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23-05-2025
- Business
- Yahoo
Q1 2025 Borr Drilling Ltd Earnings Call
Patrick Schorn; Chief Executive Officer of Borr Drilling, Director; Borr Drilling Ltd Magnus Vaaler; Chief Financial Officer; Borr Drilling Ltd Bruno Morand; Chief Commercial Officer; Borr Drilling Ltd Eddie Kim; Analyst; Barclays Capital Inc Doug Becker; Analyst; Capital One Securities, Inc. Fredrik Stene; Analyst; Clarksons Securities AS Greg Rossi; Analyst; Bank of America Fady Chammas; Analyst; Triton Partners Operator Good day and thank you for standing by. Welcome to the Borr Drilling Limited Q1 2025 results presentation, webcast and conference call.(Operator Instructions) Please be advised that today's conference is being recorded.I would now like to hand the conference over to your first speaker today, Mr. Patrick Schorn, CEO. Please go ahead. Patrick Schorn Thank you. Good morning and thank you for participating in the board drilling first quarter earnings call. I'm Patrick Schorn, and with me here today in London are Bruno Moran, a Chief Commercial Officer, and Magnus Vaaler, a Chief Financial slide please. First, covering the required disclaimers, I would like to remind all participants that some of the statements will be forward-looking. These matters involve risks and uncertainties that could cause actual results to differ materially from those projected in these statements. I therefore refer you to our latest public slide please. Our first quarter results were largely as expected, reflecting the impact of temporary rig suspensions and preparatory work for upcoming operating revenue declined by $46.5 million quarter over quarter, resulting in adjusted EBITDA of $96.1 million for the period. During the quarter we averaged 16 active rigs out of our 24 rig the lower activity level, operational performance remained robust, with technical utilization at 99.2% and economic utilization at 97.9% for our active rigs, a reflection of the continued strength and efficiency of our the safety front, I am pleased to report that several of our rigs received industry and customer recognition for outstanding safety performance. Notably, the grower was awarded Qatar Energy's HSE Award for 2024. And the prospective I received the 2024 Best Safety Performance Award from the IADC Noy Thailand, Bore drilling received PTTEP's CEO Safety Excellence Award for the second consecutive year. These achievements are a statement to the commitment and professionalism of our crews, and I congratulate and thank the entire team for their efforts on at the 2nd quarter, we are seeing a meaningful ramp up of activity. 3 suspended rigs in Mexico have resumed operations, while the Valley and Arabia I have both commenced their addition, the Thor and Run have secured new contracts starting this quarter. As a result, our operating recount has now increased to 22, laying the foundation for stronger financial performance in the quarters liquidity position improved during the quarter, supported by the collection of approximately $120 million in outstanding receivables from Mexico and $10 million in mobilization fees for the the quarter end, we received an additional $35 million in mobilization fees related to Valli and the Arabia we continue to pursue several opportunities in 2025, our commercial efforts are now increasingly focused on 2026. Our RIs in Mexico represent a significant portion of our available days in 2026 and beyond. The combination of increased activity in Q2. And the advancement of private investment projects in Mexico are positive for future rig demand and extensions across our fleeting light of uncertain market conditions, the board has decided to suspend the dividend to further reinforce the balance sheet and enhance long term value we are not issuing specific adjusted EBITDA guidance for 2025, we are, however, confirming to be comfortable with the current Bloomberg consensus estimate of approximately $460 million.I'll pass the call now to Magnus for the first quarter financial commentary. Magnus Vaaler Thank you, Patrick. The results for the first quarter were highly impacted by temporary rig suspensions and mobilization of rigs to commence contracts, which led to us only having 16 out of 24 rigs working on average during the total operating revenues were $216.6 million, a decrease of $46.5 million compared to the fourth quarter. Day rate revenues decreased by $22.6 billion, primarily due to a decrease in the number of operating days for Arabia II, Iran, and the Tor, partly offset by an increase in operating days for GERD, Gunlo and overall decrease in day rate revenue also includes an $11.5 million decrease in deferred mobilization revenue related to Arabia II due to the recognition of accelerated amortization of deferred mobilization revenue in the prior quarter, linked to its contract termination in Saudi Arabia in charter revenue decreased by $17.9 million as a result of the temporary suspension of the rigs Galar grid in Ghsemi in Mexico who were suspended effective January 8, and management contract revenue decreased by $6 million due to the suspension of operating expenses for Q1 were $156.8 million, a decrease of $5.1 million compared to Q4. This is primarily due to $4.2 million decrease in rig OpEx and $1.1 million decrease in G& decrease in rig OpEx consists of $10.2 million or lower expenses due to the decrease in operating days, partially offset by a $5.2 million increase in costs associated with grid and Gerssemmi as a result of the company assuming their operating expenses and stacking costs during their temporary suspension to the temporary suspension and during operations, these costs are borne by the loss for the first quarter was $16.9 million, a decrease of $43.2 million compared to the net income in the fourth quarter, and adjusted EBITDA was $96.1 million, a decrease of $40.6 million from the previous moving into our cash, our free cash position at the end of Q1 was $170 million. In addition, we have $150 million unrawn under our RCF facility, resulting in total available liquidity of $320 million. Cash increased by $108.4 million in the quarter compared comparison to the previous cash from operating activities was $138.7 million, which included approximately $120 million in settlements of outstanding receivables from customers in Mexico and $10 million organization fees received for the value. We paid $6.1 million cash interest and $16.9 million cash cash used in investing activities was $25.1 million, of which $25 million related to cash used on jacket editions, primarily as a result of activation costs for the valley and long-term maintenance costs. Net cash used in financing activities was $4.9 million and can be explained mainly by the $4.7 million payment of cash distribution to subsequent to court rent, we have received approximately $35 million in mobilization fees following commencement of the contracts for the Arabia One and the this, I will pass the word on to Bruno. Bruno Morand Thank you, Magnus. Let me start with our recent commercial highlights before moving on to the market trends. Here today, Borr Drilling has secured nine new contract commitments, adding $221 million to our backlog at an average rate of $141,000 per day. We're pleased to see the continued execution of our commercial our last report, we secured high quality contracts at attractive day rates backed by our strong operational reputation. In Asia, the SCAP received a binding LOA from Medco in Thailand for a 170 day program starting in October following the completion of its current PTTEP tour has been awarded a 75 day contract Vietro Petro in Vietnam, which has begun in late April. This allowed the rig to return to work earlier than previously expected, and the rig is now contracted in Q3, and we're pursuing active opportunities for work for the tour into Mexico, the Rigalar, grit, and Gersonmi had been extended by a combined term of approximately 390 days. These extensions offset the suspension periods experienced early this year and preserve our regional the run has been awarded a 140 day contract with ENI in Mexico, which commenced in May. The contract includes options that could extend the rig into West Africa, the Nova has received a letter of award for an 11 month program expected to commence in the second half of 206. And finally, the GERD has secured a one year contract with Foxtrot International in Ivory Coast, expected to commence in recent fleet developments combined with the commencement of the contract for the Valli and Arabia I have increased our operating recount to 22 in 2025 fleet coverage now stands at 79% and an average day rate of 147,000. We're actively working with our customers on numerous opportunities and based on advanced stage of negotiations, we expect the coverage to rise towards the 80% to 85% range in the coming months. Our 2026 coverage has also now at 35%, an increase of 12% points since our last report. In line with the normal tendering cycles for jack ups, we see an increasing number of tenders being launched for working 26, and our teams remain focused on firming up the coverage for the several of our customers have expressed interest in discussing potential extensions to their existing remain actively engaged with the customers and believe our strong operational track record, high quality fleet, and incumbent status will support further progress in building our 2026 coverage. This includes Mexico, where we believe the resumption of work on our three suspended rigs, including the private investment project should create a favorable environment for potential at the broader market, jack up utilization has remained steady. Modern rate market utilization sits at 92%, relatively unchanged quarter on quarter. Adjusting for the net impact of the Aramco suspensions, modern utilization still sits just under 90%, which we see as a healthy changes in trade policies and OPEC's decision to unwind production cuts have introduced some uncertainty in price volatility in commodity markets. We're actively monitoring these developments and engaging with our customers to assess how this may affect future activity levels. Importantly, we continue to see shallow water projects as projects are primarily related to brownfields, offering attractive economics at the current oil price and faster cash flow cycles to our the recent market volatility, Jacob tenders and awards have remained largely on track, as evidenced by our recent the rig supply side, is volatility continues to create a challenging environment for older jack ups with reduced contracting opportunities as customer preference for modern rigs persist. We've seen the resumption in rig retirement in 2025 and expect this trend to with a limited number of new builds in the pipeline and no immediate prospects for further deliveries, we do not anticipate any future additions in the foreseeable global demand outside the Middle East remains resilient. Regions like West Africa, Southeast Asia, and America are gradually absorbing some of the excess capacity resulting from Aramco's recent the same time, recent fixtures suggest that Aramco may be preparing to secure additional long term jack up capacity and create an optionality. Current jack up activity levels in Saudi Arabia are in the mid-50s, a level consistent with at Mexico, recent developments clearly show the link between rig activity and production. Since Q424, PME's partial reduction in drilling activities led to nearly 10% drop in production in this pleased that our three rigs have now resumed operations in May and are again contributing to Mexico's goal of restoring production to 1.85 million barrels per short, while near term volatility may continue, we remain confident in the long term fundamentals for the Jacob market. We are consistently delivering our strategy, maximizing 2025 backlog and building 2026 coverage while supporting our customers through the dynamic market. With that, I'll hand the call back to Patrick. Patrick Schorn Thank you, Bruno. So in conclusion, in 2025 we've made solid progress expanding our contract coverage through a series of awards, and we now expect to reach 80% to 85% coverage for the full we're still actively pursuing near term opportunities, our commercial focus is now shifting towards operating recount has grown to 22, up from 16 in the first quarter, giving us a solid foundation for earnings growth in the quarters Mexico, all of our rigs are currently active, including one under a private investment contract supporting Pemex's production initiatives. This return to full operation positions as well for contract renewal discussions with Mexico representing a meaningful share of our available rig days for 2026 and we continue to navigate some short term uncertainty, the business we have built is resilient. The long term fundamentals of the market remain strong and bored with its premium rig fleet is well positioned to capture future in light of uncertain market conditions, the board has decided not to pay a dividend to reinforce the balance sheet and enhance long term value with regards to adjusted EBITDA, we're on track to deliver 2025 consensus of approximately $460 you, and ladies and gentlemen, we are now ready to go to Q&A. Operator (Operator Instructions) Eddie Kim, Barclays. Eddie Kim Hi, good morning. I wanted to start off in Mexico. I think many were surprised that your 3 suspended rigs have now resumed operations, especially given the challenges in that market. Is this a sign that Penax is finally getting their act together, or does it speak more to the quality of your rigs specifically? And and separately, you have two of your Pendax jack ups coming off contract by by year end this year. What's the likelihood that you think that those will be extended beyond that period?Thank you. Patrick Schorn Yeah, thank you, Eddie. So I think it is maybe a combination of a few aspects here. I think firstly, I think there's a very strong realization in Mexico that with very low or no activity production takes a very strong drop to that. And there is a lot of work going on to make sure that activity plans are drawn up to make sure that additional production is created going forward, which means putting putting rigs back to clearly where we benefit is on one side on the quality of the rigs, but more importantly, the well construction work that we are involved in in Mexico has over the last few years demonstrated that we can generate some of the lowest cost barrels, drill very efficient wells, and have done just short of 100 wells offshore at the moment, so I think that the concept work. I think that we have a fairly long history of performing well in the environment and being very cost efficient and therefore I think we are benefiting from being some of the, let's say, first weeks to go I think that that certainly has helped us now as to your question regarding the contract extension. I think that that is something that we will be discussing with our customer and Pemex here over the following months.I certainly expect that we have good contract extension opportunities in Mexico. The exact. The size of that is difficult to estimate at this moment, but I'm sure that we get more clarity in that towards the later part of this year, and clearly based on the performance that we have had over the last three years in this contract, I would expect that we do reasonably well in that, but I'm very happy to kind of keep you up to date as soon as we have more information on that. Eddie Kim Understood, thank you for that. My follow up is just on, the uncertain market conditions you highlighted as the reason for suspension of the dividend. Could you just expand on this a bit more for? Are you seeing customers in certain regions getting increasingly more cautious about about the outlook in your, your conversations with them? And perhaps pushing back, drilling programs or does it reflect more of your expectations for the oil oil price declines due to OEC or maybe a combination of both, if you could just expand on that comment for us. Patrick Schorn Yeah, Eddie, I think it is, it's a little bit more a macro situation where I think that we have all tried to Get a good understanding of what the latest micro developments really are going to mean to the market. I mean, we have clearly had a lot of discussions around tariffs and what that might do to global GDP and as a result to oil demand, counter that we have seen that demand has remained actually quite strong. Overall we see a lot of customers that do relative short contracts, so from that I can see that they are a little bit their finger on the trigger, which I think is understandable as there is just quite a few items on the uncertainty list. Now what we also see is that when it comes to 26 and beyond, there are some larger packages of work.I think when we start to see that. Being tendered and actively negotiated and ultimately being awarded, I think we start to all have a much better feel for it. So I think it is purely a question of trying to be cautious, making sure that we have options on what to do with the cash. Obviously dividend is not the only option that we have, but also working on the debt is at the moment quite attractive. So I think we want to make sure that we have all options open while remaining cautious for as long as the uncertainty persists. Operator Doug Becker, Capital One Doug Becker Thank you. Patrick, your commentary on Mexico sounds encouraging. Do you have any visibility on the option for the run to be exercised and then outside of Mexico, the prospector? Patrick Schorn Yeah, I'll turn that to to Bruno and thanks, Doug. I mean we we have indeed options there. Bruno Morand Indeed, it's early days. The rig just basically just gone to work about a week ago, so we're still monitoring with the customers so far are encouraging, but we do see opportunities outside of that customer as well for the rig in Mexico. There's some other work with IOC that could potentially keep that rig occupied well into 2026. So we'll see. It's definitely a good timing to get the rig back to we get closer to the end of '25 and early '26, we do see an outlook that is more favorable to see that rig continue to work, but I'll probably leave it at that early days. The rig just went to work. We're pretty happy with that. Doug Becker No, fair enough. Are there, are you able to provide any color in which rigs are expected to increase the contract coverage to 80%, 85%? Are there, one or two rigs, or is it kind of a risked opportunity to set? Bruno Morand Yeah, no, we were looking at. The moment about 3 of our rigs representing that GAAP at the moment, and we're encouraged, we're quoting that number, not out of the thin air. We do have very active conversations with the customers at the moment, including some non-binding LOIs that we're working to progress. I wouldn't want to share more details at this time, but I'm pretty convinced that in the next couple of weeks we'll be able to say something more about it. Operator Fredrik Stene, Clarksons Securities. Fredrik Stene So I want to touch a bit upon, liquidity in general, because at least from, the discussions that I've had with clients recently, I think it's it's very thematic and some of these ties to Mexico, Pemex, and the lack of payment visibility from them, and the second comes to, 2026 coverage and beyond and, you've obviously given good commentary on that I was hoping that you could potentially, provide a bit more color on how you see your own liquidity situation going forward and and and by extension of that if you Or how you feel you're kind of position to call it weather, short to medium term storm, and also if you envision to to touch the RCF either this year or next year in in some of they call it more adverse scenarios that you might be running within your own sensitivity analysis. Patrick Schorn Oh, very good. I'll ask Magnus to comment on that. Magnus Vaaler Yeah, thank you. Thanks for the question, Frederick. I think we're in a good position going into this year with almost 80% of our days covered at just below $150,000 per day, so it's a very solid. Solid day rate as sort of the fundament of our liquidity going into the air and also as you see, Bruno here is now starting to fill up the beginning of 2026 also with with backlog at rates that are above our cash break even rates which are de-risking, I think our liquidity any any liquidity issues for have received 120 million payments from Mexico so far this year, which is about one year of receivables or earnings, so that's obviously also very positive and fills up our bank account. We do expect that Penex should go back to regular payments now throughout in 2025. Invoicing seems to be progressing as planned. And the signals that we are seeing is that Mexico should come back to their regular payments that they have shown over the past few years up until mid last year, I would say. So all in all, I think the base case looks very solid.I do not foresee any reasons for drawing on the RCF as long as collections come in with the forecast that we are currently seeing. That being said, in scenarios where, there are delays in payments, from our customers or, that we have experienced before from Mexico, we have the RCF $150 million which provides us with additional comfort, there. I would also maybe lastly add that when you regular payments stopped from Pemex last year we were also able to find alternative ways of getting paid with this financing or factoring agreement which released almost 75% of our receivables on the balance sheet from I think we have a lot of Lot of opportunities to also, to monetize on the receivables should not the the base case, go through. Patrick Schorn Maybe I can add a few things because, of course it starts all with proper quality of revenue, and I think we have shown that we can generate that in 24 where we ended up with $500 million of are indicating a number now that is along the lines of Bloomberg consensus for '25 or $460 you also see that we are still in an environment where it's very competitive and where jobs are not easy to find, we're able to continue to fill up the coverage for '25 as well up to what we have indicated the 80 to 85%.We have no different intention to do with '26, so you see that we have 35% at a very decent day rate. If you think about what Mexico represents on top of that, it's about 20%. So you could say that with that you're already starting to talk, getting to the 55% to 60% of coverage, and we intend to continue to fill that throughout the year and try to the right balance as we get this year between pricing and utilization, and I think as long as we can continue to be very focused on starting off with the right quality of revenue and keeping the cost under control, then I think with the efforts on collections we can do a good job on liquidity as well, at least that's what we've been doing so far, and we intend to approach it no different for '26. Fredrik Stene Thank you. And, I think Patrick, you kind of started to touch upon my follow up here because as you're building either the rest of 2025 and also to 2026, and maybe this one goes to Bruno first part of that would be, the discussions with your your clients, are you still able and confident that you can secure, premium rates, or rates with a premium above market for your your high capabilities, or are you, in the current market getting pushback on that, I guess what you've found so far proves that you can, but interested to hear, how how how that looking forward and maybe for for for Magnus on the cost side also in the context of liquidity you're faced with Idle time on some of these rigs and you know that pertains to to Arabia to war for that matter, how, quickly are you able to ramp costs down and up if if if there's open capacity in between contracts. Bruno Morand All right, Frederick, so in terms of your question, and probably difficult to provide a single answer to that and whether we can get a premium on every job going forward. I think it depends a lot on the specifics of the very well aware of the value that we bring to the customers with our high-end rigs, offline capabilities and features like that, and to the tune that we know we create value for our customers. We think it's fair that we continue to claim a bit of a premium for rigs and have been doing so for a while now. That all we've been repeating for the last couple of quarters, at the moment, coverage is obviously just as important, if not more important than the premium. So we keep an eye when we when we deliver value for the customer because of projects, we certainly are very keen in driving to get. And I think we have continued to do a bit more projects and a bit more cookie cutter where we don't necessarily add an immense amount of value to the customer. We compete with the market trend. So we're comfortable with that. I think what is important is that The quality of our fleet still means that a lot of our customers default back to us and look at us as kind of the preferred alternative, and that should give us a chance to fuel up the coverage better than our peers or at a faster pace than our peers, and that's really the focus that we have at the moment. Magnus Vaaler Yeah, was your question on on cost side of things when we have our rigs rigs stacked. We currently have a rigs worm stack, so they are relatively easy to get back to work as you saw from the rigs that we have suspended in Mexico and keep keep warm enough that there will not be a lot of cost to bring the rigs out. And I would say a typical stacking costs for those rigs are in the mid $20,000 per day exception is the bar, which is a new build coming out of the shipyard where we can actually have a lower cost while it's sitting idle, and that's more in the area of $15,000 per day, we look at stacking periods of up to more than one year, you would probably go into a cold stacking mode where where you need to do more preservation, but you could also have a lower per day cost while stacked, but we have not gone to those stages yet as we are. Very optimistic that we actually will get work for them in in less than one year. Operator Greg Rossi, Bank of America. Greg Rossi Morning everybody, or I guess good afternoon for you. Just, can you talk a little bit about the Saudi market? Just, I -- you mentioned on the long-term demand there, but we've been hearing, what's been out in the press about about rates potentially being dropped. Can you help us understand what you're seeing and how that may be affecting the Saudi market and just other adjacent markets? Patrick Schorn Bruno, could you take that Saudi. Bruno Morand Question? Sure. And thanks, Greg. Looking at the Saudi market and we managed, I mentioned in the earlier remarks, we saw over the cycle Saudi going from about 50 rigs to 90 rigs and then following the suspension we're now back down to levels in the 50s. So activity level offshore is now back at the same levels as 2019 as we understand, the land operation in Saudi has seen a significant Reduction in activity as the kingdom at the moment is resolving for cash. They seem to think that there is production available at their fingertip, and I think optimizing that as being in the forefront. Now. Interestingly, in the last couple of quarters, there's a few things that would indicate that we could be at a trough and possibly working towards a one of those indications has been the increased interest from. Saudi about lump sum turnkey projects offshore. They've been quite successful with that onshore over time, not so much offshore, and now they seem to be exploring those opportunities and wanting to discuss these opportunities with the with the service companies and consequently the. The jack up let's see how things mature over time. And then equally they've been now securing long term rigs for some of the rigs that long term contracts some of the rigs that had been previously suspended in the part of the kingdom indicating that they're starting to build some long term capacity or potentially optionality. So that's what we see at the moment when Saudi's going to be back in the market. I think we will see. Certainly we do feel that at the current activity level, going back to the same levels of reduction activity are unlikely, and we start to see some signs of that potentially reversing going forward, but we'll see. Time will tell. I'll probably leave it at that. I guess we try to predict Aram steps in the past and I think people have been proven wrong, so we'll just monitor that going forward. Greg Rossi And just, I appreciate all the commentary on liquidity and and the purgency of suspending the base dividend. What, how should we think about share buybacks? Is that, is that a possibility in this environment or is that also off the table? Patrick Schorn Clearly I think that is something that at a certain moment is clearly attractive where equity pricing is currently. I think that there is a variety of things that we can do. I think everything is on the table at the time that we have a good visibility cash coming out of the business and that would include everything from buybacks from retiring debt from straight dividends. I think that there is a whole slew of things you can think of that all will be appropriately evaluated and be looked at at what would be the most appropriate at that moment in time. But yeah, I think that there is nothing that we will diligently work through it to make sure that we have the cash work in the best interest of the company. Operator Fady Chammas, Triton Partners. Fady Chammas Here is who covering for. Quick quick question about the backlog. How does the backlog work? Does it have a clause for termination for convenience? Can the customers just stop the contract? Are there any penalty payments? Yeah, any caller about that would be great. Bruno Morand And if you look at it probably difficult to give you a single answer for all the contracts, but our contracts in its vast majority, probably close to totality at the moment, if it includes a clause clause for termination for convenience, it comes with a level of payout. The payout varies from contract to contract, but in general terms it's equivalent to the backlog expectation of that of the remaining if the customer decides to to to exercise that option, we do recover the profit expectation that we have for the contract. And that's that's the general terms for the contract. It varies a little bit from contract to contract, but they are fairly similar. Fady Chammas Okay, so just double check, you say that the bulk of the backlog is kind of protected, i.e., even if oil prices drop materially, you wouldn't expect customers just to cancel contracts, and you guys wouldn't get anything. That is correct, and then one quick follow up is around the CapEx per rig? Like, how do you guys think about it and how should we think about it, like average CapEx per week per year. Can you also please give some guidance around that? Magnus Vaaler Yeah, sure, as we've now last year filed our new build programs, so there's no further growth CapEx, and what we're left with then is maintenance CapEx, special periodic surveys, long term have already indicated we expect around $50 million in 2025 on on CapEx. Which equates to around $2 million per per rig, and I think that is a decent number to to also use going forward for for modeling purposes and into the next couple of years as well. Operator This concludes today's conference call. Thank you for participating. You may now disconnect.
Yahoo
13-05-2025
- Business
- Yahoo
Q1 2025 Rapid7 Inc Earnings Call
Elizabeth Chwalk; Head, Investor Relations; Rapid7 Inc Corey Thomas; Chairman of the Board, Chief Executive Officer; Rapid7 Inc Tim Adams; Chief Financial Officer; Rapid7 Inc Saket Kalia; Analyst; Barclays Capital Inc Jonathan Ho; Analyst; William Blair & Company LLC Matthew Hedberg; Analyst; RBC Capital Markets Aaron Samuels; Analyst; Susquehanna International Group LLP Patrick Colville; Analyst; Scotiabank Eric Heath; Analyst; KeyBanc Capital Markets Gregg Moskowitz; Analyst; Mizuho Financial Group Inc Gray Powell; Managing Director; BTIG LLC Roger Boyd; Analyst; UBS Securities Joshua Tilton; Analyst; Wolfe Research LLC Shrenik Kothari; Analyst; Robert Baird Joseph Gallo; Analyst; Jefferies Group LLC Adam Borg; Analyst; Stifel Financial Corp Operator Hello and welcome to the Rapid7 first-quarter 2025 earnings call. (Operator Instructions)I would now like to turn the conference over to Elizabeth Chwalk, Head of Investor Relations at Rapid7. You may begin. Elizabeth Chwalk Thank you, operator, and good afternoon, everyone. We appreciate you joining us today to discuss Rapid7's first-quarter 2025 financial and operating results, in addition to our financial outlook for the second quarter and full fiscal year 2025. With me on the call today are Corey Thomas, our CEO; and Tim Adams, our have distributed our earnings press release over the wire. And it is now posted on our website at along with the updated company presentation and financial metrics file. This call is being broadcast live via webcast. And following the call, an audio replay will be available at this call, we may make statements related to our business that are considered forward-looking under federal securities laws. These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, and include statements related to the company's financial guidance for the second-quarter and full-year 2025, and the assumptions underlying such goals and guidance. These forward-looking statements are based on our current expectations and beliefs and on information currently available to outcomes and results may differ materially from the future results expressed or implied in these statements due to a number of risks and uncertainties, including those contained in our most recent quarterly report on Form 10-Q filed today May 12, 2025, and in the subsequent reports that we filed with the SEC. The information provided on this conference call should be considered in light of such results and the timing of certain events may differ materially from the results or timing predicted or implied by such forward-looking statements, and reported results should not be considered as an indication of future performance. Rapid7 does not assume any obligation to update the information presented on this conference call, except to the extent required by applicable commentary today will primarily be in non-GAAP terms and reconciliations between our historical GAAP and non-GAAP results can be found in today's earnings press release and on our website at At times, in our prepared comments or in responses to your questions, we may offer incremental metrics to provide greater insight into the dynamics of our business or our quarterly results. Please be advised that this additional detail may be onetime in nature, and we may or may not update these metrics in the that, I'd like to turn the call over to our CEO, Corey Thomas. Corey? Corey Thomas Hello, and thank you to everyone joining us this afternoon. Rapid7 ended the first quarter with revenue and operating income above our guidance ranges, while our ARR fell short of our expectations, ending at $837 million with 4% year-over-year the quarter, we saw continued strength in detection response, progress towards stabilizing our risk and exposure management business and resilience and profitability and free cash flow. In a moment, I'll walk through the details of our performance. But first, I want to remind everyone of the expectations we shared on our last earnings call. We entered 2025 with a clear strategy and commitment to reaccelerate long-term growth and expand free cash flow over strategy rests on three pillars: first, building on our scale and success and detection response, where we have strong customer demand and are well positioned to sustain growth. Second, upgrading our large vulnerability management customer base to our exposure management platform, which will both increase retention and provide a valuable on-ramp to our D&R platform. And third, improving our underlying cost structure while continuing to innovate by leveraging our new operations center in India and streamlining our Q1, detection and response continued as the core growth driver of our business from both an ARR and product expansion perspective. This business now represents over half of our total ARR and maintain mid-teens growth in the quarter. Our D&R performance would have been even better if not for a few seven-figure deals slipping into the second quarter, which have now since closed. However, our risk and exposure management business continue to see challenges, missing our expectations with continued growth exposure command continued to gain traction, this was offset by ongoing negative growth in our traditional vulnerability management offering. On positive note, our investments to improve our cost structure remain on track, setting us up for profitability reacceleration in performance took place in a more challenging macro environment than we anticipated entering the year. We observed customers becoming increasingly cautious and measured about their investments, both in terms of what they purchase and win. Extended deal cycles have become more common across multiple sectors and many organizations are actively evaluating vendors, reprioritizing budgets and implementing tighter spending controls. These dynamics are particularly evident in the North American mid-market enterprise segment, which has experienced slower deal cycles. This customer segment is demonstrating greater scrutiny and tighter budget control, trends that are reflected more broadly as customers reassess their priorities and spending we've seen in previous periods of economic uncertainty, the pressure is more pronounced in our risk and exposure management products, while our detection and response offerings continue to show let's examine our product base performance in detail. Our detection and response business continues to be our growth engine, anchored by strong momentum in our managed offering. We ended Q1 with over half of our ARR coming from detection response, growing in the mid-teens year-over-year. This growth is driven by persistent demand trends, particularly for NBR, which represents more than 75% of our D&R business. As customers seek enhanced visibility, broader coverage and operational efficiency in managing an increasingly complex threat believe the detection response market offers attractive and durable tailwinds, and we're still in the early innings of its development. We spent years investing and laying the foundation to position ourselves to capital assets opportunity, and we continue to innovate and invest for growth. This includes our recently announced Intelligence Hub which seamlessly integrates threat intelligence into our command platform experience and expanding our capabilities through our recently opened SOC innovation center in India, which will scale over the coming quarters. These investments are helping us deliver services more efficiently while driving better customer organizations increasingly turn to Rapid7 to monitor and respond to threats across complex environments, our integrated platform and MDR expertise continues to stand out in a private marketplace. A great example is a first quarter competitive win with a midsized enterprise health care customer who consolidated their security stack with our managed threat complete solution. They were seeking broader visibility, greater automation and reduced operational complexity, challenges we were uniquely positioned to address. Our differentiation was clear across several dimensions. Our managed XDR capabilities enable seamless third-party detection response through native integrations with their existing AI-powered SIEM and log management offered unlimited ingestion and long-term retention, providing unmatched visibility, our customizable analytics and automated alert (inaudible) streamlined their operations, and we delivered true defense in-depth by correlating alerts across multiple sources, not just endpoints, creating a more robust security posture. This win was driven by our technology and strengthen our partner collaboration and ability to support the customers' goals with speed and clarity. It exemplifies how our consolidated platform continues to drive success in highly competitive environments. With our proven brand, our track record and the right capabilities to win we remain excited about the future of this business and expect to continue to drive growth for let's turn to our risk and exposure management business, which is where we experienced the most pressure during the first quarter. As we've shared in recent quarters, we have made a deliberate shift transitioning from a traditional standalone VM business to a consolidated integrated approach to risk and exposure management. We believe customers increasingly need unified visibility across their attack surface with streamline remediation and smarter risk prioritization. This is what exposure demand delivers, bringing together vulnerability management, cloud native application protection and threat context into a cohesive experience by consolidating risk insights across hybrid environments, automating response workflows and focusing teams on what truly matters, real, exploitable threats were helping security teams efficiently secure their expanding attack surface. Our strategy to improve risk and exposure management is center on driving adoption of exposure command across our VM customer we continue to believe this will stabilize performance and ultimately position the business back to growth. We laid the right foundation in 2024 with our exposure coming at launch. And today, we're actively working to transition our VM installed base to this more modern integrated solution. While we've not yet made the full progress we hoped, we are resolute in our strategy and the key consideration is around timing. The most significant variable in our near-term performance will be the velocity of the upgrade cycle and risk and exposure is where we're focusing our efforts, accelerating migrations, enabling partners and removing friction points to shorten time to upgrade in what is clearly a more competitive and measured the go-to-market side, we have completed initial partner and build enablement and are now refining our packaging and pricing to support clear customer pads and more streamlined upgrades. We also recognize the need to better communicate the strength of our snow capabilities, which remain a core differentiator but are still underappreciated in the market. On the product side, we continue to invest in innovation, including several recent enhancements that expand coverage, improve automation, and reinforce our leadership in unified exposure management across hybrid turning to our outlook for the remainder of the year. We remain confident that our strategy can position Rapid7 for sustainable growth and expanding cash flow in the years ahead. Our detection and response business continues to perform and remains the primary growth engine for 2025, as we work to modernize our risk and exposure management platform and return that business to growth. That said, it's clear the environment is more dynamic and fluid than when we initially provided guidance in February. We're seeing greater variability in customer decision cycles, something we experienced firsthand with certain March deals slipping into April, and we recognize that broader policy and budget implemations may take additional time to play we've taken the opportunity to leverage the expertise and input from our new board members to help evaluate and enhance our guidance the evolving backdrop and our slower start to the year, we're adjusting our ARR guidance by lowering the overall range and also widening the range to account for increased budgetary uncertainty. Importantly, we are maintaining our expectations for operating profitability, which is a reflection of the operating flexibility and resiliency that we've built into our model. As we look ahead, our focus remains clear and grounded in 3 strategic priorities. First, we will continue to drive industry-leading product innovation across both our growing D&R franchise and our established risk and exposure management business. Second, we remain committed to delivering successful outcomes for our customers helping them navigate increasingly complex threat environments while ensuring clear returns to their security third, we're focused on driving comfortable growth and strong cash generation, including through operational efficiency and continued leverage in our expanded partner I turn the call over to our CFO, Tim Adams, to discuss financials, I want to take a moment to welcome our newest addition to our Board of Directors. Wael Mohamed, Michael Burns and Kevin Galligan, each brings expertise that will support our efforts as we navigate a rapidly evolving landscape. We look forward to leveraging their experience to drive growth, enhance our industry leadership and create value for all our that, I'll turn the call over to Tim to walk through the results in more detail. Tim Adams Thank you, Corey. Good afternoon to everyone. We appreciate you taking the time to join us on today's call. Before I turn to the results, a quick reminder that except for revenue, all financial results we will discuss today are non-GAAP financial measures unless otherwise stated. Additionally, reconciliations between our GAAP and non-GAAP results can be found in our earnings press ended the first quarter of 2025 with $837 million in ARR, representing growth of 4% over the prior year. ARR results came in below our expectations and reflect continued healthy growth in our detection and response business, offset by both macroeconomic headwinds and continued pressure in our risk and exposure management business. Softness in our stand-alone vulnerability management business and a few delayed new deals were the primary headwinds, combined with an incrementally more cautious customer spending environment, which muted potential upside drivers in the first quarter. Amid this, we delivered revenue and profitability that exceeded our guided ranges, and we continued to demonstrate strong operational discipline and free cash flow turning to the rest of our financial results for the quarter. Year-over-year ARR growth in the first quarter was split fairly evenly between new and existing customers. ARR per customer grew 2% year-over-year to approximately $72,000, and our total customer base grew 2% year-over-year to 11,685 customers globally. Revenue of $210 million for the first quarter grew 3% year-over-year and was above our guided range. Product revenue grew 4% year-over-year to $204 services declined year-over-year, consistent with our decision to deemphasize certain lower-margin service engagements. International revenue represented 25% of total revenue and grew 10% over the prior operating and profitability measures, our product gross margin was 76% and total gross margin was 75%. Sales and marketing expenses were 34% of revenue, reflecting disciplined investments in growth initiatives. R&D and G&A expenses were 18% and 8% of revenue, respectively, and consistent with our plan to prioritize targeted investments behind our core security operations platform and scaling our India innovation center. Operating income for the first quarter was $32 million and above our guided range due to the timing of certain hiring and G&A expenses. We now expect these costs will be reflected in the later EBITDA was $39 million in the quarter and non-GAAP net income per share was $ to our balance sheet and cash flow statement. We ended the first quarter with cash, cash equivalents and investments of $593 million. In early May, we fully repaid the remaining $46 million balance of our 2025 convertible notes, further simplifying our capital structure. Our existing convertible debt is attractively priced and we plan to meet these obligations through a combination of cash on hand and free cash flow generated from the business. We believe this financial flexibility positions us well to continue investing in growth while maintaining a strong capital cash flow for the quarter was $25 million. This brings us to our outlook for the remainder of the year. For the full year 2025, we are adjusting our ARR guidance to reflect the slower start to our year, along with increased uncertainty we're seeing in the market. While detection and response remains a consistent performer. The softness in our risk and exposure management business and lengthening sales cycles, particularly in March, have created more variability than we anticipated at the start of the a result, we are lowering and widening our full year ARR range to $850 million to $880 million, growth of 1% to 5% over the prior year. in order to better account for these dynamics. We continue to monitor the macro environment closely and are staying agile in our planning and execution. Given the changes in the ARR outlook, we now expect full year revenue of $853 million to $863 million, representing growth of 1% to 2% over 2024. Recurring product revenue growth will outpace total revenue growth, offset partially by a year-over-year decline in professional operating profitability, we are reiterating our full year operating income outlook of $125 million to $135 million. We are adjusting our full year free cash flow guidance to a range of $125 million to $135 million to reflect billings and collection dynamics associated with our lower ARR net income per share is expected to be between $1.78 and $1.91 based on approximately 76.7 million diluted weighted average shares. For the second quarter, we expect revenue in the range of $211 million to $213 million, representing year-over-year growth of 1% to 2%. We expect non-GAAP operating income between $30 million and $32 million and non-GAAP net income per share of $0.43 to $0.46 based on approximately 75.3 million diluted weighted average shares closing, while the broader environment remains cautious, we are confident that the steps we are taking, driving innovation in our product portfolio deepening customer relationships and operating with financial discipline position us well to drive improved execution through the balance of 2025 and beyond. To close, I'd like to thank our teams for their hard work and continued focus as we execute against our long-term strategy. We remain committed to driving sustainable growth, expanding profitability over time and reinforcing Rapid7's leadership in security operations. Thank you again for joining us we will now open the line for questions. Operator (Operator Instructions)Saket Kalia, Barclays. Saket Kalia Maybe I'll stick to the rule just around one question and maybe make it for you, Corey. Can you just go one level deeper into why you think maybe the upgrade cycle on the closure command is just going a little bit longer than you expected. I mean it's clearly a tough macro, but can you just maybe dig into some of the product considerations here as customers think about really consolidating multiple tools with that product? Corey Thomas Yes. So if you look at the budgetary -- if you look at sort of a step back and say, like, why do customers want to upgrade to a product like exposure coming in is, by and large, customers have a more complex risk environment. So they have more cloud assets, more SaaS assets. They need to actually look at risk across the environment. They understand their need to model their attack surface and they need to manage their remediation and their compliance across that complex environment. So complexity is the primary driver of demand. The reason that we actually have confidence in the cycle is we're seeing good interest and demand in solving the problem. We are seeing, especially in our core mid-market installed base is not readily available budget. And so part of how we think about the opportunity is where we're seeing budget that people can actually allocate and where are we we entered the year, we actually looked at it across the board and thought that there will be a pace of upgrades to cross, which we still think that will be a healthy pace of upgrades. But we are seeing a difference between those that can actually afford the budget and those that can't afford the budget. I'll remind you that we tend to have a heavy layer -- a more heavy weighted mid-market installed base, especially in traditional VM. And that's where we're expecting it to take a little bit longer on the time to actually get through that upgrade cycle because it is incremental expense. Operator Jonathan Ho, William Blair. Jonathan Ho I guess one thing I wanted to understand a little bit better is when it comes to your expectations around the ARR side of things, I mean, clearly, it's a bit more challenging here with the macro and with what's happened around exposure management. But what has to happen to sort of reaccelerate the ARR? And what could maybe be some upside scenarios here as we look at sort of the environment? Corey Thomas Yes. Thanks for the question, Jonathan. Look, we see 2 drivers, which is why we have a pretty wide range right now. The first driver is the continuation of what we're seeing right now. We've seen strong demand for detection just expanded the offering to be able to actually go after more customized and more enterprise use cases that just launched off. So we're expecting execution there. Now those deal cycles are longer. And so we're not forecasting or making that completely into the plan. But we're definitely bullish on what we're even with the performance in Q1, what I would just say some things that were headwinds where deals got delayed in D&R and they showed up in the early part of Q2. We had some customers that had M&A. We still saw very, very healthy performance on D&R, and we just significantly expanded the market opportunity at the TAM there. And so that's an area where we actually have a lot of confidence second part is that the ability to upgrade our installed base, we don't have to get to material parts of the installed base to see upside. We are incrementally more cautious about the U.S. mid-market. We still see lots of strength internationally around the world. But when we look at sort of what it takes to see reacceleration, it's really sort of like can we actually start to get the upgrade engine in mind, the upgrade engine is a new engine for us. This is the first time in a long time that we've had the ability to upgrade a material part of the installed base. And so again, that's why we have a wider range. So again, to simplify it, continued D&R momentum pursuing the expanded D&R opportunity, which we just opened up from a product portfolio, and we're well positioned to actually get. And then we need to actually see the upgrade cycle perform on the risk of those give us plenty of room to actually achieve the upside, but timing is one of those things that we did not want to actually overcommit on the timing because the upgrade cycle especially could take a little bit of time. Operator Matt Hedberg, RBC. Matthew Hedberg I wanted to follow up on Saket's first question at the start. And it seems like, Corey, you outlined a couple of steps for improving risk and exposure management that you talked about enabling partners and accelerating migration. I'm just kind of curious, what sort of time line should we think about for stabilization, if not improvement in that business? Corey Thomas That's a great question. And this is one of the things that we focus a lot on. I would say, if you look at the guidance range that we actually have now is we're expecting moderate stabilization over the course of this year. And then I would just say, reacceleration as we actually move forward. When we look at the core drivers, you really do have to break it down and say what's happening by a segment so what we're finding right now is that customers that actually have flexibility in budget, we're seeing a movement, and we're continuing to see upgrade cycles, not at the pace that we would want to see, just to be clear, to offset the larger macro pressure, but we are seeing momentum, and we are seeing upgrades and we are seeing proof points around those. The deal cycles tend to be a little bit larger, which is one of our indicators that we're seeing more pressure in our core mid-market installed base. There are some things that we're doing around packaging and pricing to actually try to ease that upgrade cycle for that core mid-market to answer your core question is that we expect to say stabilization as we -- moderate stabilization as we actually go through the year. We are expecting to be more pressured than we actually expected as we started the year overall in the risk and detection business, but we're constantly focused on what it takes to unlock that. The steps that you outlined are sales and channel enablement, honing and intuiting the price and packaging, driving campaigns against the installed base and segment in the installed base, really focused on those who actually have the budget and the ability to actually upgrade (inaudible) and most importantly, continuing to improve the product value proposition. Those are the keys that we actually see that drive the midterm cycle there. In the interim, we're not jamming the timing on focused on -- we're focusing our sales teams and marketing teams on what's working. We have a strong value proposition in detection response. And so we're really focusing on that as we actually continue to drive the systematic upgrade on the installed base. Operator Aaron Samuels, Susquehanna. Aaron Samuels I wanted to ask a little bit more about the macro. You mentioned some pressure from U.S. mid-market customers. Do you have any call-outs in terms of customers that have been relatively more resilient, whether by customer size, geography or industry vertical? Corey Thomas It's a good question. It's interesting is that I would just say customers where security is required and mandated are clearly easier to actually sort of like withstand and get the budgets more. So that's why we find it more in both highly regulated industries as well as slight -- I would just say, not large, large, but I would just say the larger end of our installed base. When you think about that over $1 billion of revenue customer set. And so there tends to be more we have to we actually do see real benefits and tailwinds from the fact that those customers also have to scale their operations. And so we think that there's a real opportunity, especially with our expanded enterprise MDR offering to actually be able to drive growth and acceleration there. So that's where we actually see opportunities. We also see lots of actually opportunities in Europe, especially outside of the U.S. where we continue to actually have healthy growth and healthy demand drivers places that we're seeing pressure are unfortunately places that are, I would say, critical to Rapid7's focus on resource-constrained buyers historically is we see pressure in the health care sector. We see pressure in the education sector where, again, they're still moving forward, but those deals are definitely taking longer, and there's lots of budget concerns as you go around. Same with state and local sectors. And then we talked about sort of like the general media market. So we see areas of also see areas of pressure. The one thing I'll say, as you look across those things, we are seeing even though it may take a little bit longer, the D&R projects are closing. Now people want to make sure they get great value for what they're getting. But those D&R deals are closing and moving forward. Tim Adams And we saw those in the month of April that slipped from March. Corey Thomas Exactly. Tim Adams So it's very positive. Operator Fatima Boolani, Citigroup. This is Mark on for Fatima. Maybe just on the challenging macroeconomic environment and also the new upgrade cycle motion that you guys are seeing. Can you maybe speak to the level of growth churn in those attrition during the quarter? Any sense of observed disruptions from the upgrade cycle? And related to that, any color you could provide on NRR would be great. Corey Thomas Yes. No, it's a good question. So when you look at the churn that we actually saw, it's pretty consistent with what we actually saw exiting last year. So if you think about the pressure from a net AR perspective, is the churn was consistent, especially in the risk business with what we saw exiting last year, what was a pressure environment. So we didn't expect any major changes overall.I will say that we refreshed more on the new side of the equation in that core mid market space. As you think about sort of like the traditional vulnerability management growth. Well, it's not a big factor it's still sort of a factor when you think about total net ARR growth. But churn was relatively consistent to what we expected as we actually exited last year. And that has -- the upgrade cycle hasn't been a major factor in the churn the core question is, is this putting more deals up for risk? No, we're not seeing that at all. Operator Patrick Colville, Scotiabank. Patrick Colville I guess, Corey, I mean this one is for you. I mean, in the quarter, we had, I mean, conference recently and a large, I guess, platform cybersecurity company best known for its endpoint tool put into GA, it's network-based VM. I guess, clearly, too early to tell what that might mean. But can you shove us some thoughts on like what this entrant could be for Rapid7 and how you guys are going to compete against them to kind of lock them out? Corey Thomas Yes. And so, when we look at VM, we consider VM to be a hyper competitive pressure, but also in that high-growth space. And so we do have to actually depend and upgrade. Our strategy is pretty straightforward. We uniquely have a very differentiated approach to actually provide integrated risk visibility across the attack surplus, which is what people are looking for now.I've said it before. If you are looking at monetizing just traditional stand-alone VM, it's going to be an unattractive business. Part of what we're doing is part of the upgrade cycle is we're drawing down the value of historical traditional stand-alone VM and providing more value from the ability to actually track all the assets, resources technology across the attack surface look at the integrated risk profile across the attack surface, manage remediation across their attack surface and manage compliance across the attack surface. I look at all the announcements at RSA, none of them are actually taking a truly integrated approach overall there. So we think that our upgrade strategy, this is why we said that it is an imperative to upgrade our installed base because we are upgrading in a way that actually makes us so that's a no. We have to execute on it, but that's a no, no. But the other part of it is there's a lot of focus, I would just say it is defit, and we are definitely declining on the overall traditional vulnerability management market, and that's the imperative upgrade. But the other part of that is to actually continue to play offense about what's working. And the D&R growth engine also provides a stickier avenue and approach for those VM customers as they consolidate on the so if you think about our strategy, if defense is too wrong. If we have a bunch of, I would just say, stranded vulnerability management with customers that don't have any sort of like other compelling value, then that's a higher risk for disruption and we acknowledge it. That's the imperative there. but either upgrade to exposure command or upgrade them to our integrated detection and response offering, those customers are much, much more stickier. And we've already seen that with our overall D&R customer that's the strategy and that's the approach. I would just say regardless of what anyone does, standing still was never an option. We've known that. We could have managed to change better, but we've known that standing still is never an option. We are in a good place that we have massive momentum and we are participating in a core growth market, and we're getting more than our share of that core growth market, which is D&R as we actually then address the changes that are happening in the vulnerability management market overall, which we forecast and saw that coming. Operator Eric Heath, KeyBanc Capital Markets. Eric Heath Corey, just curious to understand, maybe at a high level, how much of the success on D&R is dependent on the installed base of VM just. Can D&R continue to grow double digits as VM continues to decline? And Tim, if I could sneak one in. I think in the past, you've given some guardrails on ARR for the upcoming quarters. So just curious if there's any guardrails on 2Q ARR? Corey Thomas So to answer your core question is we've been pretty lucky with the D&R business is that the growth has actually come from both within our installed base. I'll just point out that we have a massive upgrade opportunity within our overall installed base, both on an exposure and upsell basis, but also on the existing D&R and technology customers in the installed base. So we still have plenty of upgrade room. That's one of our underleveraged opportunities that we're really focusing our sales engine on building the motion about how do we actually expand and growing the installed base. So to answer your questions, one, are we run in our room because of the VM dynamics is have massive room in the VMs. I think the second part of your question is, when I think about it do you actually have a land motion independent that will be installed base and yes. The unique thing about D&R business, and this is what makes us very proud is that we've always been able to actually add new land customers. And I'm not saying that's like 10%, 20%, it's been pretty close to half of the installed base could actually come from new land customers, which is much higher than we expected. So we still have more than enough land engine to actually drive sustained growth as we actually go that business overall. Even as we have opportunities to upgrade existing D&R businesses, our focus on what -- some of the stuff that we're actually launching later this year around AI for our D&R customers, we think will actually be a boom for both our technology customers but also for our MDR customers who continue to want us to cover and manage more and more of the environment. You're seeing some of the early indicators of that with our recently launched enterprise MDR customizable service and business where we are using more and more AI for that and that's a upgrade opportunity. To your last point is, Tim, you can do a quick one on thing because we (inaudible)? Tim Adams Yes. Eric, on Q2, I would say we're anticipating a modest increase from where we ended Q1. And our full year guide for the year is more second half weighted this year. Operator Gregg Moskowitz, Mizuho. Gregg Moskowitz Okay. Corey, anecdotally speaking, why is it that the U.S. mid-market does seem particularly cautious about spending right now? For example, are customers deliberating for a longer period of time as they decide how typically they may consolidate in cybersecurity and with which vendors where tariffs mentioned at all as an issue in late March or in April. Any additional color there would be helpful. Corey Thomas Yes. Look, I actually think it's general uncertainty. What we found in almost every cycle, we've had -- we're probably one of the few cyber companies and enterprise companies that had a mid-market business for longer. So we've seen a lot of these cycles. The mid-market tends to respond faster to economic tends to set all faster, come on faster and so that's not anything new, which is why as we saw things play out in the early part of the year. We actually did shift our position to take more -- and we talk to them and validate it with taking more cautionary approach. . Now to get down to the reasons is that they very, very differently across the industry. So manufacturers are, of course, worried about tariffs, their cost structures, pricing, how much they can equip on their midsized health care companies are clearly worried about margins, whether you are a health provider or health insurer that is a concern that you're actually going to have regardless. Retailers are very worried about their cost structure. So again, I won't say it's a formal survey, but we do our pressure chest across a bunch of different segments. And so it does vary about what the pressure is. But what I'll tell you is that we saw in the COVID cycle, we've seen in the previous cycles is retail customers tend to pause and wait to see what's happening much faster than some of the larger customers, some of the larger then one thing that's unique is we lose more pressure in the education sector that go around for obvious reasons. Operator Gray Powell, BTIG. Gray Powell Okay. Great. So yes, another question on the macro environment. I mean everything you said makes a lot of sense, and I just really appreciate your being upfront with everybody. I am curious like, can you give us a sense as to the tone of customer conversations in April and May?And just broadly speaking, but my understanding was that people were pretty panic the week after a liberation day. And I actually heard some people say it felt like March of 2020. But once the tariff pause went into place like on April 9, I was hearing that things started to fall out. So I'm just curious if you heard anything like that. Did any conversations start to improve the last few weeks? Corey Thomas Yes, absolutely. I mean so Tim said earlier, we have closed some of the deals that we were worried about. You can make an argument that things are stabilizing. I think anyone who would actually estimate that being stay stable in this environment is probably a little dilution because I think we're probably in an up and down cycle on the new cycle. Well, I would just say there's just as much reason to actually see stabilization and upside as there is SC downside pressure.I just want to be clear, is we're not, I would just say overly pessimistic about the macro. We just realized net down, there's a wider range of outcomes there. We have seen some customer deals progress and move. We see continued opportunity creation. So it's not a -- it's not a negative read.I would just say, on balance, we see increased pressure. But as you said earlier, as people do respond to actually what's in front of them. And it feels like it's not the worst of the worst right now what would be my read of it. But I don't think we're yet what I would consider a stable macro environment. I think there's a lot of unknowns, and we're trying to reflect why you see we actually have a wider range here because we haven't -- we have the upside and we have the base case and we have the downside scenario, but that required a wider range. Operator Roger Boyd, UBS Securities. Roger Boyd Corey, you mentioned confidence in the CNAPP product. And I understand there's a big opportunity there, but I think we've all kind of seen that it's incredibly expensive to compete there. There's been others in that space that have been there for a long time that are now looking to partner. Just how are you thinking about the health of the cloud security market? And how do you think about kind of the investment strategy to capitalize on the opportunity there? Corey Thomas Yes. No, it's a great question. So I would just say we've been very deliberate about how we think about it. Our primary focus is just upgrading the installed base to our integrated offering. And we have lots of, I would just say, levers to actually pull is not when we're going to go out and spend a ton of money trying to acquire new land in cloud security is we think we can provide compelling economically leverage upgrades for our customers in our installed base. We think that our installed base is underpenetrated having any cloud security solutions there that tends to just describe a little bit of the resource-constrained buyer that we have heavily in our installed base. And so we see that as the primary opportunity, which is a much more efficient cost of sales and marketing. That's it. We are maturing in our ability to actually pursue that this is probably the first time in a long time that we've had a big upgrade cycle in front of us. So we're getting the engine ramped and targeted. I'll talk to one of our associates earlier today, and they said, listen, we're starting to actually progress and ramping up the sales engineer. But we are targeting a much more efficient growth opportunity there, which is really how do we grow the installed base. Our mind is that to achieve success, we actually just need a moderate uplift across a moderate portion of our installed base, and that actually drives stability, which takes away a negative growth engine and our overall risk and exposure management installed base, puts it to net neutral to slightly then we can actually really leverage the tailwinds that we see on the traditional D&R side of the equation. That's the goal focus in some ways, we have Tele2 cities. So stabilizing and getting to a neutral to positive on the risk and exposure, which is really about upgrading the installed base, even acknowledging some of the traditional churn pressure, while we actually continue to actually really focus on the massive growth engine that is a D&R business. Operator Joshua Tilton, Wolfe Research. Joshua Tilton Can you hear me? Corey Thomas Yes, Josh. Joshua Tilton Great. I want to start by echoing Gregg's comments. I appreciate you guys being upfront on what you're seeing out there. The one I had is just kind of parsing out some of the comments that have come out during the Q&A. And I guess in the prepared remarks, you talked to D&R still being mid-teens growth with some deals would have been better but those deals have closed. I guess, is that a macro dynamic? And then do you see a similar dynamic on the risk and exposure side of the business in the sense that you had a light quarter, but what has happened to those deals since. And what's expected in the guide for everything that slipped going forward? Corey Thomas Yes. No, it's a very fair question. So the -- on the D&R deals that actually slipped. What I was spirit was just very large deals, so it's easy to count. Like it's a handful of -- not even handful, it's a couple of deals that just happen to be very material in the reason that they slipped were probably, I would just say, macro pressure situation. One was a large educational institution, which really need to see how things were going to actually play out and another was in the retail sector. And so those are sectors had a smattering of, I would just say, manufacturing companies, too, that I think most of those have actually since closed, not all. And then, when you look at the risk exposure management side, you remind our strategy on the upgrade is just much smaller ASP. So it's not that you didn't have deal slippages on that just -- it's not as concentrated. The D&R business tends to actually have larger average ASPs and then wider ranges overall. And so that's the read through is that -- and then on your question about what's in the guide and the expectation, look, our core guide is really anchored on, I would just say, consistent D&R performance, which is, I would just say, in line with what we saw in Q1. There's no real deltas that we're experiencing there overall. I would say the range of outcomes on the high and the low is that do we actually get some acceleration in D&R based on the expanding offerings that we think are pretty upside there. But without history, it doesn't make sense to make it into the range. And then we are more modest on balance on the pace of the upgrades, which can offset some of the VM pressure. We are working very, very hard to actually drive the upgrade cycle and then operationalize that. But I would just say, incrementally versus the start of the year, we are expecting that cycle to actually take a little bit longer, and we're expecting to see continued pressure in the overall traditional motability management business for all the reasons that we actually talked about we have upside there based on the updated cycle? Absolutely there. But we're at where we are based on what we've seen so far. Operator Shrenik Kothari, Robert Baird. Shrenik Kothari Great. So Corey, you mentioned, of course, structural pressures in credit and slower mid-market. Despite all of that, you've been able to drive MDR growth, which is anchored and, of course, lower TCO via AI automation but also differentiating on cost. So on the risk and exposure management, I hear you mentioned about, of course, packaging pricing, partner enablement. But in terms of messaging, right, you did touch upon that, how are you aiming this broader risk and exposure management to differentiate your approach Robinson's approach from other VM players?I had a quick follow-up after this. Corey Thomas So I think the question is how are we differentiating versus traditional VM players. Well, one, I would say, look, we have to recognize that the VM market has a lot of approaches, players, avenues, I would just say, overlaps to the cloud market in some ways. We've taken a very, very specific approach of focusing on integrated risk management. And so the way to think about that is that what's unique about us is we're one of the few players and the only player I'm aware that fully out of the box integrates all the assets, all the information, all the context in your environment. We actually consolidate risk across the environment, not just from our tools and technologies, but across the have open APIs. Otherwise, people can collect our data, too. We believe in open APIs to support that. And we think that's good for the technology industry in general. We consolidate the remediation across the have some enhancements later that are going to accelerate our ability to process and help customers drive compliance even AI across the environment. And then we actually build automated workflows. In general, the way to think about what we're doing is when you think about the CTM structure that Gartner recommends a cross is our big focus is about being the integration engine behind that and enabling the automation of the response and management of those processes. We see ourselves as highly differentiated. There's areas that we're catching up like some of the long tail of the cloud capabilities that some of the cloud pure plays have actually done is we're playing catch up with some of those when we look at our core installed base, while they may be more budget constrained, they made more resource constrained, lots of them are trying to figure out how to actually get efficacy at scale, and we think we have a great story and a great solution for that installed base. Operator Aidan Perry, Piper Sandler. This is Dave (inaudible) on for Rob Owens. You mentioned earlier the complexity of the driver demand and with the launch of MDR for enterprise. Do you think these new capabilities will allow you to go after specific verticals with CapEx environments more effectively? Or is this offering intended to address large customers more broadly? Corey Thomas It's intended to address large customers more broadly. But look, there's also some large verticals that we see like we've gotten lots of demand from the manufacturing vertical, for example, which really has a massive amount to manage, and they're looking for scale help. Healthcare, we actually see on the large and real dynamics there. So Think about our sweet spot here is very, very large customers that have to scale. Security is are looking for a partner. They have some security resources, but they're looking to scale. The unique thing that we do is we help them understand what their attack surface is we actually help them monitor 100% of the attack surface at efficacy. They know that they have to monitor the not just the endpoints they know they have to monitor the identities, all the cloud resources, which are incredibly noisy across that environment. They know that they actually have to actually process all the security telemetry have to reconcile the data. We are leveraging both AI and our talent to actually do that. And so we're adding real scale to those organizations, and we're assisting them in a way that works for them. this took a lot of effort and investment to actually be able to do that in a way that had healthy gross margins, but can operate in a way that customers want. So we're incredibly excited about the launch, that is one of the upside drivers for the had a nice warm reception from our initial pilot customers and some of the customers in RSA. But that is a growth driver. But I would just say it's -- think about very, very large resource contained buyers. We offer the best economic solution to actually get efficacy at scale. Operator Joe Gallo, Jefferies. Joseph Gallo Last quarter, you announced heavy investments for D&R which team is justified. But maybe can you just talk a little bit about your overall profit versus growth framework? Are some of these investments fluid if growth doesn't accelerate? And then maybe how should we think about sales capacity as well? Corey Thomas No. There's a lot of questions built in there. So let me just sort of hit a couple of ones. Well, look, like any company, we need to invest behind growth opportunities. In detection response, we have a massive have a healthy position, and we can actually create an even stronger position and frankly expand our addressable market there. So that's a clear, I would just say, profitable growth opportunity. in almost any definition you actually invest for profitable growth in the growth opportunity. When you think about the allocation of resources across is that, again, we're not trying to be all things to all people. We are focused when we think about outside of that, things that reinforce our overall we're going to be the best at actually integrating telemetry across the environment. That's both the entity data the risk data and the monitoring data. So our integration engine is a core investment prioritization that we're focused on across the environment. And then we're going to make sure that we actually have the right capabilities to serve our core mainstream customer when it comes to the risk and the exposure at the best economics. So we have a rational allocation takes focus. It takes discipline around it. But we are invested in the areas that actually have the best growth profile. And you'll continue to see us sort of like both innovate, partner to actually drive success in the overall market. Tim Adams Joe, it's Tim. I would just underscore something Corey brought up earlier, selling into the installed base. As you know, we're just under 12,000 customers. And that really creates a large market opportunity for us with customers that we have a good relationship with on the expansion motion, and that does come at a lower cost of sale for us. So that's one area where we can see leverage in the future. Corey Thomas Yes. And I go to market great to hear. And our go-to-market motions are pretty straightforward. It's the -- if you look at what we're doing, we are driving the integrated land motion about like looking at how customers look at integrated security operations. We're upgrading our installed base, VM to exposure Command, and we're driving adoption as our big trust in detection response. Operator Adam Borg, Stifel. Adam Borg Awesome. Maybe just building off to Joe's question. So when we think about the new stock in India, maybe Corey or Tim, you could talk a little bit more about how that's supposed to help not just from an innovation perspective, but also from an efficiency perspective as well. Corey Thomas Yes, there's a couple of elements. So one, if you think about our operations in India, India is another global development center, just like we have a couple of them in the U.S. We have one in the U.K., we just opened up a development center specifically in (inaudible), and we now will have a global operation center in India that will have some development and some security operations. I would just say, just to be clear, the #1 driver of the center that would go on for the SOC -- SOC in India is that we've had significant growth in EMEA and APAC in our core detection response business. And so having people that are in regions that have over -- overlaps that can actually do multiple times on coverage is a response to customer the number 1 drop. It happens and then also has some economic benefits, but I just want to recognize that the customer benefits are massive and significant because that's where the growth is, again, our lease is very clear, just invest behind the growth. So we see great growth internationally in those regions that were invested on. That said, when you think about how do we actually scale D&R and we have big MDR demand, we're customizing more. But you have to engineer that in, you have to have a product-based also, it's a combination of technology and sort of like the cost of the talent there. I want to be clear is there's definitely cost talent arbitrage (inaudible) there. But if you say what's the majority of the cost efficacy that's going to allow us to continue to scale this business. As it actually serves more and more customer use cases, it's definitely the investments that we're making in our adoption of AI technology, which is a big part of the investment thesis that Tim laid out earlier. And again, I met with our teams over the last couple of weeks and that is on track and frankly, accelerating the investments that were actually belief is that our technology and the AI investments that we've actually already made and they're in the SOC. And frankly, we're going to make available to our broader customer base. A little bit later this year are already yielding massive dividends that are allowing us to actually run at better operating margins from a traditional MDR player. And if you say where most of the gains is going to come from, it's going to come from the technology innovation side of the equation. Yes, there will be lower-cost talent that's going to actually take a factor we're seeing real gains from sort of our ability to leverage both AI and automation to drive the efficacy of the stock, and that will be the dominant driver of how we continue to actually have better margins than most traditional India players. Tim Adams Corey, we're already seeing that in the numbers on international. It's 25% of revenue, and it's growing faster than what we saw in the U.S. that 10%. Corey Thomas As part of how we're actually able to actually even with some of the wider ranges continue to manage profitability this year because we're already seeing some of the footprints. Operator That is all the time we have for questions. This concludes today's call. Thank you for joining. You may now disconnect. Sign in to access your portfolio
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23-04-2025
- Business
- Yahoo
Q1 2025 Lockheed Martin Corp Earnings Call
Maria A. Ricciardone; VP, Treasurer & Investor Relations; Lockheed Martin Corp James Taiclet; Chairman of the Board, President, Chief Executive Officer; Lockheed Martin Corp Evan Scott; Chief Financial Officer; Lockheed Martin Corp David Strauss; Analyst; Barclays Capital Inc. Jason Gursky; Analyst; Citi Investment Research (US) Kristine Liwag; Analyst; Morgan Stanley & Co. LLC Gautam Khanna; Analyst; TD Cowen (Research) Richard Safran; Analyst; Seaport Global Securities LLC Peter Skibitski; Analyst; Alembic Global Advisors Douglas Harned; Analyst; Bernstein Institutional Services LLC Scott Deuschle; Analyst; Deutsche Bank Securities Inc. Michael Ciarmoli; Analyst; Truist Securities Inc. Operator Welcome, everyone, to the Lockheed Martin First Quarter 2025 Earnings Results Conference Call. Today's call is being this time, for opening remarks and introductions, I would like to turn the call over to Maria Ricciardone, Vice President, Treasurer and Investor Relations. Please go ahead. Maria A. Ricciardone Thank you, Sarah, and good morning. I'd like to welcome everyone to our first quarter 2025 earnings conference call. Joining me today on the call are James Taiclet, our Chairman, President and Chief Executive Officer; and Evan Scott, our Chief Financial made in today's call that are not historical fact are considered forward-looking statements and are made pursuant to the safe harbor provisions of federal securities law. Actual results may differ materially from those projected in the forward-looking statements. Please see today's press release and our SEC filings for a description of some of the factors that may cause actual results to differ materially from those in the forward-looking statements. We have posted charts on our website today that we plan to address during the call to supplement our comments. These charts also include information regarding non-GAAP measures that may be used in today's call. Please access our website at and click on the Investor Relations link to view and follow the that, I will turn the call over to Jim. James Taiclet Thanks, Maria. Good morning, everyone, and thank you for joining us on our first quarter 2025 earnings call. As you saw in the press release this morning, Lockheed Martin delivered strong all-around performance in the first quarter, continuing the growth momentum we've seen over the last two years. We increased our year-over-year sales 4% in the quarter and generated solid cash and enabled investment of $850 million in independent research and development and capital expenditures. Moreover, we provided a robust shareholder return of $1.5 billion through dividends and share repurchases during the Evan will discuss in a moment, these results reinforce our confidence in our full year guidance of mid-single-digit growth in sales, 11% segment operating margin and double-digit growth in free cash flow per share. Our strong start in Q1 enables us to mitigate or absorb currently known tariff headwinds as well as the direct program impacts of the next-generation air dominance program decision, and we maintain our original guidance for the full respect to the US defense budget, we continue to operate under a full year continuing resolution that allows for new awards and the transfer of funds across programs and we are actively engaged with our customers to provide best value solutions for them in this process. We're applying this best value approach also to our customer interactions regarding the 2026 presidential budget request as well. This is especially applicable to the President's high-priority launch of the Golden Dome for America, where we are describing how current Lockheed Martin programs that are already at scale production can contribute immediately to the 21st century security strategy where we integrate existing and new satellites, aircraft, ships, missile launchers and command and control systems with constantly upgradable digital technologies was tailor-made for Golden Dome. In addition to the significant opportunities presented by this project, our advanced air and missile systems have recently won several large missile program awards in the first quarter already, comprising up to $10 billion in future work. These include substantial contracts for precision strike missiles or PrSM, terminal high-altitude area defense or THAAD and joint air-to-surface standoff missiles and long-range anti-ship missiles, these are among the most sophisticated and effective guided missile systems in the world and are continuously proving themselves in actual combat Martin Space also received a modification to their existing contract for next generation of US deterrents at sea. The upgraded missile often referred to as the fleet ballistic missile is called the Trident 2 D5 life extension. Lockheed Martin has provided this critical proven deterrence capability for 70 years, and this award launches the technology refresh that will continue this franchise for decades into the future. Beyond Missiles, our space team recently won a contract on a classified program in which we will demonstrate highly advanced capabilities and the latest cutting-edge technologies proven these new capabilities on orbit and are ready to produce these vehicles at scale right now. This is another example of our ability to apply the latest technology at a level of reliability that can quickly improve the ability to deter our conflict and win it if need be. We also received a contract to integrate a system of next-generation infrared sensors on the F-22 Raptor to enhance the aircraft survivability and lethality. As a former Air Force pilot, I can provide strong assurance that this new capability will further enable the fifth-generation F-22 to shoot down enemy aircraft before they even know that we're notable in the quarter and another example of developing on the leading edge of evolving requirements, was our demonstration of cost-effective countermeasures against drone warfare, complementing our existing systems for integrated air and missile defense by leveraging sophisticated electronic warfare techniques defined and destroy storms of drones. Our team conducted the first in a series of innovative demos featuring a system design to detect, track, identify and defeat a mix of small drones cost effectively driving another value-based solution for our in another first-of-its-kind real-world demonstration, our Skunk Works team joined with the Royal Netherlands Air Force to showcase the first-ever live classified data share outside the United States between an F-35 in flight and a Dutch command control system during a multinational military exercise. This is a first and a significant step forward in using digital technology for the integration of ground air and naval forces with the F-35 serving as the quarter back between several allied nations in real of next-generation technologies, I think it's important to highlight that over the past few years, we've pivoted our long-term strategy to transcend any individual program and provide cost-effective solutions by combining our installed base of highly capable hardware with AI and 5G distributed cloud and the like. For example, the air superiority mission is being done today with a host of aircraft and other systems, many of which you all know are made by Lockheed Martin. And a combination needed to defeat even more aggressive and sophisticated adversaries, thereby deterring them from initiating a hostile mission solution orientation that we call 21st century security is designed to extend the life and capabilities of our existing platforms like the F-16, F-35 and F-22 and in an ever-increasing threat environment in a manner that's affordable to the US and its allies while integrating new platforms such as NGAD into the mission fabric over time. Lockheed Martin's broad and deep portfolio is exclusively positioned to make this a next-generation air dominance efforts advance many classified technologies that were aligned to this strategy and we plan on applying those technologies to our current systems, making our already proven products even more relevant to the future as well as enhancing the capabilities we provide in ongoing and future development. For example, the knowledge and technology development gained from our investments in the NGAD competition strengthened our conviction to enhance the F-35 to a fifth generation plus I challenged the team to deliver 80% of sixth-gen capability at 50% of the cost. In support of this vision, we're also committing to drive disruptive innovation, and building upon our recent established internal capabilities in AI, autonomy, crude-on-crude teaming and command and control systems across the whole company. We've aligned these technology investments with our customer priorities and demonstrating meaningful increases in capabilities at relatively low cost. We've already shown the networking and teaming ability of the F-35 and the F-22 to control uncrewed vehicle systems like drone wingman through onboard deployments of our autonomy solutions on real Skunk Works team has also invented a ground and sea-based drone command station, powered by our operational autonomy platform, which is currently in production today for the Navy. As a central data aggregator, processing and distribution node in this architecture, the F-35 can execute its air combat quarterback role. The global F-35 fleet today stands at more than 1,100 aircraft with a total fleet expected to be greater than 3,500, enabling the US and its allies to remain command of the skies far into the further our strategic vision, my immediate focus and that of my entire management team is on operational execution, driving cost competitiveness, quality and schedule every day. With $173 billion of backlog, more than two years of sales, we're focused on delivering on time and on budget. We're continuing to execute our 1LMX end-to-end business process transformation, which has been underway since 2022. Through this, we've driven increased production of high-demand systems like HIMARS, we accelerated software deployment to our software factory and enabled model-based engineering with digital twins of many of our going forward, we have a deep bench of talent needed to continue the success. And a prime example of that is our new CFO, Evan Scott, joining us today for his first quarterly earnings call in his new role. As a 26-year veteran of Lockheed Martin, Evan knows this business inside out, and he has a deep appreciation for our customers and their missions. I'm confident that he will be a great asset to our executive leadership now I'll turn it over to Evan to share more about his background and our financial results. Evan Scott Thanks, Jim, and good morning, everyone. It's a privilege to be speaking with you all this morning. As Jim mentioned, I've been at Lockheed Martin for my entire career. The depth and breadth of the work we do to help American and outline service members complete their mission successfully and return home safely is truly unmatched. Over the course of my career here, I've had the opportunity to work across a range of functions, including as Treasurer and the CFO of two business areas: space and MFC.I've been fortunate to see firsthand how this company operates and evolves to deliver value across every part of the business for both our customers and our shareholders. Even before accepting this role, port hand-in-hand with leaders from across the company on our business strategy and priorities, helping to ensure continued financial discipline and execution of our capital allocation strategy while driving growth and advancing our mission solution-focused 21st century security strategy.I have great respect for the path that's been charted and recognize the company's solid foundation for continued growth. My intention is to carry this momentum forward, staying true to the strategic vision that has positioned us for long-term success and working closely with Jim, Frank and the rest of the executive team to deliver on our operational and financial targets. As we continue this journey, you have my commitment to maintaining transparency consistency and open dialogue with the investment community, just as we always have. And on that note, let's turn to our performance for the quarter, starting with key financial highlights on Chart strong financial results in the first quarter position us well for the remainder of the year, highlighted by 4% sales growth and 11.6% segment margins, with all four business areas, generating double-digit returns, boosted by better-than-expected performance on contract completions at aeronautics, RMS and space. GAAP earnings per share of $7.28 increased 14% with benefits from higher volume, higher profit adjustments and lower share count more than offsetting higher interest expense, and lower FAS/CAS pension to new business. While our book-to-bill was less than 1 in the quarter, backlog remains healthy at approximately $173 billion. Our largest awards in Q1 came from MFC and RMS, as Jim noted, within MFC, we recorded approximately $2 billion in orders for the JASSM LRASM, Large Lot Procurement UCA, and facilitization contracts, supporting the production ramp to 1,100 units in 2027. At RMS, we booked six years of future work supporting the implementation phase of the Canadian service combatant River class destroyer program continuing our partnership with Irving shipbuilding to upgrade the Canadian to free cash flow. We generated $955 million in the quarter, after investing nearly $850 million into R&D and capital expenditures in the maturation of innovative technologies, digital transformation and operational efficiencies. With an overarching goal of improving performance, providing the most complete multi-domain solutions for our customers. In addition to investing in next-generation capabilities, we maintained our commitment to shareholders by returning over $1.5 billion through dividends and share I'll hand it to Maria to discuss the business area results in more detail. Maria A. Ricciardone Thanks, Evan. Before I transition into the business area details, one reminder, there are no calendarization differences between 2024 and 2025. All four quarters have 13 weeks in both Starting with Aeronautics on Chart 5. First quarter sales at Aero increased 3% year-over-year to $7.1 billion. The increase was primarily due to higher volumes on F-35, mainly on production contracts. Segment operating profit increased 6% year-over-year due to the higher volume as well as higher profit booking rate adjustments, including the benefit from favorable performance at completion on a classified contract. In February, Singapore signed the letter of offer and acceptance for eight F-35 As. This milestone expands Singapore's program of record to 20 jets and demonstrates continued international interest in the F-35 and the advanced capabilities it to Missiles and Fire Control on Chart 6. Sales at MFC increased 13% from the prior year, driven by higher volume on multiple tactical and strike missile programs, including JASSM LRASM, GMLRS and HIMARS. Segment operating profit improved 50% year-over-year, driven by higher volume and higher profit rate adjustments. The higher profit rate adjustments were primarily due to the absence of the $100 million loss on a classified program we recognized in last year's first quarter. Normalizing for the loss, MFC's profit in Q1 2025 improved in line with sales at 13%, with margins up 10 basis points quarter, we debuted the common multi-mission truck family of air vehicles that can be produced rapidly and affordably for domestic and international customers, known as CMMT, this affordable mass missile has an all-digital design and modularity that offers mission flexibility. CMMT demonstrates 1LMX at work. It is the result of model-based engineering, which maximizes component reuse and commonality across programs to radically accelerate development. For example, for CMMT, we reduced the time required to get to a preliminary design review, a major milestone by 50%.Shifting to Rotary and Mission Systems on Chart 7. Sales at RMS increased 6% in the quarter to $4.3 billion, driven by higher volume on the Canadian Surface Combatant and RADAR programs within the integrated warfare systems and sensors portfolio, and higher volume on Black Hawk at Sikorsky. Operating profit was up 21% year-over-year due to the higher volume as well as higher profit rate adjustments and favorable contract mix including a benefit related to an intellectual property licensing arrangement. The picture to the right shows drones used by the Lockheed Martin encounters UAS team in the recent field event that Jim mentioned in his on Chart 8, we'll wrap up the business area discussion with space. Space sales decreased 2% year-over-year due to lower volume at national security space, primarily related to the overhead persistent infrared radar program, OPIR, partially offset by higher volume at commercial civil space due to LUNAR program life cycle. Despite the lower sales volume, base operating profit increased 17% compared to Q1 2024. This increase was driven by higher profit rate adjustments, primarily due to favorable performance at completion on certain commercial civil space programs. Lower equity earnings from United Launch Alliance partially offset this benefit, as ULA had fewer launches year-over-year as well as higher initial costs associated with Vulcan picture to the right is an LM 400 technology demonstration satellite that recently completed its prelaunch processing and is waiting the next available launch window at Vandenberg Space Force base. The technology demonstrator is the latest in a series of self-funded missions to demonstrate the maturity of new technology on orbit and reduce risk for our customers. The LM 400 is capable of serving military commercial or civil customers it can be customized to host a variety of missions and can operate in any I'll turn it back over to Evan. Evan Scott Thanks, Maria. Shifting gears, I'll walk through guidance on Chart 9. Our expectations for Lockheed Martin's 2025 financial outlook remain unchanged from what we laid out in January. With the strong first quarter results, positioning us well to achieve the consolidated full year outlook of mid-single-digit sales growth, solid 11% margins and high single-digit free cash flow growth of $6.7 billion at the midpoint. In addition, there is opportunity to increase backlog in 2025, providing a solid foundation for sustained I mentioned earlier, the strong profit we realized in the first quarter provides an increased confidence in our ability to absorb currently estimated 2025 profit impacts from tariffs and the NGAD announcement. While it will take more time to complete a thorough business assessment of these dynamics, we're optimistic about achieving our profit targets for the year. I look forward to partnering with Frank and the rest of the leadership team on the operational excellence initiatives to unlock company-wide efficiencies. Now given the dynamic backdrop, I'd like to note several key assumptions within our on F-35, we continue to expect between 170 to 190 deliveries for the year from the world's premier fighter jet production operation, with a backlog of approximately 360 jets at the end of Q1. And we anticipate definitizing the Lot 18 contract in the second quarter which we expect will unlock cash currently tied up in working capital on the balance sheet. At the same time, we're making good progress on TR3 stability and incremental capability the outlook assumes a certain level of tariff impact as we expect to mitigate potential cost increases and offset cash timing pressures. We continue to work closely with our customers on this and we'll provide updates during the course of the year if we see further impacts to our business despite those our guide accommodates the direct program impacts of the Engen announcement on 2025 and orders, sales, profit and cash flow. As you would expect, we are currently evaluating the broader business simplifications and we'll have more to share when we report on our second quarter we assume our programs are funded in a timely manner to support operational needs, and the outlook does not include a pension contribution for this year. Looking beyond our strong 2025 guide. The current backdrop supports sustained backlog strength with improved US and international budget opportunities. This provides a line of sight to stronger sales growth rates through 2027 than previously expected. This steady top line growth, combined with operational improvements, are expected to provide a solid foundation for consistent free cash flow generation that enables our capital deployment priorities over the next three years, namely to invest over $10 billion in R&D and capital expenditures and return at least $18 billion to shareholders via dividends and repurchases, all while continuing to fund required pension summary, on Chart 10, we're off to a solid start in 2025 and have a strong focus on operational excellence to ensure we deliver on our customer and programmatic requirements while also building momentum towards delivering our full year guidance. In parallel, we remain committed to investing for the future and creating long-term value for our customers and that, Sarah, let's open up the call for Q&A. Operator (Operator Instructions) David Strauss, Barclays. David Strauss Evan, welcome to the call. Jim, I wanted to ask you about the NGAD decision. At this point, have you received a debrief from the Air Force and gotten some feedback there. And how are you thinking about the way for in terms of potentially protesting the award. James Taiclet Yes, David. We did get a classified debrief from the US Air Force on their NGAD decision. And we are taking that feedback internally. And looking at all the aspects that we were briefed on, which we can't speak to because of the classification level. But we are addressing those. On a strategic basis, we are going with this decision is not to protest it. We are not going to protest the NGAD decision of the US government. We are moving forward and moving out on applying all the technologies that we develop for our NGAD bid on to our embedded base of F-35 and F-22.I feel that we can have, again, 80% of the capability potentially at 50% of the cost per unit aircraft, by taking the F-35 chassis and applying numerous advanced technologies, some of which are already in process and Block 4 and F-35, but others that we can apply and we are going to offer fairly rapidly to the Department of Defense to really take that chassis and supercharge it for the future. And that's kind of a fifth generation plus concept for F-35. And that investment in NGAD technologies that we made over the last few years are going to be applied directly to that chassis. And like I said, eventually, there'll be 3,500 of those chassis out there at various stages of technology and capability. We think we can get most of the way to sixth gen at half the cost. Operator Jason Gursky, Citi. Jason Gursky And Evan, welcome to the call, my sentiments as well to you. Jim, I was wondering if you could just comment a little and maybe reflect on some of the executive orders that have been coming out of the White House since the new administration came in office back in January. We've seen quite a bit come out. Some of it related to FMS and speeding up the process I think as recently as last week that we've got an executive order that points to the potential rewriting of federal acquisition regulations. And I'm wondering if you guys have some perspective on what the administration is up to here, what they're trying to accomplish, whether this is just strictly reducing red tape and speeding the process up if there are going to be some longer-term structural consequences for the industrial base and the way that you interact with the building. James Taiclet Yes, Jason, not only do we welcome these. We applaud these executive orders and have been advocating for them since I joined from the telecom industry, the management of this company about four or five years ago. So we are involved in advocating and making recommendations along all of these lines. One of the biggest issues where there's limitations on the speed at which digital technology and even the most advanced physical technologies can be introduced into the National Defense enterprise, is the red so the statutes, regulations constraints, audits that have evolved through the DoD bureaucracy over decades, have never reversed themselves. This is a chance for those to be really scrutinized and reduced. We will be speeding up not only our FMS opportunities around the world by what the administration is pressing for here. But we'll be able to get faster acquisition path for both physical and digital technologies. So I think reducing the bureaucratic red tape that's built up in this industry over the past few decades is going to be a boon to our when I say our industry, I mean broadly, right? And that includes the traditional as we are sometimes called aerospace and defense prime contractors. It includes major technology companies such as Verizon and NVIDIA and Microsoft that are our partners, it includes midsize and new entrants. We want the best of US industry and technology development applied to the national security space. And we wanted to be part of that, and we applaud all of these changes that are coming down through the executive one thing I want to make sure that we get a chance to do, it's a chance to compete on every dimension. I used to be captain of Air Force rugby team. And all I want to do is get my team on the field and get in the game. I don't care if it's a small contract, a big one. If it sounds like a tech approach or a traditional approach we can compete on every playing field, and we just want to have that level playing field to compete on. So a long way of saying I'm really encouraged and energized by what the administration is doing here. Operator Kristine Liwag, Morgan Stanley. Kristine Liwag Evan, welcome to the call. So maybe starting off, the tariff situation is fast moving, but there's a general sense that defense companies like Lockheed are more insulated than other industrial companies. And I guess, to the extent that they do exist, what are the underappreciated risks of tariffs in your business? And Evan, as a CFO, what are your priorities as you navigate this environment? Evan Scott Sure. Yes. Thanks, Kristine. So from a tariff perspective, I do agree that we have certain protections in our industry. And after reviewing with each of the four BAs, I feel comfortable we've got an approach to mitigate the impacts. And that's what gave us confidence to reaffirm guidance. I'd say, in a lot of cases, we're going to have just direct protection in our supply chain, not in all cases, but in many cases, to avoid tariffs altogether. And then for the vast majority of our external contracts, we've got mechanisms to recover I think for us, we see it less as a function of recovery, although we certainly work to do there, but it's probably more about timing. And so specifically, is there going to be a lag between incurring a tariff cost and recovering those costs. So we'll -- it's going to stay fluid, but we feel like we've got a good path now, and we'll just keep updated as that progresses throughout the year. Maria A. Ricciardone And just as a reminder, Kristine, 40% of our contracts are cost type. And so what Evan is referring to mainly is the 60% that are fixed price, where we have those contractual clauses, both far based and especially negotiated that enable that recovery through different equitable adjustments means. So I just wanted to make sure I added that as well. James Taiclet Yes. And to the question of priorities, yes, thank you for that. So I plan to lean on prior experiences of this company of moving to high-impact roles. And so number 1 goal for me typically is just to make sure momentum is maintained, right? We moved too fast to allow for any gaps and priorities. And so always make sure there's no slowdown in any initiatives my predecessor was driving. And so you really shouldn't expect to see any near-term changes, particularly with our consistent focus on delivering shareholder value, right? That's just so baked into our culture and is not in as Jim said, fortunately, I'm very familiar with our programs and strategies, and I've got well-established relationships with the ELC from my career here. So specifically, I look forward to meeting with stakeholders and spending significant time listening to the priorities of the investment community. And in those meetings, I'll certainly be prepared to answer questions, but I was going to have several of my own to ask. And so definitely look forward to quickly partnering with ELT and my team move with urgency, and we'll focus on performance, speed and value-enhancing growth. Thank you. Operator Gautam Khanna, TD Cowen. Gautam Khanna Welcome, Evan. I was wondering if you could comment on F-35 Lot 19 timing? And also, if -- given there's a lot of international demand for the aircraft, how ready are some foreign customers to take delivery earlier if the US cuts back to buy? I'm just wondering like how much of a US cutback could you absorb and still keep the production rate at around 156. Evan Scott Lot 19. James Taiclet Okay. Right. So thank you. So starting with Lot 19, we are looking at the second half of the year for this, and that's baked into our guidance. And then on the international demand, Gautam, it's really strong. There's been a number of announcements over the past few months on plus-ups to program orders from the international customers. And as over the Munich Security Conference, the main topic in the private meetings with each of the defense ministers and Prime Ministers is how fast can I get my aircraft. So I feel that our Aeronautics team feels that if there's some moderation, which we do not expect, by the way, in US. F-35 production that we can make up for that in the international opportunities we have and maintain our 150-plus per year production rate. So we're comfortable that, that can be maintained. Operator Rich Safran, Seaport. Richard Safran Evan, welcome. So Jim, could you talk a bit more about your opening remarks on gold and done I thought maybe you could discuss funding opportunities, timing and specifically, maybe address how you think that might affect the production ramp at MFC, just generally how that might be impacted. James Taiclet Yes. So there -- it's forming up in sort of three segments, if you will. The government is going to make these policies and define these clearly and specifically. But the way we're viewing it is there's a ground segment, which will be radar sensors, command and control systems for existing defensive systems, right, ground-based defensive systems. And some of the programs that I already spoke to earlier today, and you're kind of alluding to them as well. Our THAAD, we have the NGI contract. All of these are going to be PAC-3 are going to be in higher demand. And so we will be in excellent position to address those -- literally right out of the gate, right?And so even on that ground segment, there are ways to network these systems and redeploy them from existing generally army bases or naval bases in the Konas already. These systems are out there. They're operational. They're ready to be deployed to foreign operations, but we could actually it's up to the government again, this is policy and not our purview, but we can be supportive and actually fielding those systems from existing bases to whether it's population centers or other high-value areas where we want to really defend the homeland, so to speak. And then we can network and we've shown this, for example, PAC-3 and THAAD systems and radars. And that's just one example of this interconnectivity that we can create with existing platforms using new digital that's why 5G and AI and distributed cloud are so important because we will have to create a web of defenses, a web of layered defenses even in this ground segment to start really being effective in golden dome. And we can literally do that once the starting gun goes off. The second phase of it will be space-based and that's another place where, by the way, Lockheed Martin has a lot of existing assets. What we're going to want to help do is network those existing space-based assets down to those more tactical systems on the ground so that we have early warning, we've got target tracking on launch in mid course from space so that we can have more accurate fire control over those missile systems in the United the space layer will be complex. Eventually, there may be kinetic or non-kinetic action from space, that's going to take a little more time to scale, but that's the second arena. And then thirdly, another place where this sort of 21st century security strategy will really intersect the third dimension here is an overarching command and control system, an open architecture standards based where we can have, whether it's Northrop Grumman, Raytheon, Lockheed Martin, other systems, new entrants will be tied into this fabric and really complete the golden dome, so to speak, by doing that, that may be a little bit further out. But we can do these tactical ground-based system deployments very quickly, and we can feel production. We've already got investments to do I think we're in excellent shape for Golden Dome, as I suggested in the prepared remarks, our strategy was built for something like Golden Dome, and we're out in front of it with our customers. Budgeting, timing, congressional funding, all those kinds of things, are government policies that will be implemented on their side, but we are literally ready to go when the starting gun goes off. Evan Scott Yes. And if I could just add, given -- I've got a lot of passion on Golden Dome having worked at MFC. And as Jim said, we just really felt prepared for this. And it was -- this is an early sign our customer tends to move rapidly and with purpose. So just a little bit of a stage where it is kind of from the proposal side the customer issued an RFI or request for information, seeking ideas from industry that would inform possible RFPs. And so what was remarkable about this one from my perspective, the RFI had a 30-day turn, which is super fast for something that's significant and Lockheed Martin provided, as Jim said, just a series of capabilities, really over 100 different capabilities through pricing that cross all four BAs with a focus on cross-domain architecture. So clearly, not all those RF responses will turn to requirements. We've given our customers a significant amount of go fast ready capability to consider, and we look forward to partnering with customers and suppliers on next steps as Jim said. Thanks. Operator Pete Skibitski, Alembic. Peter Skibitski Jim, one aspect of the new tariff regime, if we go back to that is not necessarily the cost aspect, but I understand China is putting new export controls on rare earth metals. And I don't know necessarily the inventory levels at the US or the Lockheed Martin typically has of these commodities. But I know it's been a topic in DC in terms of the reliance there for a number of years. So I was just wondering if you could give us your thoughts on just availability impact that the new tariff regime could have because I do understand the rarest are used across a wide variety of defense products. So I was interested in your thoughts. James Taiclet Yes. First of all, by law, we're constrained from using Chinese inputs of any kind from any source into our products and services. And so is our supply chain. So there are ultimate sources for our segment of the aerospace industry, I'll call it, which is the defense -- US defense segment. And secondly, there are stockpiles that are available and will be utilized. This is, I think, a larger issue for non-defense industries that require these kinds of materials because our supply chain contracts, again, have specified non-Chinese sources for the materials over the decades I think we're in pretty good shape on that. And I would, again, applaud the US government and seeking to continue to develop US sources for these raw materials all the way through semiconductors, et cetera, that we've been, again, advocating for, for about four or five years, which is our antifragility aspect of our strategy, which is we need US sources for even basic materials like titanium for example, certainly non-adversary sources, and we've been pushing for that with the US government and doing it internally for four or five years based on that sort of antifragility concept that we seem to love. So we're -- I think we're well positioned here to work through these rare earth and other material issues. Maria A. Ricciardone And Pete, I would just add to that in terms of our guide for the year. We're pretty confident that a disruption in the material supply for rare earth would not impact our ability to meet our current delivery commitments for the remainder of this calendar year. We have sufficient quantity that's already integrated into our value chain. So it provides a bit of a buffer from potential supply chain disruption in the near term, and we'll obviously continue to assess as we go on. Operator Doug Harned, Bernstein. Douglas Harned On Missiles and Fire Control, you've had some big increases in backlog. You've got $2 billion, nearly a $2 billion increase this quarter. And so can you talk about what some of the production increase plans you have in your major programs? And then is this a business that we could foresee having an extended high single-digit growth rate over the next few years, given that backlog? Evan Scott Sure thing. Thanks, Doug. Yes. So you're right. We've definitely seen strong budget demands here of both domestic and international for the MFC products. And so several of the products are ramping currently. And we talked about earlier the JASSM LRASM award that gives us a path to ramp to 1,100 in 2027. PAC-3 continues to ramp. GMS -- so we're seeing good demand and very strong so some of these products will continue to ramp and to Jim's point about Golden Dome, I mean, these are always also areas for opportunity on the IAMD side to be a major part of the Golden Dome architecture. So that could very likely be a source of demand as well. But the reality is, with these products, we have a lot of confidence that will just continue to be in demand all the way across. So can certainly talk more specifics on individual product lines. But I think across those are the we're going to see the real growth with JASSM LRASM, PAC-3 and GMLRS ramping. James Taiclet Yes. And Doug, it's Jim. So just to complement what Evan is saying here. So we map out for the -- until the end of the decade, sort of our high-growth product lines. And you heard us about some of them, but adding in there, in addition to GMLRS, PrSM, which is got the $5 billion IDIQ order just awarded is in that category, fleet ballistic missile actually. So it's sort of a quiet program, but it's -- we think it could be a double-digit growth CAGR over the kind of the course of the rest of this decade, et as you said, JASSM LRASM is in that kind of category of the high single-digit growth over a fairly long period of time to get to your specific question. So there's a number of others, NGIs in there, too. So the missile systems that the company has developed over again, 70 years when it comes to FBM, that is hard to duplicate. These are the best systems in the you go to Munich or Singapore, some place like that, customers just readily admit that around the world is this company has some of the best systems in the world that's got the best and most sophisticated fighter aircraft in production in the world and will for at least the next five years or so and does it at scale. And it's the only way we can kind of compete, we, meaning the royal we of our allies and us, with China, who's building 100-plus J-20z a year and now J-35 is on top of that. So our international customers recognize the capabilities of the to our US customers, and again, we're very well positioned for the future here, especially in that missile segment where this stuff is really hard to do. It takes decades of experience is on the edge of known science and it's not easy to duplicate and just kind of show up at the party and try to compete here. So we're in really good shape in those missile programs. Operator Scott Deuschle, Deutsche Bank. Scott Deuschle Jim, you spoke earlier about enhancing the F-35 with technologies you developed for NGAD. I guess can you clarify, number one, if that effort would be self-funded or customer funded?And then number two, can you walk through what's driving your confidence in integrating those technologies into F-35, particularly given some of the recent challenges with technology insertion. James Taiclet Sure, Scott. So look, this is a baseline. We have 70,000 engineers and scientists in the company working on really interesting stuff all the time. And some of the fifth gens solution set is already being funded by the US government and the F-35 program itself. There are components, some of which are classified, so I can't really specify them. But key techniques, I'll say, and approaches that fighter pilot needs to have to be competitive and win.I'll just kind of talk to those in general, and you can be assured that we are investing and the government is investing together in these things. Some of these elements are again, through the F-35 program as it stands today. Some of it was our government-funded investment in R&D for NGAD, right, just the competitive process was funded for both Lockheed Martin and Boeing over a period of years by the government. And we made independent investments along the way to in both of those it's not a clean percentage, but there's co-investment between the US government, our allies and Lockheed Martin in the technologies I'm speaking to. And having done this myself when I was younger, these things are really important. So one is sensing the enemy at a distance greater than they can send you. And so those kind of categories are radar. They're passive infrared and passive infrared is really important because if I'm transmitting radar, that means somebody else's electronic warfare receiver can see me, and then they can maybe shoot me. So the better I have infrared is passive, we can sense that. And the best radar on top of that, those kind of sensors are really, really critical because I explained this in a meeting at the White House presidents like dog fights are not what we want anymore in air-to-air combat, we want to shoot the other guys as I said before, even those we're you do that, first of all, with the critical sensors to find them then you make sure they can't find you. And that's the stealth technology, and there's some techniques with that we've used for our NGAD offering that can be applied, whether they're materials, their geometries their countermeasures for stealth, so I can't be seen. That's the first part of the equation. The second part of the equation is you want to have a tracking system and a weapon that can go further and hit the enemy plane before they can ever even reach you with their weapon, right? And so there are techniques and capabilities we delivered with our NGAD bid that were developed for that, that we can now apply here. So it's we're basically going to take the chassis and turn it into a Ferrari, right? It's like a NASCAR upgrade, so to speak, where we could take the F-35, apply some of those co-funded technologies, both from NGAD and the F-35 program. And you're going to have, again, my challenge to my Aeronautics team is let's get 80% of sixth-gen capability at half the price. And that's something that -- and these are engineers, they wouldn't have agreed to this if they didn't think there was a path to get there. That's something we're going to go out and this is this best value approach that we've been kind of working our way towards that at Lockheed Martin over the last four or five years. How do we get best value to the customer who has a limited budget and an increasing threat? We use these digital technologies, we apply something from one system or one BA to another and we actually try to create that best value equation. It's a little kind of not uncomfortable, but novel for our industry to think that way, but we are thinking that way. And value is important and maybe as or more important than the highest technology available. It's got to be scalable. It's got to be affordable. It's got to work every time. And so that's what we're after. Operator Michael Ciarmoli, Truist. Michael Ciarmoli Jim, maybe just one point of clarification and to stay on that topic. It really sounds like with the NGAD loss, you reaffirmed your multiyear growth and got stronger from a lot of the missile commentary. I just didn't know if that also took into account maybe weaker domestic F-35 volumes going forward?And then just on your prior comments, I mean, it sounds like you're going to directly compete for NGAD dollars; converting this chassis to a Ferrari. And any restrictions on what you can do with that technology? Can it be sold to international customers? And has there been any direct discussions about funding or timing from the Air Force? James Taiclet That will be an element by element exportability decision by the US government. But what we try to do is build exportability into each of these components. And so we will offer -- of course, the US government gets first view of these things. They'll get to adjudicate whether it's exportable into whom. But our goal is to make as much of this capability, this value capability that we can for fifth gen to have our allies and get access to it. But that's the US government decision, but we try to design in a way that it's a relatively -- or hopefully, an easier decision for exportability rather than a harder one. Maria A. Ricciardone And on the long-term growth, yes, I do think we see a path to a little bit better than we laid out prior, at least at the lower end of the low single-digit growth. And that's fueled by a few things. As you point out, the strong missile orders in Q1. There's also -- since we had talked about that outlook international budgets around the world have -- there's been a pressure to increase those as then I'd also say seeing another quarter at 4% sales growth shows that the supply chain does continue to perform. And as we've talked about, it hasn't really been a question of demand. It's been more a question of being able to execute on the supply side, and we are seeing that continue as well. So even with the NGAD loss, that was probably more impactful further out in the future. And over the next few years, more than offset by some of these other opportunities that we're seeing now. James Taiclet Yes. And for example, like F-35 sustainment contributing to these long-term growth trajectories, the aircraft numbers are going to go from 1,100 to -- we expect over time, 3,500. So that growth rate of sustainment on F-35 and this modernization will continue on a much larger number of airplanes as time goes on. So that's a big driver. CH-53K helicopter is really getting towards full rate production, the fleet ballistic missile programs. As I said, that's a very important and a very large piece of our long-term growth rate and NGI, et cetera, in Golden there are multiple long-term growth opportunities from -- through all of our business areas. We're pivoting , by the way, in space, we'll continue to do the big geosynchronous orbit highly sophisticated satellite units. But this M400 is mid orbit plane. And it's more capable than a small sat, but not as expensive as a geosynchronous orbit there's more proliferation of them, not 3,000, but maybe there's 300. So you get a lot of the benefits of both in the mid course the mid or bit, if you will. And it's a good compromise for certain missions because you've got a bigger bus with more capability and more life small sat for the last three to five years, but mid orbit satellite like they sell in 400, could last call it, 10 and then the geosynchronous can be much longer than that. So we're trying to make sure that there's a best value solution for the mission for our customer at every level of the orbits in space or the level of sophistication and cost of the airplane versus the can we get 80% of the value for 50% of the cost that's a new way for our industry, maybe to think up from 20 or 30 years ago, but that's how we're thinking about it. So we have some really solid long-term growth trajectory. We think we can strengthen the embedded base make that embedded base live longer, and that's a stay material go farther, whether it's Black Hawk, F-35, F-22, F-16 is now again Because we can put fifth-generation electronics on a fourth generation chassis. And that's why it's popular. It's more affordable and you get most of -- not most, because you don't have stealth, but you get a lot of fifth-gen capability on an F-16 now. And that's why these franchises are not finite necessarily. FBM, 70 years. I mean these chassis are so hard to make. They're so sophisticated it's hard to replicate the hardware, but you can make it a lot better with software and with hardware upgrades as you go. Maria A. Ricciardone Great. Well, Sarah, I think we're coming to the top of the hour here. So why don't I turn it back over to Jim for the closing remarks. James Taiclet Thanks, Maria. So look, in closing, based on our substantial backlog and this best value strategy we've been talking about today, this company is really well positioned in a very dynamic environment. Let's -- we can all admit that we're in a dynamic environment. But we're continuing to innovate and deliver these advanced and reliable technologies and executing against that long-term strategy while we do the hardware and upgrade it, we really are trying to get out in front of how do we use digital technology like AI to make our platforms work together in a way that provides a high value, relatively low-cost mission capability and having so many of these great legacy platforms and the ones that we'll build for the future puts us in a really good position for that ends the call today. Thank you for joining us. We look forward to seeing you all virtually again in July on our second quarter earnings call. So thanks, everybody. Sarah, we're all concluded for the day. Operator Great. Thank you very much. This concludes today's conference call. Thank you for joining. You may now disconnect. Sign in to access your portfolio
