Q2 2026 Lockheed Martin Corp Earnings Call

July 23, 2026

Operator: Good day, welcome everyone to the Lockheed Martin Q2 2026 Earnings Results Conference Call. Today's call is being recorded. If you would like to ask a question, please press star one now. At this time for opening remarks and introductions, I would like to turn the call over to Maria Ricciardone, Vice President, Investor Relations. Please go ahead.

Operator: Good day, Welcome everyone to the Lockheed Martin Q2 2026 Earnings Results Conference Call. Today's call is being recorded. If you would like to ask a question, please press star one now. At this time for opening remarks and introductions, I would like to turn the call over to Mark Ricciardone, Vice President, Investor Relations. Please go ahead.

Speaker #1: Good day, and welcome, everyone, to the Lockheed Martin second quarter 2026 earnings results conference call. Today's call is being recorded. If you would like to ask a question, please press star, then 1 now.

Speaker #1: At this time for opening remarks and introductions, I would like to turn the call over to Mark Kvasnik, Vice President, Investor Relations, please go ahead.

Speaker #2: Thank you, Sarah. And good morning. I'd like to welcome everyone to our second quarter 2026 earnings conference call. Joining me today on the call are Jim Taiclet, our Chairman, President, and Chief Executive Officer, and Evan Scott, our Chief Financial Officer.

Maria Ricciardone: Thank you, Sarah, good morning. I'd like to welcome everyone to our Q2 2026 earnings conference call. Joining me today on the call are Jim Taiclet, our Chairman, President, and Chief Executive Officer, and Evan Scott, our Chief Financial Officer. Statements made today that are not historical fact are considered forward-looking statements and are made pursuant to the safe harbor provisions of federal securities laws. Actual results may differ materially from those projected in the forward-looking statements. Please see Lockheed Martin's SEC filings for a description of some of the factors that may cause actual results to differ materially from those in the forward-looking statements. We've posted slides on our website today that we plan to address during the call to supplement our comments. These slides also include information regarding non-GAAP measures that may be used in today's call.

Mark Kvasnak: Thank you, Sarah, good morning. I'd like to welcome everyone to our Q2 2026 earnings conference call. Joining me today on the call are Jim Taiclet, our Chairman, President, and Chief Executive Officer, and Evan Scott, our Chief Financial Officer. Statements made today that are not historical fact are considered forward-looking statements and are made pursuant to the safe harbor provisions of federal securities laws. Actual results may differ materially from those projected in the forward-looking statements. Please see Lockheed Martin's SEC filings for a description of some of the factors that may cause actual results to differ materially from those in the forward-looking statements. We've posted slides on our website today that we plan to address during the call to supplement our comments. These slides also include information regarding non-GAAP measures that may be used in today's call.

Speaker #2: Statements made today that are not historical fact are considered forward-looking statements and are made pursuant to the safe harbor provisions of federal securities laws.

Speaker #2: Actual results may differ materially from those projected in the forward-looking statements. Please see Lockheed Martin's SEC filings for a description of some of the factors that may cause actual results to differ materially from those in the forward-looking statements.

Speaker #2: We've posted slides on our website today that we plan to address during the call. To supplement our comments, these slides also include information regarding non-gap measures that may be used in today's call.

Speaker #2: Please access our website at www.lockheedmartin.com and click on the Investor Relations link to view and follow the slides. And with that, I'll turn the call over to Jim.

Maria Ricciardone: Please access our website at www.lockheedmartin.com, click on the Investor Relations link to view and follow the slides. With that, I'll turn the call over to Jim.

Mark Kvasnak: Please access our website at www.lockheedmartin.com, click on the Investor Relations link to view and follow the slides. With that, I'll turn the call over to Jim.

Speaker #3: Thanks, Mark. Good morning, and thank you to everyone on the line for joining our second quarter 2026 earnings call. As you saw in our press release, Lockheed Martin's second quarter results were strong.

Jim Taiclet: Thanks, Maria. Good morning, thank you to everyone on the line for joining our Q2 2026 earnings call. As you saw in our press release, Lockheed Martin's Q2 results were strong. Our backlog reached a new all-time high, now $230 billion. We generated nearly $3 billion in free cash flow. We accelerated our revenue growth and turned in higher earnings per share. Consequently, we are raising our 2026 guidance, reflecting our confidence that our strategy is gaining momentum, and we will continue to produce sustained, profitable growth over the next few years. While these achievements stem from robust customer demand, they were enabled by strategic decisions we made well before this demand materialized. For the past several years, we've been increasing munitions capacity ahead of contracted demand. We've been pioneering comprehensive open architecture technology initiatives well before they became a standard practice.

Jim Taiclet: Thanks, Mark. Good morning, thank you to everyone on the line for joining our Q2 2026 earnings call. As you saw in our press release, Lockheed Martin's Q2 results were strong. Our backlog reached a new all-time high, now $230 billion. We generated nearly $3 billion in free cash flow. We accelerated our revenue growth and turned in higher earnings per share. Consequently, we are raising our 2026 guidance, reflecting our confidence that our strategy is gaining momentum, and we will continue to produce sustained, profitable growth over the next few years. While these achievements stem from robust customer demand, they were enabled by strategic decisions we made well before this demand materialized. For the past several years, we've been increasing munitions capacity ahead of contracted demand. We've been pioneering comprehensive open architecture technology initiatives well before they became a standard practice.

Speaker #3: Our backlog reached a new all-time high, now $230 billion. We generated nearly $3 billion in free cash flow. We accelerated our revenue growth and turned in higher earnings per share.

Speaker #3: Consequently, we are raising our 2026 guidance, reflecting our confidence that our strategy is gaining momentum and that we will continue to produce sustained, profitable growth over the next few years.

Speaker #3: While these achievements stem from robust customer demand, they were enabled by strategic decisions we made well before this demand materialized. For the past several years, we've been increasing munitions capacity ahead of contracted demand, we've been pioneering comprehensive open architecture technology initiatives well before they became the standard practice, and we established a manufacturing footprint in allied countries prior to the rise of co-production requirements.

Jim Taiclet: We established a manufacturing footprint in allied countries prior to the rise of co-production requirements. By embedding our core 21st-century security principles, rapid data-driven decision-making, resilient supply chains, and interoperable AI-enabled systems, we ensured our solutions would be ready for the changing threat landscape that we see today. To deter armed conflict and prevail when it occurs, US and allied armed forces turn to the partners that already have combat-proven systems. Also critical is the ability to scale up production, deployment, and sustainment worldwide. Those strengths of Lockheed Martin have contributed tremendously to this quarter's performance. As you can see this most clearly in Q2 contract activity. In late June, the Missile Defense Agency awarded a seven-year contract for $35 billion to quadruple production of THAAD interceptors, marking the next of the munitions frameworks to transition to a contract.

Speaker #3: By embedding our core 21st-century security principles—rapid, data-driven decision-making, resilient supply chains, and interoperable, AI-enabled systems—we ensured our solutions would be ready for the changing threat landscape that we see today.

Speaker #3: To deter armed conflict and prevail when it occurs, U.S. and allied armed forces turn to partners that already have combat-proven systems. Also critical is the ability to scale up production, deployment, and sustainment worldwide.

Speaker #3: Those strengths of Lockheed Martin have contributed tremendously to this quarter's performance. As you can see, this most clearly in second quarter contract activity. In late June, the missile defense agency awarded a seven-year contract for 35 billion dollars to quadruple production of FAT interceptors, marking the next of the munitions frameworks to transition to a contract.

Speaker #3: Alongside that, the Army awarded a GMLRS production contract at $3 billion, covering the current version and its newly developed successor, which will have twice the range from the same launcher.

Jim Taiclet: Alongside THAAD, the Army awarded a GMLRS production contract at $3 billion, covering the current version and its newly developed successor, which will have twice the range from the same launcher. We also secured a HIMARS award valued at up to $1.1 billion for the US Army Marine Corps and up to five allied nations. Stepping back, these awards are less about any single program than about what they're building in aggregate. Together, they strengthen the nation's production base, adding resilience along with more manufacturing capacity, more sources of supply, and greater surge capability, all at a time when these very attributes have become a strategic imperative for the country. The quarter's success story was not about munitions alone. It spanned the full spectrum of our business, with new awards and accomplishments achieved across the board.

Speaker #3: We also secured a HIMARS award valued at up to $1.1 billion for the U.S. Army, Marine Corps, and up to five allied nations.

Speaker #3: Stepping back, these awards are less about any single program than about what they're building in aggregate. Together, they strengthen the nation's production base, adding resilience along with more manufacturing capacity.

Speaker #3: More sources of supply, and greater surge capability. All at a time when these very attributes have become a strategic imperative for the country. In the quarter's success story, it was not about munitions alone.

Speaker #3: It spanned the full spectrum of our business, with new awards and accomplishments achieved across the board. The U.S. Space Force selected us as one of the awardees to develop space-based interceptor prototypes under Golden Dome, with capability demonstration expected by 2028.

Jim Taiclet: The US Space Force selected us as one of the awardees to develop space-based interceptor prototypes under Golden Dome, with capability demonstration expected by 2028. We also signed a $2.3 billion radar contract supporting the growth projections we've been making related to our radar business. Following a series of successful flight tests, we continue to make progress on the critical hypersonic weapons program, Conventional Prompt Strike. Cumulative contract modifications totaling $1.4 billion on this joint Army and Navy program will drive more rapid development and demonstration of this sea-based hypersonic strike weapon system. We also announced the next generation glide body demonstration, which is a new hypersonic glide body that's more affordable, scalable, and flexible. Our team's operational execution hit its stride this quarter as we fulfilled key delivery and technical obligations throughout the portfolio. We resumed deliveries for the F-16 and increased output of C-130 aircraft.

Speaker #3: We also signed a $2.3 billion radar contract, supporting the growth projections we've been making related to our radar business. Following a series of successful flight tests, we continue to make progress on the critical hypersonic weapons program, Conventional Prompt Strike.

Speaker #3: Cumulative contract modifications totaling $1.4 billion on this joint Army and Navy program will drive more rapid development and demonstration of the sea-based hypersonic strike weapon system.

Speaker #3: We also announced the next-generation glide body demonstration, which is a new hypersonic glide body that's more affordable, scalable, and flexible. Our team's operational execution hit its stride this quarter, as we fulfilled key delivery and technical obligations throughout the portfolio.

Speaker #3: We resumed deliveries for the F-16 and increased output of C-130 aircraft. Two F-16s and seven C-130s were delivered to customers this quarter. We also delivered the second ship set of our SPY-7 radar equipment for Japan's new missile defense destroyers—on schedule, for a program central to the key ally's homeland defense in Japan.

Jim Taiclet: Two F-16s and seven C-130s were delivered to customers this quarter. We also delivered the second ship set of our SPY-7 radar equipment for Japan's new missile defense destroyers, on-schedule delivery for a program central to the key ally's homeland defense in Japan. In May, at White Sands Missile Range, the QuadStar Seeker completed its flight test as part of the next generation short-range interceptor competition, validating some key risk reduction milestones for the Army Stinger replacement on a very compressed six-month schedule. Building on that success, in June, we announced the advancement of the PrSM Increment 4 missile, which cleared a critical technical gate and confirmed the system's extended range while still preserving capability and compatibility with existing HIMARS. While we execute in our engineering centers and factories, we're also innovating with a lot of purpose and speed.

Speaker #3: In May, at White Sands Missile Range, the quad-star seeker completed its flight test as part of the next-generation short-range interceptor competition, validating some key risk reduction milestones for the Army's Stinger replacement on a very compressed six-month schedule.

Speaker #3: Building on that success, in June we announced the advancement of the PRISM Increment 4 missile, which cleared a critical technical gate and confirmed the system's extended range, while still preserving capability and compatibility with existing HIMARS.

Speaker #3: While we execute in our engineering centers and factories, we're also innovating with a lot of purpose and speed. We're not waiting on orders or contracts to close evident mission gaps for our military services and those of our allies.

Jim Taiclet: We're not waiting on orders or contracts to close evident mission gaps for our military services and those of our allies. In early June at Yuma Proving Ground, our Sanctum Counter-UAS solution, anti-drone system, utilizing our GRIZZLY containerized launcher, went from concept to successful live fire testing in under 45 days. Built not by inventing something brand new, but by connecting what we already had, a combat-proven battle manager, radar, a launcher, and JAGM missiles, the successor to the Hellfire, operating as one integrated system for a brand-new mission. Four elements, three of them ours, and one from a partner that we invested in through Lockheed Martin Ventures. That same logic, building on established battle-tested solutions instead of starting from scratch, guides the Navy's decision to integrate the PAC-3 missile into the Aegis Combat System. This move adds a new intercept capability to surface ships for the Navy.

Speaker #3: In early June, at Yuma Proving Ground, our Sanctum counter-UAS solution—anti-drone system—utilizing our grisly containerized launcher went from concept to successful live-fire testing in under 45 days.

Speaker #3: Built not by inventing something brand new, but by connecting what we already had: a combat-proven battle manager, radar, a launcher, and JAGM missiles—the successor to the Hellfire—operating as one integrated system for a brand new mission.

Speaker #3: Four elements, three of them ours, and one from a partner that we invested in through Lockheed Martin Ventures. That same logic, building on an established battle-tested solutions, instead of starting from scratch, guides the Navy's decision to integrate the PAC-3 missile into the Aegis combat system.

Speaker #3: This move adds a new intercept capability to surface ships for the Navy, though the PAC-3 was originally designed for air defense with a different radar and launch architecture, the Navy's acquisition taps our truly unique integration expertise.

Jim Taiclet: Though the PAC-3 was originally designed for air defense with a different radar and launch architecture, the Navy's acquisition taps our truly unique integration expertise. Our engineers were able to merge the missile's inherent guidance mechanism with our Aegis fire control system into a single fleet fieldable solution. This will enable the US Navy to deploy this new capability on its existing ships relatively rapidly. We've demonstrated this system's integration discipline across our new Sanctum Counter-UAS system, and every missile Aegis has fielded for more than 40 years. We are also extending this forward-thinking approach to partnering with some of America's greatest manufacturing leaders, as evidenced by our recent collaboration with General Motors Defense. Our joint objective with GM is to explore applying the automotive industry's high rate manufacturing and supply chain expertise to defense production.

Speaker #3: Our engineers were able to merge the missiles' inherent guidance mechanism with our Aegis fire control system into a single fleet-feudable solution. This will enable the U.S.

Speaker #3: Navy to deploy this new capability on its existing ships relatively rapidly. We've demonstrated this system's integration discipline across our new Sanctum counter-UAS system, and every missile Aegis is fielded for more than 40 years.

Speaker #3: We are also extending this forward-thinking approach to partnering with some of America's greatest manufacturing leaders, as evidenced by our recent collaboration with General Motors Defense.

Speaker #3: Our joint objective with GM is to explore applying the automotive industry's high-rate manufacturing and supply chain expertise to defense production. We hope this effort will provide us more access to the speed and scale of America's commercial industrial base to help significantly accelerate output as demand grows.

Jim Taiclet: Now, behind every one of our achievements this quarter is a steady, long-term commitment to the physical backbone of the company, new factories, advanced automation, and state-of-the-art tooling and robotics. We enhance that infrastructure with strategic partnerships among the nation's leading technology and manufacturing firms, and we now embed artificial intelligence capabilities directly into our production lines. AI-driven analytics optimize equipment performance, for example. We have predictive maintenance algorithms that reduce our downtime, and machine learning-guided quality checks that streamline the inspection process. Also, as our design and manufacturing systems evolve, we are deliberately growing and diversifying our access to capital investment and critical workforce skills through international partners via expanded co-production and regional sustainment programs.

Speaker #3: Now, behind every one of our achievements this quarter is the steady, long-term commitment to the physical backbone of the company: new factories, advanced automation, and state-of-the-art tooling and robotics.

Speaker #3: We enhanced that infrastructure with strategic partnerships among the nation's leading technology and manufacturing firms, and we now embed artificial intelligence capabilities directly into our production lines.

Speaker #3: AI-driven analytics optimize equipment performance, for example. We have predictive maintenance algorithms that reduce our downtime and machine learning-guided quality checks that streamline the inspection process.

Speaker #3: Also, as our design and manufacturing systems evolve, we are deliberately growing and diversifying our access to capital investment and critical workforce skills through international partners via expanded co-production and regional sustainment programs.

Speaker #3: These efforts have the benefit of placing manufacturing overhaul and repair capabilities where U.S. forces are deployed overseas and where our allied forces operate. Overall, our approach is financially disciplined while perhaps less risk-averse than may have historically been the case.

Jim Taiclet: These efforts have the benefit of placing manufacturing, overhaul, and repair capabilities where US forces are deployed overseas and where our allied forces operate. Overall, our approach is financially disciplined, while perhaps less risk-averse than may have historically been the case. Each co-production initiative is a purposeful investment with a clear view of the expected returns that each will generate once contracts materialize. Our strategy to make our production operations more resilient and scalable, integrate the latest 21st-century technologies into existing and new systems, and expand our international production is underpinned by a very strong balance sheet. Our robust cash generation and access to capital, supported by our strong credit rating, can fuel billions of dollars of planned investment and a portfolio of new and expanding facilities across the United States and beyond.

Speaker #3: Each co-production initiative is a purposeful investment, with a clear view of the expected returns that each will generate once contracts materialize. Our strategy to make our production operations more resilient and scalable integrates the latest 21st-century technologies into existing and new systems, and our plans to expand our international production are underpinned by a very strong balance sheet.

Speaker #3: Our robust cash generation and access to capital supported by our strong credit rating can fuel billions of dollars of planned investment and a portfolio of new and expanding facilities across the United States and beyond.

Speaker #3: This quarter alone, we held the opening of a missile assembly building in Portland, Alabama, the future home of the next-generation interceptor program and a critical hub for integrated air and missile defense work on programs such as that.

Jim Taiclet: This quarter alone, we held the opening of a missile assembly building in Courtland, Alabama, the future home of the Next Generation Interceptor program, and a critical hub for integrated air and defense work on programs such as THAAD. In May, we broke ground on a new munitions production center in Troy, Alabama, adding 87,000 square feet of production space to support THAAD interceptors and future NGI work. We also continue to make progress on our new production facility in Titusville, Florida, which will support critical development of the Trident II missile. Our pace of disciplined investment for growth has continued since the end of the quarter. In the span of a few weeks, we signed an agreement to acquire Ultra Maritime. This acquisition will enhance our advanced undersea sensing and autonomous sea drone capabilities, a domain where there is growing demand.

Speaker #3: In May, we broke ground on a new munitions production center in Troy, Alabama, adding 87,000 square feet for THAAD interceptors and future NGI work.

Speaker #3: We also continue to make progress on our new production facility in Titusville, Florida, which will support critical development of the Trident II missile. Our pace of discipline investment for growth has continued since the end of the quarter.

Speaker #3: In the span of a few weeks, we signed an agreement to acquire Ultramaritime. This acquisition will enhance our advanced undersea sensing and autonomous sea drone capabilities, a domain where there is growing demand.

Speaker #3: At the NATO summit, we signed a memorandum of understanding with Rheinmetall toward the first European center of excellence for ATACMS production. And we welcome the commitment of the United States, Germany, the Netherlands, Poland, and Sweden to explore a dedicated PAC-3 missile facility in Europe for maintenance.

Jim Taiclet: At the NATO summit, we signed a memorandum of understanding with Rheinmetall toward the first European Center of Excellence for ATACMS production. We welcome the commitment of the United States, Germany, the Netherlands, Poland, and Sweden to explore a dedicated PAC-3 missile facility in Europe for maintenance, putting allied capability closer to allied needs. Last month, Secretary Pete highlighted the success of the first milestone test of Golden Dome for America, noting that Lockheed Martin's directed energy laser weapon had cued, targeted, and eliminated a full spectrum of incoming threats, which is a true milestone achievement. Just 2 weeks later, the US government awarded us a Joint Laser Weapon System contract to develop a containerized 500-kilowatt laser. This will be the highest powered laser ever packaged in a transportable container and is a cornerstone of the next generation cruise missile and drone defense architecture. This win didn't happen overnight.

Speaker #3: Putting allied capability closer to allied needs. Last month, Secretary Hegseth highlighted the success of the first milestone tests of Golden Dome for America, noting that Lockheed Martin's directed energy laser weapon had queued, targeted, and eliminated a full spectrum of incoming threats, which was a true milestone achievement.

Speaker #3: Just two weeks later, the U.S. government awarded us a joint laser weapon system contract to develop a containerized 500-kilowatt laser. This will be the highest-powered laser ever packaged in a transportable container, and it is a cornerstone of the next-generation cruise missile and drone defense architecture.

Speaker #3: This win didn't happen overnight. It builds on our strong standing in laser weapons experience and years of investment in these technologies, confirming its readiness for actual field deployment.

Jim Taiclet: It builds on our longstanding laser weapons experience and years of investment in these technologies, confirming its readiness for actual field deployment. Lastly, just a few days ago, we secured a $1.6 billion F-35 spare parts award, the largest such contract in F-35 history, reinforcing the Department of War's heightened focus on keeping the world's premier fighter fleet operational. Our upfront investment in spare parts and consumables has now been translated into immediate inventory that can be shipped to customers the moment their need arises. The quarter's announcements are driven by three deliberate actions. First, we are investing at home, expanding manufacturing capacity to meet today's demand cycle. Second, we are partnering with allies, positioning the capabilities where they're needed the most. Third, we are advancing technology from directed energy and autonomy to integrated cross-domain systems.

Speaker #3: Lastly, just a few days ago, we secured a $1.6 billion F-35 spare parts award, the largest such contract in F-35 history. Reinforcing the Department of War's heightened focus on keeping the world's premier fighter fleet operational.

Speaker #3: Our upfront investment in spare parts and consumables has now been translated into immediate inventory that can be shipped to customers the moment their need arises.

Speaker #3: The quarter's announcements are driven by three deliberate actions: first, we are investing at home expanding manufacturing capacity to meet today's partnering with allies positioning the capabilities where they're needed the most; and third, we are advancing technology, from directed energy and autonomy to integrated cross-domain systems.

Speaker #3: The result of these efforts is a deterrence posture that protects our nation and our allies underpinned by a business that grows stronger each time it delivers.

Jim Taiclet: The result of these efforts is a deterrence posture that protects our nation and our allies, underpinned by a business that grows stronger each time it delivers. Now I'll turn the call over to Evan and Maria to talk through the financials.

Speaker #3: Now I'll turn the call over to Evan and Mark to talk through the financials.

Speaker #1: Thank you, Jim. Good morning, everyone. I'll begin with an overview of our consolidated results, which, as Jim said, were strong both operationally and financially.

Evan Scott: Thank you, Jim. Good morning, everyone. I'll begin with an overview of our consolidated results, which, as Jim said, were strong both operationally and financially. I'll then cover our increased full year 2026 guidance before handing it over to Mark to discuss segment level details. As you can see on slide three, the Q2 was record-setting for our backlog, which now totals $230 billion, an increase of roughly $64 billion versus Q2 2025. We recorded a Q2 book-to-bill ratio of 3.2:1. The backlog increase includes $65 billion of orders realized during the quarter, the largest being the multi-year THAAD contract, as well as new radar awards within RMS and strategic wins in Space. This deep book of contracts will fuel our sales growth for years to come, and we saw this top-line acceleration begin to show up in the Q2.

Speaker #1: I'll then cover our increased full-year 2026 guidance before handing it over to Mark to discuss segment-level details. As you can see on slide 3, the second quarter was record-setting for our backlog, which now totals 230 billion, an increase of roughly 64 billion versus second quarter of 2025.

Speaker #1: We recorded a second quarter book-to-bill ratio of 3.2 to 1. The backlog increase includes 65 billion of orders realized during the quarter, the largest being the multi-year FAD contract, as well as new radar awards within RMS, and strategic wins in space.

Speaker #1: This deep book of contracts will fuel our sales growth for years to come, and we saw this top-line acceleration begin to show up in the second quarter.

Speaker #1: We recorded sales of 20.1 billion, a 1.9 billion 11% increase, over the same period last year. This growth was primarily driven by accelerating munitions programs in MFC, and further supported by all other segments including strong performance in F-35 production and aeronautics, the MIC-2 portfolio in RMS, and the strategic and missile defense programs in space.

Evan Scott: We recorded sales of $20.1 billion, a $1.9 billion, 11% increase over the same period last year. This growth was primarily driven by accelerating munition programs in MFC and further supported by all other segments, including strong performance in F-35 production and Aeronautics, the MICDE portfolio in RMS, and the strategic and missile defense programs in Space. The year-over-year comparison also benefits from the absence of unfavorable adjustments we took in the Q2 2025. Excluding those adjustments, we grew sales 7% year-over-year. The performance exceeded our sales expectations in the Q2, giving us confidence in a stronger 2026 trajectory that we'll discuss shortly. The Q2 segment operating margin was 10.8% as profit climbed to $2.2 billion, and earnings per share rose to $7.94, both posting market improvements from the prior year.

Speaker #1: The year-over-year comparison also benefits from the absence of unfavorable adjustments we took in the second quarter of 2025. Excluding those adjustments, we grew sales 7% year over year.

Speaker #1: The performance exceeded our sales expectations in the second quarter, giving us confidence in a stronger 2026 trajectory that we'll discuss shortly. The second quarter segment operating margin was 10.8%, as profit climbed to $2.2 billion, and earnings per share rose to $7.94, both posting marked improvements from the prior year.

Speaker #1: These gains mostly reflect the absence of unfavorable profit adjustments recorded in the second quarter of 2025. Free cash flow rose by 3 billion, moving from a negative $150 million in the same period in the prior year to a positive $2.9 billion this quarter.

Evan Scott: These gains mostly reflect the absence of unfavorable profit adjustments recorded in the Q2 2025. Free cash flow rose by $3 billion, moving from -$150 million in the same period in the prior year to +$2.9 billion this quarter. The largest contributors include the favorable timing of customer receipts, which accelerated cash inflows and lower tax payments. We restored the temporary dip in free cash flow that resulted from the ERP rollout last quarter, reflecting the effectiveness of the plan recovery we outlined earlier this year. During the quarter, we invested $876 million in capital assets in research and development. This included production capacity upgrades, next-generation munition facilities, and AI-enabled autonomous manufacturing infrastructure. We also funded new Sanctum Counter-UAS solutions, autonomous weapon systems, and AI-driven analytics that improve mission planning and real-time decision-making across our portfolio.

Speaker #1: The largest contributors include the favorable timing of customer receipts, which accelerated cash inflows, and lower tax payments. We restored the temporary dip in free cash flow that resulted from the ERP rollout last quarter, reflecting the effectiveness of the planned recovery we outlined earlier this year.

Speaker #1: During the quarter, we invested $876 million in capital assets and research and development. This includes production capacity upgrades, next-generation munition facilities, and AI-enabled autonomous manufacturing infrastructure.

Speaker #1: We also funded new Sanctum counter-UAS solutions, autonomous weapon systems, and AI-driven analytics that improve mission planning and real-time decision-making across our portfolio. Building on disciplined capital allocation, sustained cash flow generation, and focused R&D, we strengthened our competitive edge.

Evan Scott: Building on disciplined capital allocation, sustained cash flow generation, and focused R&D, we strengthened our competitive edge. We are poised to convert our financial strength into growth-driven transactions. The upcoming Ultra Maritime acquisition, made possible by our robust balance sheet and strong cash flows, exemplifies how we are leveraging this flexibility to pursue strategic inorganic expansion. The underlying strength of our fundamentals enabled us to fund increased investments to add capacity and meet the demand that Jim outlined earlier, while returning $796 million to shareholders through dividends in the Q2, showing that we can invest for growth and deliver tangible shareholder value at the same time. Turning to slide four. I'm pleased to report that we are raising our outlook across every key metric.

Speaker #1: We are poised to convert our financial strength into growth-driven transactions. The upcoming ultra-maritime acquisition may possible buy our robust balance sheet and strong cash flows, exemplifies how we are leveraging this flexibility to pursue strategic inorganic expansion.

Speaker #1: The underlying strength of our fundamentals enabled us to fund increased investments to add capacity and meet the demand that Jim outlined earlier while returning $796 million to shareholders through dividends in the second quarter, showing that we can invest for growth and deliver tangible shareholder value at the same time.

Speaker #1: Turning to slide 4, I'm pleased to report that we are raising our outlook across every key metric. Building on the momentum we generated in Q2, we now expect total sales of $79.75 billion to $81.75 billion, representing an 8% year-over-year increase at the midpoint, up from the prior 5% guidance.

Evan Scott: Building on the momentum we generated in Q2, we now expect total sales of $79.75 billion to $81.75 billion, representing an 8% year-over-year increase at the midpoint, up from the prior 5% guidance. This outlook is driven primarily by higher volume on F-35 production in Aero, radars, and RMS. Correspondingly, we are increasing our segment operating profit target to now $8.5 billion to $8.7 billion. This revised outlook reinforces two important growth dynamics. First is that our growth is clearly accelerating. Through the H1 of this year, we grew sales at mid-single-digit pace year-over-year. Our revised outlook pegs our H2 2026 growth rate in the high single digits and perhaps even the low double digits, a year-over-year increase of between 7% and 12% as compared to the H2 2025. Secondly, is that this accelerating growth is broad-based.

Speaker #1: This uplift is driven primarily by higher volume on F-35 production and arrow, radars in RMS. Correspondingly, we are increasing our segment operating profit target to now 8.5 billion to 8.7 billion.

Speaker #1: This revised outlook reinforces two important growth dynamics. First, our growth is clearly accelerating. Through the first half of this year, we grew sales at a mid-single-digit pace year over year.

Speaker #1: Our revised outlook pegs our second half of 2026 growth rate in the high single digits and perhaps even the low double digits, a year-over-year increase of between 7% and and 12% as compared to the second half of 2025.

Speaker #1: Secondly is that this accelerating growth is broad-based. Every segment at Lockheed Martin will grow faster in the backup of 2026 on both the top and bottom lines.

Evan Scott: Every segment at Lockheed Martin will grow faster in the back half of 2026 on both the top and bottom lines. MFC is clearly leading the way for our growth, but as we've described, our entire portfolio is accelerating, and we've reinforced that with this higher sales and segment operating profit outlook. Our free cash flow outlook is increasing too. As I began to signal last quarter, we now expect a range of $7 billion to $7.2 billion. This improvement includes the favorable Corporate Alternative Minimum Tax IRS guidance we highlighted earlier this year. We're also confident that stronger working capital dynamics will improve our cash conversion cycles. We remain dynamic and disciplined in our capital allocation decisions, continually weighing the most value-enhancing approaches for deployment. Earnings per share is now projected at $29.95 to $30.65, driven by higher year-to-date profits and lower effective tax rate.

Speaker #1: MFC is clearly leading the way for our growth, but as we've described, our entire portfolio is accelerating, and we've reinforced that with this higher sales and segment operating profit outlook.

Speaker #1: Our free cash flow outlook is increasing too. As that began to signal last quarter, we now expect to range of $7 billion to $7.2 billion.

Speaker #1: This improvement includes the favorable corporate alternative minimum tax IRS guidance we highlighted earlier this year. We're also confident that stronger working capital dynamics will improve our cash conversion cycles.

Speaker #1: We remain dynamic and disciplined in our capital allocation decisions, continually weighing the most value-enhancing approaches for deployment, earnings per share is now projected at $29.95, to $30.65, driven by higher year-to-date profits and lower effective tax rate.

Speaker #1: We are also updating our capital expenditure guidance to a range of $2.0 billion to $2.4 billion, reflecting efficiencies realized in MFC's munitions build-out. Expanding munitions capacity as quickly as possible is our top priority, and our teams are relentlessly pursuing the most efficient ways to do so.

Evan Scott: We are also updating our CapEx guidance to a range of $2 to $2.4 billion, reflecting efficiencies realized in MFC's munitions build-out. Expanding munitions capacity as quickly as possible is our top priority, and our teams are relentlessly pursuing the most efficient ways to do so. Our framework agreements and related awards remain cash neutral, so these efficiencies are well-aligned with our customers' objectives. Now, I will turn the call over to Maria, who will cover the segments in more detail.

Speaker #1: Our framework agreements and related awards remain cash-neutral, so these efficiencies are well aligned with our customers' objectives. Now, I will turn the call over to Mark, who will cover the segments in more detail.

Speaker #2: Thanks, Evan. My segment-level comments will focus on our updated increased full-year 2026 sales and profit outlook. And the key drivers for the accelerated growth we expect to realize across all four segments in the second half of this year.

Maria Ricciardone: Thanks, Evan. My segment-level comments will focus on our updated increased full year 2026 sales and profit outlook, and the key drivers for the accelerated growth we expect to realize across all four segments in the H2 of this year. Starting with Aeronautics on slide five. We now project Aero to deliver full year 2026 sales of $31.7 to $32.7 billion, driven by strong F-35 production and sustainment volumes. The higher sales volume pushes the profit outlook up to between $3 and $3.08 billion. Margins are pegged modestly lower than our prior guidance as we scale up new contracts in F-35 production, expand sustainment work, and absorb the F-16 and C-130 challenges we realized in Q1. Excluding the favorable comparison impacts created by the prior year losses, Aero has posted low single-digit year-over-year sales growth through the H1 2026.

Mark Kvasnak: Thanks, Evan. My segment-level comments will focus on our updated increased full year 2026 sales and profit outlook, and the key drivers for the accelerated growth we expect to realize across all four segments in the H2 of this year. Starting with Aeronautics on slide five. We now project Aero to deliver full year 2026 sales of $31.7 to $32.7 billion, driven by strong F-35 production and sustainment volumes. The higher sales volume pushes the profit outlook up to between $3 and $3.08 billion. Margins are pegged modestly lower than our prior guidance as we scale up new contracts in F-35 production, expand sustainment work, and absorb the F-16 and C-130 challenges we realized in Q1. Excluding the favorable comparison impacts created by the prior year losses, Aero has posted low single-digit year-over-year sales growth through the H1 2026.

Speaker #2: Starting with Aeronautics on slide 5, we now project Aero to deliver full-year 2026 sales of $31.7 to $32.7 billion, driven by strong F-35 production and sustainment volumes.

Speaker #2: The higher sales volume pushes the profit outlook up to between 3% and $3.08 billion. Margins are pegged modestly lower than our prior guidance as we scale up new contracts in F-35 production, expand sustainment work, and absorb the F-16 and C-130 challenges we realized in Q1.

Speaker #2: Excluding the favorable comparison impacts created by the prior-year losses, Arrow has posted low single-digit year-over-year sales growth through the first half of 2026. Our updated outlook accelerates Arrow's growth rate to the mid-single digits for the second half of this year.

Maria Ricciardone: Our updated outlook accelerates Aero's growth rate to the mid-single digits for the H2 of this year. The top end of Aero's updated sales range implies an even stronger H2 growth rate could be realized, driven by a bump in sales that is dependent on timing of award for the next lot of F-35 production. Moving to Missiles and Fire Control on slide six. MFC had very strong growth in Q2. Sales were up 19% and profit was up 24% year-over-year, fueling a raise to our full-year outlook as the cadence of munitions production continues to accelerate. MFC's sales range has been adjusted to $16.5 to $16.9 billion, lifting the low end of our prior guidance. The profit range is now $2.3 to $2.35 billion, reflecting continued mid-teens margin performance. Through the H1 of 2026, MFC has grown sales 14% year-over-year.

Mark Kvasnak: Our updated outlook accelerates Aero's growth rate to the mid-single digits for the H2 of this year. The top end of Aero's updated sales range implies an even stronger H2 growth rate could be realized, driven by a bump in sales that is dependent on timing of award for the next lot of F-35 production. Moving to Missiles and Fire Control on slide six. MFC had very strong growth in Q2. Sales were up 19% and profit was up 24% year-over-year, fueling a raise to our full-year outlook as the cadence of munitions production continues to accelerate. MFC's sales range has been adjusted to $16.5 to $16.9 billion, lifting the low end of our prior guidance. The profit range is now $2.3 to $2.35 billion, reflecting continued mid-teens margin performance. Through the H1 of 2026, MFC has grown sales 14% year-over-year.

Speaker #2: The top end of arrow's updated sales range implies an even stronger second half growth rate could be realized, driven by a bump in sales that is dependent on timing of award for the next lot of F-35 production.

Speaker #2: Moving to missiles and fire control on slide 6, MFC had very strong growth in the second quarter. Sales were up 19%, and profit was up 24% year over year.

Speaker #2: Fueling a raise to our full-year outlook as the cadence of munitions production continues to accelerate. MFC's sales range has been adjusted to $16.5 to $16.9 billion, lifting the low end of our prior guidance.

Speaker #2: And the profit range is now $2.3 to $2.35 billion, reflecting continued mid-teens margin performance. Through the first half of 2026, MFC has grown sales 14% year over year.

Speaker #2: And at this updated outlook level, the second half 2026 growth rate will be even faster. Next is rotary emission systems on slide 7. At RMS, the new radar awards Jim and Evan mentioned give us confidence to increase the full-year sales outlook to between 17.7 and 18.1 billion, the profit outlook at RMS is also raised, and is now between 1.86 and 1.89 billion, keeping margins steady relative to the prior outlook.

Maria Ricciardone: At this updated outlook level, the H2 2026 growth rate will be even faster. Next is Rotary and Mission Systems on slide seven. At RMS, the new radar awards Jim and Evan mentioned give us confidence to increase the full-year sales outlook to between $17.7 and $18.1 billion. The profit outlook at RMS is also raised and is now between $1.86 and $1.89 billion, keeping margin steady relative to the prior outlook. RMS sales during the H1 of 2026 were relatively comparable to the same period last year. Our updated full-year outlook indicates RMS will accelerate to a mid-single digit year-over-year growth rate in the H2, driven by the higher radar volumes and continued production ramps at Sikorsky. Wrapping up with Space on slide eight. In Q2, Space grew sales 6% and profits 2% year-over-year.

Mark Kvasnak: At this updated outlook level, the H2 2026 growth rate will be even faster. Next is Rotary and Mission Systems on slide seven. At RMS, the new radar awards Jim and Evan mentioned give us confidence to increase the full-year sales outlook to between $17.7 and $18.1 billion. The profit outlook at RMS is also raised and is now between $1.86 and $1.89 billion, keeping margin steady relative to the prior outlook. RMS sales during the H1 of 2026 were relatively comparable to the same period last year. Our updated full-year outlook indicates RMS will accelerate to a mid-single digit year-over-year growth rate in the H2, driven by the higher radar volumes and continued production ramps at Sikorsky. Wrapping up with Space on slide eight. In Q2, Space grew sales 6% and profits 2% year-over-year.

Speaker #2: RMS sales during the first six months of 2026 were relatively comparable to the same period last year. Our updated full-year outlook indicates RMS will accelerate to a mid-single digit year-over-year growth rate in the second half.

Speaker #2: Driven by the higher radar volumes and continued production ramps at Sikorsky. Wrapping up with space on slide 8, in the second quarter, space grew sales 6%, and profits 2% year over year.

Speaker #2: We now anticipate 2026 sales of between 13.85 and 14.05 billion, supported by key wins on the next-generation interceptor, fleet ballistic missile, and several classified national security programs.

Maria Ricciardone: We now anticipate 2026 sales of between $13.85 and $14.05 billion, supported by key wins on the Next Generation Interceptor, Fleet Ballistic Missile, and several classified national security programs. The Space full-year profit outlook was lowered to between $1.34 and $1.38 billion due to reduced ULA equity earnings because of the ongoing technical investigation of the Vulcan launch anomaly experienced earlier this year. Growth rates at Space will follow the same trend as each of the other segments. The H2 of 2026 will be stronger than the H1. At this updated outlook level, the mid-single digit year-over-year sales growth that Space posted in the H1 will step up to the high single digits in the H2. The takeaway is this: our raised guidance is broad-based. Every segment has updated higher 2026 full-year sales outlooks and three out of four segments have higher profit outlooks.

Mark Kvasnak: We now anticipate 2026 sales of between $13.85 and $14.05 billion, supported by key wins on the Next Generation Interceptor, Fleet Ballistic Missile, and several classified national security programs. The Space full-year profit outlook was lowered to between $1.34 and $1.38 billion due to reduced ULA equity earnings because of the ongoing technical investigation of the Vulcan launch anomaly experienced earlier this year. Growth rates at Space will follow the same trend as each of the other segments. The H2 of 2026 will be stronger than the H1. At this updated outlook level, the mid-single digit year-over-year sales growth that Space posted in the H1 will step up to the high single digits in the H2. The takeaway is this: our raised guidance is broad-based. Every segment has updated higher 2026 full-year sales outlooks and three out of four segments have higher profit outlooks.

Speaker #2: The space full-year profit outlook was lowered to between 1.34 and 1.38 billion, due to reduced ULA equity earnings because of the ongoing technical investigation of the Vulcan launch anomaly experienced earlier this year.

Speaker #2: Growth rates at Space will follow the same trend as each of the other segments. The second half of 2026 will be stronger than the first half.

Speaker #2: At this updated outlook level, the mid-single digit year-over-year sales growth that space posted in the first half will step up to the high single digits in the back half.

Speaker #2: So the takeaway is this: a raised guidance is broad-based, every segment has updated higher 2026 full-year sales outlooks, and 3 out of 4 segments have higher profit outlooks.

Speaker #2: On a year-over-year basis, every segment will grow faster in the second half of 2026, continuing the acceleration we posted in Q2. Evan, now back to you.

Maria Ricciardone: On a year-over-year basis, every segment will grow faster in the H2 of 2026, continuing the acceleration we posted in Q2. Evan, now back to you.

Mark Kvasnak: On a year-over-year basis, every segment will grow faster in the H2 of 2026, continuing the acceleration we posted in Q2. Evan, now back to you.

Speaker #1: Thanks, Mark. Overall, the second quarter delivered very solid performance, highlighted by historic backlog and accelerating top-line growth, as well as strong free cash flow. This paves the way for sustainable growth and confirms that our strategy and execution are strengthening the fundamentals of the business.

Evan Scott: Thanks, Mark. Overall, Q2 delivered very solid performance, highlighted by historic backlog and accelerating top line and strong free cash flow, paving the way for sustainable growth and confirming that our strategy and execution are strengthening the fundamentals of the business. We remain confident that our proven and expanding capabilities will continue to be in high demand and that our execution will drive strong performance throughout the remainder of 2026 and beyond. Now we'll open the call for questions.

Speaker #1: We remain confident that our proven and expanding capabilities will continue to be in high demand, and that our execution will drive strong performance throughout the remainder of 2026 and beyond.

Speaker #1: And now we'll open the call for questions.

Speaker #3: Thank you. If you would like to ask a question, please press star, then one now on your touchstone phone. You will hear an enunciator indicating you have been placed in queue.

Operator: Thank you. If you would like 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. If you are using a speakerphone, please pick up the handset before pressing the numbers. Once again, if you have a question, please press star then one at this time. Your first question comes from Scott Deuschle with Deutsche Bank. Your line is open.

Speaker #3: You may remove yourself from queue at any time by pressing star, then one again. We ask that you limit yourself to one question. If you are using a speakerphone, please pick up the handset before pressing the numbers.

Speaker #3: Once again, if you have a question, please press star, then one at this time. Your first question comes from Scott Duchel with Deutsche Bank.

Speaker #3: Your line is open.

Speaker #4: Hi, good morning. Jim, between PAC-3s, Morpheus, Sanctum, and some of these other new products you've announced recently, it seems like Lockheed is now moving pretty quickly in terms of responding to how warfare is changing.

Scott Deuschle: Hi, good morning. Jim, between PAC-3 ACE, MORFIUS, Sanctum, and some of these other new products you've announced recently, it seems like Lockheed is now moving pretty quickly in terms of responding to how warfare is changing. I was wondering if you could just speak to what type of timeline the business is working to in terms of the manufacturing scale-up for those solutions, and also if you're willing to deploy CapEx for those scale-ups ahead of formal awards. Thank you.

Speaker #4: But I was wondering if you could just speak to what type of timeline the business is working to in terms of the manufacturing scale up.

Speaker #4: For those solutions, and also if you're willing to deploy CAD/PACs for those scale-ups ahead of formal awards. Thank you.

Speaker #1: Yeah, good morning, Scott. I’d start by answering your question with this: We’ve been working on a mindset change at this company for the past five years, and our aspiration is not just to be the largest defense prime contractor, but to be America’s clear leader in the defense technology segment.

Maria Ricciardone: Yeah, good morning, Scott. I'd start by answering your question with this. We've been working a mindset change at this company for the past five years, our aspiration is not just to be the largest defense prime contractor, but it's to be America's clear leader in the defense technology segment. The way to get there is to be able and show that we can deliver decisive military advantage to drive deterrence to armed conflict on behalf of our government and our allies. The way we've been going about that is to build mission technology roadmaps

Jim Taiclet: Yeah, good morning, Scott. I'd start by answering your question with this. We've been working a mindset change at this company for the past five years, our aspiration is not just to be the largest defense prime contractor, but it's to be America's clear leader in the defense technology segment. The way to get there is to be able and show that we can deliver decisive military advantage to drive deterrence to armed conflict on behalf of our government and our allies. The way we've been going about that is to build mission technology roadmaps

Speaker #1: And the way to get there is to be able and show that we can deliver decisive military advantage to drive deterrence to armed conflict on behalf of our government and our allies.

Speaker #1: The way we've been going about that is to build mission technology roadmaps that just don't wait for the next order; they predict with a lot of informed relationships with our customer base what they're going to need and, in some cases, before it's evident and gets through their acquisition system to come up with an RFP.

Jim Taiclet: That just don't wait for the next order. They predict, with a lot of informed relationships with our customer base, what they're going to need, and in some cases, before it's evident and gets through their acquisition system to come up with an RFP. We are building those technology roadmaps and investing based on our confidence in the ability to make good choices on predicting what the armed forces are going to need. There's a couple ways to get into that. One is target weapons matching. Right. For the various threats that come about or that we're aware of or the military has to face, what is the best weapon to defeat that target? To just take the example you raised, the PAC-3 ACE. We use PAC-3 missiles, or our military uses PAC-3 missiles, the MSE missile, for a wide range of targets.

Speaker #1: So we are building those technology roadmaps and investing based on our confidence in the ability to make good choices on deciding or predicting what the armed forces are going to need.

Speaker #1: There's a couple ways to get into that. One is target weapons matching, right? So for the various threats that come about or that we're aware of, or the military has to face, what is the best weapon to defeat that target?

Speaker #1: And so to just take the example you raised, the PAC-3As, we use PAC-3 missiles or our military uses PAC-3 missiles for a wide range the MSC missile for a wide range of targets.

Speaker #1: It has more capability than some of those targets require at a higher cost. So we just went ahead and said, "We know we need a PAC-3 missile that may not be as expensive and not as sophisticated, and how."

Jim Taiclet: It has more capability than some of those targets require, at a higher cost. We just went ahead and said, we know we need a PAC-3 missile that maybe, not as expensive and not as sophisticated, and how could we get two-thirds of the capability of the PAC-3 MSE for, call it, half the price or maybe even a third of the price? That's target weapons matching. The PAC-3 MSE can hit long-range, high-speed, almost intercontinental ballistic missiles. It can also defeat hypersonic missiles, and that's been demonstrated in Europe, that maneuver in the end state. We need a lower capability, lower cost PAC-3 missile for short-range ballistic missiles and for cruise missiles and drones.

Speaker #1: Two-thirds of the capability of the PAC-3 MSC for, call it, half the price, or maybe even a third of the price. And that's target weapons matching.

Speaker #1: So the PAC-3 MSC can hit long-range high-speed almost intercontinental ballistic missiles; it can also defeat hypersonic missiles, and that's been demonstrated in Europe, that maneuver in the end state.

Speaker #1: But we need a lower capability, lower cost PAC-3 missile to for a short-range ballistic missiles, and for cruise missiles and drones. And so we just went ahead without an RFP or RFI or anything like that to figure out how to solve that target weapons matching problem in an environment of economic equivalence, right?

Jim Taiclet: We just went ahead without an RFP or RFI or anything like that to figure out how to solve that target weapons matching problem in an environment of economic equivalence. Right. We want to get an economic match, cost to cost, and also the target weapons match for capability. That's the way we're running the company now. That's, again, not only the largest contractor, so to speak. When a contract comes, we compete for it, we win it. How do we be the clear leader in the defense technology segment to benefit our national defense? That's the mindset change we have. Yes, we are investing in the manufacturing and design capabilities before the orders come in, and I think that's the right way to run the company, Scott.

Speaker #1: So we want to get an economic match, cost to cost, and also the target weapons match for capability. And that's the way we're running the company now.

Speaker #1: That's, again, not only the largest contractor, so to speak, when a contract comes. We compete for it. We win it. But how do we be the clear leader in the defense technology segment to benefit our national defense?

Speaker #1: That's the mindset change we have. So yes, we are investing in the manufacturing and design capabilities before the orders come in. And I think that's the right way to run the company, Scott.

Speaker #3: Your next question comes from Scott Mikus with Melius Research. Your line is open.

Operator: Your next question comes from Scott Mikus with Melius Research. Your line is open.

Speaker #5: Hey, Jim. I have a high-level question for you. You've long advocated for the Pentagon to adopt a more commercial acquisition model, and a lot of the new defense entrants are pushing for the same.

Scott Mikus: Hey, Jim. I have a high-level question for you. You've long advocated for the Pentagon to adopt a more commercial acquisition model, and a lot of the new defense entrants are pushing for the same. Lockheed's funded development of the C-130J with its own capital in the past, and that program initially earned commercial-like margins before the Pentagon ended up reversing its commercial designation. How confident are you that the current administration's push towards a commercial acquisition system will be durable rather than reversed by a future administration?

Speaker #5: But Lockheed's funded development of the C-130J with its own capital in the past, and that program initially earned commercial-like margins before the Pentagon ended up reversing its commercial designation.

Speaker #5: So how confident are you that the current administration's push towards a commercial acquisition system will be durable rather than reversed by a future administration?

Jim Taiclet: Scott, this is exactly why the landmark multi-year munitions commercial framework agreements are so critical, because the DOW team in place today, under Secretary Pete and Deputy Secretary Steve as well, and their teams, under that leadership, we believe they share our view that to fully engage U.S. industry more broadly in supporting the national defense, that they and we must embrace commercially inspired long-term enforceable agreements and contracts that can't be changed at the whim of the government, just like the C-130, without compensating the industry players. It could be a new entrant, it could be a startup, it could be Lockheed Martin, it could be RTX. We need the confidence to act as we would act in a commercial environment to make investments to solve these national defense problems.

Speaker #1: So, Scott, this is exactly why the landmark multi-year ammunitions commercial framework agreements are so critical. Because the DOW team in place today under Secretary Hegseth and Deputy Secretary Feinberg as well and their teams under that leadership, we believe they share our view that the fully engaged US industry more broadly in supporting the national defense that they and we must embrace commercially inspired long-term enforceable agreements and contracts.

Speaker #1: That can't be changed—at the whim of the government, just like the C-130—without compensating the industry players. And it could be a new entrant.

Speaker #1: It could be a startup. It could be Lockheed Martin. It could be RTX. We need the confidence to act as we would act in a commercial environment to make investments to solve these national defense problems.

Speaker #1: So I think this is the leadership team in government that can actually leapfrog what's ever gone on before when it comes to commercial-type agreements, and include the biggest prime contractors in that that are willing to step up and, as the prior question suggested, invest ahead of time.

Jim Taiclet: I think this is the leadership team in government that can actually leapfrog what's ever gone on before when it comes to commercial-type agreements and include the biggest prime contractors in that that are willing to step up and, as the prior question suggested, invest ahead of time, think ahead of time, and put development effort into non-ordered, non-contracted systems that we think, as industry with our partners, are going to be important for the future. Those agreements will have to stand the test of time as circumstances, budgets, and political leadership is going to change over time. Again, with, I think, the administration's leadership in place today, we will establish with them survivable long-term contracts that will allow industry to act on a more commercial basis.

Speaker #1: Think ahead of time and put development effort into non-ordered, non-contracted systems that we think is industry with our partners are going to be important for the future.

Speaker #1: So those agreements will have to stay on the test of time. As circumstances budgets and political leadership is going to change over time. And so, again, what I think the administration's leadership in place today we will establish with them survivable long-term contracts that will allow industry to act on a more commercial basis.

Speaker #1: That's where I think we are today. And we don't plan to ever put ourselves in a risk position where we don't have that confidence in the contract that we didn't have for the C-130.

Jim Taiclet: That's where I think we're at today, and we don't plan to ever put ourselves in a risk position where we don't have that confidence in the contract that we didn't have for the C-130. We're not doing that anymore. We're not taking that kind of risk without a counterparty that's willing to work on a commercial basis right along with us.

Speaker #1: We're not doing that anymore. We're not taking that kind of risk without a counterparty that's willing to work on a commercial basis right along with us.

Speaker #3: Your next question comes from John sorry, John Godden with Citi. Your line is open.

Operator: Your next question comes from John Godden with Citi. Your line is open.

Speaker #6: Hey, guys. Thanks for taking my question. Jim, Evan, we're looking at a record backlog. So the demand indications, the demand signals say revenue is accelerating.

John Godden: Hey, guys. Thanks for taking my question. Jim, Evan, we're looking at a record backlog. The demand indications, the demand signals say revenue is accelerating. Needless to say, the stock price over the last few months suggests a lot of concern about that. I was hoping that you could just reflect on that, and maybe give people confidence in the revenue growth outlook from here, the possibility of accelerating revenue growth, and hopefully comment a little bit on international as well as something that might lend confidence to that. Thanks.

Speaker #6: Needless to say, the stock price over the last few months suggests a lot of concern about that. I was hoping that you could just reflect on that.

Speaker #6: And maybe give people confidence in the revenue growth outlook from here, the possibility of accelerating revenue growth, and hopefully comment a little bit on international as well, as something that might lend confidence to that.

Speaker #6: Thanks.

Speaker #1: Yeah. I'll start off, and maybe let Evan speak a little bit more about some of the individual programs. But just take the F-35, for example.

Jim Taiclet: Yeah, I'll start off and maybe let Evan speak a little bit more about some of the individual programs. Just take the F-35, for example. There's long-term demand for that aircraft, both in the US government and among our allies. It's the only in-production fifth-generation fighter in the free world, which means we have to keep building it, and there'll be demand for it as time goes on. If you just look at the Far East theater, the PACOM command area, the Chinese are building literally hundreds of F-35 type aircraft. I'd like to argue that they're not as capable, but they are building at a high rate fifth-generation aircraft to apply to that theater at a pace which we hope to continue to stay competitive with, let me say. The intent of the Department of War in this budget cycle was 85 aircraft for the United States alone.

Speaker #1: There's long-term demand for that aircraft, both in the US government and among our allies. It's the only in-production fifth-generation fighter in the free world, which means we have to keep building it, and there'll be demand for it as time goes on.

Speaker #1: If you just look at the Far East Theater, the PACON command area, the Chinese are building literally hundreds of F-35-type aircraft I'd like to argue that they're not as capable, but they are building a high-rate fifth-generation aircraft to apply to that theater.

Speaker #1: At a pace which we hope to continue to stay competitive with, let me say: the intent of the Department of War in this budget cycle was 85 aircraft for the United States alone. The balance of the 156 per year would then be allocated to our allies and partners overseas.

Jim Taiclet: The balance of the 156 per year would be then allocated to our allies and partners overseas. Now, Congress has to work with the administration to figure out how to budget and fund that. That aircraft, whether it's this budget cycle, the next one, five years from now, is going to be in high demand. We feel really confident that the 156 per year production rate will be sustained for quite some time. The to-ing and fro-ing of the political budget cycles will not, in the long or medium term or even in the short term, I think, really adversely affect what the country needs and what our allies need to defend themselves in, sadly, an increasingly sort of dangerous world. Evan, do you have more to add to that?

Speaker #1: Now, Congress has to work with the administration to figure out how to budget and fund that. But that aircraft whether it's this budget cycle, the next one five years from now, is going to be in high demand.

Speaker #1: We feel really confident that the 156 per year production rate will be sustained for quite some time. And the tuning and throwing of the political budget cycles will not, in the long or medium term, or even in the short term, I think, really adversely affect what the country needs and what our allies need to defend themselves and, sadly, an increasingly sort of dangerous world.

Speaker #1: So, Evan, do you have one to add to that?

Speaker #2: Yeah. I think that sounds right on. And in terms of the stock price and I do think given the newness of what we're seeing here with the way to acquire these munitions, I mean, there's some learning that's going to happen, I think, as investors continue to understand it better.

Evan Scott: Yeah, I think that sounds right on. In terms of the stock price, I do think given the newness of what we're seeing here with the way to acquire these munitions, there's some learning that's going to happen, I think, as investors continue to understand it better. I think we'll continue to gain confidence as we convert these agreements to real contracts, as we saw in THAAD this quarter, and we're intending in the H2 of the year to also get a multi-year on PAC-3. As we continue to have the contracts add to the backlog and be able to get better line of sight to the near-term multi-year revenue growth profile, I think we'll see that more translate. This quarter, I think, is a great example of that, and we're seeing good response so far.

Speaker #2: I think we'll continue to gain confidence as we convert these agreements to real contracts, as we saw in THAAD this quarter. And we're intending, in the second half of the year, to also get a multi-year on PAC-3.

Speaker #2: So as we continue to have the contracts add to the backlog and are able to get better line of sight to the near-term, multi-year revenue growth profile, I think we'll see that translate more. But this quarter, I think, is a great example of that.

Speaker #2: And we're seeing good response so far.

Speaker #3: Your next question comes from Gautam Kanna with PD Cowan. Your line is open.

Operator: Your next question comes from Gautam Khanna with TD Cowen. Your line is open.

Speaker #5: Yes, thank you. Good morning, guys.

Gautam Khanna: Yes, thank you. Good morning, guys.

Speaker #1: Good morning.

Evan Scott: Morning.

Speaker #5: I was wondering if you could comment on risks within the business. In the past, you've talked about a couple of classified programs at Arrow and Missile and Fire Control.

Gautam Khanna: I was wondering if you could comment on risks within the business. In the past, you've talked about a couple classified programs at Aero and missile, some fire control. Maybe an update to the extent you can provide one on those programs, and if there are any milestones or meaningful things that we should be looking for on those programs in particular over the next couple quarters. Then more broadly, if you could just talk about risk across the portfolio. Thank you.

Speaker #5: Maybe an update, to the extent you can provide one, on those programs, and if there are any milestones or meaningful things that we should be looking for on those programs in particular over the next couple of quarters.

Speaker #5: And then more broadly, if you could just talk about risk across the portfolio. Thank you.

Speaker #2: Sure. So, a couple of things to note here. If you look at the two big programs that you talked about on the classified side, the last adjustment we took on the MFC side was in Q4 of 2024.

Evan Scott: Sure. A couple things to note here. If you look at the two big programs that you talked about on the classified side, the last adjustment we took on the MFC side was in Q4 2024, and on Aeronautics side in Q2 2025. In both cases, we set new baselines, and we've established that we can continue to hit those. They're both aggressive. We've got a lot of technical work to do, but we're making great progress and have shown stability in our ability to execute. I think if you look broader across the portfolio, the thing to look for is the amount of scale across the portfolio. For instance, in RMS, there are four Sikorsky platforms that are all delivering more this year compared to last year.

Speaker #2: And Aeronautics side, in 2Q of 2025. In both cases, we set new baselines and we've established that we can continue to hit those. They're both aggressive.

Speaker #2: We're we've got a lot of technical work to do, but we're making great progress and have shown stability in our ability to execute. I think if you look broader across the portfolio, the thing to look for is the amount of scale across the portfolio.

Speaker #2: So for instance, in RMS, there are four Sikorsky platforms that are all delivering more this year compared to last year. In the case of 53K, we could be talking 2X deliveries this year versus last year, and potentially doubling again next year.

Evan Scott: In the case of CH-53K, we could be talking 2x deliveries this year versus last year, and potentially doubling again next year. In Aeronautics, F-16 and C-130 all deliver more this year versus last year. In MFC, there's a total of 10 munitions that are delivering more this year versus last year. We are in a scaling mode right now. I think the thing to look for is resilience, right? Two things, can we scale and can we be resilient? The F-16, which although we took charges earlier this year, is a great example of that. One of the things that we continuously demonstrate is that our platforms, we continue to iterate and evolve them and improve them. An F-16 today is very different from an F-16 when we started production.

Speaker #2: In Aeronautics, F-16 and C-130 all deliver more this year versus last year. And in MFC, there's a total of 10 munitions that are delivering more this year versus last year.

Speaker #2: So we are on a scaling mode right now. I think to look the thing to look for is resilience, right? Two things. Can we scale and can we be resilient?

Speaker #2: And the F-16, which although we took charges earlier this year, is a great example of that. One of the things that we continually demonstrate is that our platforms, we continue to iterate and evolve them and improve them.

Speaker #2: So, an F-16 today is very different from an F-16 when we started production. And so, a new variant that we had a flight test on this year didn't quite meet our expectations of what we expect for us and our customers.

Evan Scott: A new variant that we had a flight test this year didn't quite meet our expectations of what we expect for us and our customers. We did a redesign, got the redesign complete, redid flight test, and began deliveries again at F-16. That's the resilience you should look for us to scale, because if you look particularly in the munitions, the scaling is just on the front end and is broad-based. We have line of sight to be able to achieve that.

Speaker #2: So we did a redesign, got the redesign complete, redid flight test, and began deliveries again on F-16. That's the resilience. You should look for for us to scale because if you look particularly in the munitions, the scaling is just on the front end and is broad-based.

Speaker #2: But we have line of sight to be able to achieve that.

Speaker #3: Your next question comes from Sheila Kalu with Jefferies. Your line is open.

Operator: Your next question comes from Sheila Kahyaoglu with Jefferies. Your line is open.

Speaker #6: Good morning, guys, and thank you so much for the time. And all the clarity on the script. I guess can we talk about just the discussion today on supply demand signals that you're continuing to invest in '26 and for years to come?

Sheila Kahyaoglu: Good morning, guys. Thank you so much for the time and all the clarity on the script. I guess, can we talk about just the discussion today on supply-demand signals that you're continuing to invest in 2026 and 30 years to come? How do we think about just the CapEx efficiencies that you're seeing and how we think about 2027, and how the customer funding looks as we think about level of investments this year and going forward?

Speaker #6: How do we think about just the CapEx efficiencies that you're seeing and how we think about '27? And how the customer funding looks as we think about level of investments this year and going forward?

Speaker #1: Yeah. I'll start on the CapEx and the investment. A few things to note here. One, while we did reduce our capital expenditures for the year, there was a couple of things to note.

Evan Scott: Yeah. I'll start on the CapEx and the investment. A few things to note here. One, while we did reduce our capital expenditures for the year, there's a couple things to note. One, a part of that is driven by just timing. For instance, on the MFC side, there's a facility we intended to buy that we instead decided to lease for a year and buy next year due to tax efficiencies. The other thing that's really interesting to note there, it's one of the first true early returns of the partnerships that we've experienced with the Department of War and the bond team, where we've partnered to really look at the most efficient, fast way to scale these munitions, which is why we would say we're ahead of progress or of schedule to scale and doing it more efficiently.

Speaker #1: One, a part of that is driven by just timing. So for instance, on the MFC side, there's a facility we intended to buy that we instead decided to lease for a year and buy next year due to tax efficiencies.

Speaker #1: But the other thing that's really interesting to note there it's one of the first true early returns of the partnerships that we've experienced with the Department of War and the bond team, where we've partnered to really look at the most efficient, fast way to scale these munitions which is why we would say we're ahead of a progress of schedule to scale.

Speaker #1: And doing it more efficiently. But our commitment to invest a total between $8 to $9 billion of capital in munition scaling is unchanged.

Evan Scott: Our commitment to invest a total of between $8 to $9 billion of capital in munition scaling is unchanged. You're going to see us continue to be in a growth and investment mode over the next few years. What's important when you look at the free cash flow is that we can pair it with the kind of free cash flow generation that we experienced this quarter, and that's due to a number of things. One, some improvements we're seeing in working capital and the very nature of these deals that Jim mentioned that are critical for the munition scaling that allow favorable cash treatment while we do self-investment on the capacity.

Speaker #1: So you're going to see us continue to be in a growth and investment mode over the next few years. What's important, when you look at the free cash flow, is that we can pair it with the kind of free cash flow generation that we experienced this quarter.

Speaker #1: And that's due to a number of things. One, some improvements we're seeing in working capital and the very nature of these deals that Jim mentioned that are critical for the munition scaling that allow favorable cash treatment while we do self-investment on the capacity.

Speaker #4: And from a broader perspective, if you kind of put all this together—just staying on the munitions for just a minute—we and our government customer leadership would be happy to trade lower costs for input and CapEx for speed.

Jim Taiclet: From a broader perspective, you can kind of put all this together, just staying on the munitions for just a minute. We and our government customer leadership, would be happy to trade lower cost for input and CapEx for speed. If we could do something faster and spend less CapEx, I think that's great for everybody. We had an initial prediction of $8 to $9 billion. For one example, again, using all the cards in the deck, if you ever go down to our factory in Camden, Arkansas, you'll see that about a third of it today is used for the PrSM missile, which is next generation, highly automated, AI-informed. The production line looks like the robotic kind of production line that you think about for auto factories and such, where there's a few people running automated machines and robots.

Speaker #4: If we could do something faster and spend less CapEx, I think that's great for everybody. So we had an initial prediction of 8 to 9 billion.

Speaker #4: And so for one example, again, using all the cards in the deck, if you ever go down to our factory in Camden, Arkansas, you'll see that about a third of it today is used for the Prism missile, which is next generation highly automated AI-informed.

Speaker #4: The production line looks like that for auto factories and such, where there's a few people running automated machines and robots vis-à-vis the ATACMS line, which is about two-thirds of that building, which was designed decades ago.

Jim Taiclet: Vis-a-vis the ATACMS line, which is about two-thirds of that building, which was designed decades ago. We didn't have all these automated technologies. We didn't have AI to be able to control the robotics and learn from experience. There's a lot more people over there, and it takes up a lot more space. We're basically partnering with Rheinmetall, as you heard, to move that ATACMS line into factory space in Germany, where the customer base largely is now, and expand the PrSM line without building another building for it. That's a trade everyone should be happy with. We've got international partner that's going to provide floor space, factory space, talent that we need, and investment that we don't have to then put in. That's just one example of how do you get the most efficiency when the demand is going up at the rate it is.

Speaker #4: We didn't have all these automated technologies. We didn't have AI to be able to control the robotics and learn from experience. And there's a lot more people over there.

Speaker #4: And it takes up a lot more space. And we're basically partnering with Rheinmetall, as you heard, to move that ATACMS line into factory space in Germany, where the customer base largely is now, and expand the PrSM line without building another building.

Speaker #4: For it. So that's a trade everyone should be happy with. We've got international partner that's going to provide floor space, factory space, talent that we need and investment that we don't have to then put in.

Speaker #4: That's just one example of how you get the most efficiency when the demand is going up at the rate it is. And just one note on the framework agreements.

Jim Taiclet: Just one note on the framework agreements. Remember, we're being asked to triple PAC-3 MSE production, quadruple THAAD production, and scale up PrSM production faster than we ever thought we would. All those things are happening because we're using every card in the deck to get that, we call it the ramp in this space here, the ramp rate as high as we can, as fast as we can, as efficiently as we can. That's how we're going about this. The government's giving us a lot more flexibility than they traditionally would have done on requirements and other facets that they traditionally provide that we can be faster. That's what I hear from the Deputy Secretary every time we get together, and beyond, faster, faster.

Speaker #4: Remember, we're being asked to triple tax-free MSE production. Quadruple FAD production. And scale up Prism production faster than we ever thought we would. And all those things are happening because we're using every card in the deck to get that we call it the ramp in this space here, the ramp rate as high as we can as fast as we can as efficiently as we can.

Speaker #4: And that's how we're going about this. The government's giving us a lot more flexibility than they traditionally would have under requirements and other facets that they traditionally provide, so we can be faster.

Speaker #4: That's what I hear from the Deputy Secretary every time we get together. And beyond, faster, faster, faster. And so we're using all the cards in the deck to be as efficient as we can, as we try to go faster.

Jim Taiclet: We're using all the cards in the deck to be as efficient as we can as we try to go faster.

Speaker #3: Your next question comes from Rob Stallard with Vertical. Your line is open.

Operator: Your next question comes from Rob Stallard with Vertical. Your line is open.

Speaker #5: Thanks so much. Good morning. Evan, a question for you: On the new FAD missile contract, how do you expect the initial margins on this contract to compare versus historical missile contracts?

Rob Stallard: Thanks very much. Good morning.

Evan Scott: Good morning.

Rob Stallard: Evan, a question for you. On the new THAAD missile contract, how do you expect the initial margins on this contract to compare versus historical missile contracts? Thank you.

Speaker #5: Thank you.

Speaker #1: Sure, Rob. We expect it to be consistent with our historic munitions production margins. I think generally speaking, with these big ramps and when we have very large growth, there can be a little bit of near-term dilution, just based on the long nature of the programs and the fact that we tend to step up our profit booking rate over time as we take risk reduction milestones and make deliveries.

Evan Scott: Sure, Rob. We expect it to be consistent with our historic munitions production margins. I think generally speaking, with these big ramps and when we have very large growth, there can be a little bit of near-term dilution just based on the long nature of the programs and the fact that we tend to step up our profit booking rate over time as we take risk reduction milestones and make deliveries. While there could be some near-term dilution, I think long term, we would expect this to match our traditionally very strong margins in MFC with a goal to increase versus historical margins in MFC.

Speaker #1: So, while there could be some near-term dilution, I think long-term we would expect this to match our traditionally very strong margins in MFC, with a goal to increase versus historical margins in MFC.

Speaker #3: Your next question. Comes from Matt Acres with BNP Paribas. Your line is open.

Operator: Your next question comes from Matt Akers with BNP Paribas. Your line is open.

Matt Akers: Hey, good morning, guys. Thanks for the question. I wanted to follow up on Rob's question, actually, on just kind of longer term margin outlook at MFC. As you just mentioned

Matt Akers: Hey, good morning, guys. Thanks for the question. I wanted to follow up on Rob's question, actually, on just kind of longer term margin outlook at MFC. As you just mentioned Yeah, I think you said some of the earlier phases of these contracts could be not as strong margins and they improve over time. This was the best quarter we've seen in a while at MFC. Is there scope for that to continue to improve, and should we think about improving into 2027? Thanks.

Speaker #6: Hey, good morning, guys. Thanks for the question. I wanted to follow up on Rob's question, actually, on just kind of the longer-term margin outlook at MSC.

Speaker #6: As you just mentioned, yeah, I think you said some of the earlier phases of these contracts could be not as strong margins and they improve over time, but this was the best quarter we've seen in a while at MSC.

Matt Akers: Yeah, I think you said some of the earlier phases of these contracts could be not as strong margins and they improve over time. This was the best quarter we've seen in a while at MFC. Is there scope for that to continue to improve, and should we think about improving into 2027? Thanks.

Speaker #6: Is there scope for that to continue to improve? And should we think about improving into 2027? Thanks.

Speaker #1: I think what you're seeing this year is what we should generally expect to see in the future, which is MFC margins in kind of the high 13s, low 14s, which is what we've managed to do when we're really hitting our ramps and hitting our marks, which we've been doing here pretty consistently on the MFC side.

Evan Scott: I think what you're seeing this year is what we should generally expect to see in the future, which is MFC margins in kind of the high 13s, low 14s, which is what we've managed to do when we're really hitting our ramps and hitting our marks, which we've been doing here pretty consistently on the MFC side. We are in the process of converting these framework agreements to true long-term multi-year programs and contracts. There are still some ongoing negotiations that will be impactful to this. We're well-aligned with our customer on the way to do that to incentivize cost and schedule performance. Which means we expect to have an aggressive schedule ramp as part of our contract, and we're going to have to meet that.

Speaker #1: So, we are in the process of converting these framework agreements to true long-term, multi-year programs and contracts. There are still some ongoing negotiations that will be impactful to this.

Speaker #1: But we're well aligned with our customer on the way to do that, to incentivize cost and schedule performance, which means we expect to have an aggressive schedule ramp as part of our contract.

Speaker #1: And we're going to have to meet that. We expect that there is going to be some profit share if we can truly take cost out of this business, which we're incentivized to do by the long nature of the program.

Evan Scott: We expect that there is going to be some profit share if we can truly take cost out of this business, which we're incentivized to do by the long nature of the program. That's one of the key values of it. We would still think about near-term dilution in the 20 to 30 basis points, over the next few years with a goal to get to higher than historic margins on MFC. For next year, I think generally speaking, this year is a good reflection, within 20 to 30 basis points.

Speaker #1: That's one of the key values of it. So we still think about near-term dilution in the 20 to 30 basis points range over the next few years, with a goal to get to higher than historic margins on MFC. So for next year, I think generally speaking, this year is a good reflection, within 20 to 30 basis points.

Speaker #4: Yeah, Matt, this is Jim. There's something really important embedded in what Evan just went through. Traditional government accounting CASB, it's called cost of accounting system, based accounting in the federal acquisition regulation, reprices even fixed-price contracts if the cost to the vendor goes down.

Jim Taiclet: Yeah, Matt, it's Jim. There's something really important embedded in what Evan just went through. Traditional government accounting, CAS, it's called cost of accounting system-based accounting in the Federal Acquisition Regulation, reprices even fixed price contracts if the cost to the vendor goes down. Let's say we put $10 million into new robotics in Camden, and our cost per unit was $100,000 before, and it went down to $90,000. Well, we'd get repriced down 10%. Who would invest $10 million to get their price down 10% and bleed out all of that benefit? That's the issue with our industry, is essentially that accounting system. What the framework agreements do is take that away. In other words, as Evan suggested, if we get efficiencies while we ramp up our product line, we get to keep in our own profitability. Now we have to do it.

Speaker #4: So, let's say we put $10 million into new robotics in Camden, and our cost per unit was $100,000 before, and it went down to $90,000.

Speaker #4: Well, we'd get repriced down 10%. And who would invest $10 million to get their price down 10% and bleed out all of that benefit?

Speaker #4: And that's the issue with our industry. Is essentially that accounting system. What the framework agreements do is take that away. In other words, as Evan suggested, if we get efficiencies while we ramp up our product line, we get to keep in our own profitability now, we have to do it.

Speaker #4: We have to perform. But we keep our own profitability to ourselves instead of give it back every year on the recost analysis that the government tends to do in traditional contracts.

Jim Taiclet: We have to perform. We keep our own profitability to ourselves instead of give it back every year on the re-cost analysis that the government tends to do in traditional contracts. That enables us to make these investments up front and have actually a fixed price for the customer with an escalator. They know what they're getting, and at some point, if we're able to hit the top mark of our fully retained margin expansion, we will share it with the government, as was implied by Evan. We get to keep a significant ramp-up in profitability to industry if we can perform. Then there's a point where we get to where we share ratably with the government those future benefits. We don't give them all back. We give a portion of them back.

Speaker #4: That enables us to make these investments upfront and have actually a fixed price for the customer with an escalator. They know what they're getting.

Speaker #4: And at some point, if we're able to hit the top mark of our fully retained margin expansion, we will share it with the government.

Speaker #4: It was implied by Evan. But we get to keep a significant ramp-up in profitability to industry if we can perform. And then there's a point where we get to where we share ratably with the government those future benefits.

Speaker #4: We don't give them all back. We give a portion of them back. And I think that's eminently fair to both the US government and taxpayer and it will motivate industry to just get better and faster and actually hit these ramp-up requests that we're getting.

Jim Taiclet: I think that's eminently fair to both the US government and taxpayer, and it will motivate industry to just get better and faster and actually hit these ramp-up requests that we're getting.

Speaker #3: Your next question comes from Christine Leewog with Morgan Stanley. Your line is open.

Operator: Your next question comes from Kristine Liwag with Morgan Stanley. Your line is open.

Speaker #7: Hey, good morning, everyone. Jim, you called out how the Grizzly Counter UAS demonstrator went from concept to test fire in just 45 days. By leveraging existing systems and rapidly integrating proven technologies, 45 days is pretty impressive for what you delivered.

Kristine Liwag: Hey, good morning, everyone. Jim, you called out how the GRIZZLY Counter-UAS demonstrator went from concept to test fire in just 45 days by leveraging existing systems and rapidly integrating proven technologies. 45 days is pretty impressive for what you delivered. Can you size the revenue opportunity that you can tackle on with this new development approach and how you see your potential market share for incremental programs evolve with this faster turnaround?

Speaker #7: So can you size the revenue opportunity that you can tackle on with this new development approach and how you see your potential market share for incremental programs evolve with this faster turnaround?

Speaker #4: Sure, Christine. It's Jim. I'll start—maybe Evan can speak to the financial opportunity set here. Grizzly, and also another system that we have called Morpheus—those were developed by kind of skunk works-type groups in our MFC business, right?

Jim Taiclet: Sure, Kristine. It's Jim. I'll start. Maybe Evan can speak to the financial opportunity set here. GRIZZLY, and also another system that we have called MORFIUS. Those were developed by kind of Skunk Works-type groups in our MFC business, right? With cooperation and collaboration with the other business areas. Which is, again, something relatively new for us, in those kinds of advanced development programs, as we call them. My executive team, we hold many of our executive team meetings every, "monthly meetings" at sites. We're in board meetings too, by the way. Syracuse, New York, we had a board meeting, executive meeting. That's where we build the radars. A few months ago, we had one of the executive meetings at our Orlando facility, which is an MFC facility in Central Florida, which is quite extensive.

Speaker #4: With cooperation and collaboration with the other business areas—which is, again, something relatively new for us in those kinds of advanced development programs, as we call them.

Speaker #4: So we made a visit—my executive team. We hold many of our executive team meetings, our monthly meetings, at sites, so we're in board meetings too. By the way, Syracuse, New York—we had a board meeting, executive meeting—that's where we build the radars.

Speaker #4: A couple of months ago, we had one of the executive meetings at Orlando facility, which is an MFC facility in central Florida. Which is quite extensive.

Speaker #4: It was the big development team there and there's manufacturing there. And that's the kind of place like skunk works in California for the aeronautics group where you can actually figure out things that are new and novel and get ahead of demand and all those aspirations that we have.

Jim Taiclet: There's a big development team there, and there's manufacturing there. That's the kind of place like Skunk Works in California for the Aeronautics group, where you can actually figure out things that are new and novel and get ahead of demand and all those aspirations that we have. It was quite a mix of young and more experienced people. They showed us two things. They showed us a prototype GRIZZLY, which includes the sort of advanced Hellfire, which is now called JAGM. Something we make tens of thousands a year for the Army. The Army has tens of thousands more in their stockpiles. This is not a limited munition, for example. It's inexpensive either. It's made at volume, as I said.

Speaker #4: So it was quite a mix of young and more experienced people. They showed us two things. They showed us a prototype Grizzly which includes the sort of advanced Hellfire, which is now called JAGM.

Speaker #4: Something we make tens of thousands a year for the army. The army has tens of thousands more in their stockpiles. This is not a limited munition, for example.

Speaker #4: And it's not expensive either. It's made at volume, as I said. And containerization is one of our big themes in development now, which is we got to be able to move stuff and put it on a ship or the back of a truck or pick it up with a helicopter and move it because the threats are getting much more dispersed, if you will, with the drones and cruise missiles and things that are coming out now.

Jim Taiclet: Containerization is one of our big themes in development now, which is we ought to be able to move stuff and put it on a ship or the back of a truck, or pick it up with a helicopter and move it because the threats are getting much more dispersed, if you will, with the drones and cruise missiles and things that are coming out now. We have to have defensive systems that can protect air bases or stadiums or whatever that are containerized, meaning we can move them and just set them up someplace, and they're going to work. There were two teams that had displays for us. One was the GRIZZLY team, and they showed us that they could invent a containerized launcher, kind of looks like a four-pack of IPA beer you could buy at the store. The Hellfires are in there.

Speaker #4: And we have to have defensive systems that can protect airbases or stadiums or whatever that are containerized, meaning we can move them and just set them up someplace and they're going to work.

Speaker #4: So, there's two teams that had a display for us. One was the Grizzly team, and they showed us that they could invent a containerized launcher—kind of looks like a four-pack of IPA beer.

Speaker #4: You can buy it at the store. And the Hellfires are in there. They connected it to a command and control system through what we call Sanctum.

Jim Taiclet: They connected it to a command and control system, through what we call Sanctum. By the way, the provider of the Sanctum radar is not necessarily our RMS business. It's one of our Lockheed Martin Ventures companies called Fortem. They have a small transportable radar, which goes right along with the concept. We matched something we had from a ventures company we invested in, MSC, most mass-produced missile we have, and repurposed the whole thing to shoot down drones. Then we went 50 feet down the factory floor to the next demonstration, and they had what we call MORFIUS, which is this big quadcopter, about the size of a dining room table. It has a box on top, which is a high-power microwave.

Speaker #4: And by the way, the provider of the Sanctum radar is not necessarily our RMS business. It's one of our venture Lockheed Martin venture companies called Fordham.

Speaker #4: They have a small, transportable radar, which goes right along with the concept. So we matched something we had from a venture company we invested in.

Speaker #4: MFC, most mass-produced missile we have and repurposed the whole thing to shoot down drones. And then we went 50 feet down the factory floor to the they had what we call Morpheus which is this big quadcopter.

Speaker #4: About the size of a dining room table. And it has a box on top which is a high-power microwave. And the teams, again, eager developers working with the manufacturing folks at MFC literally built this device and kind of the garage almost, if you will.

Jim Taiclet: The teams of, again, eager developers working with the manufacturing folks at MFC literally built this device in the garage almost, if you will, and showed it. We asked about the testing, and Frank St. John and I were there, and we're asking about the testing, how the testing working. What's the success rate and all of that. It's pretty high. They said, "Yeah, we can get up using AI. Let this drone take off on its own." We pre-programmed the bad drones, what they look like, both from a radar signature or a lidar signature, and also electronic warfare type signatures. If the drone sees one, you don't need a person involved. It just goes over, flies next to it like a formation flight in an airplane, and then turns on the high-power microwave and fries the electronics of the drone.

Speaker #4: And showed it. And we asked about the testing, and Frank St. John and I were there and we're asking about the testing. The testing working?

Speaker #4: What's the success rate and all of that? And it's pretty high. So, they said, yeah, we can get up using AI, let this drone take off on its own.

Speaker #4: We pre-programmed the bad drones, what they look like, both from a radar signature or a LiDAR signature, and also electronic warfare type signatures. And if you if the drone sees one, you don't need a person involved.

Speaker #4: It just goes over, flies next to it like a formation flight in an airplane, and then turns on the high-power microwave and fries the electronics of the drone.

Speaker #4: And it goes and does that up to 50 times on one battery charge, and then it goes back for recharge. And I just said to both teams, build 1,000 of these.

Jim Taiclet: It goes and does that up to 50 times on one battery charge, and then it goes back for recharge. I just said to both teams, "Build 1,000 of these." Evan's like, he might be having a little bit of a palpitation.

Speaker #4: Evan's like, remember having a little bit of a palpitation?

Evan Scott: Oh, I'm going to win.

Speaker #2: Oh, I'm a win.

Speaker #4: And we'll figure out each of them. And we'll figure out how to deploy them with the Army, or the Marines, or whoever's going to go—Special Forces, for example.

Evan Scott: Of each of them. We'll figure out how to deploy them with the Army or the Marines or whoever is going to go Special Forces. Write us a contract first. We'll have them available. If they don't sell here, we develop them on our own. We'll try to get exportability really quick. We'll go sell them somewhere else. That's the mentality we have now. There's so many young people. We have 60,000-plus engineers and scientists. When they get the straitjacket pulled off of them and say, Go invent something that has the range, payload, survivability, and economic equivalence to a threat that's really happening and really killing people in places, they then unleash their animal spirits, so to speak. They come up with this stuff. We just pre-funded it. We said, Let's build them.

Jim Taiclet: Of each of them. We'll figure out how to deploy them with the Army or the Marines or whoever is going to go Special Forces. Write us a contract first. We'll have them available. If they don't sell here, we develop them on our own. We'll try to get exportability really quick. We'll go sell them somewhere else. That's the mentality we have now. There's so many young people. We have 60,000-plus engineers and scientists. When they get the straitjacket pulled off of them and say, Go invent something that has the range, payload, survivability, and economic equivalence to a threat that's really happening and really killing people in places, they then unleash their animal spirits, so to speak. They come up with this stuff. We just pre-funded it. We said, Let's build them.

Speaker #4: Write us a contract first. We'll have them available. And if they don't sell here, we develop them on our own. We'll try to get exportability really quick and we'll go sell them somewhere else.

Speaker #4: So that's the mentality we have now. And then there are so many young people. We have 60,000-plus engineers and scientists. When they get the straitjacket pulled off of them and are told, go invent something that has the range, payload, survivability, and economic equivalence to a threat that's really happening and really killing people in places, then they unleash their animal spirits, so to speak, and they come up with this stuff.

Speaker #4: So we just pre-funded it. We said, let's build them. Let's go test them. We kind of went on a road show with the Army and the other services.

Jim Taiclet: Let's go test them. We kind of went on a road show with the Army and the other services. They're now on the range with us demonstrating these things. We'll get an order, I think, someday. If it's not from the US, it'll be somewhere else. That's how we get from concept to delivery in 45 days. Sorry, that was a long explanation.

Speaker #4: And they're now on the range with us demonstrating these things. And we'll get an order, I think, someday. And if it's not from the US, it'll be somewhere else.

Speaker #4: So that's how we get from concept to delivery in 45 days. Sorry, that was a long explanation, but it's changing the way the company operates, the mindset of it, and really unleashing the technical talent we have, the partnerships we have, and the massive manufacturing capability that we have to solve these issues and try to deter war—and win it if we have to.

Evan Scott: Good.

Jim Taiclet: It's changing the way the company operates, the mindset of it. Really unleashing the technical talent we have, the partnerships we have, and the massive manufacturing capability that we have to solve these issues. Try to deter war with it if we have to.

Speaker #1: Absolutely. And from a financial standpoint, I mean, a couple of things to note here. One, I mean, you are seeing a culture changeover, right?

Evan Scott: Absolutely. From a financial standpoint, a couple of things to note here. One, you are seeing a culture changeover, right? We've always been optimized around very closely aligning and anticipating our customer needs. Now you see us not being paced by programs of record, being able to anticipate that, and see where the budget and the needs are going. We have the financial firepower to be able to make these investments. What that translates to from a financial forecast perspective is that the financial forecast numbers we've talked about here are based on our traditional programs. What we're talking about investing in would be incremental to that. We don't see this as taking the place of those products. We see that as supplementing and adding additional capabilities and resilience to the customer's capabilities.

Speaker #1: We've always been optimized around very closely aligning with and anticipating our customer needs. But now, you see us not being paced by programs of record, being able to anticipate that and see where the budget and the needs are going.

Speaker #1: And we have the financial firepower to be able to make these investments. So what that translates to from a financial forecast perspective is that the financial forecast numbers we've talked about here are based on our traditional programs.

Evan Scott: What that translates to from a financial forecast perspective is that the financial forecast numbers we've talked about here are based on our traditional programs. What we're talking about investing in would be incremental to that. We don't see this as taking the place of those products. We see that as supplementing and adding additional capabilities and resilience to the customer's capabilities. We see this as a potential upside for us, and we have the financial firepower to be able to make these investments.

Speaker #1: What we're talking about investing in would be incremental to that. We don't see this as taking the place of those products. We see it as supplementing and adding additional capabilities and resilience to the customer's capabilities.

Speaker #1: So we see this as a potential upside for us, and we have the financial firepower to be able to make these investments.

Evan Scott: We see this as a potential upside for us, and we have the financial firepower to be able to make these investments.

Speaker #3: Your next question comes from Gavin Parsons with UBS. Your line is open.

Operator: Your next question comes from Gavin Parsons with UBS. Your line is open.

Speaker #1: Thank you. Morning.

Gavin Parsons: Thank you. Morning.

Speaker #4: Morning.

Jim Taiclet: Morning.

Speaker #1: I just wanted to follow up on an earlier question on the frameworks. I appreciate all the detail, but I wanted to make sure I understand whether anything changes operationally or financially when you firm up the Yukas into TruMulti years.

Gavin Parsons: I just wanted to follow up on an earlier question on the frameworks, and I appreciate all the detail, but I wanted to make sure I understand whether anything changes operationally or financially when you firm up the UCAs into true multi-years, and what the long poles in the tent are to fully finalizing that.

Speaker #1: And then what the long poles and the tent are to fully finalizing that.

Speaker #4: Sure. So the YUKAs are really key because they allow us to get going at full speed. And in that they're multi-year YUKAs, we can optimize around a seven-year production run and get our suppliers aligned to that.

Evan Scott: Sure. The UCAs are really key because they allow us to get going at full speed. In that they're multi-year UCAs, we can optimize around a 7-year production run, and get our suppliers aligned to that. It gives us a funding allocation, and it gives us the cash terms to allow us to protect the upfront investment. It's really critical. As we transition these UCAs to full-year productions, there'll be a few things that we'll need to cement. One, we will need to finalize the actual delivery schedules in great detail out to the 7 years and finalize the actual profit mechanisms. We know enough from the HOA to have pretty good line of sight to be able to forecast that today. The convert to multi-year procurements will be key to fully lock those down in the contract.

Speaker #4: It gives us a funding allocation, and it gives us the cash terms to allow us to protect the upfront investment. So it's really critical. As we transition these Yukas to full-year productions, there'll be a few things that we'll need to cement.

Speaker #4: First, we will need to finalize the actual delivery schedules, in great detail, out to the seven years, and finalize the actual profit mechanisms. We know enough from the HOAs to have pretty good line of sight to be able to forecast that today.

Evan Scott: One, we will need to finalize the actual delivery schedules in great detail out to the 7 years and finalize the actual profit mechanisms. We know enough from the HOA to have pretty good line of sight to be able to forecast that today. The convert to multi-year procurements will be key to fully lock those down in the contract. With the UCAs, we have all we need for now to be able to go at full speed and get our suppliers aligned and to waste no time in ramping up to meet the need.

Speaker #4: But the convert to multi-year procurements will be key to fully lock those down in the contract. But with the Yukas, we have all we need for now to be able to go at full speed and get our suppliers aligned and to waste no time in ramping up to meet the need.

Evan Scott: With the UCAs, we have all we need for now to be able to go at full speed and get our suppliers aligned and to waste no time in ramping up to meet the need.

Speaker #5: Hey, Sarah. This is Mark. We're coming up on time. So I'm going to turn the call back over to Jim for his final thoughts.

Maria Ricciardone: Hey, Sarah, this is Mark. We're coming up on time, I'm going to turn the call back over to Jim for his final thoughts.

Mark Kvasnak: Hey, Sarah, this is Mark. We're coming up on time, I'm going to turn the call back over to Jim for his final thoughts.

Speaker #6: Yeah. Thanks, Mark. Hey, I just want to close by recognizing the people who make this performance possible. First, our employees and the thousands of suppliers who, alongside us, are investing, innovating, and expanding their capacity.

Jim Taiclet: Thanks, Mark. I just want to close by recognizing the people who make this performance possible. First, our employees and the thousands of suppliers who are alongside of us are investing, innovating, and expanding their capacity. Thank you to everyone that's actually participating in all of this. Their commitment and our employees' and our teammates' commitments are strengthening America's defense industrial base every day, and it needs to get better. Most importantly, I'd like to thank the men and women of the US military and our allies who are operating and sustaining our systems around the world in dangerous places. Everything we do is guided by a simple standard for the soldiers, sailors, marines, guardians, and airmen out there, deliver reliable mission-ready capabilities and equipment when they need it, so they can do their mission and come back safely.

Speaker #6: So thank you to everyone that's actually participating in all of this. Their commitment and our employees and our teammates' commitments are strengthening America's defense industrial base every day.

Speaker #6: And it needs to get better. Most importantly, I'd like to thank the men and women of the US military and our allies who are operating and sustaining our systems around the world in dangerous places.

Speaker #6: And everything we do is guided by a simple standard: for the soldiers, sailors, Marines, guardians, and airmen out there, deliver reliable, mission-ready capabilities and equipment when they need it.

Speaker #6: So they can do their mission and come back safely. As well as our partners at NASA who continue to push the boundaries of space exploration.

Jim Taiclet: As well as our partners at NASA who continue to push the boundaries of space exploration as well. That's a responsibility that motivates our team every day. You can see, I think, some of the energy that we have just on this call about really trying to make this a much better aerospace and defense industry and really lead the elevation of deterrence to armed conflict that our government has access to. Thank you, and we'll see you next quarter.

Speaker #6: As well. So that's a responsibility that motivates our team every day. You can see, I think, some of the energy that we have just on this call about really trying to make this a much better aerospace and defense industry.

Speaker #6: And really lead the elevation of deterrence to armed conflict that our government has access to. So thank you. And we'll see you next quarter.

Operator: This concludes today's conference call. Thank you for joining. You may now disconnect.

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