Q1 2025 Lockheed Martin Corp Earnings Call
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Speaker Change: Good day and welcome everyone to the Lockheed Martin first quarter 2025 earnings results conference call. Today's call is being recorded. If you would like to ask a question please press star then one now. Thank you very much.
Speaker Change: At this time for opening remarks and introductions, I would like to turn the call over to Maria Ricciardone, Vice President, Treasurer and Investor Relations. Please go ahead.
Maria Ricciardone: Thank you Sarah. Good morning. I'd like to welcome everyone to our first quarter 2025 earnings conference call. Joining me today on the call, or Jim Taiclet, or Chairman, President and Chief Executive Officer, and Evan Scott, or Chief Financial Officer
Maria Ricciardone: Statements made in today's call that are not historical fact are considered forward looking statements and are made pursuant to the safe harbor provisions of federal security's law
Maria Ricciardone: Actual results made differ materially from those projected in the forward looking statements. Please see today's press release and our SEC filings for a description of some of the factors that may cause actual results to differ materially from those in the forward looking statements.
Maria Ricciardone: We have posted charts on our website today that we plan to address during the call to supplement our comments.
Maria Ricciardone: These charts also include information regarding non-GAAP measures that may be used in today's call Please access our website at www.lockheedMartin.com and click on the investor relations link to view and follow the charts
With that, I will turn the call over to Jim.
Jim: Thanks, Maria. Good morning, everyone, and thank you for joining us on our first quarter, 2025 Ernie Skull Thank you for joining us on our first quarter, 2025 Ernie Skull,
Jim: As you saw in the press release this morning, Lockheed Martin delivered strong all-around performance in the first quarter, continuing the growth momentum we've seen over the last two years.
Jim: We increased our year-over-year sales 4% in the quarter and generated solid cash and enabled investment of $850 million dollars in independent research and development and capital expenditures [inaudible]
Jim: Moreover, we provided a robot shareholder return of $1.5 billion through dividends and share
Jim: As Evan will discuss in a moment, these results reinforce our confidence in our full-year guidance of mid-single-digit growth and sales, 11% segment operating margin and double-digit growth and free cash flow for share.
Jim: Our Strong Start in Q1 enables us to mitigate or absorb currently known tariff headwinds, as well as the direct program impacts of the next generation air dominance program decision and we maintain our original guidance for the full year.
Jim: With respect to the US Defense Budget, we continue to operate under a full year continuing resolution that allows for new awards and the transfer of funds across programs. And we are actively engaged with our customers to provide best value solutions for them in this process.
Jim: We're applying this best value approach also to our customer interactions regarding the 2026 presidential budget request as well
Jim: This is especially applicable to the president's high priority launch of the Golden Dome for America, where we are describing how current Lockheed Martin programs that are already at scaled production can contribute immediately to the solution
Jim: R-21st Century Security Strategy, where we integrate existing and new satellites, aircraft, ships, missile launchers, and command and control systems, with constantly upgradable digital technologies, was tailor-made for Golden Dawn.
In addition to the significant opportunities presented by this project,
Jim: Our advanced air and missile systems have recently won several large missile program awards in the first quarter already comprising up to $10 billion in future work.
Jim: These include substantial contracts for precision strike missiles or prism, terminal high altitudes, area defense or fad, and joint air to surface standoff missiles in long range anti-ship missiles.
Jim: These are among the most sophisticated and effective guided missile systems in the world and are continuously proving themselves in actual combat operations.
Jim: Lockheed Martin Space also received a modification to their existing contract for next generation of US deterrence at sea.
Jim: The upgraded missile, often referred to as the Fleet Ballistic Missile, is called the Trident to D5 Life Extension.
Jim: Lockheed Martin has provided this critical proven deterrence capability for 70 years, and this award launches the technology refresh that will continue this franchise for decades into the future.
Jim: Beyond missiles, our space team recently won a contract on a classified program in which we will demonstrate highly advanced capabilities and the latest cutting edge technologies available.
Jim: We've proven these new capabilities on orbit. I'm ready to produce these vehicles at scale right now.
Jim: This is another example of our ability to apply the latest technology at a level of reliability that can quickly improve the ability to deter, to deter armed conflict and win it if need be.
Jim: We also received a contract to integrate a system of next-generation infrared sensors on the F-22 Raptor to enhance the aircraft's survivability and lethality.
Speaker Change: As a former Air Force pilot, I can provide strong assurance that this new capability will further enable the fifth generation F-22 to shoot down enemy aircraft before they even know that we're there.
Speaker Change: Equally notable in the quarter, and another example of developing on the leading edge of evolving requirements was our demonstration of cost effective countermeasures against drone warfare. Complimenting our existing systems for integrated air missile defense.
Speaker Change: by leveraging sophisticated electronic warfare techniques to find and destroy swarms of dump drums.
Speaker Change: Our team conducted the first in a series of innovative demos featuring a system designed to detect, track, identify, and defeat a mix of small drones cost effectively, driving another value-based solution for our customers [inaudible]
Speaker Change: and in another first-of-its-kind, real-world demonstration, our Scott Quartz team joined with the Royal Netherlands Air Force to showcase the first-ever live classified data share outside the United States between an F-35 in flight and a Dutch command and control system, during a multinational military exercise.
Speaker Change: This is a first and a significant step forward in using digital technology for the integration of ground, air, and naval forces, with the F-35 serving as the quarterback between several allied nations in real time.
Speaker Change: Speaking of next generation technologies, I think it's important to highlight...
Speaker Change: Over the past few years, we pivoted our long-term strategy to transcend any individual program and provide cost-effective solutions by combining our installed base.
Speaker Change: of Highly Capable Hardware, with AI5G Distributed Cloud in the Light. [inaudible]
Speaker Change: For example, the air superiority mission is being done today with a host of aircraft and other systems, many of which you all know are made by Lockheed Martin, and a combination needed to defeat even more aggressive and sophisticated adversaries thereby deterring them from initiating a hostile action.
Speaker Change: This mission-solution orientation that we call 21st Century Security is designed to extend the life and capabilities of our existing platforms like the F-16, F-35, and F-22 and an ever-increasing threat environment in a manner that's affordable to the US and its allies.
Speaker Change: while integrating new platforms such as Engrat and Gad into the mission fabric over time.
Speaker Change: Lockheed Martin's broad and deep portfolio is exclusively positioned to make this a reality. Our next generation air dominance efforts advance many classified technologies that were aligned to this strategy.
Speaker Change: and we plan on applying those technologies to our current systems. [inaudible]
Speaker Change: Making our already proven products even more relevant to the future.
Speaker Change: as well as enhancing the capabilities we provide in ongoing and future development.
Speaker Change: For example, the knowledge and technology development gained from our investments in the NGAD competition strengthened our conviction.
Speaker Change: to enhance the F-35 to a fifth-generation plus capability. And I've challenged the team to deliver 80% of six-gen capability at 50% of the cost.
Speaker Change: In support of this vision, we're also committing to drive disruptive innovation and building upon our recent established internal capabilities and AI, autonomy, crude untrue teaming and command control systems across the whole company.
Speaker Change: We have aligned these technology investments with our customer priorities and demonstrating meaningful increases in capabilities of relatively low cost.
Speaker Change: We've already shown the networking and teaming ability of the F-35 and the F-22 to control uncrewed vehicle systems like drone wing men through onboard deployments of our autonomy solutions on real aircraft. [inaudible]
Speaker Change: R. Skunkworth's team has also invented a ground-and-sea-based drone command station powered by our operational autonomy platform which is currently in production today for the Navy.
Speaker Change: As a central data aggregator, processing a distribution node in this architecture, the F-35 can execute its air combat quarterback role.
Speaker Change: The Global F-35 fleet today stands at more than 1,100 aircraft, with a total fleet expected to be greater than 3,500 . . . . . . . . . .
Speaker Change: Enabling the U.S. and its allies to make Commander of the Skies far into the future.
Speaker Change: The further our strategic vision, my immediate focus and that of my entire management team is on operational execution.
driving cost competitiveness, quality, and schedule every day.
Speaker Change: $173 billion of backlog, more than two years of sales. [inaudible]
We're focused on delivering on time and on budget.
Speaker Change: We're continuing to execute our one LMX and business process transformation, which has been underway since 2022.
Speaker Change: Through this, we've driven increased production of high-demand systems like high-mars, we accelerated software deployment to our software factory and enabled model-based engineering with digital twins of many of our products.
Speaker Change: and going forward, we have a defense of talent needed to continue this success. And a prime example of that is our new CFO , Evan Scott, joining us today for his first quarterly earnings call on his new role.
Speaker Change: as a 26-year veteran of Lockheed Martin. Evan knows there's been business inside now, and he has a deep appreciation for our customers and their missions. [inaudible]
Evan Scott: I'm confident he'll be a great asset to our Executive Leadership team and now I'll turn it over to Evan to share more about his background and our financial results
Evan Scott: Thanks Jim, and good morning everyone, it's a privilege to be speaking with you all this morning.
Evan Scott: As Jim mentioned, I've been at Lockheed Martin for my entire career. The depth and breadth of the work we do to help American and Adelaide service members complete their mission successfully and return home safely is truly unmatched.
Evan Scott: Over the course of my career here, I've had the opportunity to work across a range of functions.
Evan Scott: including his treasurer, and the COFO of two business areas, Space and MFC.
Evan Scott: I've been fortunate to see first-hand how this company operates and evolves to deliver value across every part of the business for both our customers and our shareholders
Evan Scott: Even before accepting this role, I worked hand in hand with leaders from across the company on our business strategy and priorities helping to ensure continued financial discipline and execution of our capital allocation strategy while driving growth and advancing our mission solution focused 21st century security strategy. [inaudible]
Evan Scott: I have great respect for the path that has been charted and recognize the company's solid foundation for continued growth.
Evan Scott: My intention is to carry this momentum forward, staying true to the strategic vision that has positioned us for long-term success and working closely with Jim, Frank, and the rest of the executive team to deliver on our operational and financial targets.
Evan Scott: As we continue this journey, you have my commitment to maintaining transparency, consistency, and open dialogue with the investment community, just as we always have.
Evan Scott: And on that note, let's turn to our performance for the quarter.
Starting with key financial highlights, I'm sharp forward. [inaudible]
Evan Scott: Our strong financial results in the first quarter position us wealth to the remainder of the year.
Evan Scott: Highlighted by 4% sales growth and 11.6% segment margins with all four business areas generating double-digit returns.
Thank you.
Evan Scott: Gaffernings per share of $7.28 increased 14% with benefits from higher volume, higher profit adjustments, and lower share count, more than offsetting higher interest expense, and lower fast-cast pension adjustment.
Evan Scott: Shifting to new business, while our book to bill was less than one in the quarter, Backlock remains healthy at approximately $173 billion in dollars.
Our largest awards in Q1 came from MFC and RMS. [inaudible]
Evan Scott: As Jim noted, within MFC, we've recorded approximately $2 billion in orders, for the jazz and lorasm, large flop of Kermit Yuka, and facilitation contracts.
Supporting the production ramp to 1100 units in 2027.
Evan Scott: At RMS, we booked six years of future work, supporting the implementation phase of the Canadian Service Combatant River Class Destroyer Program.
Evan Scott: Continuing our partnership with Irving Shipbuilding to upgrade the Canadian fleet.
Evan Scott: Moving to free cash flow, we generated $955 million in the quarter after investing nearly $850 million into R&D and capital expenditures.
in the maturation of innovative technologies. [inaudible]
Digital transformation and operational efficiencies. [inaudible]
Evan Scott: In addition to investing in next-generation capabilities, we maintained our commitment to shareholders that were turning over $1.5 billion through dividends and share repurchases [inaudible]
Maria Ricciardone: Now I'll hand it to Maria to discuss the business air results in more detail.
Maria Ricciardone: First quarter sales at Arrow increased 3% year-over-year to $7.1 billion. The increase was primarily due to higher volumes on F-35 mainly on production contracts.
Maria Ricciardone: Segment operating profit increased 6% year over year due to the higher volume as well as higher profit booking rate adjustments, including the benefit from favorable performance at completions on a classified contract.
Maria Ricciardone: In February , Singapore signed the letter of offer and acceptance for each F-35 A's
Maria Ricciardone: This milestone expands Singapore's program of record to 20 jets and demonstrates continued international interest in the F-35 and the advanced capabilities it provides.
Turning to Missiles and Fire Control on Chart 6 [inaudible]
Maria Ricciardone: Sales at MFC increased 13% from the prior year, driven by higher volume on multiple tactical and strike missile programs, including Jasmelerasm, GMLRS, and High Mars.
Maria Ricciardone: Segment operating profit improved 50% year-over-year, driven by higher volume and higher profit rate adjustments.
Maria Ricciardone: The higher profit rate adjustments were primarily due to the absence of the $100 million loss on a classified program we recognized in last year's first quarter.
Maria Ricciardone: Normalizing for the loss, MFC's profit in Q1 2025 improved in line with sales at 13% with margins up 10 basis points year over year.
Maria Ricciardone: This quarter, we debuted the Common Multimission Trupp family of air vehicles that can be produced rapidly and affordably for domestic and international customers. Known as Comet, this affordable mass missile has an all digital design and modularity that offers mission flexibility.
Comet demonstrates one LMX at work.
Maria Ricciardone: It is the result of model-based engineering, which maximizes component reuse and commonality across programs to radically accelerate development. For example, for Comet, we reduce the time required to get to a preliminary design review, a major milestone by 50%.
Shifting to Rotary and Mission Systems on Chart 7
Maria Ricciardone: Sales at RMS increased 6% in the quarter to $4.3 billion. $4.3 billion.
Maria Ricciardone: driven by higher volume on the Canadian Surface Convention and radar programs within the Integrated Warfare Systems and Sensors Portfolio.
and higher volume on Black Hawk at the course of time.
Maria Ricciardone: Operating profit was up 21% year over year due to the higher volume as well as higher profit rate adjustments and favorable contract mix, including a benefit related to an intellectual property licensing arrangement.
Speaker Change: The picture to the right shows drones used by the Lockheed Martin counter UAS team in the recent field event that Jim mentioned in his remarks.
Speaker Change: and on chart eight, we'll wrap up the business area discussion with space.
Speaker Change: Space Sales Decreaser, 2% year-over-year, due to lower volume at national security space, primarily related to the overhead persistent infrared radar program OPIR, partially offset by higher volume at commercial civil space, due to lunar program life cycles.
Speaker Change: Despite the lower sales volume, space operating profit increased 17% compared to Q1 2024. This increase was driven by higher profit rate adjustments, primarily due to favorable performance at completion on certain commercial civil space programs.
Speaker Change: Lower equity earnings from United Launch Alliance partially offset this benefit, as ULA has fewer launches year over year, as well as higher initial costs associated with Vulkan profitability. [inaudible]
Speaker Change: The picture to the right is an LM-400 technology demonstration satellite that recently completed its pre-launch processing and is weeding the next available launch window at Vandenberg Space Force Base. The technology demonstrator is the latest in a series of self-funded missions. [inaudible]
Speaker Change: to demonstrate the maturity of new technology on orbit and reduce risk for our customers. The Ellen 400 is capable of serving military, commercial or civil customers. It can be customized to host a variety of missions and can operate in any orbit. [inaudible]
Now we'll turn it back over to Evan. Thanks for your time.
Shipping Gears, a walk through guidance on Shark 9. [inaudible]
Speaker Change: Our expectations for Lockheed Martin's 2025 financial outlook remain unchanged from what we laid out in January . With the strong first quarter results positioning us well to achieve a consolidated full year outlook amid single digit sales growth. Our expectations for Lockheed Martin's 2025 financial outlook remain unchanged from what we laid out in January .
Speaker Change: Saw the 11% margins and high single-digit free cash flow growth of $6.7 billion at the midpoint.
Speaker Change: In addition, there's opportunity to increase backlog in 2025, providing a solid foundation for sustained growth.
Speaker Change: As I mentioned earlier, the strong profit we realize in the first quarter provides an increased confidence in our ability to absorb currently estimated 2025 profit impacts from tariffs and the end-get announcement.
Speaker Change: While it will take more time to complete a thorough business assessment of these dynamics, we're optimistic about achieving our profit targets for the year.
Speaker Change: and I look forward to partnering with Frank and the rest of the leadership team on the operational excellence initiatives to unlock company wide efficiencies.
Speaker Change: Now, given the dynamic backdrop, I'd like to note several key assumptions within our guidance.
Speaker Change: First, on F-35, we continue to expect between 170 to 190 deliveries for the year, from the world's premier fighter jet production operation.
Speaker Change: with a backlog of approximately 360 jets at the end of Q1.
Speaker Change: and we anticipate definitiveizing the Lot 18 contract in the second quarter, which we expect will unlock cash currently tied up and working capital on the balance sheet.
Speaker Change: At the same time, we're making good progress on TR3 stability and incremental capability releases.
Speaker Change: II, Diallocostumes a certain level of tariff impact, as we expect to mitigate potential cost increases, and offset cash timing pressures.
Speaker Change: We continue to work closely with our customers on this and will provide updates during the course of the year if we see further impacts toward business despite those efforts.
Speaker Change: III, our guide accommodates the direct program impacts of the end-gett announcement on 2025 orders, sales, profit and cash flow.
Speaker Change: As you would expect, we are currently evaluating the broader business implications and will have more to share when we report on our second quarter results.
Speaker Change: Lastly, we assume our programs are funded in a timely manner to support operational needs, and the outlook does not include a pension contribution for this year.
Speaker Change: Looking beyond our strong 2025 guide, the curve backdrop supports sustained backlog strength, with improved US and international budget opportunities.
Speaker Change: This provides a line of sight to stronger sales growth rates through 2027 than previously expected.
Speaker Change: This steady top line growth, combined with operational improvements, are expected to provide a solid foundation for consistent free cash flow generation that enables our capital deployment priorities over the next three years.
Speaker Change: Namely, to invest over $10 billion in R&D in capital expenditures.
Speaker Change: and returned at least $18 billion to shareholders via dividends and repurchases.
All while continuing to fund required pension contributions.
Thank you.
Speaker Change: In summary, on chart 10, we're off to a solid start in 2025.
Speaker Change: and have a strong focus on operational excellence to ensure we deliver on our customer and programmatic requirements while also building momentum towards delivering our full-your guidance.
Speaker Change: In parallel, we remain committed to investing for the future, and creating long-term value for our customers and shareholders [inaudible]
With that, Sarah, let's open up the call for Q&A.
Speaker Change: Thank you. If you wish to ask a question, please press star then one now on your touchtone phone. You will hear an enunciator indicating you have been placed in queue. You may remove yourself from queue at any time by pressing star then one again. We ask that you limit yourself to one question please.
Speaker Change: If you are using a speaker phone, please pick up the handset before pressing the number. Once again, if you have a question, please press star then one at this time.
Speaker Change: Your first question comes from David Strauss with Barclays. Your line is open.
Good morning, thanks, and Evan, welcome to the call.
David Strauss: Jim, one to ask you about the the NGAD decision. At this point, have you received?
David Strauss: Debrief from the Air Force and got some feedback there. And how are you thinking about the way forward in terms of potentially protesting the award? Thanks.
Dr. Prima, Dr. Prima, Dr. Prima, Dr. Prima,
David Strauss: Yeah, good morning, David. We did get a classified debrief from the US Air Force on their Engad Decision.
and we are taking that feedback internally.
David Strauss: and looking at all the aspects that we were briefed on, which we can't speak to because of the classification level, but we are addressing those.
on a strategic basis.
David Strauss: We are going with this decision, is not to protest it, we are not going to protest the end-gathered decision of the US government [inaudible]
David Strauss: We are moving forward and moving out on applying all the technologies that we develop for our NGAD bid onto our embedded base of F-35 and F-22.
David Strauss: I feel that we can have, again, 80% of the capability potentially.
at 50% of the cost per unit aircraft. .
David Strauss: by taking the F-35 chassis and applying numerous advanced technologies, some of which are already in process and locked for on F-35. But others that we can apply and we are going to offer fairly rapidly to the Department of Defense.
David Strauss: to really take that chassis and supercharge it for the future. [inaudible]
David Strauss: and that's kind of a fifth generation plus concept for F-35.
and that investment in NGAD, technologies that we uh...
David Strauss: that we made over the last few years and are going to be applied directly to that chassis. [inaudible]
David Strauss: And like I said, eventually there'll be 3,500 of those chassis out there at various stages of technology and capability. We think we can get most of the way to 6,000 at half the cost.
Thank you [inaudible]
Thank you.
Speaker Change: The next question comes from at Basin Gursky with City. Your line is open.
Jason Gursky: Hey, good morning, everybody. And Evan, welcome to the call. My sentiments as well to you. Hey, Jim, I was wondering if you could just comment a little or maybe reflect on some of the executive orders that have been coming out of the White House.
Jason Gursky: Since the new administration came to office back in January , we've seen quite a bit come out, some of it related to FMS and speeding up the process there, but I think it's recently as last week.
Jason Gursky: that we've got an executive order that points to the potential rewriting of federal acquisition regulation.
Jason Gursky: I'm wondering if you guys have some perspective on what the administration is up to here, what they're trying to accomplish, whether this is...
Jason Gursky: Just strictly reducing red tape and speeding the process up, or if there are going to be some longer term structural consequences for the industrial base and the way that you interact with the building. Thanks.
Jason Gursky: Jason, not only do we welcome these, we applaud these executive orders and have been advocating for them since I joined from the telecom industry, the management of this company about four or five years ago.
Jason Gursky: We are involved in advocating and making recommendations along all of these lines.
Jason Gursky: One of the biggest issues where there's limitations on the speed at which digital technology and even the most advanced physical technologies can be introduced.
Audits that have evolved through the DOD bureaucracy over decades.
Jason Gursky: Have never reversed themselves. This is a chance for those to be really scrutinized and reduced. [inaudible]
We will be speeding up, not only our FMS, opportunities around the world by what the administration is...
pressing for here.
but we'll be able to get faster acquisition paths. Thank you very much.
for both physical and digital technology.
Matthew, so I think reducing... [inaudible]
Jason Gursky: The bureaucratic red tape that's filled up in this industry over the past few decades is going to be a boon [inaudible]
Jason Gursky: to our industry, and when I say our industry, I mean broadly, right, and that includes the, you know, the traditional as we are sometimes called. Thank you very much.
Jason Gursky: and major technology companies such as Verizon, Nvidia, and Microsoft that are our partners. It includes mid-size and new entrance. We want the best of US industry and technology development applied to the national security space. [inaudible]
Jason Gursky: and we want to be part of that and we applaud all these changes that are coming down through the executive orders.
Jason Gursky: The one thing I want to make sure that we get a chance to do is a chance to compete on every dimension.
Jason Gursky: I used to be a captain of the Air Force rugby team and all I want to do is get my team on the field and get in the game. I don't care if it's a small contract, a big one.
Jason Gursky: Sounds like a tech approach or a traditional approach. We can compete on every playing field and we just want to have that level playing field to compete on. So, a long way of saying I'm really encouraged and energized by what the administration is doing here.
Speaker Change: The next question comes from Kristine Liwag with Morgan Stanley . Your line is open.
Christine Liewald: Hey, good morning everyone, and Evan, welcome to the call. So maybe starting off, the terror situation is fast-moving, but there's a general sense that defense companies like Lockheed are more insulated than other industrial companies, and I guess to the extent that they do exist.
Christine Liewald: What are the underappreciated risks of tariffs in your business? And Evan, as a UCF role, what are your priorities as you navigate this environment?
Evan Scott: Sure, yeah, good morning. Thanks, Kristine. So from a terrorist perspective, I do agree that we have certain protections in our industry. And after reviewing with each of the four BAs, I feel comfortable we've got an approach to mitigate the impacts. And that's what gave us confidence to read firm guidance. Thank you.
Evan Scott: I'd say in a lot of cases we're going to have direct protection in our supply chain, not in all cases but in many cases.
Evan Scott: to avoid tariffs altogether. And then for the vast majority of our external contracts, we've got mechanisms to recover impacts.
So I think for us...
Evan Scott: We see it less as a function of recovery, although we certainly work to do there, but it's probably more about timing.
and so specifically, is there going to be a lag?
Evan Scott: between incurring a tariff cost and recovering those costs. So well, it's going to stay fluid but we feel like we've got a good path now and we'll just keep updated as that progresses throughout the year.
Evan Scott: And just as a reminder, Kristine, you know, 40% of our contracts are cost type, and so, you know, what Evan's referring to mainly is the 60% that are fixed price where we have those contractual clauses both far based and specially negotiated that enable that recovery through different equitable adjustment means.
Evan Scott: So just wanted to make sure I added that as well. [inaudible]
Speaker Change: Thanks. Yeah, and to the question of priorities. Yeah, thank you for that. So I I plan to lean on part experiences of this company of moving to high impact roles.
Speaker Change: and so number one goal for me typically is just to make sure momentum has maintained, right? We move too fast to allow for any gaps in priorities and so always make sure there's no slowdown in any initiative my processor was driving and so you really shouldn't expect to see any near-term changes. Thank you very much.
Speaker Change: Particularly with our consistent focus on delivering sugar or value, right? That's just so baiting to our culture and is not in question in question.
Speaker Change: So, as Jim said, fortunately I'm very familiar with our programs and strategies and I've got well-established relationships with the ELC from our career years. So specifically, I look forward to meeting with stakeholders and spending significant time listening to the priorities of the investment community.
Speaker Change: and in those meetings I'll certainly be prepared to answer questions but I'm also going to have several of my own to ask and so definitely look forward to quickly partnering with ELT and my team move with urgency and we'll focus on performance speed and value enhancing growth thank you.
Speaker Change: The next question comes from Gautam Khanna with TD Cowan. Your line is open.
Yeah, thanks and welcome, Evan.
Thank you.
Speaker Change: was wondering if he could comment on F-35 Lot 19 timing and also if given there's a lot of international demand for the aircraft. The aircraft.
How ready are some foreign customers to take delivery? Three. Three.
Speaker Change: Earlier, if the US cuts back the buy, I'm just wondering how much of a US cut back could you absorb and still keep the production rated around 156?
Thank you. Thank you. Thank you.
Thank you [inaudible]
Do you want an ID?
Okay
Speaker Change: Right, so thank you, so starting with Lot 19, we are looking at the second half of the year for this and that's baked into our guidance.
Speaker Change: And then on the International Demand, Gautam, it's really strong. There's been a number of announcements over the past few months on plus-ups to program orders from the international customers. You know, when I was over at the Munich Security Conference-
Speaker Change: The main topic in the private meetings with each of the defense ministers and prime ministers [inaudible]
How fast can I get my aircraft? [inaudible]
Speaker Change: So I feel in our aeronautics team feels that if there's some moderation which we do not expect by the way in USF 35 production that we can make up for that in the international opportunities we have and maintain our 150 plus
Speaker Change: Per Year Production Rate, so we're comfortable that that can be maintained.
Thank you. Bye.
Speaker Change: The next question comes from Rich Safran with Seaport. Your line is open.
Good morning, Evan, welcome.
Thank you. Bye.
Speaker Change: Jim, could you talk a bit more about your opening remarks on gold and dome? I thought maybe you could discuss funding opportunities timing and specifically maybe maybe address how you think that might affect the production ramp at MFC, you know, just generally how that might be impacted thanks.
Yeah, so that is...
It's forming up into sort of three...
Speaker Change: Segment, if you will, the government's gonna make these policies and define these.
Speaker Change: Clearly and specifically but the way we're viewing it is there's a ground segment which will be radar sensors.
Speaker Change: The programs that I already spoke to earlier today and you're kind of alluding to them as well, you know, heart that we have the NGI contract. All of these are going to be PAC-3 are going to be in higher demand. And so we will be in excellent position to
Speaker Change: to address those literally right out of the gate. And so even on that ground segment, there are ways to network these systems and redeploy them from existing generally army bases or naval bases.
Speaker Change: in the cone is already, these systems are out there, they're operational, they're ready to be deployed to foreign operations but we could actually, it's up to the government again this is policy and not our purview but we can be supportive and actually fielding those systems. [inaudible]
Speaker Change: from existing bases to what are its population centers or other high value areas where we want to really defend the homeland, so to speak.
Speaker Change: and then we can network and we've shown this, for example, PAC-3 in bad systems and radars, and that's just one example of this interconnectivity that we can create with existing...
Speaker Change: Platforms using new digital technology and that's why 5G and AI and Distributed Cloud are so important because...
Speaker Change: We will have to create a web of defenses, a web of layered defenses even in this ground segment to start really being effective in golden dome and we can literally do that once the starting gun goes off. [inaudible]
The second phase of it will be space-based.
Speaker Change: And that's another place where, by the way, Lockheed Martin has a lot of existing assets. That's...
Speaker Change: What we're going to want to help do is network those existing space space assets down to...
Speaker Change: Those more tactical systems on the ground so that we have early warning we've got target tracking on launch and mid course from space so that we can have more accurate.
Speaker Change: Fire Control over those missile systems in the United States, so that the space layer will be complex. Eventually there may be.
Speaker Change: Kinetic or non-kinetic action from space, that's going to take a little more time to scale, but that's the second arena, and then thirdly, another place where this sort of 21st century security strategy will really intersect. [inaudible]
Speaker Change: The third dimension here is an overarching command and control system.
An Open Architecture, Standards-based
Speaker Change: where we can have, whether it's Northrop Grumman, Raytheon, Lockheed Martin, other systems, new entrants, will be tied into this fabric and really...
Speaker Change: Complete the Golden Dome, so to speak, by doing that. That may be a little bit further out, but we can do these tactical ground-based system deployments very quickly, and we can feel
Speaker Change: Production, we've already got investments to do that. So I think we're in excellent shape for Golden Dome as I suggested in the prepared remarks. Our strategy was built for something like Golden Dome, and we're out in front of it with our customers.
Speaker Change: James, budgeting, timing, congressional funding, all those kinds of things.
Speaker Change: Our government policies that will be implemented on their side, but we are literally ready to go when the starting gun goes off.
and if I could just add, given. [inaudible]
Speaker Change: I've got a lot of passion on Golden Dome, I haven't worked at MFC and as Jim said we just really felt prepared for this.
Speaker Change: and it was an early sign our customer tends to move rapidly and with purpose so just a little bit of stage where it is kind of from the proposal side. [inaudible]
Speaker Change: and a customer issued an RFI or a quest for information seeking ideas from industry that would inform possible RPs. And so, what was remarkable about this one from my perspective?
Speaker Change: The RFI had a 30-day term which is super fast for something this significant and complicated, and Lockheed Martin provided, as Jim said, just a series of capabilities, really over 100 different capabilities through pricing.
Speaker Change: that crossed all four B.A.'s with a focus on cross-domain architecture. So clearly not all those RFI responses will turn to requirements. We've given our customers a significant amount of gold-faster-ready capability to consider, and we look forward to partnering with customers and suppliers on the next steps.
Speaker Change: The next question comes from Pete Skibitski with Alembic. Your line is open.
Hey, good morning guys.
Oh, I'm pointing.
Speaker Change: Jim, one aspect of the new terror for Jean, if we go back to that is not necessarily the cost aspect, but I understand China is putting new export controls on rare earth metals. . .
Speaker Change: and I don't know necessarily the inventory levels that the US or the Lockheed Martin typically has of these commodities, but...
Speaker Change: I know it's been a topic in DC in terms of the reliance there for a number of years, so I was just wondering if you could give us your...
Speaker Change: Your thoughts on, um, to surveil building impact that the new chair regime could have.
Speaker Change: because I do understand the rarest reuse across a wide variety of defense products, so I was interested in your thoughts. Thanks.
Yeah, first of all, by law, we're... Uh...
Speaker Change: constrained from using Chinese inputs of any kind from any source.
into our products and services.
Speaker Change: and so is our supply chain. So there are alternate sources for our segment of the aerospace industry, I'll call it, which is the defense, US defense segment. And secondly, there are stock piles that are available and will be utilized. This is, I think, a larger...
Issue for...
Non-defense industries that require these kinds of materials.
Speaker Change: because our supply chain contracts again have specified non-Chinese sources for the materials over the decades actually. So I think we're in pretty good shape on that. And I would, you know, again applaud, you know, the U.S. government and...
seeking to continue to develop US sources. [inaudible]
for these raw materials all the way through semiconductors etc. [inaudible] that's right
Speaker Change: that we've been advocating for for about four or five years, which is our anti-fragility aspect of our strategy, which is we need US sources for even basic materials like titanium, for example, certainly non-adversary sources. [inaudible]
Speaker Change: and we've been pushing for that with the US government and doing it internally for four or five years based on that sort of anti-projility concept that seemed to left. So we're I think we're well positioned here to to work through these rare earth and other material issues. [inaudible]
Speaker Change: and Pete, I would just add to that in terms of our guide for the year, you know, we're pretty confident that a disruption in the material supply for rare earths.
Speaker Change: with not impact our ability to meet our current delivery commitments for the remainder of this calendar year. We have sufficient quantity that's already integrated into our...
Speaker Change: Our value chain, so it provides a bit of a buffer from potential supply chain disruptions in the near term and will obviously continue to assess as we go on.
Speaker Change: The next question comes from Doug Harned with Bernstein. Your line is open.
Good morning. Thank you.
Speaker Change: on a missile and fire control. You've had some big increases in backlog. We've got two billion, nearly a two billion increase this quarter.
Speaker Change: And so can you talk about what some of the production increase plans you have in...
Speaker Change: your major programs, and then is this a business that we could foresee having an extended, you know, high single digit growth rate over the next few years given that backlog. Thank you very much.
Thank you.
Speaker Change: Sure thing, thanks Doug. Yeah, so you're right. We've definitely seen strong budget demands here of both domestic and international for the MFC products.
Speaker Change: and so several of the products are ramping currently, and we talked about earlier the Jazm Lorasm Award, it gives us [inaudible]
Gopak 3 continues to ramp, GL-MORS. [inaudible]
Speaker Change: So, we're seeing good demand and very strong backlog and so some of these products will continue to ramp and
Speaker Change: to Jim's point about Golden Dome. I mean, these are always also areas for opportunity on the IMD side to be a major part of the Golden Dome architecture. So that could very likely be a source of demand as well. Thank you very much.
But the reality is. [inaudible]
Speaker Change: with these products, we have a lot of confidence that will just continue to be in demand all the way across. So, um...
Speaker Change: I can certainly talk more specifics on individual product lines, but I think across those are the world, we're going to see the road growth.
Jim: with Jazz and Lourasm, Pactory, and Geon Louress, Ramping. Yeah, and and Douglas Jim, so it just to compliment what I've been saying here, so. So.
We map out for, you know, the...
Jim: The end till the end of the decade, you know, sort of our high growth product lines. And you heard us about some of them, but adding in there, you know, in addition to Gimlers.
Prism, which is getting at the $5 billion dollar. [inaudible]
IDIQ Order, just awarded, is in that category. Thank you very much.
Fleet Ballistic Missile, actually.
Jim: over the course of the rest of the decade.
Jim: et cetera. And as he said, jazz and lorasmus isn't that kind of category of the, you know, high single digit.
Jim: Wrote a fairly long period of time to get your specific question. So there's a number of others, NGIs in there too. So the missile systems that the company has developed over, again, you know, 70 years when it comes to FBM. That is hard to duplicate. These are the best.
Jim: Systems in the world, again, you go to Munich or Singapore, some place like that [inaudible]
Cusher's just readily admit that around the world is...
Jim: This company has some of the best systems in the world has got the best and most sophisticated fighter aircraft in production in the world and will for at least the next five years or so and does it at scale . . . .
Jim: and it's the only way we can kind of compete, we meaning the royal, we of our allies and us. [inaudible]
Wichina, who's building, you know, a hundred. [inaudible]
Jim: plus J20s a year, and now J35s on top of that. So, you know, our international customers recognize, you know, the capabilities of the company as through our US customers.
Jim: and again, we're very well positioned for the future here especially in that missile segment where this stuff is really hard to do, takes decades of experience is on the edge of known science.
Jim: and it's not easy to duplicate and just kind of show up at the party and try to compete here. So we're in really good shape in those whistle programs.
Jim: The next question comes from Scott Duschle with Deutsche Bank. Your line is open.
Speaker Change: Hey, good morning. Jim, you spoke earlier about enhancing the F-35 with technologies you developed for NGAD.
Speaker Change: I guess can you clarify number one if that effort would be self-funded or customer-funded? Good.
Speaker Change: And then number two, can you walk through what's driving your confidence in integrating those technologies into F-35, particularly given some of the recent challenges with technology insertion?
Speaker Change: Thank you. Sir, Scott, so look, this is a baseline. We have 70,000 engineers and scientists in the company working on really interesting stuff all the time.
Speaker Change: and some of the 5th Gen Plus solution set is already being funded by the US government and the F-35 program itself.
Speaker Change: They're a component, some of which are classified, so they can't really specify them, but key techniques I'll say and approaches that fighter pilot needs to have to be competitive and win.
Speaker Change: I'll just kind of talk to those in general and you can be assured that we are investing and the government is investing together in these things . . . .
Speaker Change: Some of these elements are, again, through the F-35 program, as it stands today, some of them are government-funded investment in R&D for NGAD, right? Just the competitive process .
Speaker Change: was funded for both Lockheed Martin and Bowie over a period of years by the government, and we made independent investments along the way too in both of those programs. There's not a clean percentage, but there's co-investments between the US government, our allies, and...
Speaker Change: Lockheed Martin in the technologies I'm speaking to, and having done this myself and I's younger, these things are really important. So one is sensing the enemy at a distance greater than they can sense you.
and so those kind of categories are radar?
Speaker Change: They're passive infrared and passive infrared is really important because if I'm transmitting radar that means somebody else is electronic warfare receiver can see me and then they can maybe shoot me.
Speaker Change: So the better I have infrared, it's passive, so we can sense that. [inaudible]
and the best radar on top of that.
Speaker Change: Those kind of sensors are really, really critical because I explained this to the meeting of the White House. The President's like, dog fights are not what we want anymore, an air-dare combat. We want to shoot the other guys I said before he even knows we're there. And you do that first of all with the critical sensors to find them. Yeah.
Speaker Change: then you make sure they can't find you and that's the stealth technology and there's some techniques with you know we've used for our end-gab offering that can be applied whether they're materials, their geometries, their countermeasures for stealth so I can't be seen. [inaudible]
Speaker Change: That's the first part of the equation. And the second part of the equation is you want to have a tracking system and a weapon that can go farther and hit the enemy plane before they can ever even reach you with their weapon. [inaudible]
Speaker Change: and so there are techniques and capabilities we delivered with NGAT, RNGAT BID that were developed for that, but we can now apply here, so F-35. So we're basically going to take the chassis.
Speaker Change: and turned it into a Ferrari, right? It's like a NASCAR upgrade, so to speak, where we could take the F-35, apply some of those co-funded technologies.
Speaker Change: both from NGAD and the F-35 program. And you're going to have, again, my challenge to my aeronautics team is, let's get 80% of 6-gen capability.
Speaker Change: at Half the Price, and that's something that these are engineers, they wouldn't have agreed to this if they didn't think there was a path to get there. That's something we're going to go out and do. And this is this best value approach.
Speaker Change: We've been working our way towards that, Lockheed Martin over the last four or five years. How do we get best value to the customer who has a limited budget and an increasing threat?
Speaker Change: We use these digital technologies, we apply something from one system or one BA to another, and we actually try to create that best value equation.
Speaker Change: It's a little kind of not uncomfortable, but the novel for our industry to think that way, but we are thinking that way and value is important and maybe as or more important than the highest technology available. [inaudible]
Speaker Change: It's got to be scalable, it's got to be affordable, it's got to work every time and so that's what we're after you.
Thank you.
Speaker Change: The next question comes from Michael Ciarmoli with truest. Your line is open.
Michael Charmoli: Hey, morning, guys. Thanks for taking the question. Maybe just one point of clarification and to stay on that topic, it really sounds like with the end got lost, you reaffirmed your multi-year growth and seemingly it got stronger from a lot of the missile commentary. I just didn't know if that also took into account maybe weaker, domestic F-35 volumes going forward and then just on your prior comments. I mean, it sounds like you're going to directly make a mistake.
Speaker Change: Pete for NGAD dollars, converting this chassis to a Ferrari, and any restrictions on what you can do with that technology can it be sold to international customers, and has there been any direct discussions about funding or timing from the Air Force?
Speaker Change: That would be an element by element, export stability decision by the US government, but what we try to do...
is built exportability into each of these components and so. Thank you very much.
Speaker Change: We will offer, of course, the US government gets first view of these things. They'll get to adjudicate whether it's extortable into whom. But our goal is to make as much of this capability, this value capability that we can.
Speaker Change: for Fifth Gen to have our allies get access to it too, but that's a US government decision, but we try to design in a way that it's a relatively hopefully an easier decision for exportability rather than a harder one.
Speaker Change: Gautam, and on the long-term growth. Yeah, I do think we see [inaudible] you know, you know,
Speaker Change: You know, a path to, you know, a little bit better than we laid out prior, at least at the lower end of the, you know, low single-digit growth. And you know, that's, that's fueled by a few things as you point out the strong missile orders in Q1. There's also, since we had talked about that outlook. [inaudible]
Speaker Change: International budgets around the world have, have, there's been a pressure to increase those as well. [inaudible]
Speaker Change: shows that the supply chain does continue to perform, and as we've talked about, it hasn't really been a question of demand. It's been more a question of being able to execute on the supply side, and we are seeing that continue as well. So even with the end-gad loss.
Speaker Change: You know, that was probably more impactful farther out in the future. And over the next, you know, few years, you know, all.
Speaker Change: More than offset by some of these other opportunities that we're seeing
Thank you for tuning in. I'm Maria Ricciardone.
Speaker Change: Yeah, and for example, like F-35 system and contributing to these long-term growth trajectories, you know, the aircraft.
Speaker Change: numbers are going to go from 1100, you know, to, you know, we expect over times 3500, so that growth rate of sustainment on F 35 and this modernization will continue on a much larger number of airplanes as time goes on, so that's a big driver. For, uh,
Speaker Change: CH-53K helicopter is really getting towards full rate production. The fleet was a ballistic missile program, as I said, that's a very important and a very large piece of our long-term growth rate and NGI, et cetera, golden dome. So, there are multiple...
Speaker Change: Long-term growth opportunities through all of our business areas. You know, we're pivoting, by the way, in space, we'll continue to do the big geosynchronous orbit, highly sophisticated satellite units, but this LM400 is mid-orbit.
Speaker Change: Plain, and it's more capable than a small sat, but not as expensive as a geosynchronous orbit satellite, and there's more proliferation of them, not 3000, but maybe there's 300, so you get a lot of the benefits of
Speaker Change: Both in the mid course, or a bit if you will, and it's a good compromise for certain missions because you've got a bigger bus with more capability and more life.
Speaker Change: Small sat me last three to five years, but mid orbit satellite like this LM400 could last, you know, call it 10 or, you know, and then the geosynchronous can be much longer than that. So we're trying to make sure that there's a best value solution for the mission.
Speaker Change: for our customer at every level of the orbits in space or the level of sophistication and cost of the airplane versus the mission. Again, can we get 80% of the value for 50% of the cost?
Speaker Change: That's a new way for our industry maybe to think about from 20 or 30 years ago, but that's how we're thinking about it. So we have some really solid long-term growth trajectories. We think we can strengthen the embedded base.
Speaker Change: Make that embedded-based, live longer, and that sustainment trail go farther, whether it's Blackhawk F-35, F-22, F-16 is now again popular. Why? Because we could put fifth-generational electronics and we could put fifth-generational electronics on the other side of the world. We could put fifth-generational electronics on the other side.
on a fourth-generation chassis.
Speaker Change: and that's why it's popular. It's more affordable and you get most of, not most because you don't have stealth, but you get a lot of fifth gen capability on that 16th.
Speaker Change: Now, and that's why these franchises are not finite necessarily. FBM, 70 years, I mean, these, these chassis are so hard to make, they're so sophisticated.
Speaker Change: It's hard to replicate the hardware, but you can make it a lot better with software and with hardware upgrades as you go.
Speaker Change: Well Sarah, I think we're coming to the top of the hours here.
Speaker Change: So why don't I turn it back over to Jim? Sure, yeah, yeah, thanks Maria, so look, and closing, you know based on our substantial backlog and this best value strategy we've been talking about today
Speaker Change: This company is really well positioned in a very dynamic environment. We can all admit that we're in a dynamic environment but we're continuing to innovate and deliver these advanced and reliable technologies.
Speaker Change: And executing against that long-term strategy while we do the hardware and upgrade it, we really are trying to get out in front of how do we use digital technology like AI to make our platforms.
Speaker Change: Worked together in a way that provides a high value, relatively low cost, mission capability, and having so many of these great legacy platforms and the ones that will build for the future puts us in a really good position for this.
Speaker Change: So that ends the call today. Thank you for joining us. Look forward to seeing you all virtually again in July on our second quarterings call. So thanks, everybody. Sarah, we're all concluded for the day.
Speaker Change: Great, thank you very much. This concludes today's conference call. Thank you for joining. You may now disconnect the next.
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Speaker Change: Dantesca is currently mourning her miss elder daughter and their four-year-old daughter. Following all shots in August 2018 Applicants died , Maria Ricciardone still isn't here. FOLLOW-US!