The operator introduces the Lockheed Martin First Quarter 2024 Earnings Results Conference Call and hands it over to Maria Ricciardone, Vice President, Treasurer and Investor Relations. She is joined by Jim Taiclet, Chairman, President and CEO, and Jay Malave, Chief Financial Officer. Forward-looking statements are made and charts are available on the company's website. Taiclet discusses the company's financial results, the U.S. Department of Defense budget, program updates, and advancements in digital technologies for 21st century security.

Lockheed Martin's first quarter results show strong revenue growth and a robust backlog of $159 billion. The company is investing heavily in improving design and production capabilities and partnering with other companies to incorporate advanced technologies. The approved FY2024 defense budget includes funding for important programs such as Black Hawk, CH-53K, and the F-35. The FY2025 budget request also supports these major programs and includes emphasis on advanced munitions and hypersonic technologies.

The company is receiving support for their next-generation interceptor and has recently passed a funding bill for key programs in Ukraine, Israel, and Indo-Pacific security. They are confident in their long-term plan and are personally involved in program execution. The company is focused on implementing TR-3 capabilities for the F-35, which will make it the most advanced fighter aircraft and improve its role in joint all domain operations. Progress has been made in resuming deliveries and flight testing of the new configuration is underway, with 95% of TR-3 capabilities expected to be tested.

The test results for the TR-3 aircraft are on track to deliver a combat training capable aircraft in the third quarter and a fully combat capable aircraft in 2025. The F-35 program continues to see strong demand and international interest, with the Czech Republic, Greece, and Singapore all expressing interest in purchasing F-35s. Sikorsky remains committed to delivering innovative aviation capabilities, and their outlook is stable with a strong backlog and expected growth in the CH-53K program. The army's commitment to Black Hawk production and modernization is also encouraging, and Sikorsky is leveraging Lockheed Martin's portfolio to address mission gaps in the lower air domain.

Lockheed Martin has been selected by the Missile Defense Agency to deliver the next-generation interceptor, which will be the most modern and advanced in the history of the system. This program has embraced digital transformation from the start and is on track for a fast start. The Long Range Discrimination Radar has also completed final acceptance and is ready to be put into operational use, providing early detection and defense against incoming missiles. This will greatly enhance the country's deterrence against potential attacks.

Both NGI and LRDR will be integrated into the defense architecture with a battle management system called C2BMC. Lockheed Martin was selected for a 10-year, $4 billion contract to modernize and expand the system's capabilities. The company also collaborates with commercial partners to support national defense, such as working with Intel to use high performance U.S. semiconductors in defense systems. This collaboration will be implemented in the U.S. Navy's MH-60 Romeo helicopter program. Jay will now provide more financial highlights and commentary.

In this paragraph, Jay Malave discusses the consolidated results for the company, highlighting a strong start to the year with a 14% increase in sales compared to the previous year. He mentions that the results were positively impacted by an extra calendar week and that normalized sales growth was a solid 5%. He also mentions the company's efforts to improve supply chain performance and their plans to work closely with suppliers. Segment operating profit was up 4% with margins of 10.1%, and GAAP earnings per share were down 3% due to higher interest expense, lower pension income, and mark-to-market gains. The company generated $1.3 billion in free cash flow and returned $780 million to shareholders through dividends. Jay also mentions some additional highlights, such as significant classified awards in the space sector and a record backlog of $33 billion.

Lockheed Martin is pleased with the progress of the F-16 program, with three jets already delivered to Bahrain and more in production. They have also presented two F-16 Block 70 aircraft to Slovakia and have received authorization for the sale of 40 F-16s to Turkey. The company is also working on upgrading their weapon systems for longer range capability, with successful tests of the extended range ER variant of GMLRS and the Air-launched Rapid Response Weapon (ARRW). They have also been awarded a contract for the production of early operating capability precision strike missiles.

Lockheed Martin is ready to provide the military with additional hypersonic strike assets and is making progress on hypersonic strike capability in the land and sea domains. In the air and missile defense arena, the AEGIS Weapon System successfully intercepted a medium range ballistic missile in a complex test. The company is also working on integrating with PAC-3 to expand the mission capability of their systems. In terms of business areas, Aeronautics saw a 9% increase in sales and has a healthy backlog, primarily due to higher volumes in F-35 and F-16 programs.

In the Missile and Fire Control segment, sales increased 25% from the previous year, driven by production ramps on tactical and strike missile programs. However, operating profit decreased due to a loss on a classified program. The company provided updates on production capacity plans for key programs such as PAC-3, GMLRS, JASSM, LRASM, and HIMARS. In the Rotary Emission Systems segment, sales increased 16% and operating profit increased 23% due to higher volume and favorable contract mix. In the Space segment, sales increased 10%, driven by higher volume on various programs within strategic and missile defense and national security space.

The operating profit for Lockheed Martin increased by 16% in Q1 2023 due to higher volume and ULA equity earnings, but was partially offset by lower net profit adjustments on the Next-Gen OPIR program. The company's 2024 financial outlook remains unchanged, with expectations for free cash flow to be in the range of $6 billion to $6.3 billion. The company is focused on executing customer and program commitments and is implementing 1LMX transformation to drive efficiency and enhance key captures and programs. The F-35 program timeline has been pushed back to Q3.

The F-35 program has experienced delays and budget cuts, causing uncertainty about production and delivery timelines. The program is unique in that it is undergoing development, production, and sustainment simultaneously, which makes it difficult to predict schedules. While the government has extended the expected service life of the aircraft, there are still challenges in executing the step function increases in capability.

The team at the company is integrating components, devices, and software into the aircraft's systems. This process is taking longer than predicted, but they are confident in the progress. They plan to release a combat training capable version of the aircraft in the third quarter, which will allow for training and deployment into combat operations. The team is also focused on managing cash flow and avoiding any disruptions.

The paragraph discusses how the company's production schedule for 2024 and beyond will be kept on track, with further capabilities being inserted in 2025. The company is working with its customer to avoid disruptions and ensure the delivery of desired capabilities on an executable schedule. While there may be short-term pressure on contract profitability and cash flow, the company is focused on delivering on its guidance for this year and potentially accelerating revenue growth in 2025.

In the previous year, there was a possibility of seeing an increase in sales towards the higher end of the range, which gives confidence for future growth. The company is expecting growth to start in 2023, a year earlier than anticipated, and accelerate in 2024, leading to sustained growth beyond 2025. In the first quarter, there was a lower margin performance due to a $100 million loss provision and lighter profit adjustments, but these are expected to improve throughout the year.

The company is expecting additional losses in the back half of the year due to a classified program, with $225 million already accounted for in their guidance. However, the timing and amount of potential losses may change depending on factors such as technical milestones, customer discussions, and funding. The company has ranged potential losses at over $1 billion, and MFC's full year guide is impacted by $325 million in anticipated losses, but their underlying performance remains solid. The CEO, who has experience flying these aircraft, assures that the program will have long-term value.

The speaker discusses the recent win of a Next-Gen Interceptor contract and the company's confidence in their cost estimates. They also mention a digital transformation program that will improve the engineering process for the company.

The company is undergoing a $6 billion, 8 to 10-year program to convert to a model-based engineering production sustainment operation. NGI was chosen as a pathfinder program due to its born digital status, allowing for a fast start and use of digital technologies. The company's speed and ability to demonstrate manageable costs led to their success in the bid. The company is currently performing under a contract and is on track for future milestones.

The speaker discusses the current contract and future bidding for the company, stating that they have taken a middle-of-the-road approach to pricing. They also mention their focus on looking at technologies that can accomplish missions and how they are working with the U.S. Army and government to support their rotary business, including the Black Hawk, despite the cancellation of the FARA program. They believe the Black Hawk will still be well-suited for missions in the lower air domain.

The paragraph discusses how Lockheed Martin plans to modernize their traditional Black Hawk rotorcraft by incorporating digital technology, making it an efficient and relevant platform for high-risk missions. The company also expresses confidence in their subsidiary Sikorsky, which produces other advanced aircraft such as the CH-53K and Seahawk. Despite some declines in other programs, the expected increase in revenues from the CH-53K will offset these declines and provide a stable outlook for the company.

Lockheed Martin is undergoing a rebalance of their workforce due to a shift in the mix of development and production work. The company is stable and has ongoing dialogue with the army for investments in Black Hawk modernization. The revenue for the next five years is expected to go up and then come back down, remaining relatively flat. On the last call, the company emphasized the importance of the supply chain in producing F-35s at a rate of 156. The complexity and scale of the supply chain may limit the potential and affordability of the program. In future fighter aircraft programs, Lockheed may do more of the production work in-house compared to the F-35. The F-35 program was originally intended to be a wide-based Allied program.

The F-35 program has seven treaty partners who contribute their industrial and financial capacity. The supply chain has faced challenges, such as delays due to COVID and single sources for certain components. Going forward, the program will prioritize anti-fragility and geographic diversity in sourcing, as well as in-sourcing when possible. Lockheed Martin has advanced technology and is heavily involved in the program.

The speaker discusses the company's efforts to control the supply chain and diversify it geographically. They also mention the potential for new contract structures, particularly in the area of digital services, and express a desire to work with partners in this field.

The speaker believes that there is growing interest within the government to implement a new acquisition process for digital services alongside the traditional process for physical goods. They also want to establish an open architecture system to increase diversity in potential suppliers and utilize more resources from commercial industry. Progress is being made, but it will take time to establish the necessary processes and standards. Changes have also been seen in contract structures to better align with technology capabilities.

The speaker discusses a shift towards more relevant contracting vehicles in higher-risk industries. They also mention a view on committing to cost and price for projects that are not fully invented yet. The next question is about the fastest-growing quarter and the guide for other net, which was not lowered for the year.

The company expects growth to slow down in the second and third quarters, with a flat fourth quarter compared to the previous year. There may be some opportunity for growth in other areas, but the company will reassess and update their guidance in the second quarter. The Pentagon has requested to see multiple contract structures, and the company expects their loss-making classified program in MFC to become profitable in 2028. The different contracting vehicles for NGI range from cost plus to fixed price incentive.

The customer has not yet chosen a specific vehicle for the next phase, so there is currently no contract in place. The company will continue to work under the current contract and will discuss future phases with the customer. The company aims to be flexible in terms of contract format and will adjust their risk premium accordingly. They will provide the government with different contract options and if the government wants to shift more risk to the company, they will see a higher risk premium in their proposal. This is the principle the company will continue to use. There is time for one more question before the end of the call.

In response to a question about C2BMC, Jay Malave and Jim Taiclet discuss the P&L impact, timing, margins, and how it fits into the company's strategy for pulling in mission-centric programs. They mention that there will be no significant change in revenue or margin expectations for RMS and that this is a continuation of existing activities. Additionally, they explain the importance of mapping data flows through a full mission and creating anti-fragile kill chains to ensure the success of the mission.

The speaker discusses the importance of data flows in addition to physical flows in designing platforms for missions. They mention the use of an open architecture system and how it will benefit both Lockheed Martin and the government by allowing for more suppliers and competitive options. The speaker also expresses appreciation for the company's focus on operational execution and driving innovation and excellence in support of their customers. They end by stating their vision for 21st century security and their commitment to future growth and returns for shareholders.

This summary was generated with AI and may contain some inaccuracies.