The paragraph is an introduction to Lockheed Martin's fourth quarter and full year 2024 earnings results conference call. It begins with the operator announcing the call and passing it over to Maria Ricciardone, Vice President, Treasurer, and Investor Relations. Maria introduces the other executives present, Jim Taiclet, Chairman, President, and CEO, and Jay Malave, CFO. She notes that the call may include forward-looking statements and directs listeners to their website for accompanying charts and non-GAAP measures. Jim Taiclet then thanks listeners and highlights the company's successful return to growth strategy initiated three years ago.

In 2024, the company experienced a 5% sales growth and a record $176 billion backlog, indicating strong global demand for its products. All four business areas saw backlog growth with book-to-bill ratios over 1. For 2025, the company expects mid-single digit sales growth, 11% operating profit, and double-digit free cash flow growth per share. Charges on two classified programs were recorded to mitigate future financial risks. The company's current bidding process focuses on risk-adjusted ROI to secure key opportunities and ensure positive shareholder results. The company invested $3.3 billion in R&D and capital in 2024 to advance technology solutions and plans future investments to enhance key programs like the F-35 and internal initiatives.

The company maintained its focus on free cash flow and returned over 100% of it to shareholders in 2024. They continued a robust share repurchase program, buying $3.7 billion worth of shares. In terms of the F-35, they delivered 110 aircraft in 2024, reaching the high end of their expected range, and anticipate delivering 170 to 190 aircraft in 2025. They made progress on the TR-3 capabilities and expect new upgrades this year. The Lot 18 F-35 production contract will be finalized in early 2025, increasing their backlog to 408 aircraft. Romania became the 20th global F-35 customer, planning to procure 32 aircraft to integrate with their F-16 fleet, emphasizing the F-35's interoperability and strategic importance.

The paragraph highlights Lockheed Martin's expertise in integrating systems across various domains to enhance national security missions, exemplified by their successful Defensive Guam Flight mission and development of advanced technologies like the Aegis Guam and hypersonic weapons. It underscores the rapid completion of these projects due to past investments and the collaboration between defense primes and other industry players to optimize deterrent capabilities. The need for leveraging talent, financial resources, and technology from both defense and commercial sectors is emphasized to maintain a strategic advantage.

The paragraph discusses efforts to deepen industry partnerships and advance technology in various fields. It highlights collaborations with companies like Nvidia, Meta, IBM, Verizon, Microsoft, Intel, and Global Foundries for AI, 5G networks, cloud modeling, and advanced chips. The company is heavily investing in internal development for autonomy and AI to enhance customer solutions. A key achievement was a live demonstration where an F-35 shared classified data across borders via Skunk Works technology. Another milestone was a live flight demonstration of an uncrewed system, showcasing advancements in autonomy and human-machine teaming. The paragraph concludes by addressing the current U.S. government funding situation and the desire for a more efficient acquisition process.

The paragraph discusses the company's financial performance and strategic actions. The company is focused on digital transformation to improve efficiency and reduce regulatory hurdles. Jay Malave outlines strong financial results for 2024, with 5% revenue growth and a 10% increase in backlog to a record $176 billion. The company generated significant free cash flow and exceeded deployment commitments while implementing de-risking measures on key programs to secure a positive outlook for 2025 and beyond. Net charges of $1.8 billion were recorded, mainly due to future losses on two classified programs, with some offset by a $155 million benefit from a claim resolution. Further details are provided in related charts.

The paragraph discusses financial results and developments for a company, highlighting $1.4 billion in unplanned charges from Aeronautics and MFC classified programs, partially offset by a $70 million benefit from a C-5 claim resolution. Adjusted results exclude these items for better comparison. In Q4, sales were $18.6 billion, slightly down year-over-year due to one fewer week compared to the previous year, though boosted by deferred F-35 revenue. Operating profit and margins were negatively affected by the charges but would have grown 5% on an adjusted basis. The company recorded over $29 billion in orders, with Aeronautics leading due to F-35 contracts. Free cash flow was $440 million, including $990 million for pension pre-funding.

The paragraph discusses the company's financial and operational achievements, highlighting a $1.1 billion investment in research, development, and capital projects in a single quarter, leading to a total internal investment of $3.3 billion for the year. They have also focused on delivering new technology efficiently while maintaining shareholder returns with $1.8 billion in share repurchases and dividends. For the full year 2024, sales grew by 5% to $71 billion, with adjusted operating profit increasing by 7% year-over-year. The company's backlog has grown for the third consecutive year, and they generated $5.3 billion in free cash flow. In 2024, $6.8 billion was returned to shareholders, and Maria Ricciardone discusses further results for business areas, providing both GAAP and adjusted figures for clarity.

In the fourth quarter, Aero saw a 5% year-over-year sales increase, primarily due to higher F-35 contract volume, despite a reduction from Skunk Works due to a classified program charge. Adjusted sales growth was approximately 7% after accounting for specific financial impacts, with both reported and adjusted sales benefiting from $700 million in deferred F-35 sales from Q3. Segment operating profit fell by 43%, impacted by a $410 million classified program charge, although higher sales volume and a C-5 claim resolution provided some offset. For the full year, Aero sales rose by 4%, with a decline in operating profit of 11%. Adjusted full-year operating profit grew by 3%, leading to a 10.2% margin. In Missiles and Fire Control, sales increased 8%, driven by production hikes in various missile programs.

In the fourth quarter of 2023, MFC's sales grew 16% year-over-year after adjusting for an extra week, although segment operating profit declined significantly due to reach-forward losses on a classified program. Excluding these charges, margins were strong at 14.8%. For the full year, MFC sales increased by 13%, but operating profit fell by $1.1 billion due to $1.4 billion in charges. Excluding these, the annual margin was 14.4%. RMS sales dropped 10% in the quarter, mainly due to lower volume on several programs, but only 3% when normalized for the extra week. Operating profit decreased by 11%, primarily due to booking rate adjustments and sales volume. For the year, RMS sales rose 6%, driven by production ramps, with a 3% increase in operating profit from higher sales and favorable contract mix. Space segment sales fell 13% in the fourth quarter because of lower volume on certain programs but were down 6% when normalized.

The paragraph discusses Lockheed Martin's financial performance and outlook. Operating profit decreased by 8% in Q4 2023 due to lower volume and profit booking rate adjustments, but was partially offset by higher equity earnings from the United Launch Alliance (ULA). For 2024, sales slightly decreased overall despite higher volume in certain defense programs, yet operating profit increased by 6% thanks to a more favorable contract mix and higher ULA earnings. Looking ahead to 2025, the company anticipates sales growth of 4% to 5% and a return to 11% operating margins, driven by strong demand for munitions and defense systems. Free cash flow is expected to grow by 9%, despite some anticipated non-cash pension-related impacts on earnings per share (EPS).

The paragraph discusses a financial outlook for 2025, highlighting expectations of operating profit growth from 6.1 billion in 2024 to 8.15 billion in 2025, driven by increased volume and partially offset by factors like net profit rate adjustments. Segment margins are projected to reach 11% in 2025 ahead of schedule. Although earnings per share (EPS) might decline slightly due to non-operational factors, solid sales growth and cash flow generation in 2025 are anticipated. The company reported stronger than expected growth and backlog expansion in 2024, reinforcing confidence in a positive 2025 financial outlook, with a focus on innovative solutions and operational execution to benefit customers and shareholders. The paragraph concludes with an invitation for a Q&A session.

In the paragraph, Seth Seifman asks about the potential for future charges and risk reduction within a classified aeronautics program, following charges in Q4. Jay Malave responds, indicating that the risk has been significantly reduced due to a comprehensive review and a conservative cost reset. He mentions the implementation of continuous monitoring processes and additional technical resources to better manage the program's progress and reduce risks moving forward.

The paragraph discusses measures taken to reduce risk in a program by adding experienced experts, implementing automated testing procedures, and improving the value chain process, which has increased confidence in projected growth. The company's growth outlook for 2025 has been raised to 4%-5% due to these improvements. In response to a question from Rob Stallard regarding potential increased risks from more fixed-price contracts under the new administration, James Taiclet replied that they plan to maintain a disciplined bidding process to manage risk effectively, regardless of contract type.

The paragraph discusses a shift in the defense contracting industry towards a more deliberate bidding strategy, emphasizing risk-adjusted return on investment. The speaker points out their support for reducing bureaucracy within the Pentagon to involve more companies and improve efficiency. They observe a trend over the past 12 to 18 months where the contracting regime has become more aligned with the risk levels of programs, recognizing that fixed-price contracts may not suit high-risk, low-maturity projects. This adjustment is acknowledged by both the customer and the industry, indicating a more flexible contracting approach.

The paragraph discusses the growth and margin outlook for Lockheed Martin's Missiles and Fire Control (MFC) segment through 2025. Key growth drivers include programs like GMLRS, HIMARS, PAC-3, JASSM, and LRASM, with strong domestic and international demand expected to continue. A significant multiyear contract for JASSM and LRASM is highlighted as a major growth contributor. The company anticipates order growth in 2025, supported by a solid backlog and ongoing demand. Margins are projected to be around 14%, though slightly lower than 2024 due to expected lower net profit adjustments, aligning with long-term expectations.

In the discussion, Jay Malave addresses a question from Ken Herbert about working capital improvements and their impact on free cash flow for 2025. He notes that in 2024, they successfully reduced working capital days despite challenges and maintained a mid-30s cash conversion cycle. For 2025, the aim is to keep working capital neutral in terms of cash usage by reducing it by about one day, countering growth-related pressures. Malave highlights ongoing opportunities for improvement in contract assets, particularly with the F-35, Sikorsky programs, and segments like Space and MFC. He emphasizes the ongoing strategy to enhance asset productivity as a critical component of their financial plan, continuing efforts made in 2024 and extending them into 2025 and beyond.

In the article, Gavin Parsons from UBS asks about the detailed breakdown of cash flow, particularly concerning the F-35 inventory, pension contributions, and Lot 18 cash timing. Jay Malave responds with an explanation of the cash flow bridge for 2025, starting from an adjusted cash flow of $6.1 billion. He notes a $1 billion benefit expected from F-35 deliveries and improvements, $600 million from international advances, offset by a net impact of around $400 million. Additional benefits are expected from lower R&D capitalization taxes and cash-based net income, resulting in a midpoint cash flow of $6.7 billion for 2025. Following this, Scott Deuschle from Deutsche Bank inquires about the projected 20 basis point decline in Aeronautics margins for 2025, despite new F-35 contracts, and Jay Malave begins to address the underlying causes.

The paragraph provides an update on the aeronautics sector's financial outlook and progress with the F-35 program, specifically regarding Tech Refresh 3 (TR-3). The margin outlook reflects lower net profit adjustments, notably excluding a $555 million C-5 adjustment in 2024, which causes margins to slightly decline from 10.2% to around 10%. Although there are mixed benefits, classified growth presents a headwind, but there are gains from F-16 margins. Regarding the F-35's TR-3, progress is being made on mission system integration and stability improvements, with expectations for some milestones in the current year, although full completion might extend into 2026. Ultimately, full combat capability declaration depends on the customer, and discussions on Lot 19 are ongoing.

The paragraph discusses financial considerations related to two defense contracts (Lot 18 and Lot 19) and unplanned charges in the Aero sector. Lot 18 is under an undefinitized contract that is expected to be finalized in the first half of the year, while Lot 19, valued around $10 billion, should be closed in the second half. Myles Walton from Wolfe Research asks about the cash impact of unplanned charges, specifically $400 million in the Aero sector. Jay Malave explains that the Aero charges will affect cash flow over the next two to three years, not just in 2025. For pension funding in 2026, the company plans to manage requirements through improved working capital and asset productivity, leveraging a strong balance sheet for flexibility.

The paragraph is a segment from a conference call where Gautam Khanna from TD Cowen asks about the profitability potential of a particular classified M&FC program as it scales, questioning if demand might lead to favorable pricing adjustments. Jay Malave responds by indicating that while the program's pricing is fixed for the next phase, margins are expected to improve over time but won't immediately reach typical MFC levels. James Taiclet emphasizes the program's long-term prospects due to its technological value to the U.S. government. Subsequently, Peter Arment from Baird inquires about backlog growth opportunities, noting record levels and significant contributions from MFC and space sectors. James Taiclet responds by mentioning the administration's efforts to reform the Pentagon, suggesting opportunities in more long-lead-time orders and multiyear contracting, particularly for munitions.

The paragraph discusses various opportunities and contracts that the company is exploring or actively engaged in, particularly with the Pentagon. Jay Malave mentions anticipated growth in 2025 due to several significant contracts, including a $10 billion order for the F-35 and other multiyear deals like JASSM LRASM and international opportunities such as Türkiye's interest in the F-16. He highlights ongoing negotiations for different military equipment and emphasizes the company's focus on accelerating backlog conversion. In response to a question from Pete Skibitski about munitions funding, Malave notes that their plans do not rely on additional supplemental bills, suggesting they have a clear funding path without extra financial assistance.

The paragraph discusses the contracting and funding status of various defense programs, including PAC-3, GMLRs, Javelin, and HIMARS, all of which are progressing with strong financial backing and low risk. A conversation follows, where Douglas Harned questions Jay Malave and James Taiclet about the F-35 production levels amidst budget decisions in the U.S. and export demand. Taiclet expresses confidence in maintaining the production rate of 156 units per year due to strong demand from both the U.S. government and international partners, citing deterrence theory as a rationale for maintaining such capabilities.

The paragraph discusses the production and capabilities of military aircraft, specifically the U.S. F-35 and China's J-20. It highlights the U.S. production rate of the F-35, which exceeds China's output of the J-20, emphasizing the importance of sustaining this production for effective deterrence. It also mentions advances in technology for the F-35, such as its ability to control autonomous drones and its integration with 5G systems through TR-3, which enhances data processing, storage, and connectivity. The paragraph underscores the administration's focus on maintaining strong defense capabilities to avoid vulnerabilities with major adversaries.

The paragraph discusses the advanced capabilities of the F-35 and upgraded F-22 fighter jets compared to older fourth-generation aircraft, emphasizing their superior digital and integrated combat features. Jay Malave highlights the need to replace the aging fleet, which is over 25 years old, with the F-35 to modernize capabilities. James Taiclet references the Israeli Air Force's successful use of fifth-generation aircraft against Iranian defenses, demonstrating their strategic advantage and suggesting that such platforms can facilitate significant military victories. The paragraph concludes with an introduction to a question from Michael Ciarmoli regarding supply chain updates and demand signals, which is directed to Jim or Jay.

In the paragraph, Jay Malave discusses the improvement in supply chain operations, noting that while some areas are returning to pre-COVID levels, specific challenges remain, impacting the company's portfolio. He mentions successful management of supply issues in certain divisions like MFC and the ongoing challenges at Sikorsky, particularly with the CH-53K program. Despite these issues, Malave expresses cautious optimism about future growth, suggesting that if current trends continue, the company could reach a 4% to 5% revenue and cash flow growth rate by 2025. However, he emphasizes the need for more time to assess future years accurately. Maria Lee then transitions to the final question from Ron Epstein of Bank of America before concluding the session.

In the paragraph, Ronald Epstein asks about the U.S. defense strategy involving the Next Generation Interceptor (NGI), likening it to an "iron dome." James Taiclet responds by detailing the broader homeland defense framework. He confirms that the NGI is integral to countering intercontinental ballistic missile attacks. Taiclet also mentions efforts to counter hypersonic and cruise missile threats, highlighting the need for AI, high-speed data transmissions, and multi-domain sensors. He adds that countering unmanned aerial system (UAS) attacks, such as drone threats, is another focus area, and although the administration hasn't yet responded, a national team was proposed to tackle this challenge.

In this paragraph from a conference call, James Taiclet addresses a question about U.S. policy concerning Denmark and Greenland, stating that such matters are beyond the company's control and focusing instead on the growing international demand for the F-35 aircraft. He expresses gratitude to the Lockheed Martin workforce for their innovation and commitment to defense, emphasizing the company's focus on providing strong deterrence and supporting national defense under the current U.S. administration. The call concludes with a note of thanks to participants, with plans to reconvene in April.

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