financial impact we continue to make solid progress on the program demonstrating.

Todd: For our industry demand ultimately stems from the global threat environment.

Todd Ernst: Demonstrating performance objectives through tests.

Todd Ernst: And we are progressing through the first two lots of production.

Todd: Over the past decade. This environment has grown increasingly complex with a reemergence of peer adversaries, making the pace of innovation and production crucial for deterrence.

Todd Ernst: With significant learning behind US we are ready to deliver the air force is highly capable strategic deterrent.

Kathy Warden: In Q1, our international sales represented approximately 14% of total sales. We have broadened our customer base, increased the number of products that we can sell internationally, and established new partnerships globally to enhance our addressable market. As a result, we continue to see opportunities to increase our international sales over the coming year. And we are making steady progress in this area with a first quarter international book-to-bill of 1.45 times and international sales up 11% in the quarter. International bookings were driven in part by over a billion dollars in international awards admission system. Also in the quarter, Poland signed a $745 million letter of acceptance for 200 Argym-ER missiles, adding to the growth potential for our defense systems business.

Todd Ernst: During the quarter, we continued to make significant progress on other key programs as well.

Todd: As a result, our global customers are increasing their investments in national security.

In the U S. We continue to see signs that defense spending will increase driven by a few ongoing development.

Todd Ernst: On Sentinel the U S Air Force the Northrop Grumman completed a successful static fire test of the stage one solid rocket motor for the missile in March.

Todd: The first is finalization of a continuing resolution for the 2025 defense budget.

Todd Ernst: This critical milestone for the weapons system further validates the motors design and paves the way for the production and deployment of a safe secure and reliable strategic deterrent.

Todd: This CR comes with several provisions that set it apart from previous ones.

Todd: Most notable of which are an increase in the topline over FY 'twenty, four and increased flexibility with spending account.

Todd Ernst: We are also continuing to work with the customer to identify cost and schedule efficiencies as they evaluate requirements to balanced capability affordability and schedule for the program.

Todd: Meanwhile, there is a potential for additional funding through the reconciliation process, which could add up to a $150 billion to the defense budget to be allocated over multiple years.

Todd Ernst: In January the U S Army awarded Us a nearly $500 million contract for ABC us.

Todd: Both the house and the Senate has passed the initial legislation that lays the groundwork for this additional funding.

Todd Ernst: This award Northrop Grumman will expand software development and include additional AI and model based systems engineering capabilities to allow more rapid integration for the army and our international partners.

Todd: We believe much of this will be used to support investments to maintain our nation's edge against evolving global threats.

Kathy Warden: We continue to see a broad pipeline of opportunities in the areas of air and missile defense, airborne ISR and C2 systems, and ammunition across multiple markets, including newly emerging opportunities in the Middle East. Our strategy is to compete and win in global markets through technology differentiation, bringing innovation and capability beyond what commercial alternatives can provide. To further our ability to innovate and deliver, we invested $13.5 billion in R&D and infrastructure over the last five years. As a result, we now have the ability to scale, design, and produce while fielding new capabilities at speed. We also have a track record of delivering defense technology that stays ahead of the pacing threat.

Todd: Lastly, the administration continues to prepare their fiscal year 2026 budget request and we are encouraged by recent commentary that suggests to continued strong commitment to national security funding at levels higher than prior projections.

Todd Ernst: Earlier this month, we announced the opening of a state of the art production and integration facility in Alabama to support accelerated modernization plan for air and missile defense system, including I B C. S.

The administration has highlighted key priority areas, such as the triad missile defense and weapons systems, all of which are aligned to core capabilities of Northrop Grumman.

Todd Ernst: With this investment it doubles the size of the previous facility footprint Leverages, Northrop Grumman digital ecosystem and gives us the ability to scale production and field new capabilities at speed.

Todd: Additionally, the significant increase in defense investment outside the U S is leading to a growing pipeline of requests for our products across Europe Asia Pacific and the middle East as countries seek to protect their sovereign territory.

Also we received a nearly 300 million teller in awards in the first quarter from the U S. Navy to produce two additional training aircraft and associated support services.

Todd Ernst: We're also making good progress on delivering triton's to Australia.

Kathy Warden: For example, our technology is inside 90% of U.S. national security space satellites. were a leader in low-observable technology, having produced the first stealth bomber, the B-2, and now its successor, the B-21. We've delivered more than 1.3 million solid rocket motors, and we are a leader in mission systems where we produce over a million secure microchips per year, some of which are a thousand times faster than the microchips in your smartphone. So as we look to the future, we are leveraging our own hardware and software capabilities to develop the next generation of systems. And we're also partnering with leading companies in areas such as AI to ensure our customers have the most advanced capabilities in the world.

Todd: And deter aggression.

The first of four was delivered last year and the second and third aircrafts have completed testing with the U S. Navy prior to delivery to the Royal Australian Air Force this year.

Todd: In Q1, our international sales represented approximately 14% of total sales.

Todd: We have broadened our customer base increased the number of products that we can sell internationally and established new partnerships globally to enhance our addressable market.

Todd Ernst: Triton is playing a critical role surveilling high priority areas of interest in multiple regions.

Todd: As a result, we continue to see opportunities to increase our international sales over the coming years.

Todd Ernst: And it was just announced last week the trade routes will soon be deployed from southern Japan. So it can be.

Todd Ernst: Surveillance and information gathering operations.

Todd: And we are making steady progress in this area with our first quarter International book to Bill of 145 times and.

Speaker Change: I'd like to take the next few minutes to provide our view of the market outlook for both the industry in general and Northrop Grumman more specifically.

Todd: And international sales up 11% in the quarter.

Speaker Change: For our industry demand ultimately stems from the global threat environment overall.

Todd: International bookings were driven in part by over a $1 billion in International Awards that mission system.

Speaker Change: Over the past decade. This environment has grown increasingly complex with a reemergence of peer adversaries, making the pace of innovation and production crucial for deterrence.

Also in the quarter, Poland signed a $745 million letter of acceptance for 200, <unk> ER missiles, adding to the growth potential for our defense systems business.

Kathy Warden: In conclusion, given our key franchise programs, record backlog, strong competitive position, and global market dynamics, we continue to project significant potential ahead. Our focus remains on our strategy of driving innovation, expanding our market presence, and optimizing performance to deliver profitable, sustainable growth. We are committed to our long-term vision of creating value for our shareholders, meeting our customer needs, and staying ahead in an ever-evolving global market landscape.

Speaker Change: As a result, our global customers are increasing their investments in national security.

Todd: We continue to see a broad pipeline of opportunities in the areas of air and missile defense Airborne ISR in situ systems and ammunition across multiple markets, including newly emerging opportunities in the middle East.

Speaker Change: In the U S. We continue to see signs that defense spending will increase.

Speaker Change: And by a few ongoing development.

Speaker Change: The first is finalization of a continuing resolution for the 2025 defense budget.

Speaker Change: This C. R comes with several provisions that set it apart from previous ones.

Todd: Our strategy is to compete and win in global markets through technology differentiation, bringing innovation and capability beyond what commercial alternatives can provide.

Speaker Change: Most notable of which are an increase in the topline over FY 'twenty, four and increased flexibility with spending account.

Todd Ernst: So with that, I'm going to turn the call over to Ken to discuss our first quarter results and our updated guidance. Ken?

Todd: To further our ability to innovate and deliver we invested $13 $5 billion in R&D and infrastructure over the last five years.

Speaker Change: Meanwhile, there is a potential for additional funding through the reconciliation process, which could add up to $150 billion to the defense budget to be allocated over multiple years.

Ken Crews: Thank you, Kathy, and good morning, everyone. I'll begin by covering our top line results on slide four in our earnings deck. First quarter sales were $9.5 billion, down 7% compared to the prior year, and included two less working days compared to Q1 2024. Sales in the quarter were also impacted by multiple contracting delays and timing of material receipts. This sales profile was contemplated in our expectations that we shared in February. However, as Kathy outlined, we updated our estimates to complete the LRIP phase of the B21 program late in the quarter, which lowered sales by nearly $100 million.

Todd: As a result, we now have the ability to scale design and produce while feed fielding new capabilities at speeds.

Speaker Change: Both the house and the Senate has passed the initial legislation that lays the groundwork for this additional funding.

Todd: We also have a track record of delivering defense technology that stays ahead of the pacing threats.

Speaker Change: We believe much of this will be used to support investments to maintain our nation's edge against evolving global threats.

Todd: For example, our technology is inside 90% of U S National security space satellites.

Speaker Change: Lastly, the administration continues to repair their fiscal year 2026 budget request and we are encouraged by recent commentary that suggest a continued strong commitment to national security funding at levels higher than prior projections.

Todd: We're a leader in low observable technology, having produced the first stealth bomber the B two and now its successor the B 21.

Todd: We have delivered more than $1 3 million solid rocket motors and we are a leader in mission systems, where we produce over a million secure microchips per year, some of which are 1000 times faster than the microchips in your smartphone.

Ken Crews: As a result, Q1 sales were slightly below our expectations. However, we are still on the path to achieve our full year sales guidance. In total, aeronautic sales were down 8% year over year due to lower B-21 sales and timing of production and material on mature programs, including F-35. DS first quarter sales increased by 68 million, or 4%, primarily due to the continued ramp on the Sentinel program and higher volume on certain military ammunition programs. Mission Systems sales continue to expand up $148 million, driven by numerous programs throughout their portfolio. Higher Sales on Sabre, EW, International Ground-Based Radar, and Marine Programs all contributed to the 6% growth.

Speaker Change: The administration has highlighted key priority areas, such as the triad missile defense and weapons systems, all of which are aligned to our core capabilities of Northrop Grumman.

Todd: So as we look to the future we are leveraging our own hardware and software capabilities to develop the next generation of systems and.

Speaker Change: Additionally, the significant increase in defense investment outside the U S is leading to a growing pipeline of requests for our products across Europe Asia Pacific and the middle East as countries seek to protect their sovereign territory.

Todd: We're also partnering with leading companies in areas such as AI.

Todd: Ensure our customers have the most advanced capabilities in the world.

Todd: In conclusion, given our key franchise program record backlog strong competitive position and global market dynamics, we continue to project significant potential ahead.

Speaker Change: And deter aggression.

Speaker Change: In Q1, our international sales represented approximately 14% of total sales.

Speaker Change: We have broadened our customer base increase the number of products that we can sell internationally and establish new partnerships globally to enhance our addressable market.

Todd: Our focus remains on our strategy of driving innovation, expanding our market presence and optimizing performance to deliver profitable sustainable growth we.

Ken Crews: And space sales were lower, primarily due to the previously communicated wind down of work on two programs, which totaled approximately $230 million of year-over-year headwinds, as well as from lower volume on CRF and FBA satellite programs. Moving to the bottom line.

Speaker Change: As a result, we continue to see opportunities to increase our international sales over the coming years.

Todd: We are committed to our long term vision of creating value for our shareholders meeting our customer needs and staying ahead in an ever evolving global market landscape.

Speaker Change: And we are making steady progress in this area with our first quarter International book to Bill of 145 times and.

Speaker Change: And international sales up 11% in the quarter.

So with that I'm going to turn the call over to Ken to discuss our first quarter results and our updated guidance Ken.

Ken Crews: Our first quarter segment operating income results are shown on slide five. As previously discussed, AS adjusted their estimate to complete the LREP phase of the B21 program. The total loss provision was $477 million across the five LREP lots, which had the effect of lowering our company Q1 segment operating margin rate to 6%. At DF, first quarter 2025 segment operating income grew by 15% and their margin rate improved to 9.9%. This improvement was driven by higher volume, improved performance, and an increase in net favorable EAC. Admission systems, quarter one operating margin decreased 4% due to lower volume on certain fixed price restricted production programs and investments made in connection with restricted business opportunities.

Speaker Change: International bookings were driven in part by over $1 billion in International Awards that mission system.

Ken Cruse: Thank you Kathy and good morning, everyone I'll begin by covering our topline results on slide four in our earnings deck first quarter sales were $9 5 billion down 7% compared to the prior year and included two less working days compared to Q1 2020 for sale.

Speaker Change: Also in the quarter, Poland signed a $745 million letter of acceptance for 200, arguing E. Our missiles, adding to the growth potential for our defense systems business.

Ken Cruse: Sales in the quarter were also impacted by multiple contracting delays and timing of material receipts.

Speaker Change: We continue to see a broad pipeline of opportunities in the areas of air and missile defense Airborne ISR in situ system and ammunition across multiple markets, including newly emerging opportunities in the middle East.

Ken Cruse: Sales profile was contemplated in our expectations that we shared in February power.

Ken Cruse: However, as Kathy outlined we updated our estimates to complete the Elbrick phase of the B 21 program late in the quarter, which lowered sales by nearly $100 million.

Speaker Change: Our strategy is to compete and win in global markets through technology differentiation, bringing innovation and capability beyond what commercial alternatives can provide.

Ken Cruse: As a result, Q1 sales were slightly below our expectations. However, we are still on the path to achieve our full year sales guidance.

Speaker Change: To further our ability to innovate and deliver we invested $13 $5 billion in R&D and infrastructure over the last five years.

Ken Crews: These reductions were partially offset by higher net EAC adjustments.

Ken Cruse: In total Aeronautics sales were down 8% year over year due to lower B 21 sales and timing of production immaterial on mature programs, including F 35.

Ken Crews: and at Space. First quarter segment operating income was driven by lower sales volume, partially offset by improved program performance. Notably, SPACE's net favorable EACs improved to $29 million in Q1, leading to an 11% operating margin rate. Outside of the B-21 adjustment, segment operating income was consistent with the first quarter of 2024 and net favorable EACs were higher by over 30% year over year. This performance is driven by disciplined program execution and our focus on driving cost efficiencies in our business.

Speaker Change: As a result, we now have the ability to scale design and produce while feed field new capabilities at speed.

Ken Cruse: Yes, first quarter sales increased by $68 million or 4%, primarily due to the continued ramp on the Sentinel program and higher volume on certain military ammunition programs.

Speaker Change: We also have a track record of delivering defense technology that stays ahead of the pacing threats.

Speaker Change: For example, our technology is inside 90% of U S National security space satellites.

Ken Cruse: Mission systems sales continued to expand up $148 million driven by numerous programs throughout their portfolio.

Speaker Change: We're a leader in low observable technology, having produced the first stealth bomber the B two and now its successor the B 21.

Ken Cruse: Higher sales on cyber EW International ground based radar and marine programs all contributed to the 6% growth.

Speaker Change: We have delivered more than $1 3 million solid rocket motors and we are a leader in mission systems, where we produce over a million secure microchips per year, some of which are 1000 times faster than the microchips in your smartphone.

Ken Cruse: Space sales were lower primarily due to the previously communicated wind down of work on two programs, which totaled approximately $230 million of year over year headwinds as well as from lower volume on Crs and FDA satellite programs.

Ken Crews: Moving to year-over-year EPS compare on slide six. Earnings per share were lower primarily due to the adjustment on B-21, which totaled $2.74 per share on an after-tax basis. Lower sales volume and, as expected, higher corporate unallocated expense also contributed to the combined 25% of year-over-year headwind.

Speaker Change: So as we look to the future we are leveraging our own hardware and software capabilities to develop the next generation of system.

Ken Cruse: Moving to the bottom line, our first quarter segment operating income results are shown on slide five.

Speaker Change: We're also partnering with leading companies in areas such as AI.

Ken Crews: Before covering our updated guidance for 2025, I want to take a moment to talk about Q1 cashflow. Consistent with our seasonal pattern and expectations, first quarter results reflected a usage of cash. Operating cash outflow of $1.5 billion reflected an increase in vendor payments, as well as lower billings and collections compared to our prior year. We also invest in nearly $300 million in capital expenditures during the period. We continue to expect cash flow to gradually ramp throughout the year with the largest quarter of cash generation in Q4 consistent with our historical performance. And from a capital deployment perspective, we repaid $1.5 billion of notes that matured in January, as we indicated on our Q4 earnings call.

Ken Cruse: As previously discussed adjusted their estimates to complete the elrick phase of the B 21 program. The total loss provision was $477 million across the five L Rep loss.

Speaker Change: Ensure our customers have the most advanced capabilities in the world.

Speaker Change: In conclusion, given our key franchise program record backlog strong competitive position and global market dynamics, we continue to project significant potential ahead.

Ken Cruse: Which had the effect of lowering our company Q1 segment operating margin rate to 6%.

Ken Cruse: At the first.

Ken Cruse: <unk> first quarter 2025 segment operating income grew by 15% and their margin rate improved to nine 9%.

Speaker Change: Our focus remains on our strategy of driving innovation, expanding our market presence and optimizing performance to deliver profitable sustainable growth. We are committed to our long term vision of creating value for our shareholders meeting our customer needs and stay ahead in an ever evolving global.

Ken Cruse: This improvement was driven by higher volume improved performance and an increase in net favorable EAC.

Ken Cruse: At mission systems quarter, one operating margin decreased 4% due to lower volume on certain fixed price restricted production programs and investments made in connection with restricted business opportunities.

Speaker Change: <unk> landscape.

Speaker Change: So with that I'm going to.

Speaker Change: Turn the call over to Ken to discuss our first quarter results and our updated guidance Ken.

Ken Crews: We also return nearly $800 million to shareholders in the form of dividends and share repurchase.

Ken Cruse: These reductions were partially offset by higher net EAC adjustments.

Thank you Kathy and good morning, everyone I'll begin by covering our topline results on slide four in our earnings deck first quarter sales were $9 5 billion.

Ken Cruse: And that space first quarter segment operating income was driven by lower sales volume, partially offset by improved program performance.

Ken Crews: Turning to company guidance on slide 7. We continue to expect $42 billion to $42.5 billion in 2025 sales, representing 3% to 4% organic growth. Looking forward, we expect mid-single-digit sequential growth in Q2, followed by a sales ramp in the second half of the year, driven by awards booked in Q4 2024, the timing of subcontractor deliveries and material receipts, as well as from new program awards.

Ken Cruse: Notably spaces net favorable EAC has improved to $29 million in Q1, leading to an 11% operating margin rate.

Speaker Change: Down 7% compared to the prior year and included two less working days compared to Q1 2024.

Speaker Change: Sales in the quarter were also impacted by multiple contracting delays and timing of material receipts.

Ken Cruse: Outside of the B 21 adjustment segment operating income was consistent with the first quarter of 2024, and net favorable EAC were higher by over 30% year over year.

Speaker Change: Sales profile was contemplated in our expectations that we shared in February power.

Speaker Change: However, as Kathy outlined we updated our estimates to complete the L. Rip phase of the B 21 program late in the quarter, which lowered sales by nearly $100 million.

Ken Cruse: This performance was driven by disciplined program execution, and our focus on driving cost efficiencies in our business.

Ken Crews: with respect to evolving trade policy. The vast majority of our supply chain is sourced from domestic suppliers. After a thorough review of our supply chain, we have a good understanding of the risk areas and are taking mitigation actions where possible to address them. Full Year Segment Operating Income and EPS Guidance have been updated to reflect the B-21 adjustment, which also had the effect of lowering our estimated tax rate for the year to high 16%, and we are reaffirming our 2025 free cash flow guidance range of $2.85 billion to $3.25 billion. At the segment level, we are reaffirming our sales expectation at each of our segments.

Ken Cruse: Moving to year over year EPS compare on slide six.

Speaker Change: As a result, Q1 sales were slightly below our expectations. However, we are still on the path to achieve our full year sales guidance.

Ken Cruse: Earnings per share were lower primarily due to the adjustment will be 'twenty, one which totaled $2 74 per share on an after tax basis.

Speaker Change: In total Aeronautics sales were down 8% year over year due to lower B 21 sales and timing of production immaterial on mature programs, including F 35.

Ken Cruse: Lower sales volume and as expected higher corporate unallocated expense also contributed to the combined 25% of year over year headwind.

Speaker Change: These first quarter sales increased by $68 million or 4%, primarily due to the continued ramp on the Sentinel program and higher volume on certain military ammunition programs.

Ken Cruse: Before covering our updated guidance for 2025 I wanted to take a moment to talk about Q1 cash flows.

Ken Cruse: With our seasonal pattern and expectations first quarter results reflected a usage of cash operating cash outflow of $1 $5 billion reflected an increase in vendor payments as well as lower billings and collections compared to our prior year.

Speaker Change: Mission systems sales continued to expand up $148 million driven by numerous programs throughout their portfolio.

Ken Crews: We continue to expect mid-single-digit growth at AS and MS, driven by continued ramp on B-21, TACMO, and multiple programs across our diverse MS portfolio. We expect DS will achieve double-digit organic sales growth this year, driven by IVCS backlog, Sentinel, and higher volume in our weapons. The divestiture of the training service business is on track to close mid-year. Assume early Q3 for your modeling purpose. And we continue to project space sales of roughly $11 billion, enabled by continued production on existing programs and new competitive wins in the restricted domain.

Speaker Change: Higher sales on cyber EW International ground based radar and marine programs all contributed to the 6% growth.

Ken Cruse: We also invested nearly $300 million in capital expenditures during the period.

Speaker Change: Space sales were lower primarily due to the previously communicated wind down of work on two programs, which totaled approximately $230 million of year over year headwinds as well as from lower volume on Crs and SBA satellite programs.

Ken Cruse: We continue to expect cash flow to gradually ramp throughout the year with the largest quarter of cash generation in Q4, consistent with our historical performance.

Ken Cruse: And from a capital deployment perspective, we repaid $1 5 billion of notes that matured in January as we indicated on our Q4 earnings call.

Speaker Change: Moving to the bottom line, our first quarter segment operating income results are shown on slide five.

Ken Cruse: We also returned nearly $800 million to shareholders in the form of dividends and share repurchases.

Speaker Change: As previously discussed adjusted their estimate to complete the phase of the B 21 program. The total loss provision was $477 million across the five blocks.

Ken Crews: We have updated our O.M. rate expectations at A.S. and now expect an O.M. rate of low to mid six percent. We are reaffirming our margin rate expectations for the other segments, with each projected to increase from 2024 actual results. We expect a gradual ramp in overall segment margin rates over the coming quarters driven by EMS. This profile is enabled by continued strong program performance, execution of cost saving initiatives, and seasonal volume shifts to higher margin production programs later in the year.

Ken Cruse: Turning to company guidance on slide seven.

Ken Cruse: We continue to expect 42 billion to $42 5 billion in 2025 sales, representing 3% to 4% organic growth.

Speaker Change: Which had the effect of lowering our company Q1 segment operating margin rate to 6%.

Ken Cruse: Looking forward, we expect mid single digit sequential growth in Q2, followed by sales ramp in the second half of the year driven by awards booked in Q4 2020 for the timing of subcontractor deliveries immaterial receipts as well as from New program Awards.

Speaker Change: At the first.

Speaker Change: First quarter 2025 segment operating income grew by 15% and their margin rate improved to nine 9%.

Speaker Change: This improvement was driven by higher volume improved performance and an increase in net favorable EAC.

Ken Cruse: With respect to evolving trade policy.

Speaker Change: At mission systems quarter, one operating margin decreased 4% due to lower volume on certain fixed price restricted production programs and investments made in connection with restricted business opportunities.

Ken Cruse: The vast majority of our supply chain is sourced from domestic suppliers. After a thorough review of our supply chain. We have a good understanding of the risk areas and are taking mitigation actions where possible to address them.

Ken Crews: To conclude, our portfolio is well aligned to customer priorities, and we will continue to drive efficiencies, manage risk, and elevate performance to deliver profitable growth over the long term. This will enable us to execute our capital deployment strategy, which prioritizes investing in innovation and capacity to meet our customer needs while returning cash to shareholders.

Speaker Change: These reductions were partially offset by higher net EAC adjustments.

Ken Cruse: Full year segment operating income and EPS guidance has been updated to reflect the B 21 adjustment, which also had the effect of lowering our estimated tax rate for the year to high 16% and.

Speaker Change: And that space first quarter segment operating income was driven by lower sales volume, partially offset by improved program performance.

Todd Ernst: With that, we are ready to begin Q&A. Thank you.

Ken Cruse: And we are reaffirming our 2025 free cash flow guidance range of $2 85 billion to $3 billion to $5 billion.

Speaker Change: Notably spaces net favorable EAC has improved to $29 million in Q1, leading to an 11% operating margin rate.

Unknown Executive: Ladies and gentlemen, if you wish to ask a question, please press star followed by one one on your touchstone telephone. Please limit yourself to one question and one follow-up. Again, press star one one to ask a question. One moment for a question.

Ken Cruse: At the segment level, we are reaffirming our sales expectation at each of our segments. We continue to expect mid single digit growth in EMS driven by continued ramp on B 21, Taco mode and multiple programs across our diverse EMS portfolio.

Speaker Change: Outside of the B 21 adjustment segment operating income was consistent with the first quarter of 2024, and net favorable EAC were higher by over 30% year over year.

Kristine Liwag: Our first question comes from Kristine Liwag with Morgan Stanley, you may proceed. Hey, good morning, everyone. Good morning, Kristine. Welcome back. Thank you.

Speaker Change: This performance was driven by disciplined program execution, and our focus on driving cost efficiencies in our business.

Ken Cruse: We expect <unk> will achieve double digit organic sales growth this year, driven by Ibs backlog Sentinel and higher volume in our weapons business.

Kathy Warden: So Kathy, maybe on the B-21, what milestones should we watch for to track the risk retirement of the program? And regarding the macro environment that you put in for the charges, how should we think about this regarding tariffs? Could there be risk that you could see further charges on the program? Thanks, Christine.

Speaker Change: Moving to year over year EPS compare on slide six.

Speaker Change: Earnings per share were lower primarily due to the adjustment will be 'twenty, one which totaled $2 74 per share on an after tax basis.

Ken Cruse: The Divesture of the training service business is on track to close mid year assume early Q3 for your modeling purposes.

Speaker Change: Lower sales volume and as expected higher corporate and unallocated expense also contributed to the combined 25% of year over year headwind.

Ken Cruse: And we continue to project space sales of roughly $11 billion enabled by continued production on existing programs and new competitive wins in the restricted domain.

Kathy Warden: So let me start by talking about the phases of the program and where we are in performance. We are completing the EMD phase of the program and are in the stages of tests that prove out the objectives of the aircraft being met through those performance test milestones. And the government has released information as we've progressed through the test program to help provide some transparency that the aircraft is performing in line with the model performance and the test objective. We also have started low-rate initial production, and as we've talked about, we are working through the first two lots of production in Elric, and we have even started long lead up through lot four.

Speaker Change: Before covering our updated guidance for 2025 I wanted to take a moment to talk about Q1 cash flows.

Ken Cruse: We have updated our om rate expectations at Aes, and now expect that AUM rate of low to mid 6%.

Speaker Change: With our seasonal pattern and expectations first quarter results reflected a usage of cash operating cash outflow of $1 $5 billion reflected an increase in vendor payments as well as lower billings and collections compared to our prior year.

Ken Cruse: We are reaffirming our margin rate expectations for the other segments.

Ken Cruse: With each projected to increase from 2020 for actual results.

Ken Cruse: We expect a gradual ramp in overall segment margin rates over the coming quarters driven by MFS.

Speaker Change: We also invested nearly $300 million in capital expenditures during the period.

Ken Cruse: This profile has enabled by continued strong program performance.

Speaker Change: We continue to expect cash flow to gradually ramp throughout the year with the largest quarter of cash generation in Q4, consistent with our historical performance.

Ken Cruse: Execution of cost saving initiatives and seasonal volume shifts to higher margin production programs later in the year.

Ken Cruse: To conclude our portfolio is well aligned to customer priorities and we will continue to drive efficiencies manage risk and elevate performance to deliver profitable growth over the long term.

Speaker Change: And from a capital deployment perspective, we repaid $1 5 billion of notes that matured in January as we indicated on our Q4 earnings call.

Kathy Warden: So we've built a good bit of experience now in building the aircraft. And as we have progressed through the build process, we made the determination working with the Air Force to reduce risk as we scaled to the program of record, which will happen at the end of Elric, and even to position us now to ramp above the program of record. And those manufacturing changes and associated costs that we talked about being reflected this quarter are results of that learning in the process of scaling. But it's good to have that learning now understood and behind us before we ramp further through Elric and then eventually into full-rate production.

Speaker Change: We also returned nearly $800 million to shareholders in the form of dividends and share repurchases.

Ken Cruse: This will enable us to execute our capital deployment strategy, which prioritizes investing in innovation and capacity to meet our customer needs, while returning cash to shareholders.

Speaker Change: Turning to company guidance on slide seven.

Speaker Change: We continue to expect 42 billion to $42 5 billion in 2025 sales, representing 3% to 4% organic growth.

Ken Cruse: With that we're ready to begin Q&A.

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

Speaker Change: Looking forward, we expect mid single digit sequential growth in Q2, followed by sales ramp in the second half of the year driven by awards booked in Q4 2020 for the timing of subcontractor deliveries immaterial receipts as well as from New program Awards.

Ken Cruse: Yes.

Speaker Change: Our first question comes from Cristina <unk> with Morgan Stanley You May proceed.

Cristina: Hey, good morning, everyone.

Speaker Change: With respect to evolving trade policy.

Speaker Change: Morning, Christine welcome back.

Speaker Change: The vast majority of our supply chain is sourced from domestic suppliers. After a thorough review of our supply chain. We have a good understanding of the risk areas and are taking mitigation actions where possible to address them.

Thank you.

Speaker Change: So Cathy maybe on the B 21.

Kathy Warden: We also have the sustainment and modernization still ahead on the program. We've talked in previous calls about having started some work on modernization and we are building out the capability to train and sustain on the aircraft as well. So those will fit gradually phase in over these next several years. And there isn't change based on what we're reporting this quarter in that profile for the program.

Speaker Change: What milestones should we watch for Detractive risk retirement of the program and regarding the macro.

Speaker Change: Full year segment operating income and EPS guidance has been updated to reflect the B 21 adjustment, which also had the effect of lowering our estimated tax rate for the year to high 16% and.

Speaker Change: The macro environment that you put in for the charges how should we think about this regarding tariffs could there be risk that you could see further charges on the program.

Speaker Change: Thanks, Christine So let me start by talking about the phases of the program and where we are in performance.

Speaker Change: And we are reaffirming our 2025 free cash flow guidance range of $2 85 billion to $3 two 5 billion.

Speaker Change: Completing the AMD phase of the program.

Speaker Change: At the segment level, we are reaffirming our sales expectation at each of our segments. We continue to expect mid single digit growth in EMS driven by continued ramp on B 21, tack, a moat and multiple programs across our diverse portfolio.

Speaker Change: <unk> are in the stages of test that prove out the objectives of the aircrafts being met through the performance test milestones and the government has released information as we progress through the test program to help provide some transparency that the aircraft is perf.

Kristine Liwag: Great, thank you, Kathy. And maybe I could follow up on AI. You mentioned earlier that you're seeing opportunities there.

Kathy Warden: Can you provide more color on where you see Northrop Grumman's strategic strengths are in AI versus commercial players, or new disruptive players? How much of a game changer are your capabilities in this? Yes, so we have been investing in artificial intelligence as it's known today. But for decades, we've been incorporating the concepts of distilling large amounts of information through automation into actionable software that helps enable a user to do everything from flying an aircraft with our autonomous aircraft, to distilling large amounts of information for targeting, to helping to assimilate situational awareness and make decisions on how to pair sensors and shooters, like with the IDCS program, which I mentioned in my prepared remarks.

Speaker Change: We expect <unk> will achieve double digit organic sales growth this year, driven by <unk> backlog Sentinel and higher volume in our weapons business.

Speaker Change: <unk> in line with the modeled performance and the tough objective.

Speaker Change: We also have started low rate initial production and that's we've talked about we are working through the first two lots of production.

Speaker Change: The divestiture of the training service business is on track to close mid year assume early Q3 for your modeling purposes.

Speaker Change: And we continue to project space sales of roughly $11 billion enabled by continued production on existing programs and new competitive wins in the restricted domain.

Speaker Change: All risks and we have even started long lead up through lot. Four so we've built a good bit of experience now in building the aircraft and as we have progressed through the build process.

Speaker Change: We have updated our om rate expectations at Aes, and now expect Om rate of low to mid 6%.

Speaker Change: <unk> made the determination working with the air force to reduce risk as we scaled to the program of record, which will happen at the end of our rep and even to position us now to ramp above the program of record.

Speaker Change: We are reaffirming our margin rate expectations for the other segments.

Speaker Change: With each projected to increase from 2020 for actual results.

We expect a gradual ramp in overall segment margin rates over the coming quarters driven by MFS.

Speaker Change: And those manufacturing changes and associated costs that we talked about being reflected this quarter.

Kathy Warden: All of these applications of artificial intelligence help us to make our sensors, our software, more valuable for the user and to do more in short periods of time to prepare that information for the user to act more quickly. And so that is a mission expertise that we possess. And the building of that software and the integration of artificial intelligence techniques is something that our team understands how to do. But as that technology matures, we absolutely can partner with other companies who are investing, usually for commercial applications, and bring their platforms in to facilitate our software development.

Speaker Change: This profile has enabled by continued strong program performance.

Speaker Change: Our results of that learning in the process of scaling and it's good to have that learning now understood and behind US before we ramp further through outlets and then eventually into full rate production.

Speaker Change: Execution of cost saving initiatives and seasonal volume shifts to higher margin production programs later in the year.

Speaker Change: To conclude our portfolio is well aligned to customer priorities and we will continue to drive efficiencies manage risk and elevate performance to deliver profitable growth over the long term.

Speaker Change: We also have the Sustainment and modernization still ahead on the program we've talked in previous calls about having started some work on modernization and we are building out the capability to train and sustain on the aircraft as well so those will fit grabs.

Speaker Change: This will enable us to execute our capital deployment strategy, which prioritizes investing in innovation and capacity to meet our customer needs, while returning cash to shareholders.

Speaker Change: With that we're ready to begin Q&A.

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

Speaker Change: Elyse ACM over these next several years and there isn't change based on what we're reporting this quarter in that profile for the program.

Kathy Warden: And that's largely what we're doing in the partnerships that we have with companies like NVIDIA.

Speaker Change: Great. Thank you Kathy and maybe I could follow up on AI, you mentioned earlier that youre seeing opportunities. There can you provide more color on where you see Northrop Grumman strategic strengths are in AI versus commercial players or new disruptive players.

Kristine Liwag: Great, thank you very much. Thank you.

Speaker Change: Yeah.

Speaker Change: Our first question comes from Cristina <unk> with Morgan Stanley You May proceed.

Robert Stallard: Our next question comes from Robert Stallard with Vertical Research, you may proceed. Good morning.

Speaker Change: Hey, good morning, everyone.

Speaker Change: Morning, Christine welcome back.

Speaker Change: Thank you.

Speaker Change: How much of a game changer or your capabilities in this.

Kathy Warden: Kathy Newford-Pedramonk Okay, what's the expectation? Well, thanks, Rob. There definitely is uncertainty in the environment, and it's in multiple forms. The one that I referred to in my prepared remarks was delays in getting new awards and those decisions being made. What I would say is we are starting to see those award decisions move forward, and that was the reason for my comments, that we expect that to improve here in the second quarter and throughout the year. We are not seeing direct impact from the government's reduction of personnel in our ability to still deliver on programs and get through the milestones that we have on program.

Speaker Change: So Cathy maybe on the B 21.

Speaker Change: What milestones should we watch for and at attractive risk retirement of the program and regarding the macro.

Speaker Change: Yes, so we have been investing in artificial intelligence.

Speaker Change: None today, but.

Speaker Change: The macro environment that you put in for the charges how should we think about this regarding tariffs could there be risk that you could see further charges on the program.

Speaker Change: For decades, we've been incorporating.

Speaker Change: Concepts of fulfilling large amounts of information through automation into actionable.

Speaker Change: Thanks, Christine So let me start by talking about the phases of the program and where we are in performance.

Speaker Change: Software that helps enable our users to do everything from flying an aircraft with our autonomous aircraft to distilling large amounts of information for targeting to helping to assimilate situational awareness and make decisions on how to pair sensors and shooters like with.

Speaker Change: Completing the AMD phase of the program.

Speaker Change: <unk> <unk> program, which I mentioned in my prepared remarks, all of these applications of artificial intelligence help us to make our sensors our software more valuable for the user and to do more in short periods of time to prepare that information for the user.

Speaker Change: The aircraft is performing in line with the modeled performance and the tough objective.

Speaker Change: We also have started low rate initial production and as we've talked about we are working through the first two lots of production.

Speaker Change: Act more quickly and so that is our mission expertise that we possess and the building of that software and the integration of artificial intelligence.

Kathy Warden: We are watching that. Certainly, we want to make sure that the government oversight is sufficient and there, but I also believe there is room for efficiencies, and we expect that in some ways the government will be able to continue their work, even as they experience less personnel.

Speaker Change: Niques is something that our team understands how to do but as that technology matures, we absolutely can partner with other companies, who are investing usually for commercial applications and bring their platforms and to facilitate our software development and that's largely what we're doing in the park.

Speaker Change: <unk> made the determination working with the air force to reduce risk as we scaled to the program of record, which will happen at the end of L Rip and even to position us now to ramp above the program of record.

Kathy Warden: And finally, I would just say that we are looking toward the budget to provide clarity on the administration's priorities, but what we are hearing is that there is strong alignment to the areas of capability that Northrop provides, and we also are expecting the increases in top line that I talked about in my prepared remarks. So, we'll be watching all of that closely as it unfolds over the coming months. Okay, thanks Cathy.

Speaker Change: Ships that we have with companies like Nvidia.

Speaker Change: And those manufacturing changes and associated costs that we talked about being reflected this quarter.

Speaker Change: Great. Thank you very much.

Speaker Change: Our results of that learning in the process of scaling and it's good to have that learning now understood and behind US before we ramp further throughout risks and then eventually into full rate production.

Speaker Change: Thank you.

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

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

Robert Stallard: Kathy in your prepared remarks, you noted that it's a pretty unstable situation with your U S customers BT U K was the expectation that you hope things are we expect things to improve from here, but some of the commentary from the Pentagon suggests that there's going to be significant head counts and as you'll see.

Speaker Change: We also have the Sustainment and modernization still ahead on the program we've talked in previous calls about having started some work on modernization.

Ken Crews: Just a quick one for Ken. Unknown Speaker, Unknown Speaker, Yes, so the right way to think about the cash impact due to the incremental charge is no material impact to 2025. Of the incremental charge, it will be spread primarily through 26, 27 and 28.

Speaker Change: We are building out the capability to train and sustain on the aircraft as well so those will gradually phase.

Robert Stallard: Still the potential risk of the dose what.

Robert Stallard: It gives you the confidence that this.

Robert Stallard: Situations process problem is going to improve from here.

Over the next several years and there isn't change based on what we're reporting this quarter in that profile for the program.

Ken Cruse: Well, thanks, Rob there definitely is uncertainty in the environment and it's in multiple form the one that I referred to in my prepared remarks was delays in getting new awards and those decisions being made what I would say is we are starting to see.

Ken Crews: Thank you.

Ronald Epstein: Our next question comes from Ronald Epstein with Bank of America. You may proceed. Hey, yeah, good morning. Yeah, we can dig a little deeper on B-21. If we peel back the onion, what changed from a quarter ago to now? to make you feel like you had to do this now. And I guess that gets at how confident can we be that this is it, right? I mean, I think we've all watched the industry for a while and it seems like these charges tend to have a tail and that's the big fear. So are we gonna get one of these every year?

Ken Cruse: Those award decisions move forward and that was the reason.

Ken Cruse: Reason for my comments.

Speaker Change: How much of a game changer or your capabilities in this.

Ken Cruse: We expect that to improve here in the second quarter and throughout the year.

Speaker Change: Yes, so we have been investing in artificial intelligence.

Ken Cruse: We are not seeing direct impact from the government's reduction of personnel.

Speaker Change: Known today, but for.

Speaker Change: For decades, we've been incorporating.

Ken Cruse: Our ability to still deliver on programs and get through the milestones that we have on program we are watching that.

Speaker Change: Concepts of fulfilling large amounts of information through automation into actionable.

Ken Cruse: Certainly we want to make sure that the government oversight is sufficient and there but I also believe there is room for efficiencies and we expect that in some ways. The government will be able to continue their work, even if they experience less personnel and.

Ronald Epstein: I mean, how should we think about it and be confident that this is it?

Kathy Warden: The drivers of the charge were related to a process change. And that process change supports the accelerated production rates that I referenced. And so in that way, it's a very defined change. And we now understand and have the learning from making that change. And that's not something we will need to do. Again, this positions us to ramp to the quantities needed in full rate production. And even as I noted, we can ramp beyond the quantities in the program of record, which is something that we in the government decided was important for the optionality to support the scenarios that they have been looking at to increase the current build rate.

Speaker Change: <unk> <unk> program, which I mentioned in my prepared remarks, all of these applications of artificial intelligence to help us to make our sensors our software more valuable for the user and to do more in short periods of time to prepare that information for the user.

Ken Cruse: Finally, I would just say that we are looking towards the budget to provide clarity on the administration's priorities, but what we are hearing is that there is strong alignment to the areas of capability that <unk> provides and we also are expecting the increases in top line that I talked about.

Speaker Change: Act more quickly and so that is our mission expertise that we possess and the building of that software and the integration of artificial intelligence.

Ken Cruse: In my prepared remarks, so we'll be watching all of that closely as it unfolds over the coming months.

Speaker Change: Okay. Thanks, Cathie, just a quick one for Ken.

Speaker Change: Nicole it's something that our team understands how to do but as that technology matures, we absolutely can partner with other companies, who are investing usually for commercial applications and bring their platforms and to facilitate our software development and that's largely what we're doing in the park.

Ken Cruse: On the B 21 EAC adjustment.

Kathy Warden: The second part of the charge that I mentioned is related to the quantity of general procurement materials, as well as the price. And there we had underestimated the amount of consumption of those materials, as well as the price increase that we are seeing. And so, in many ways, this is a reflection of the macroeconomic environment coupled with the learning that comes through building the aircraft, now having multiple under our belt. And the adjustment this quarter has the benefit now of having those first two lots progressing through production. So we don't expect these learnings to repeat themselves.

Ken Cruse: The anticipated cash impact from this is it basically the same number but spread over time.

Ken Cruse: Yes, so the right way to think about the cash impact due to the incremental charge is.

Ken Cruse: No material impact to 2025 of the incremental charge it will be spread primarily through 'twenty six 'twenty seven and 28.

Speaker Change: Our ships that we have with companies like Nvidia.

Speaker Change: Great. Thank you very much.

Speaker Change: Thank you very much.

Speaker Change: Thank you.

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

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

Thanks, so much good morning, good morning.

Ronald Epstein: Hey, good morning.

Speaker Change: Yes.

Speaker Change: Kathy in your prepared remarks, you had noted that it's pretty unstable situation with your U S customer that might be okay with you.

Speaker Change: A little deeper on B 21.

Speaker Change: If we peel back the onion, what what changed from a quarter ago to now.

Speaker Change: Expectation that you hope things are we expect things to improve from here, but some of the commentary from the Pentagon suggest that there's going to be significant head counts and as you'll see still the potential risk of the dose.

Kathy Warden: But of course, we've been transparent that there remain both risks and opportunities on the program as we complete the first five hours. Most of the change that we have experienced and that have resulted in now the close to $2 billion of charges on the program are due to inflationary factors. And so we have done our best to execute well on what we can control and at the same time reflect those macroeconomic risks in our EAC. So we have updated those, but we will continue to monitor and mitigate those inflationary pressures as we experience them. Got it, got it.

Speaker Change: Do you feel like you're headed.

Speaker Change: Now and then.

Speaker Change: Thank you Ed.

Speaker Change: How confident can we view that this is it right I mean is it.

Speaker Change: It gives you the confidence that this situation. This process problem is going to improve from here.

Speaker Change: We will watch the industry for a while and it seems like these charges tend to have a tail and thats. The big fear. So are we going to get one of these every year.

Speaker Change: Well, thanks, Rob there definitely is uncertainty in the environment and it's in multiple form the one that I referred to in my prepared remarks was delays in getting New awards.

Speaker Change: How should we think about it and be confident that this is ed.

Speaker Change: Yes.

Speaker Change: The drivers of the charge were related to a process change and has that process changed supports the accelerated production rates that I referenced and so in that way. It's a very defined change and we now understand and have the learning from making.

Speaker Change: And those decisions being made what I would say is we are starting to see those award decisions move forward and that was the reason.

Speaker Change: The reason for my comment that we.

Speaker Change: We expect that to improve here in the second quarter and throughout the year.

Speaker Change: That change and that's not something we will need to do again this positions us to ramp to the quantities needed in full rate production and even as I noted we can ramp beyond the quantity in the program of record, which is something that we and the government decided was important for the optionality to.

Speaker Change: We are not seeing direct impact from the government's reduction of personnel in our ability to still deliver programs and get through the milestones that we have on program we are watching that.

Kathy Warden: And then maybe as a follow up on Sentinel, you know, it's another program that's kind of made some headlines. How confident should we feel about the profitability on that given the potential changes to that program? On Sentinel, we continue to progress well through the development phase of the program, and we, as I said, have progressed in design maturation and even testing of the missile. And so we continue to grow in confidence in the design of the system that we are building. We are partnering with the DoD and the Air Force to restructure the program. And as part of that restructuring, we are working with the Air Force on options to reduce the overall cost and schedule on the program and if identified opportunities to them to do so.

Speaker Change: Support the scenarios that they have been looking at to increase the current build rate.

Speaker Change: Certainly we want to make sure that the government oversight is sufficient and there but I also believe there is room for efficiencies and we expect that in some ways. The government will be able to continue their work, even if they experience less personnel and.

Speaker Change: The second part of the charge that I mentioned is related to the quantity of general procurement materials as well as the price and there we had underestimated the amount of consumption of those materials as well.

Speaker Change: Price increase.

Speaker Change: Finally, I would just say that we are looking towards the budget to provide clarity on the administration's priorities, but what we are hearing is that there is strong alignment to the areas of capability that <unk> provides and we also are expecting the increases in top line that I talked about.

Speaker Change: The increase that we are seeing and so in many ways. This is a reflection of the macro economic environment, coupled with the learning that comes through building the aircrafts now having multiple under our belt and see adjustment this quarter.

Kathy Warden: What we look at in that restructuring is to ensure that the changes in requirements are adequately reflected in the design and ultimately in the contract, and we'll be working to do that with the government. And I will just remind you that Sentinel is a cost-plus program, and we have not yet estimated the cost associated with LRIP from a contractual standpoint. Got it. All right.

Speaker Change: The benefits now of having those first two lots progressing through production so.

Speaker Change: In my prepared remarks.

Speaker Change: We'll be watching all of that closely as it unfolds over the coming months.

Speaker Change: So we don't expect these learning to repeat themselves but of course, we've been transparent that there remain both risks and opportunities on the program as we complete the first five outlets.

Speaker Change: Okay. Thanks, Cathie, just a quick one for Ken.

Speaker Change: On the B 21 EAC adjustment.

Speaker Change: What's the anticipated cash impact from this is it basically the same number but spread over time.

Speaker Change: Most of the change that we have.

Speaker Change: Yes, so the right way to think about the cash impact due to the incremental charge has no.

Speaker Change: Experience and that have resulted in now the close to $2 billion of charges on the program are due to inflationary factors and so we have done our best to execute well on what we can control and at the same time reflects those macroeconomic risks in our EAC.

Ronald Epstein: Thank you very much. Yeah.

Speaker Change: No material impact to 2025 of the incremental charge it will be spread primarily through 'twenty six 'twenty seven and 28.

Sheila Kahyaoglu: Our next question comes from Sheila Kahyaoglu with Jeffrey's, you may proceed.

Sheila Kahyaoglu: Good morning, Kathy and Ken. And Todd, maybe just a broader question, again, starting out with tariffs, because it's been a hot topic this morning. How do we think about the tariff impact on the overall Northrop portfolio and just international relationships? How that changes your potential opportunity set under the current administration?

Speaker Change: Thank you very much.

Speaker Change: Thank you.

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

Speaker Change: So we have updated those but we will continue to monitor and mitigate those inflationary pressures as we experience them.

Speaker Change: Hey, good morning.

Ronald Epstein: Can you dig a little deeper on B 21.

Kathy Warden: So, Sheila, let me start with what we believe to be the impact of tariffs on our portfolio. We do directly source a small part of our supply chain, about 5% of our total spend, so less than a billion dollars annually, and it's from countries outside of the US, primarily in Europe. When we look at the second and third tiers of our supply chain, we have purchasing agreements in place with the vast majority of those that extend over a long period of time. And we have done an assessment and believe that most of the costs that we might incur due to trade policy are incorporated and covered under our contracts with the US government.

Speaker Change: If we peel back the onion what.

Ronald Epstein: What changed from a quarter ago to now.

Speaker Change: Got it got it and then maybe as a follow up on Sentinel.

Speaker Change: It's another program that's kind of made some headlines.

Speaker Change: Do you feel like you had it.

Ronald Epstein: This now.

Speaker Change: How confident should we feel about the profitability on that given the potential changes to that program.

Ronald Epstein: And I guess that gets at how confident can we be that this is it right.

Ronald Epstein: We will watch the industry for a while and it seems like these charges tend to have a tail and thats the big fear.

Speaker Change: Sentinel, we continued to progress well through the development phase of the program and we as I said have progressed and design maturation and even testing of the missile and so we continue to grow in confidence in the design of the system.

Ronald Epstein: Are we going to get one of these.

Ronald Epstein: I mean, how should we think about it and be confident that this is it.

Ronald Epstein: The drivers of the charge were related to a process change and has that process changed supports the accelerated production rates that I referenced and so in that way, it's a very defined change.

Speaker Change: We are building we are partnering with EMEA.

Speaker Change: And the Air force to restructure the program and as part of that restructuring we are working with the air force on options to reduce the overall cost and schedule on the program and if identified opportunities to them to do so.

Kathy Warden: So we do not see at this point in time a significant risk to our company related to the trade policies as we understand them today. We're going to continue to monitor that closely.

Ronald Epstein: And we now understand and have the learning from making that change and that's not something we will need to do again this positions us to ramp to the quantities needed in full rate production and even as I noted we can ramp beyond the quantity in the program of record which is something that.

Speaker Change: What we look at in that restructuring is to ensure that the changes in requirements are adequately reflected in the design and ultimately in the contract and we'll be working to do that with the government.

Kathy Warden: And we're already taking action to account for and mitigate the risks that we do see, particularly in availability of certain components that we need for delivering on our program.

Ronald Epstein: We and the government decided was important for the Optionality to support the scenarios that they have been looking at to increase the current build rate.

Speaker Change: And I would just remind you that Sentinel is a cost plus program and we have not yet.

Sheila Kahyaoglu: Great. And maybe if I could ask one specific question on MS margins, just that 12.9 in the quarter, they lag the mid point of your guidance of mid 14s. How do we think about the drivers of that? You mentioned investments and mix of microelectronics. So how do we think about the improvement in MS profitability?

Ronald Epstein: Second part of the charge that I mentioned is related to the quantity of general procurement materials as well as the price.

Speaker Change: Debated the cost associated with outlet from a contractual standpoint.

Speaker Change: Got it alright, thank you very much yes.

Ronald Epstein: And there we had underestimated the amount of consumption of those materials as well as the price.

Speaker Change: Thank you.

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

Ken Crews: Thanks for the question, Sheila. So, as we mentioned in my prepared remarks, we made an investment that would generate significant value over the long term while repaying the initial investment cost plus our required rate of return. That was known, so we knew of that when we put our guidance forward at the mid-14% range. So, as we think forward with mission systems, what is driving the margin profile in the future is the ramp, on their mature accretive margin programs throughout the year, as well as mission systems is making significant progress on efficiencies in the business. And so, as we harvest those efficiencies, it will impact our rates, which then flow through to the programs driving that improved margin profile in the second half of the year.

Increase that we are seeing and so in many ways. This is a reflection of the macro economic environment, coupled with the learning that comes through building the aircrafts now having multiple under our belt and see adjustment this quarter has.

Sheila: Good morning, Kathy and Ken and Todd maybe just a broader question again, starting out with tariffs because it's been a hot topic. This morning, how do we think about the tariff impact on the overall north of portfolio and just international relationships and how that changes your potential opportunity set under the current administration.

Ronald Epstein: Benefits now of having those first two lots progressing through production. So we don't expect these learning to repeat themselves but of course, we've been transparent that there remain both risks and opportunities on the program as we complete the first five outlets.

Speaker Change: So Sheila let me start with what we believe to be the impact of tariffs on our portfolio. We do directly source a small part of our supply chain about 5% of our total spend so less than a $1 billion annually and it's from countries outside of the U S primarily in Europe.

Ronald Epstein: Most of the change that we have.

Speaker Change: When we look at the second and third tiers of our supply chain, we have purchasing agreements in place with the vast majority of those that extend over a long period of time.

Ronald Epstein: Experience and that have resulted in now the close to $2 billion of charges on the program are due to inflationary factors and so we have done our best to execute well on what we can control and at the same time reflect those macroeconomic risks in our EAC.

Sheila Kahyaoglu: Thank you.

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

Speaker Change: And we have done an assessment and believe that most of the costs that we might incur due to trade policy are incorporated and covered under our contracts with the U S. Government. So we do not see at this point in time, a significant risk to our company related to the trade Paula.

Ken Crews: Ken, are you reiterating the previous free cash flow targets for 2026, 2027 and 2028? Yes, and so let me touch on that is we are at this moment holding the guidance ranges that we provided or the multi-year guidance ranges for cash flow, and we are absolutely focused on performance and rationalizing investments to execute within those ranges, Scott. Okay, and 2028 still good for the four billion or? Yes, at this point, we're holding all guidance. Okay.

Ronald Epstein: So we have updated those but we will.

Ronald Epstein: <unk> to monitor and mitigate those inflationary pressures as we experience them.

Speaker Change: As we understand them today, we're going to continue to monitor that closely and we're already taking actions to account for and mitigate the risks that we do see particularly in availability of certain components that we need for delivering on our program.

Ronald Epstein: Got it got it and then maybe as a follow up on Sentinel.

Ronald Epstein: Their program, it's kind of made some headlines.

Ronald Epstein: How confident should we feel about the profitability on that given the potential changes to that program.

Ronald Epstein: On Sentinel, we continued to progress well through the development phase of the program and.

Ken Crews: And then just on this for 2026 and 2027, would it be reasonable to think that you're biased toward the lower end of the prior range given these extra B21 costs or rather mitigating offsets that we should be? Her mind is the majority of the impact is 26, 27 and 28. But I want to highlight the fact that we are over those periods, right? When we put the ranges together, we account for various risk and opportunities. And we are all working and executing to mitigate risk, maximize opportunities to be within those ranges. Thank you.

Speaker Change: Great and maybe if I could ask one specific question on EMS margins, just that 12 nine in the quarter. They lag the midpoint of your guidance of mid Fourteens.

Ronald Epstein: As I said have progressed and design maturation and even testing of the missile.

Speaker Change: How do we think about the drivers of that you mentioned investments in next of Microelectronics. So how do we think about that improvement and profitability.

Ronald Epstein: So we continue to grow in confidence in the design of the system that we are building, we are partnering with <unk> and the air force to restructure the program and as part of that restructuring we are working with the air force on options to reduce the overall cost and schedule on.

Speaker Change: Sure. Thanks for the question Sheila So as we mentioned in my prepared remarks, we made an investment that would generate significant value over the long term while repaying the initial investment cost plus a required rate of return that was known so we knew of that when we put our guidance forward at the mid 14% range. So as we think.

Ronald Epstein: The program and if identified opportunities to them to do so.

Ken Crews: Thank.

Ronald Epstein: What we look at in that restructuring is to ensure that the changes in requirements are adequately reflected in the design and ultimately in the contract and we'll be working to do that with the government.

Seth Seifman: Our next question comes from Seth Seifman with J.P. Morgan, you may proceed. Thanks very much and good morning. So Seth, I can't quantify because of the classification of the program what relates exactly to the process change versus the procurement material. But the first is larger than the second, which is why from a disclosure, we talk about them in that order. And in response to your question of whether we would have made that process change, if not for the need to reduce changes at this time, if not for those considerations. But we are glad that we have made them, because that learning only would have compounded if we would have waited later in the program and had a higher production volume.

Speaker Change: Ford with mission systems.

Speaker Change: Is driving the margin profile in the future is the ramp, particularly on their mature accretive margin programs throughout the year as well as.

Ronald Epstein: And I would just remind you that Sentinel is a cost plus program and we have not yet estimated the cost associated with outlet from a contractual standpoint.

Speaker Change: Mission systems is making significant progress on efficiencies in the business and so as we harvest those efficiencies it will impact our rates, which then flow through to the programs driving that improved margin profile in the second half of the year.

Ronald Epstein: Got it alright, thank you very much yeah.

Ronald Epstein: Thank you.

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

Speaker Change: Thank you.

Speaker Change: Good morning, Kathy and Ken and Todd maybe just a broader question again, starting out with tariffs because it's been a hot topic. This morning, how do we think about the tariff impact on the overall north of portfolio and just international relationships, how that changes your potential opportunity set under the current administration.

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

Speaker Change: Hey, good morning, good morning, good morning.

Speaker Change: Ken are you reiterating the previous free cash flow targets for 2026, 2027 and 2028.

Speaker Change: Yes, So let me touch on that as we are.

Speaker Change: So Sheila let me start with what we believe to be the impact of tariffs on our portfolio. We do directly sourced a small part of our supply chain about 5% of our total spend so less than a $1 billion annually and it's from countries outside of the U S primarily in Europe.

Speaker Change: At this moment holding the guidance ranges that we provided or the multiyear guidance ranges for cash flow and we are absolutely focused on performance and rationalizing investments to execute within those ranges Scott.

Speaker Change: Okay in 2028 still good for the $4 billion or yes at this point, we're holding our guidance. Okay. And then just on this for 2026 and 2027 would it be reasonable to think that your bias towards the lower end of the prior range. Given these extra b 21 costs are further mitigating offsets that we should be mindful of.

Speaker Change: When we look at the second and third tiers of our supply chain, we have purchasing agreements in place with the vast majority of those that extend over a long period of time and we have done an assessment and believe that most of the costs that we might incur due to trade.

Speaker Change: Provide us.

Speaker Change: Majority of the impact is 26, 27% 28, but I wanted to highlight the fact that we are over those periods right. When we put the range as together, we account for various risks and opportunities and we are all working and executing to mitigate risk and maximize opportunities to be within those ranges.

Kathy Warden: We also believe that providing this optionality to the government now, as they are looking at force structure, was an important enabler to their de-risking of options beyond the program of record. So I don't at all regret that we did this and that we did it now. And it is a good thing for the program overall to have this learning behind us.

Speaker Change: Lets see are incorporated and covered under our contracts with the U S. Government. So we do not see at this point in time, a significant risk to our company related to the trade policies as we understand them today, we're going to continue to monitor that closely.

Speaker Change: Thank you.

Speaker Change: Okay.

Speaker Change: We're already taking actions to account for and mitigate the risks that we do see particularly in availability of certain components that we need for delivering on our program.

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

Seth Seifman: Great, I'll leave it there for this morning. Thanks very much. Thank you.

Seth <unk>: Okay. Thank you very much and good morning.

Speaker Change: Morning.

Speaker Change: I'm not sure how specific as possible to get an on B 21, but if we think about the quantifying the portion of the charge related to the process charge versus the portion related to higher costs and also with the process charge have been made.

Michael Ciaramoli: Our next question comes from Michael Ciaramoli with. Truth to Securities, you may proceed. Hey, good morning, guys. Thanks for taking the question.

Speaker Change: Great and maybe if I could ask one specific question on EMS margins just at 12 nine in the quarter. They lag the mid point of your guidance of mid Fourteens.

Michael Ciaramoli: Just I hate to do it, but to stay on the B-21. Kathy, was the process change at the request of the customer working with them to ramp faster and ultimately deliver above the current stated volume? And then, you know, just on the consumption of material, was that, you know, I think you called out that you were you had more consumption of material. Was that more just kind of thinking about scrap and waste in the process? Yes, so we did make the decision jointly with the Air Force to make the process changes. And as I said, it really was to reduce risk as we scaled to the program of record, and to provide for options beyond the program of record.

Speaker Change: How do we think about the drivers of that you mentioned investments and mix of microelectronics. So how do we think about that improvement and EMS profitability.

Speaker Change: If there was not a an intention to create some optionality about moving to a higher production rate.

Speaker Change: Sure. Thanks for the question Sheila So as we mentioned in my prepared remarks, we made an investment that would generate significant value over the long term while repaying the initial investment cost plus a required rate of return that was known so we knew that when we put our guidance forward at the mid 14% range. So as we think forward.

Seth <unk>: So Seth.

Seth <unk>: Cant quantify because of the classification of the program.

Seth <unk>: <unk> exactly to the process change versus.

Seth <unk>: Procurement material, but the first is larger than the second.

Speaker Change: Lord with mission systems.

Seth <unk>: Which is why from a disclosure we talk about them in that order.

Speaker Change: What is driving the margin profile in the future is the ramp, particularly on their mature accretive margin programs throughout the year as well as.

Seth <unk>: And in response to your question of whether we would have made that process change if not for the need to reduce risk as we scale to the program of record and then ultimately to position us to grow beyond to the program of record we would not have made those changes at this time.

Kathy Warden: The Air Force is continuing to evaluate those options. And we'll look for more information as the budget request is finalized. I, in part of your question, you also are asking about whether we saw some of the material cost increases as a result of scrap and rework. To some degree, it's really about the consumption of the material necessary in the build process. But some of that absolutely is the amount of scrap and waste that we have in the process and the estimates that we made on that early in the program versus the actual performance.

Seth <unk>: For those considerations.

Seth <unk>: But we are glad that we have made them because that learning only would've compounds. It. If we would have waited later in the program and had a higher production volume. We also believe that providing this optionality to the government now as they are looking at force structure, what's an important.

Speaker Change: Thank you.

Our next question comes from Scott Do Shah with Deutsche Bank You May proceed.

Speaker Change: Hey, good morning, good morning, good morning.

Speaker Change: Are you reiterating the previous free cash flow targets for 2026, 2027 and 2028.

Seth <unk>: Abler to their de risking of options beyond the program of record. So I don't at all regret that we did this and that we did it now and it is a good thing for the program overall to have this learning behind us.

Speaker Change: Yes, So let me touch on that as well.

Speaker Change: We are at this moment holding the guidance ranges that we provided or the multiyear guidance ranges for cash flow and we are absolutely focused on performance and rationalizing investments to execute within those ranges Scott.

Kathy Warden: Got it helpful. And just if I may, I think previously, you called out maybe 200 million in supply costs that have been removed. I mean, how are you thinking about that number, maybe with the evolution of tariffs and, you know, potentially tighter access to materials? Does that 200 million in costs continue to stay out of the system, you think? So we've talked about 200 million enterprise-wide of cost deficiencies and we do see a path to keep that cost out of the system and continue to build on it. We are driving costs out not just through supplier engagement in constructing more efficient supplier utilization and pricing but also through things like facility optimization, the implementation of our digital ecosystem which is driving rework out of our system and so those things are the bigger driver of that 200 million cost efficiency but certainly supplier efficiency is part of it and we don't expect that to be impacted by tariff.

Seth <unk>: Okay, Great I'll leave it there for this morning, thanks very much. Thank you.

Speaker Change: Okay in 2028 still good for the $4 billion or.

Seth <unk>: Thank you.

Speaker Change: Yes at this point, we are holding our guidance. Okay. And then just on this for 2026 and 2027 would it be reasonable to think that your bias towards the lower end of the prior range. Given these extra b 21 costs are further mitigating offsets that we should be mindful of.

Speaker Change: Our next question comes from Michael <unk> with.

True Securities you May proceed.

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

Speaker Change: Just.

Speaker Change: I hate to do it but to stay on the B 21 cat.

Speaker Change: Kathy.

Speaker Change: Process change at the request of the customer working with them to ramp faster and ultimately deliver.

Speaker Change: Provide us.

Speaker Change: Above the current stated volume and then just on the consumption of material.

Speaker Change: Yes.

Speaker Change: I think you called out that you were you had more construction material. We've got more just kind of thinking about scrap and waste in the process.

Speaker Change: Thank you.

Speaker Change: Yes, so we did make the decision jointly with the air force to make the process changes.

Speaker Change: Thank you.

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

Speaker Change: And as I said, it really was to reduce risk as we scaled to the program of record.

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

Speaker Change: Good morning.

Speaker Change: I'm not sure how specific as possible to get an on B 21, but if we think about the quantifying.

Speaker Change: And to provide for options beyond the program of record the air forces continuing to evaluate those options and we'll look for more information as the budget request and finalized.

Speaker Change: Quantifying the portion of the charge related to the process charge versus the portion related to higher costs and also with the process charge have been made.

Michael Ciaramoli: Great. Thanks, guys. Appreciate it.

Doug Harned: Our next question comes from Doug Harned with Bernstein. Thank you. Good morning.

Speaker Change: <unk>.

Speaker Change: Part of your question you also are asking about.

Speaker Change: If there was not a an intention to create some optionality about moving to higher production rates.

Doug Harned: On the B-21, if we look beyond the five initial LRIPs here, I guess, first, the changes that you're talking about and the costs that are coming through, should we expect any impact in the next 19 airplanes, which you've talked about before? And then also, as you think about a larger program of record, I mean, the Air Force has talked about 100 airplanes, but I have to, if I think back, I can't remember in the last 30 years that we saw a major aircraft procurement program actually end up increasing beyond the initial program of record. So is there somewhere we would see that?

Speaker Change: Other we saw some of the material cost increases.

Speaker Change: Okay.

Seth: So Seth.

Speaker Change: The result of scrap and rework.

Speaker Change: Cant quantify because of the classification of the program related exactly to the process change versus.

Speaker Change: To some degree it's really about the consumption of some material necessary in the build process, but some of that absolutely is the amount of scrap and waste that we have in the process and the estimates that we made on that early in the program versus the actual performance.

Speaker Change: Procurement material, but the first is larger than the second which is why from a disclosure we talked about them in that order and.

Speaker Change: Got it helpful.

Speaker Change: And just if I may I think previously you called out maybe 200 million.

Speaker Change: Response to your question of whether we would have made that process change if not for the need to reduce risk as we scale to the program of record and then ultimately to position us to grow beyond the program of record.

Speaker Change: And supply costs that had been removed I mean, how are you thinking about that number maybe with the evolution of carrots and potentially tighter access to materials does that $200 million of costs continued to stay out of the system you think.

Speaker Change: We would not have made those changes at this time, if not for those considerations.

Doug Harned: Have there been announcements? Or should we expect something in the budget?

Speaker Change: So we've talked about $200 million enterprise wide of cost efficiencies and we do.

Speaker Change: But we are glad that we have made them because that learning only would've compounds. It. If we would have waited later in the program and had a higher production volume. We also believe that providing this optionality to the government now as they are looking at force structure, what's an important and.

Kathy Warden: Yes, Doug. So let me ask answer the first part of your question first about the NTE units. So bottom line up front, we continue to expect the NTE aircraft to be profitable. The loss largely relates to those higher manufacturing costs that I talked about from the process change we made, and that near term disruption and the associated costs will not extend into the NTE units. And we actually expect these changes will positively impact our ability to deliver the NTE units profitably. The increases in projected cost and quantity of general procurement materials could negatively affect profitability of the units.

Speaker Change: See a path to keep that cost out of the system and continue to build on it we are driving cost out not just through supplier.

Speaker Change: Engagement in constructing more.

Speaker Change: They blur to Derik de risking of options beyond the program of record. So I don't at all regret that we did this and that we did it now and it is a good thing for the program overall to have this learning behind us.

Speaker Change: Efficient supplier utilization and pricing, but also through things like facility optimization.

Speaker Change: Implementation of our digital ecosystem, which is thriving rework out of our system and so those things are the bigger driver of that 200 million cost efficiency, but certainly supplier.

Speaker Change: Okay, Great I'll leave it there for this morning, thanks very much. Thank you.

Kathy Warden: So when you think of the NTE aircraft overall, we do still expect those to be profitable. With regard to the Air Force messaging around increasing the quantity of B-21s and potentially the rate at which they are being built, that has been spoken about in congressional testimony, particularly from the users of B-21, think the combatant command that is looking toward what they would like to have for completing their mission. And there have been discussions about raising the quantity. And so that is the source that you can look to in open source to reflect that increased demand signal that we've been talking about.

Speaker Change: Thank you.

Speaker Change: Our next question comes from Michael <unk> with.

Speaker Change: Efficiency is part of it and we don't expect that to be impacted by tariffs.

Speaker Change: True Securities you May proceed.

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

Speaker Change: Great. Thanks, guys I appreciate it.

Speaker Change: Just.

Speaker Change: I hate to do it but to stay on the B 21 cat.

Speaker Change: Thank you.

Speaker Change: Kathy.

Speaker Change: Our next question comes from Doug Harned with Bernstein you May proceed.

Process change at the request of the customer working with them to ramp faster and ultimately deliver.

Doug Harned: Hey, good morning.

Speaker Change: Yes.

Speaker Change: Above the current stated volume and then just on the consumption of material what's that.

Speaker Change: On the B 21.

Speaker Change: If we if we look beyond the five initial oil reps here.

Speaker Change: I think you called out that you were you had more construction material was that more just kind of thinking about scrap and waste in the process.

Speaker Change: I guess first the changes that you're talking about.

Speaker Change: Costs that are coming through should we expect any impact in the next 19 airplanes, which you've talked about before and then.

Speaker Change: Yes, so we did make the decision jointly with the air force to make the process changes.

Also as you think about.

Speaker Change: Larger program of record I mean, the Air Force has talked about 100 airplanes.

Speaker Change: And as I said, it really was to reduce risk as we scaled to the program of record and to provide for options beyond the program of record the air forces continuing to evaluate those options and we'll look for more information as the budget request is finalized.

Speaker Change: Yes.

Kathy Warden: And then just as a follow on, switching over to defense systems, you've talked about IBCS and $10 billion potential international demand. Can you talk about how that's proceeding and how you see that now, when we should see that impact? It seems quite substantial and positive. Yes, IBCS is being fielded for the U.S. Army, including expansion of the mission to include the defense of Guam. We also have Poland, as you know, that is expanding their use of IBCS. We first started with their mid-range air defense, and now we're moving to their near-range air defense. And we've talked before about a dozen countries who have expressed interest in procuring IBCS that are in various stages of maturity in the pipeline, but we are seeing great interest there, and we continue to add additional countries that are looking to IBCS as the baseline for their architecture.

Speaker Change: I'd have to if I think back I can't remember in the last 30 years that we saw a major.

Speaker Change: Aircraft procurement program actually ended up increasing beyond the initial program of record. So is there somewhere we would.

Speaker Change: <unk>.

Speaker Change: We would see that or there are there have been announcements should we expect something in the budget.

Speaker Change: And part of your question you also are asking about whether we saw some of the material cost increases as a result of scrap and rework.

Speaker Change: Okay.

Speaker Change: Yes, So let me ask answer the first part of your question first about the <unk> units. So bottom line upfront. We continue to expect the anti aircraft to be profitable the loss largely relates to those higher manufacturing costs that I talked about from the process change, we made and that near term disruption in the associated.

Speaker Change: Costs will not extend into the LTE units and we actually expect these changes will positively impact our ability to deliver the empty units empty units profitably the increases in projected cost and quantity of general procurement materials could negatively affect the profitability of the units. So when you think of the <unk>.

Speaker Change: Got it helpful.

And just if I may I think previously you called out maybe 200 million.

Speaker Change: And supply costs that had been removed I mean, how are you thinking about that number maybe with the evolution of keryx.

Speaker Change: Potentially tighter access to materials does that $200 million of cost continued to stay out of the system you think.

Speaker Change: Aircraft overall, we do still expect those to be profitable.

Speaker Change: With regard to the Air Force.

Speaker Change: So we've talked about $200 million enterprise wide of cost efficiencies and we do.

Speaker Change: Messaging around increasing the quantity of B 21, and potentially the rate at which they are.

Kathy Warden: We also, as we have responded to Golden Dome requests for information, incorporated the capability of IBCS because its ability to integrate sensors and shooters is absolutely at the core of part of the underlayer for missile defense for the homeland in the U.S. as well.

We see a path to keep that cost out of the system and continue to build on it we are driving cost out not just through supplier.

Speaker Change: Being built.

Speaker Change: That has been spoken about in congressional testimony, particularly from the users of B 21 think the combatant command.

Speaker Change: Engagement in constructing more.

Speaker Change: Efficient supplier.

Speaker Change: It's looking toward what they would like to have for completing their mission and there has been discussions about raising the quantity.

Doug Harned: Very good. Thank you.

Speaker Change: Utilization and pricing, but also through things like facility optimization.

Matt Akers: Thank Our next question comes from Matt Akers with Wells Fargo. Hey, guys. Good morning. Thanks for the question.

Speaker Change: The implementation of our digital ecosystem, which is thriving rework out of our system and so those things are the bigger driver of that 200 million cost efficiency, but certainly supplier.

Speaker Change: And so that is the source that you can look to in open source.

Kathy Warden: Kathy, you mentioned at a conference in the quarter that there had been, you know, some instances of contracts maybe taking a little bit longer to get signed during the quarter. Could you give us kind of a quick update that? Is that something you're still seeing? Or has that dynamic improved a little We have not seen those contracts get awarded yet. We are seeing them progress through the process of being reviewed and we hope ultimately decided and communicated. So we are holding to the expectation that we will see some of those awards start to happen this quarter and certainly in the second half of the year.

Speaker Change: It reflects that increased demand signal that we've been talking about.

Speaker Change: And then just as a follow on switching over to <unk>.

Speaker Change: Efficiency is part of it and we don't expect that to be impacted by tariffs.

Speaker Change: Defense systems, you've talked about.

<unk> 10 billion dollar potential international demand.

Speaker Change: Great. Thanks, guys I appreciate it.

Speaker Change: Thank you.

Speaker Change: Can you talk about how that's proceeding and how you see that now.

Speaker Change: Our next question comes from Doug Harned with Bernstein you May proceed.

Speaker Change: We should see that impacts it seems quite substantial and positive.

Doug Harned: Thank you and good morning.

Speaker Change: Yes.

Speaker Change: On the B 21.

Speaker Change: Yes, I do see us is being fielded for the U S Army, including expansion of submission to include the defense of Guam, we.

Speaker Change: If we if we look beyond the five initially all reps here.

Speaker Change: I guess first the changes that you're talking about.

Speaker Change: Costs that are coming through should we expect any impact in the next 19 airplanes, which you've talked about before and then.

Speaker Change: We also have Poland as you know that is expanding their use of IV see us. We first started with their mid range Air Defense and now we're moving to their narrow range Air defense and we've talked before about a dozen company of countries, who have expressed interest in procured.

Kathy Warden: Yeah, got it. And I guess any any color you can add on what what those contracts are specifically, is that focused on one one area of your business? Or I guess just anything else you can? There are actually examples in all four segments of our business, large aircraft program in our aeronautics business, multiple space awards in restricted, particularly communications. We have in mission system, some restricted opportunities that we are anticipating will get awarded over the summer now. And in defense, it's largely munitions, where we have a munitions contract we expected award in the first quarter and now are expecting to happen in the second or third quarter.

Speaker Change: So as you think about.

Speaker Change: Larger program of record I mean, the Air Force has talked about 100 airplanes.

Speaker Change: <unk>.

Speaker Change: I have two if I think back I can't remember in the last 30 years that we saw a major.

IDC us that are in various stages of maturity in the pipeline, but we are seeing great interest there and we continue to add additional countries that are looking to see us as the baseline for their architecture. We also as we have responded to <unk>.

Speaker Change: Aircraft procurement program actually ended up increasing beyond the initial program of record. So is there somewhere we would we would see that are there have there been announcements so should we expect something in the budget.

Speaker Change: Golden film requests for information incorporated the capability of <unk> because of its ability to integrate sensors and shooters is absolutely at the core of part of the underwear for missile defense for the homeland in the U S as well.

Matt Akers: Got it. Okay. Thanks. I'll leave it there. Thank you.

Myles Walton: Our next question comes from Myles Walton with Wolf Research, you may proceed. Thanks, maybe maybe for Ken, I'm not sure. In January, I know you were looking for a flat year on year sales growth in the quarter. And then in February, you updated that. And then you came in below it. And I hear you on the EAC for the B-21. And sort of alluded to. Slowing progress in getting orders under contract.

Speaker Change: Disruption and the associated costs will not extend into the LTE units and we actually expect these changes will positively impact our ability to deliver the empty units empty units profitably.

Speaker Change: Very good thank you.

Speaker Change: Thank you.

Speaker Change: Okay.

Our next question comes from.

Speaker Change: Matt Akers with Wells Fargo you May proceed.

Speaker Change: The increases in projected cost and quantity of general procurement materials could negatively affect profitability of the unit. So when you think of the <unk> aircraft overall, we do still expect those to be profitable.

Matt Akers: Hey, guys. Good morning, Thanks for good morning.

Speaker Change: Kathy you mentioned at a conference in the quarter there had been.

Speaker Change: Some some instances of contracts, maybe taken a little bit longer to.

Ken Crews: It doesn't sound like those orders are under contract yet and you're looking for a another Unknown Executive, Scott Deuschle, Kenneth Crews, Robert Stallard, Kenneth Crews, Robert and what you've seen in the first.

Speaker Change: Get signed during the quarter could you give us kind of a quick update that is that something you're still seeing or is that dynamic improved a little bit.

Speaker Change: With regard to the Air force messaging around increasing the quantity of B 21, and potentially the rate at which they are being built.

Speaker Change: We have not seen those contracts get awarded yet we are seeing them progress through the process of being reviewed and we hope ultimately decided and communicated. So we are holding to the expectation that we will see some of those awards.

That has been spoken about and congressional testimony, particularly from the users of B 21 think the combatant command.

Ken Crews: And so thank you for the question. I'll put it into three buckets in terms of what's driving the ramp in terms of the second half of the year. The first one is the large rewards we received at the end of 2024 and those fall in the lines of TACMO and IBCS, as well as international activities early around ground-based radars. Again, I'll reemphasize that's in our backlog. And so just from a natural timing progression, when you think about ramp up in timing of materials, that will happen in the second half of the year. And then when we think about the natural as part of our original assumptions in terms of just our current backlog growing, we had planned ramps across restricted airborne sensors.

Speaker Change: It's looking toward what they would like to have for completing their mission and there has been discussions about raising the quantity.

Speaker Change: Start to happen this quarter and certainly in the second half of the year.

Speaker Change: Yes got it and I guess any any color you can add on what those contracts are specifically focused on one area of your business or.

Speaker Change: And so that is the source that you can look to in open source to reflect that increased demand signal that we've been talking about.

Speaker Change: I guess just anything else you can share there actually examples in all four segments of our business large aircraft program in our Aeronautics business multiple States awards in restricted particularly communications, we have in mission system some restricted.

Speaker Change: And then just as a follow on switching over to <unk>.

Speaker Change: Defense systems, you've talked about.

Speaker Change: <unk> 10 billion dollar potential international demand.

Speaker Change: Could you talk about how that's proceeding and how you see that now.

Speaker Change: Opportunities that.

We should see.

Speaker Change: We are anticipating will get awarded over the summer now and in defense, it's largely munitions, where we have a munitions contract. We expected award in the first quarter and now we're expecting to happen in the second or third quarter.

Ken Crews: We had planned ramps in terms of just timing on Sentinel, our weapon systems across multiple activities like ARGUM, and stand-in attack weapon, as well as timing on strike. And that's just a few examples. And again, that sales growth is driven by backlog. And then the other piece would be, which is primarily space, is new competitive awards. And we do expect, we believe we're well positioned for those. And we do expect to hear about those in the second quarter. And then that's what drives the remaining piece of the growth profile. So it wasn't anything in the quarter that was turned off, there was no stop works.

Speaker Change: That impacts it seems quite.

Speaker Change: <unk> substantial and positive.

Speaker Change: Yes, I do see us is being fielded for the U S Army, including expansion of submission to include the defense of Guam.

Speaker Change: Got it okay. Thanks, I'll leave it there.

Speaker Change: Thank you.

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

Speaker Change: Thanks, maybe maybe for Ken I'm not sure in January I know you were looking for flat year on year sales growth in the quarter and then in February you updated that number and then you came in below it.

Speaker Change: IDC us that are in various stages of maturity in the pipeline, but we are seeing great.

Speaker Change: Did I hear you on the EAC for the B 21, and two you sort of alluded to some slowing progress in getting orders under contract, but it doesn't sound like those orders are under contract yet and you're looking for another decline year on year in the second quarter. So I.

Ken Crews: Page PAGE of NUMPAGES www.verbalink.com Page PAGE of NUMPAGES Yes, it's just timing and then around the confidence pieces. When we think about it from a working capital in our inventory, once those gets awarded, we are able to reduce that working capital. So it's associated sales real time, which also gives us confidence in our profile.

Speaker Change: <unk>, there and we continue to add additional countries that are looking to see us as the baseline for their architecture. We also as we have responded to Golden film requests for information incorporated the capability of <unk> because of its ability to integrate.

Speaker Change: I guess, what gives the confidence for that mid teens.

Speaker Change: Acceleration, you've even in the second half of the year, if the bookings aren't in your hand, and you've kind of.

Ken Erbert: Okay. All right. Thank you.

<unk> and shooters is absolutely at the core of part of the underwear for missile defense for the homeland in the U S as well.

Speaker Change: What you've seen in the first quarter.

Ken Erbert: Our next question comes from Ken Erbert with RBC Capital Markets. Yeah, good morning. Good morning. We are starting to see a significant pipeline of demand translate into firm international booking. I did talk about our international sales being up 11% in the quarter. Perhaps even more interesting for the long term is that our book to bill in 2024 was 1.4 times and it was 1.45 times in the first quarter. So we see it coming across a number of areas. We've talked already about IDCS and the dozen or so countries that are expressing interest. We didn't talk as much, but certainly significant interest in Argym and stand-in attack weapons.

Speaker Change: So thank you for the question I'll put it into three buckets in terms of what's driving the ramp in terms of the second half of the year. The first one is the large awards. We received at the end of 2024 and those fall into the lines of <unk> and <unk> as well as international activities early around ground based radars again I'll reemphasize.

Speaker Change: Very good thank you.

Speaker Change: Thank you.

Speaker Change: Our next question comes from.

Speaker Change: Matt Akers with Wells Fargo you May proceed.

Matt Akers: Hey, guys. Good morning, Thanks for good morning.

Matt Akers: Kathy you mentioned at a conference in the quarter there had been.

Speaker Change: That's in our backlog so just from a natural timing progression. When you think about ramp up and timing of materials that will happen in the second half of the year and then when we think about the natural as part of our original assumptions in terms of just our current backlog growing we had planned ramps across restricted.

Matt Akers: Some some instances of contracts, maybe taken a little bit longer to.

Speaker Change: Get signed during the quarter could you give us kind of a quick update that is that something you're still seeing or is that dynamic improved a little bit.

Speaker Change: Airborne sensors, we had planned ramps in terms of just timing on sentinel or weapons systems across multiple activities like argon.

Speaker Change: A stand in attack weapon as well as timing on strike and Thats just a few examples and again.

Speaker Change: Start to happen this quarter and certainly in the second half of the year.

Speaker Change: Net sales growth is driven by backlog and then the other piece would be which is primarily space as new competitive awards.

Speaker Change: Yes got it and I guess any any color you can add on what what those contracts are specifically focused on one area of your business or.

Speaker Change: We do expect we believe we are well positioned for those and we do expect to hear about those in the second quarter and then that's what drives the remaining piece of the growth profile.

Kathy Warden: Both Argym and Argym Extended Range have been approved for export to a large number of countries and we are in various processes of getting those awards on contract. I mentioned one in my prepared remarks. And then we also are continuing to see growth on aircraft platforms like E2D and Triton. So it's broad based in terms of where that international business is coming from. And yet we see a significant portion of it in our defense systems business. They have had double digit growth in international and with the pipeline that we have in their portfolio in particular, we expect that to continue.

Speaker Change: I guess just anything else you can share there.

Speaker Change: They are actually examples in all four segments of our business large aircraft program in our Aeronautics business multiple States awards in restricted particularly communications, we have in mission system, some restricted opportunities that.

Speaker Change: Okay. So it wasn't anything in the quarter that was turned off.

Speaker Change: There was no stop works or.

Speaker Change: Customer decision points that were turned off it was simply a timing of receipt of those contracts, yes, it's just timing.

Speaker Change: Around the confidence pieces, when we think about it from a working capital and our inventory once those gets awarded we are able to reduce that working capital. So.

Speaker Change: Associated sales real time, which also gives us confidence in our profile.

Speaker Change: Okay alright, thank you.

Speaker Change: Got it okay. Thanks, I'll leave it there.

Speaker Change: Thank you.

Kathy Warden: Thank you.

Speaker Change: Our next question comes from Ken Herbert with RBC Capital markets. You May proceed.

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

Kathy Warden: Have your assumptions at all changed on F-35 international sales this year or into 2026 as a result of any of the more recent commentary on that program? Our expectations have not changed. The communications that we have had with the prime are to continue producing at our max rate, which is 156 aircraft. That's what we're on contract to do. And so that's what we continue to do. And so we don't anticipate any change. Thank you.

Speaker Change: Thanks, maybe maybe for Ken I'm not sure in January I know you were looking for flat year on year sales growth in the quarter and then in February you updated that.

Speaker Change: Yes, hi, good morning.

Speaker Change: Good morning.

Speaker Change: Hey, Cathy you called out I think 14% of sales internationally in the first quarter with all the strong bookings are you how should we think about now maybe any upward momentum on international either as a mix in 'twenty five or just absolute group also grew sales this year.

Speaker Change: And then you came in below it.

Speaker Change: I.

Speaker Change: I hear you on the EAC for there'd be 'twenty one.

Speaker Change: And you sort of alluded to some slowing progress in getting orders under contract, but it doesn't sound like those quarters are under contract yet and you're looking for.

Speaker Change: We are starting to see a significant pipeline of demand translate into firm international bookings.

Speaker Change: Other decline year on year in the second quarter. So.

Speaker Change: Talk about our international sales being up 11% in the quarter, perhaps even more interesting for the long term is that our book to Bill in 2024 was one four times and it was one five times in the first quarter. So we see it coming across a number of areas. We've.

Speaker Change: I guess, what gives the confidence for that mid teens.

David Strauss: Our next question comes from David Strauss with Barclays, he may... Thanks. Good morning.

Speaker Change: Acceleration you need in the second half of the year, if bookings arent in your hand, and you've you've kind of seen what you've seen in the first quarter.

David Strauss: Kathy, one one follow up on on B-21. And then one follow up to that. On B-21, this this process change that you've put in place to allow for accelerated production or higher volumes, whatever it may be. Isn't this something the Air Force should pay for? And will they ultimately pay for it? It's just they can't pay for it, given the current contract structure that you're working under. That's my first one.

Speaker Change: Yes. So thank you for the question I'll put it into three buckets in terms of what's driving the ramp in terms of the second half of the year. The first of all it is the large awards. We received at the end of 2024 and those fall into the lines of <unk> and <unk> as well as international activities early around ground based radars again I'll reemphasize.

Speaker Change: <unk> already about Ibs C and the dozen or so countries that are expressing interest we didn't talk as much but certainly significant interest in art gun and stand and attack weapon, those argon and aren't going to extended range have been approved for export to a large number of countries.

Speaker Change: That's in our backlog and so just from a natural timing progression. When you think about ramp up and timing of materials that will happen in the second half of the year and then when we think about the natural as part of our original assumptions in terms of just are our current backlog growing we had planned ramps across restricted.

Speaker Change: And we are in various processes of getting those awards on contract I mentioned one in my prepared remarks, and then we also are continuing to see growth on aircraft platforms like <unk> and Triton.

Kathy Warden: And then second one, if you could, NGAD F-47, could you talk about what role, if any, you have on the on the Boeing aircraft? Thanks. Sure. So look, we made the decision jointly with the Air Force to make the change. And we believe in the long run, it's not only in the best interest of national security and providing the Department of Defense the options that they need to have a force structure that meets their expanding requirements, but also for the profitability of the program over the long haul. And that's the decision framework that we operate within is to think about what is needed by the nation and our shareholders, not just each quarter, but over the long duration that this program will be adding value.

Speaker Change: Good airborne sensors, we had planned ramps in terms of just timing on sentinel or weapon systems across multiple activities like argon.

Speaker Change: So it's broad based in terms of where that international business is coming from.

Speaker Change: And yes, we see a significant portion of it in our defense systems business. They have had double digit growth in international and with the pipeline that we have in their portfolio in particular, we expect that to continue.

Speaker Change: A stand in attack weapon as well as timing on strike and that's just a few examples and again that sales growth is driven by backlog and then the other piece would be which is primarily space as new competitive awards.

Speaker Change: Have you think you have your assumptions at all changed on F. 35 International sales this year or into 2026 as a result of any of the more recent commentary on that program.

Speaker Change: And we do expect we believe we are well positioned for those.

Speaker Change: We do expect to hear about those in the second quarter and then that's what drives the remaining piece of the.

Speaker Change: Our expectations have not changed the communications that we have had with a prime or to continue producing at our Max rate, which is the 156 aircrafts or on contract to do and so that's what we continue to do and so we don't anticipate any change.

Speaker Change: Growth profile.

Speaker Change: Okay. So it wasn't anything in the quarter that was turned off.

Kathy Warden: In regard to our role on NGAD, given the classification of the program, we can't disclose any information specific to the program. But you know that we are a merchant supplier of mission systems and we remain fully committed to supplying those advanced capabilities for government customers and prime. And that our sensors are easily scaled and reconfigurable for a wide application across a variety of platforms and domains. And, you know, I'll simply leave it at that.

Speaker Change: There was no stop works or.

Speaker Change: Customer decision points that were turned off it was simply a timing of receipt of those contracts.

Speaker Change: It's just timing and then.

Speaker Change: Around the confidence pieces, when we think about it from a working capital and our inventory once those gets awarded were able to reduce that working capital. So.

Great. Thank you.

Speaker Change: Thank you.

Speaker Change: Okay.

Speaker Change: Associated sales real time, which also gives us confidence in our profile.

Speaker Change: Our next question comes from David Scharf with Barclays. You May proceed.

Speaker Change: Okay alright, thank you.

David Scharf: Thanks, Good morning, good morning.

Speaker Change: Thank you.

Kathy Warden: Okay, and any update on timing on FAX? We, I do not have an update to provide you. The Navy remains committed to the program and we do expect to hear something soon. Great.

Speaker Change: Kathy one follow up on on B 21, and then.

Speaker Change: Our next question comes from Ken Herbert with RBC Capital markets. You May proceed.

David Scharf: One follow up to that.

Speaker Change: Yes, hi, good morning.

Speaker Change: <unk> won this this process change.

Speaker Change: Good morning.

Speaker Change: That you've put in place to allow for accelerated production or higher claims whatever it may be.

Kathy Warden: Thanks very much. Thank you.

Speaker Change: Isn't this something in the Air force should pay for and will they ultimately pay for it. It just they can pay for it given the current contract structure that you are working under.

Scott Mikus: Our next question comes from Scott Mikus with Milius Research. You may proceed. One quick question, defense systems, it looks like there was an explosion. pressure solid rock emitter. I'm just wondering how you're thinking about that in terms of the outlook at DEF. Is there any potential impact to stand an attack weapon or argue? Yes, thank you for the question. It is actually part of our space business. This is where we build the larger solid rocket motors, not the tactical ones that go into missiles. And so it was in Promontory, Utah. And it was a building that where we produce an ingredient to our solid rocket motor propellant.

Speaker Change: My first one and then second one if you could.

Speaker Change: We are starting to see a significant pipeline of demand translate into firm international bookings.

Speaker Change: And get 47 could you talk about what role if any you have on the on the Boeing aircraft.

Speaker Change: Sure.

Speaker Change: So look we made the decision jointly with the airports to make the change and we believe in the long run it's not only in the best interests of National security and providing the department of defense the options that they need to have a cost structure that meet their expanding requirements, but also for the profitability of the pro.

Speaker Change: <unk> already about <unk> and the dozen or so countries that are expressing interest we didn't talk as much but certainly significant interest in art gun and stand and attack weapon, those argon and aren't going to extended range have been approved for export to a large number of countries.

Speaker Change: Graeme over the long haul and that's the decision framework that we operate within is to think about what is needed by the nation and our shareholders not just each quarter, but over the long duration that this program will be adding value.

Scott Mikus: But we have other sources of supply outside of Northrop Grumman that will be able to provide us that ingredient. So we do not expect any impact to any of our programs. We've specifically been asked about Sentinel because Promontory is a production site for those solid rocket motors, and there is not expected to be any impact to Sentinel or any other program. And again, it would be in our space business, not defense systems. So there's absolutely no correlation to programs like Argym, Argym-ER or Stanton attack weapons.

Speaker Change: In regard to our roll on in <unk>, given the classification of the program, we can't disclose any information specific to the program, but you know that we're a merchant supplier of mission systems, and we remain fully committed to supplying those advanced capabilities for our government customers and crime.

Speaker Change: So it's broad based in terms of where that international business is coming from.

Speaker Change: And that our sensors are easily scaled and reconfigurable or a wide application across a variety of platforms and domain and simply leave it at that.

Kathy Warden: Okay, very helpful. Second question, DOD's highlighted. A lot of need for investment in space. So is there a possibility that the Classified Space Program that was cancelled could end up being restarted under this new administration? You know, certainly, the requirements are what drive the need for development and fielding of capabilities. And so to the extent that the requirement has not gone away, we do believe that programs could be re-evaluated and started under this administration to meet those requirements. Our current year expectations don't reflect that, but certainly we continue to provide information to the government to help them understand their options based for meeting those requirements.

Speaker Change: Okay, and any update on timing on FX X.

Speaker Change: Have you think you have your assumptions at all changed on F. 35 International sales this year or into 2026 as a result of any of the more recent commentary on that program.

Speaker Change: We I do not have an update to provide you. The navy remains committed to the program and we do expect to hear something soon.

Speaker Change: Our expectations have not changed the communications that we have had with the prime or to continue producing at our Max rate, which is the 156 aircraft that were on contract to do and so that's what we continue to do and so we don't anticipate any change.

Speaker Change: Great. Thanks very much.

Speaker Change: Thank you.

Speaker Change: Our next question comes from Scott, Mike Eastwood Melius Research you May proceed.

Scott: Good morning, Ken.

Speaker Change: One quick question.

Speaker Change: Defense systems. It looks like there was an explosion at a plant in Utah and produce a solid rocket motors.

Speaker Change: Great. Thank you.

Speaker Change: Thank you.

Speaker Change: Just wondering how you're thinking about that in terms of the outlook.

Scott Mikus: Thanks for taking the questions.

Speaker Change: Our next question comes from David Scharf with Barclays. You May proceed.

Speaker Change: Any potential impact to stand and attack weapon or Oregon, New York.

Unknown Executive: All right.

Todd Ernst: We're going to have to leave it there. Great.

Speaker Change: Yes. Thank you for the question. It is actually part of our space business. This is where we built the larger solid rocket motors not the tactical ones that go into missiles and so it was in promontory, Utah and it was a building that out where we produce an ingredient to our solid.

Kathy Warden: Well, let me wrap up by thanking you for participation in today's call. As you sensed, we are optimistic about the continued strong demand for our products, the growing global defense budgets that we see, and the solid execution of our team across the majority of the business. And while we are disappointed with the B-21 adjustments this quarter, the underlying business fundamentals in our company are strong, and we continue to de-risk the B-21 program through the investments that we're making. So for the remainder of the year, we're going to continue to focus on adding to our backlog, improving profitability in our business segments, and generating the cash that fuels our deployment plan.

David Scharf: Thanks, Good morning, good morning.

Speaker Change: Kathy one followup on B 21, and then <unk>.

David Scharf: One follow up to that on.

David Scharf: <unk> won this process change.

David Scharf: That you've put in place to allow for accelerated production or higher client whatever it may be isn't this something in the air force should pay for and will they ultimately pay for it it just they can't pay for it given the current contract structure that you are working under.

Speaker Change: Rocket motor propellant, but we have other sources of supply outside of Northrop Grumman that we'll be able to provide us that ingredient. So we do not expect any impact to any of our programs. We've specifically been asked about Sentinel because promontory is a production site for those solid rocket motors.

David Scharf: That's my first one and then second one if you could.

David Scharf: And get that 47 could you talk about what role if any you have on the on the Boeing aircraft.

There is not expected to be any impact to sentinel or any other program and again it would be in our space business not defense system. So theres absolutely no correlation to programs like argon argon E R Stanton attack weapon.

Todd Ernst: We look forward to giving you another update in the second quarter, and want to thank you again for joining today's call.

David Scharf: Sure.

David Scharf: So look we made the decision jointly with the airports to make the change and we believe in the long run it's not only in the best interests of National security and providing the department of defense the options that they need to have a cost structure that meet their expanding requirements, but also for the profitability of the <unk>.

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

Speaker Change: Okay very helpful.

Speaker Change: Second question <unk> highlighted.

Speaker Change: A lot of need for investment in space.

Speaker Change: Is there a possibility that the classified space program that was canceled could end up being restarted under this new administration.

David Scharf: Program over the long haul and that's the decision framework that we operate within is to think about what is needed by the nation and our shareholders not just each quarter, but over the long duration that this program will be adding value.

Speaker Change: Okay certainly.

Speaker Change: The requirements are what drive the need for development and fielding of capabilities and so to the extent that the requirement has not gone away, we do believe that program.

David Scharf: In regard to our role on <unk> given the classification of the program, we can't disclose any information specific to the program, but you know that we're a merchant supplier of mission systems, and we remain fully committed to supplying those advanced capabilities for government customers and prime.

Speaker Change: Be reevaluated and started under this administration to meet those requirements.

Speaker Change: Our current year expectations don't reflect that but certainly we continue to provide information to the government to help them understand their options states for meeting those requirements.

David Scharf: And that our sensors are easily scaled and reconfigurable or a wide application across a variety of platforms and domain.

Thanks for taking my questions.

Speaker Change: Sure.

Speaker Change: All right, we're going to have to leave it there.

Great well, let me wrap up by thanking you for participation in today's call as <unk>. We are optimistic about the continued strong demand for our products the growing global defense budgets that we see and the solid execution of our team across the majority of the business and while we are disappointed with the <unk>.

David Scharf: I'll simply leave it at that.

Speaker Change: Okay, and any update on timing on <unk>.

David Scharf: Yes.

David Scharf: I do not have an update to provide you. The nave. He remains committed to the program and we do expect to hear something soon.

David Scharf: Great. Thanks very much.

Speaker Change: 91 adjustment this quarter, the underlying business fundamentals and our company are strong and we continue to Derisk. The B 21 program through the investments that we're making so for the remainder of the year, we're going to continue to focus on adding to our backlog improving profitability in our business segments and generating the cash that fuels our dipped.

David Scharf: Thank you.

Speaker Change: Our next question comes from Scott, Mike Eastwood Melius Research you May proceed.

Scott: Good morning.

Kevin: Kevin One quick question.

Speaker Change: Defense systems. It looks like there was an explosion at a plant in Utah that produces solid rocket motors.

Speaker Change: <unk> plans, we look forward to giving you another update in the second quarter and want to thank you again for joining today's call.

Speaker Change: I'm just wondering how youre thinking about that in terms of the outlook is there any.

Speaker Change: Central impact to stand and attack weapon or argument.

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

Speaker Change: It was a building that.

Speaker Change: Where we produce an ingredient to our solid rocket motor propellant, but we have other sources of supply outside of Northrop Grumman that we'll be able to provide us that ingredient. So we do not expect any impact to any of our programs. We've specifically been asked about Sentinel because promontory is a production site.

Speaker Change: For those solid rocket motors and there is not expected to be any impact to sentinel or any other program and again it would be in our space business not defense systems. So there's absolutely no correlation to programs like art gun Mark M. E. R. R Stanton attack weapon.

Speaker Change: Okay very helpful.

Speaker Change: Second question <unk> highlighted.

A lot of need for investment in space.

Speaker Change: Is there a possibility that the classified space program that was canceled could end up being restarted under this new administration.

Speaker Change: Certainly.

Speaker Change: The requirements are what drive the need for development and fielding of capabilities and so to the extent that the requirement has not gone away, we do believe that program.

Speaker Change: Be reevaluated and started under this administration to meet those requirements.

Speaker Change: Thanks for taking more share.

Speaker Change: Sure.

Speaker Change: All right, we're going to have to leave it there.

Speaker Change: Great well, let me wrap up by thanking you for participation in today's call.

Speaker Change: So we are optimistic about the continued strong demand for our products the growing global defense budgets that we see and the solid execution of our team across the majority of the business and while we are disappointed with the B 21 adjustment this quarter the underlying business fundamentals and our company are strong and we.

Speaker Change: Tenuto Derisked the B 21 program through the investments that we're making so for the remainder of the year, we're going to continue to focus on adding to our backlog improving profitability in our business segments and generating the cash that fuels. Our deployment plans. We look forward to giving you another update in the second quarter and want to thank you again for joining us.

Speaker Change: Today's call.

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

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