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Yahoo
23-04-2025
- Business
- Yahoo
LMT Q1 Earnings Call: Product Momentum and Strategic Initiatives Offset Tariff and Program Headwinds
Security and Aerospace company Lockheed Martin (NYSE:LMT) announced better-than-expected revenue in Q1 CY2025, with sales up 4.5% year on year to $17.96 billion. The company expects the full year's revenue to be around $74.25 billion, close to analysts' estimates. Its GAAP profit of $7.28 per share was 14.7% above analysts' consensus estimates. The stock remained flat at $458.31 following the earnings release and call. Is now the time to buy LMT? Find out in our full research report (it's free). Revenue: $17.96 billion vs analyst estimates of $17.76 billion (4.5% year-on-year growth, 1.1% beat) EPS (GAAP): $7.28 vs analyst estimates of $6.35 (14.7% beat) Adjusted EBITDA: $2.48 billion vs analyst estimates of $2.5 billion (13.8% margin, 0.8% miss) The company reconfirmed its revenue guidance for the full year of $74.25 billion at the midpoint EPS (GAAP) guidance for the full year is $27.15 at the midpoint, roughly in line with what analysts were expecting Operating Margin: 13.2%, up from 11.8% in the same quarter last year Free Cash Flow Margin: 5.3%, down from 7.3% in the same quarter last year Backlog: $173 billion at quarter end, up 8.5% year on year Market Capitalization: $108.3 billion Lockheed Martin's first quarter results were driven by continued strength in missile programs, steady F-35 production, and disciplined operational execution. Management attributed the company's performance to higher demand for tactical missile systems, ongoing international interest in its aircraft, and robust backlog growth. CEO James Taiclet highlighted the rapid progress on new missile contracts and the expansion of digital integration initiatives across legacy and next-generation platforms. As for forward-looking guidance, leadership reaffirmed its revenue and profit targets for the year, citing confidence in mitigating tariff-related pressures and program transitions like the Next Generation Air Dominance (NGAD) outcome. CFO Evan Scott emphasized that strong cash generation and a healthy order pipeline position the company to absorb potential cost timing challenges, while ongoing investments in R&D are expected to sustain product innovation and operational efficiency. Lockheed Martin's leadership focused on product innovation, supply chain resilience, and program execution as the main drivers of recent performance. The quarter's outcomes were shaped by defense budget dynamics, contract wins in missile and space programs, and measures to manage industry-wide headwinds. Missile Program Demand: Management noted a significant increase in orders for precision strike missiles, THAAD, and other tactical systems, emphasizing these as core contributors to Q1 growth and drivers of the $173 billion backlog. Digital and AI Integration: The company is accelerating its Twenty-First Century Security Strategy, integrating digital technologies such as AI, autonomy, and 5G into existing and future platforms, which management believes will extend platform lifecycles and improve affordability. F-35 International Interest: Ongoing strong demand for F-35 jets from international customers was highlighted, with recent agreements such as Singapore's expansion reinforcing the global appeal and supporting consistent production rates. Golden Dome Opportunity: Leadership discussed the Golden Dome homeland defense initiative as a multi-segment opportunity, with Lockheed Martin positioned to provide integrated solutions across ground, space, and command and control segments. Tariff and Supply Chain Management: Management acknowledged tariff-related risks but described contractual protections and diversified sourcing strategies that they believe will help mitigate cost and supply disruptions in the near term. Management's outlook centers on strong demand for advanced defense systems, successful technology upgrades to legacy platforms, and the ability to navigate external pressures such as tariffs and program transitions. Backlog Conversion and Production Ramps: Continued ramp-up of missile and tactical systems, alongside stable F-35 deliveries, is expected to provide consistent top-line growth and margin stability. Technology Upgrades to Core Platforms: The application of NGAD-developed technologies to the F-35 and other existing platforms is intended to deliver enhanced capability at a lower cost, which management views as a key differentiator for future contracts. Tariff and Regulatory Adaptation: The company's exposure to tariff impacts is moderated by contractual clauses and supply chain adjustments, though management acknowledged the risk of cash flow timing delays and ongoing regulatory uncertainty. David Strauss (Barclays): Asked about Lockheed Martin's response to the NGAD decision and potential protest; CEO James Taiclet confirmed no protest is planned and emphasized redirecting NGAD technologies into the F-35 and F-22. Jason Gursky (Citi): Inquired about the impact of recent executive orders on defense procurement; Taiclet welcomed reduced regulatory red tape and anticipated faster adoption of both physical and digital technologies. Kristine Liwag (Morgan Stanley): Pressed on tariff risks and the company's mitigation strategies; CFO Evan Scott described mechanisms for cost recovery and noted that most contracts are protected, with timing of reimbursement being the main challenge. Gautam Khanna (TD Cowen): Questioned the resilience of F-35 production if U.S. orders decrease; leadership pointed to robust international demand as a buffer to maintain production rates. Douglas Harned (Bernstein): Asked about the sustainability of missile segment growth; management cited strong domestic and international demand, with multiple programs ramping and expectations for high single-digit segment growth over the next several years. Looking ahead, the StockStory team will monitor (1) the pace of missile production increases and backlog conversion into revenue, (2) the rollout and adoption of advanced digital and AI-enabled capabilities across core platforms, and (3) the company's ability to offset tariff and regulatory headwinds through supply chain management and contractual protections. Developments in the Golden Dome initiative and execution on international F-35 deliveries will also be important signposts. In the wake of earnings, is LMT a buy or sell? See for yourself in our free research report. Donald Trump's victory in the 2024 U.S. Presidential Election sent major indices to all-time highs, but stocks have retraced as investors debate the health of the economy and the potential impact of tariffs. While this leaves much uncertainty around 2025, a few companies are poised for long-term gains regardless of the political or macroeconomic climate, like our Top 9 Market-Beating Stocks. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years. Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Comfort Systems (+751% five-year return). Find your next big winner with StockStory today.
Yahoo
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
Business Insider
23-04-2025
- Automotive
- Business Insider
Lockheed Martin's CEO says he wants the F-35 to deliver 80% of the F-47's capabilities at half the cost
Lockheed Martin didn't win the bid for America's next-generation fighter, but its CEO still wants to build a jet that's in almost the same league. At the company's first-quarter earnings call on Tuesday, James Taiclet said he has set a new goal for his staff: To soup up the F-35 so it can match 80% of the F-47's capabilities for half the cost. "My challenge to my aeronautics team is, let's get 80% of sixth-gen capability at half the price," Taiclet said. "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 do," he added. Taiclet called this "fifth-generation plus." Lockheed's plan to get there, he said, would leverage its experience from years of working to win the bid for the next-generation fighter. The firm ultimately lost the bid for the sixth-generation stealth fighter to Boeing, which President Donald Trump announced in late March as the selected manufacturer. That decision rocked Lockheed's reputation in the stealth fighter game, which it had dominated with the Nighthawk, F-22 Raptor, and F-35 Lightning II. At Tuesday's earnings call, Taiclet said Lockheed wants to move on from losing the award. "We are not going to protest the NGAD decision of the US government," he said, referring to Next-Generation Air Dominance, which is the US program to create the sixth-generation successor to the F-22. "We are moving forward and moving out on applying all the technologies that we developed for our NGAD bid onto our embedded base of F-35 and F-22." "It's a little kind of — not uncomfortable — but novel for our industry to think that way," Taiclet added. "But we are thinking that way." He compared his ambition to beefing up a road vehicle so much that it becomes a race car. "So, the F-35. So we're basically going to take the chassis and turn it into a Ferrari. It's like a NASCAR upgrade, so to speak," he said. Taiclet said Lockheed had worked on developing better sensors and stealth techniques for its sixth-gen bid, and could apply those technologies to improve the F-35. He also mentioned a newer tracking system and longer-range weapons. He told analysts that the idea is for advanced aircraft to avoid dogfights if they can. "We want to shoot the other guy, as I said, before he even knows we're there," he said. Boeing's F-47 is meant to be America's most advanced stealth fighter yet, with plans for the aircraft to fly in tandem with semiautonomous "wingmen" drones. With air superiority as its priority, one of the next-generation fighter's primary roles is to destroy enemy aircraft. Meanwhile, the F-35, a multi-role fighter that entered service in 2015, is Lockheed's headline export. Taiclet said the company expects to deliver between 170 and 190 F-35s in 2025, with a backlog of about 360 more aircraft. Lockheed reported a net profit of $1.7 billion for the first quarter ending on March 30, up from $1.5 billion in the first quarter of 2024. Earnings of $7.28 per share beat Wall Street's expectations of $6.34 per share. The company's stock price climbed 0.82% to $462.08 at market close on Tuesday.
Yahoo
15-04-2025
- Health
- Yahoo
Gaza protesters call on Mass General Brigham to remove Lockheed Martin CEO from its board
NORTHAMPTON — An ambulance pulled into Cooley Dickinson Hospital in Northampton at noon without issue, a garden-variety occurence in daily health care that can't be guaranteed for your average Gazan, a group of protesters said Tuesday. Demonstrators gathered in front of the hospital to protest 'medicide,' or killing of health care workers in Gaza, and how the Mass General Brigham hospital network is, in their view, contributing to those deaths. They spoke about how the scenes in health care scenes in Northampton and Gaza are in stark contrast. Last month in Gaza, 15 Palestinian medics were killed by Israeli troops. 'We have access to pristine medical facilities, with all of the medicine in the world, and the very last hospital in Gaza is now out of operation,' said Jennifer Scarlott, a community organizer for Demilitarize Western Massachusetts and River Valley Healthcare for Gaza. Her two groups held a protest in front of the hospital, a member of the Mass General Brigham hospital network. Over 1,200 people — including concerned Massachusetts residents, patients and health care workers within the hospital network — have signed a petition calling on the hospital's board of directors to remove one of its members, said Scarlott. After the protest, the organizers planned to walk into the hospital to hand the administration the petition and a letter with their demands: to remove James Taiclet, chief executive officer of Lockheed Martin, from the its board; to create an ethical investment policy for Mass General Brigham; and to protect workers' rights to speak out, teach and disseminate information about the 'genocide' in Gaza. Many passing motorists honked or waved in support of the protesters. Lockheed Martin, an aerospace and defense contractor, has been the subject of several pro-Palestinian protests over the last one-and-a-half years, including a few at Smith College in Northampton last April. The company previously contracted with Israel and received $42 million for F-35 fighter jets for Israel's army in 2019. 'Is it a moral conflict of interest for MGB to have on the board of a health care system a person, James Taiclet, president, chair and CEO of Lockheed Martin, a person who is profiting from the sale of weapons that are day by day, minute by minute, being used, even now, as we speak, to slaughter civilians and health care workers?' said Nick Mottern, one of the organizers at the protest. The protest, which happened simultaneously with one in Boston, was held on Tax Day for a reason, Scarlott said. 'American taxpayers are funding this genocide,' she said. 'The ancient oath for doctors is to 'Do no harm.' So what is the largest weapons manufacturer doing on the board of the hospital?' The hospital issued a statement Tuesday afternoon when asked about the protest, but it didn't address global concerns: 'As a health care organization, our focus is on providing high-quality care to all patients who come through our doors. We are committed to caring for our people and maintaining an inclusive culture, where everyone is welcome, safe and valued.' Springfield officially transfers tax title parcel to Emerson Wright Park Holyoke leadership to consider major overhaul of city's financial management Catholic Charities of the Springfield Diocese unveils new focus, new director after loss of refugee programs Is the Eversource pipeline extension project in Springfield dead?
Yahoo
29-01-2025
- Business
- Yahoo
Q4 2024 Lockheed Martin Corp Earnings Call
Maria Ricciardone; Vice President of Investor Relations, Treasurer; Lockheed Martin Corp James Taiclet; Chairman of the Board, President, Chief Executive Officer; Lockheed Martin Corp Jay Malave; Chief Financial Officer; Lockheed Martin Corp Seth Seifman; Analyst; JP Morgan Rob Stallard; Analyst; Vertical Research Partners Richard Safran; Analyst; Seaport Global Securities Ken Herbert; Analyst; RBC Capital Markets Gavin Parsons; Analyst; UBS Equities Research Scott Deuschle; Analyst; Deutsche Bank Matthew Akers; Analyst; Wells Fargo Securities Myles Walton; Analyst; Wolfe Research Gautam Khanna; Analyst; TD Cowen Peter Arment; Analyst; Baird Pete Skibitski; Analyst; Alembic Global Advisors Douglas Harned; Analyst; Bernstein Michael Ciarmoli; Analyst; Truist Securities Ronald Epstein; Analyst; BofA Global Research Operator Good day and welcome, everyone, to the Lockheed Martin fourth-quarter and full-year 2024 earnings results conference call. Today's call is being recorded. (Operator Instructions)At this time, for opening remarks and introductions, I would like to turn the call over to Maria Ricciardone, Vice President, Treasurer, and Investor Relations. Please go ahead. Maria Ricciardone Thank you, Sarah, and good morning, everyone. I'd like to welcome everyone to our fourth-quarter and full-year 2024 earnings conference call. Joining me today on the call are Jim Taiclet, our Chairman, President, and Chief Executive Officer; Jay Malave, our Chief Financial made in today's call that are not historical facts 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 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'd like to turn the call over to Jim. James Taiclet Thanks, Maria. Good morning, everyone, and thank you for joining us on our fourth-quarter and full-year 2024 earnings you saw in the press release this morning, our return-to-growth strategy that we implemented three years ago is well on its way and remains on a strong trajectory. In 2024, sales grew 5% year over year, and our backlog of $176 billion reached yet another record, demonstrating the enduring global demand for our superior, scalable, and reliable products and and every one of our four business areas saw backlog growth and ended the year with a book-to-bill ratio of greater than 1. We fully expect these trends to continue in our 2025 outlook with mid-single-digit growth in sales, segment operating profit returning to 11%, and double-digit growth in free cash flow per and Maria will cover the financials in more detail, but I'd like to briefly comment on the earnings impact in the fourth quarter of two classified programs at MFC and aeronautics, prospectively. Recording charges in Q4 on these two programs enabled us to derisk the financial profile of both these critical national security programs going forward as we move into their next these particular contracts were struck a number of years ago, there are no longer any must-win competitions. Under today's Lockheed Martin-wide bid process, every proposal adheres to a stringent risk-adjusted ROI regime. This process is designed to compete aggressively for key opportunities while also being very committed to achieving positive results, both in the short and long term for our the same time, we are committed to ongoing investment in the business to further enhance our company's growth trajectory, having successfully executed our return-to-growth initiative over the past few years. In 2024, we invested $3.3 billion in research and development and capital to support advanced scalable technology solutions for our important looking forward, our investments to enhance the attractiveness and performance of our key programs and initiatives such as America's preeminent fifth-generation fighter, the F-35, and our internal digital transformation, 1LMX, are inspected to financial focus remains on free cash flow and free cash flow per share. Our company continued to deploy significant free cash flow in 2024, and we return greater than 100% of that free cash flow to you, the shareholders. In addition to our consistent and healthy dividend, we maintain a robust share repurchase program with 3.7 billion of shares repurchased in to the F-35. We delivered 62 aircrafts in the quarter, bringing our total deliveries for 2024 to 110, the high end of our expected range. These deliveries included aircraft that were previously part and new jets have rolled off the production line. We continue to expect deliveries will exceed the production rate over the next few years and estimate 170 to 190 F-35 aircraft deliveries in capabilities continue to progress in flight testing. We completed qualification testing on a set of key TR3 capabilities in 2024, and we're making solid progress on system performance and remaining TR3 deliverables. We expect to release additional capability this year was for further upgrades to addition, the undefinitized contract for Lot 18 F-35 production was awarded in December, bringing our backlog to 408 aircrafts. We expect this contract will be definitive time during the first half of welcomed our 20th global customer, Romania, into the F-35 enterprise in November for this Letter of Offer and Acceptance to procure our 32 aircraft. The Romanian Air Force's F-35 will integrate with their existing F-16 fleets as well as other allied F-35s, highlighting the importance of the superior capabilities of this the F-35's seamless interoperability using our architecture will be crucial in establishing and maintaining command of the air, especially in the end of Pacific, European, and Middle Eastern [theaters]. Lockheed Martin's system of integration expertise across land air, sea, space, and cyber are essential to continually improving many important national security missions such as protection from air and missile this example, our defensive (technical difficulty) flight experimentation mission in December successfully demonstrated the integration of multiple Lockheed Martin and other OEM products into a single combined weapons system. Our Aegis Guam system was successful in acquiring and tracking targets using our TPY-6 radar planning and conducting the missile engagement using our Aegis combat system. Then we fired the interceptor from one of our vertical launching systems and ultimately destroyed the incoming important was the accelerated pace from contact award to successful completion of this flight test mission in under two years. It was a direct result of leveraging prior investments and all these proven technologies. Building on our production-ready Air-Launched Rapid Response Weapon or ARRW, America's hypersonics technology made another important milestone in the development of one of our most important and advanced weapon systems in US Army and US Navy completed a successful end-to-end flight test of the common hypersonic (inaudible), the first live-fire event for the long-range hypersonic weapons system.I'd like to shift gears now to the current discourse about the defense industry landscape. Much has been said about defense primes, emerging startups, traditional and nontraditional companies. I see us all working together, and I think that it's industry's role to help marshal the talent and expertise in our country to provide the best possible deterrent capabilities with both physical products at the ships, aircraft, and satellites as well as digital, advanced need to access the best talent, financial resources, and technologies from both the aerospace and defense and commercial sectors to get ahead and stay ahead. To that end on the commercial front, I've long been an advocate of deepening partnerships across industries, and we have done so with companies such as NVIDIA for artificial intelligence; Meta and IBM for large language models to more efficiently generate code, analyze data, and enhance business processes; Verizon for 5G networks; Microsoft for classified cloud modeling and simulation; and Intel and GlobalFoundries for advanced military hardened also investing heavily on internal development, autonomy, AI, and other enabling digital technologies to provide the best solutions for our customers. [Skunk Works] continues to drive the cutting edge, theater-level security solutions, and real-time live flight demonstrations. We had an F-35 flying from our facility in North Fort Worth, Texas sharing classified data by a Skunk Works open-system gateway through a commercial satellite communications and all the way over into a Royal Air Force lab in Farnborough, UK. It was integrated into their command-and-control achievement marks a significant step towards a future-integrated defense, enhancing our F-35 interoperability in real time within an allied C2 system using our 5G dominant another first, our Lockheed Martin Skunk Works team, along with the US Navy and General Atomics, completed a live controlled flight demonstration of an uncrewed system by the Unmanned Carrier Aviation Mission Control Station, which is powered by our autonomy platform. This demonstrates us a pathfinder that helps advance the complex technology necessary to enable human-machine teaming as envisioned for autonomous systems. We're doing it right to the budget, the current continuing resolution funds US government operations through March. We look forward to working with the returning administration to continue pursuing a more agile and streamlined acquisition process that encourages speed, technology innovation, and broader see those as an opportunity to make great progress in all these areas, and we will continue to share ideas and do our part to support efforts to eliminate unnecessary regulatory hurdles while working to increase efficiency in our own internal operations through our 1LMX digital I'll turn it over to Jay. Jay Malave Thanks, Jim, and good morning, I'll provide an overview of our consolidated financial results for the fourth quarter and full year, then hand off to Maria, who will cover business area financials, and I'll come back at the end to discuss our initial 2025 outlook.2024 was a solid year. Our growth strategies are paying off with 5% top line growth while also growing backlog 10% to $176 billion, another year-end record. Our balanced portfolio enabled us to generate solid free cash flow and meet our deployment commitments exceeding 100%.Finally, we took prudent derisking actions on key programs that paved the way for a solid outlook in 2025 and beyond. Before I get into the results in more detail, I'll walk you through these de-risking actions. Chart 4 provides two different reconciliations that detailed a full impact of these items on our full-year results and their partial impact to our prior expectations. We've also included a fourth-quarter version at the same chart in the appendix on slide purposes of understanding the total impact on our full-year results, I'll direct your attention to the middle section of the chart. We recorded net charges of $1.8 billion as follows, $1.4 billion related to the remaining expected future losses on the MFC classified program, and $555 million associated with the aeronautics classified program, with these amounts partially offset by $155 million benefit associated with our C-5 claim over to the right side of the chart, you may recall that our last outlook in October had assumed some of these net charges. So let me walk you through that as well. Relative to our prior outlook, we recorded $1.4 billion of unplanned net charges, consisting of $410 million for the aeronautics classified program, $1.1 billion from the MFC classified program, with these amounts partially offset by $70 million of unplanned and benefit from the C-5 claim reconciliations provide adjusted results to exclude the impact of these items for comparison purposes. For the remainder of my prepared remarks, I will refer to the reported and adjusted amounts as shown on the left side of the chart, unless otherwise moving to chart five with fourth-quarter results. Sales of $18.6 billion were down slightly year over year. Sales in the quarter were unfavorably impacted by having one [fewer week] in Q4 '24 compared to Q4 of '23, partially offset by the F-35 Lot 18 deferred revenue carryover from the third quarter. Segment operating profit, segment margins, and earnings per share were all adversely impacted by the classified program charges at aeronautics and missiles and fire an adjusted basis, segment operating profit would have grown 5% year over year to $2.1 billion, resulting in segment margins of 11.1%. Shifting to new business, we recorded over $29 billion of orders in the fourth quarter for a book-to-bill ratio for approximately 1.6. Aeronautics led the way with almost $20 billion in orders driven by the F-35 Lot 18 and fiscal year '25 air vehicle sustainment contract contracts will help secure the wide-reaching F-35 US production enterprise and ensure America's military is equipped with the most advanced fighter aircraft in the world. Free cash flow was $440 million in the quarter, including $990 million of pension prefunding to extinguish the 2025 required with capital deployment, we further advanced strategic and technical and operational capabilities by investing over $1.1 billion in the quarter towards independent research and development and capital expenditure projects, bringing full-year internal investment of $3.3 continue to provide an unmatched combination of new technology advancement that can be also fielded with speed. So investing to deliver critical capabilities while maintaining our commitment to shareholders by returning $1.1 billion of free cash flow via share repurchases and to chart 6 in our full-year 2024 results. Sales of $71 billion grew 5%, driven by improved backlog conversion, reflecting stronger throughput across the entire value chain. Similar to the fourth quarter, segment operating profit segment margins and earnings per share were impacted by the net program charges on slide an adjusted basis, segment operating profit grew 7% year over year and adjusted segment margins were 11.1%. Book-to-bill for the year was greater than 1. In the third consecutive year, we've increased backlog. We generated $5.3 billion of free cash flow, including the pension prefunding. And finally, our consistent capital deployment continued in 2024 as we returned $6.8 billion to shareholders through repurchases and I'll turn it over to Maria to discuss business area results. Maria Ricciardone Thanks, Jay. Today, I'll discuss fourth-quarter and full-year results for the business Jay mentioned, you'll notice that we've included both reported GAAP and adjusted results for each business area in order to provide meaningful comparisons and a more realistic expectation of recurring operational with aeronautics on chart 7. Fourth-quarter sales at aero increased 5% year over year, primarily driven by higher F-35 volume on production and sustainment contracts due to contract awards in the quarter, including the awards for the Lot 18 undefinitized contract action and air vehicle sustainment offsetting this was lower volume at (inaudible), driven by the unfavorable sales impact associated with the classified program charge. Adjusting for the impacts of the classified programs charge and the C-5 contract resolution, the adjusted sales growth at aero was approximately 7% year over year in Q4 2024. Both reported and adjusted sales in the fourth quarter benefited from $700 million of F-35 sales differed from the third operating profit decreased 43% compared to Q4 2023. Lower profit booking rate adjustments due to the $410 million classified program charge in the quarter were partially offset by higher sales volume and the benefit related to the C-5 claim resolution. On an adjusted basis, operating profit year over year in the quarter increased the full year, sales increased 4% driven by higher volume across the F-35 program and the production ramp on the F-16 program, partially offset by lower volume at Skunk Works due to the sales impact related to the classified program change. Full-year segment operating profit decreased 11%, driven by the same items we saw in the fourth quarter. Lower profit rate adjustments, partially offset by sales volume and the C-5 claim resolution benefit. On an adjusted basis, aeronautics' full-year operating profit grew by 3%, equating to 10.2% margin for the to Missiles and Fire Control in chart 8, MFC sales increased 8% year over year, driven by production ramp on Joint Air-to-Surface Standoff Missile, JASSM; Long Range Anti-Ship Missile, LRASM; Guided Multiple Launch Rocket System, GMLRS; and for the extra week in the fourth quarter of 2023, MFC sales grew 16% year over year. Segment operating profit decreased significantly year over year in the quarter due to lower profit booking rate adjustments driven by the recognition of reach-forward losses on the classified program. Adjusting for that item, segment margins were a strong 14.8% in the the full year, MFC sales increased double digits, up 13%, again due to production ramps on GMLRS, LRASM, JASSM, and PAC-3 programs. Full-year segment operating profit declined $1.1 billion year over year due to $1.4 billion of classified program charges, which were partially offset by higher volume from the production ramp. Excluding the classified program charges, MFC's segment operating margin for the full year was a solid 14.4%.Shifting to Rotary and Mission Systems on chart 9, sales decreased 10% in the quarter to approximately $4.3 billion, primarily driven by lower volume on Seahawk, CRH, AEGIS, and various C6ISR programs. Normalizing for the week difference in Q4 2023, our net sales were down 3% year over year in the to sales, operating profit was down 11% year over year due to lower profit booking rate adjustments in sales volume, partially offset by favorable contract mix. For the full year, sales increased 6% in RMS, primarily driven by higher volume on the Canadian Surface Combatant and Lasers programs within the integrated warfare systems and sensors business, as well as various C6ISR programs and the CH-53K ramp at Sikorsky. Operating profit was up 3% for the year due to the higher sales volume and favorable contract mix, partially offset by lower profit booking rate with space on chart 10. Sales decreased 13% year over year in the fourth quarter. The reduction was driven by lower volume on n NextGen OPIR, Orion, and classified primarily due to program lifecycle. Normalized for the number of weeks in the quarter year over year, sales were down 6%. Operating profit decreased 8% compared to Q4 2023, driven by lower volume and lower profit booking rate adjustments, partially offset by higher equity earnings from the United Launch to the full year, sales decreased slightly, driven by lower volume on the same programs within the fourth quarter, partially offset by higher volume on the Fleet Ballistic Missile and reentry program. Meanwhile, operating profit increased 6% in 2024 due to favorable contract mix and higher ULA equity earnings, partially offset by lower profit booking rate adjustments.I'd like to note the photo on page 10. In December, Lockheed Martin supported the successful launch of the GPS III SV07, which we designed and built. This accelerated launch require a complex integration and was the first to demonstrate operational agility for critical national security that, I will turn it back over to Jay to wrap up our prepared remarks. Jay Malave Thanks, Maria. Turning to chart 11 in our forward expectations. Our outlook for 2025 has improved since October, along with our rising value chain performance expectations. In addition to the benefit from the de-risking actions we took in 2024, we anticipate sales growth of 4% to 5% on top of the 5% we delivered in 2024. We expect MFC to again lead the way with 8% growth at the midpoint as we continue to ramp production across several programs to support the strong demand for our combat-proven munitions and integrated air and missile defense previously discussed, operating margins return to 11% and free cash flow growth 9% at the midpoint from 2024 adjusted results, setting up double digit growth in free cash flow per share in spite of non-cash FAS pension headwind, lowering EPS. I'll sit through segment operating profit and EPS bridges in more detail on the following 12 bridges 2024 reported segment operating profit of $6.1 billion to the 2025 guidance midpoint of $8.15 billion. After accounting for the 2024 net charges, we expect operating profit growth from the adjusted 2024 position. The growth is primarily due to the volume dropthrough and partially offset by other items, mainly lower expected net profit rate adjustments. Importantly, segment margins are expected to return to 11% in 2025 earlier than on chart 13, we have a similar walk for earnings per share. Here, we expect EPS to decline slightly from a 2024 adjusted position, mainly due to non-operational items, notably the FAS/CAS pension adjustment as well as higher interest expense. Bringing it all together, we expect solid sales growth in 2025 of the higher 2024 base, operating margin at the 11% target and solid cash flow generation that enables consistent shareholder in summary on chart 14, in 2024, we delivered stronger top line growth than initially expected, reflecting an improving operating cadence. We also expanded our backlog to a new record, demonstrating the strength of our unmatched capability to deliver security solutions at speed while increasing investment to expand this capability. And we prudently de-risked programs, all the while dependably generating free cash flow and deploying it as together, these actions give us confidence to deliver a strong financial outlook for 2025. At the same time, we will continue to propel this industry forward with innovative solutions that integrate the best that commercial and military industries can offer. And of course, we remain focused on operational execution to deliver on our commitments and create long-term value for our customers and that, Sarah, let's open up the call for Q&A. Operator (Operator Instructions) Seth Seifman, JP Morgan. Seth Seifman Thanks very much and good morning, everyone. I wanted to ask -- Jay, you emphasized kind of the de-risking nature of the charges in Q4. And I know maybe it's difficult to discuss because it's classified. But within Aeronautics, all of the filing language has sort of emphasized continued risk there. Should we think that within -- following this charge, the potential for future charges there has really come down considerably. And is there anything you can say about where we might be in the lifecycle of that program and when it might be able to provide some positive returns?And then thinking maybe that the answer there might have to be a little bit circumspect, if you could just comment on the multiyear targets that you gave on the last call and how to think about those now. Jay Malave Okay. Thanks, Seth. There's about 16 questions in that one question, but I'll take a shot at all of as far as the risk specifically, I would say we significantly reduced the risk. I can't really get into the lifecycle of the program, given the classified nature of it. But let me walk you through why I believe that we've significantly reduced the you know, we have realized this risk earlier in the year, causing us to perform a more comprehensive review of current performance versus our key assumptions included in the estimate to complete. We evaluated the risks and opportunities and made the determination that a cost reset was amount that we recorded in the quarter is the most conservative assessment we've made to date. We've also made a number of process changes. Aeronautics, along with our corporate staff, have implemented a more continuous monitoring progress, a process of the progress of this program in terms of technical milestones and added technical resources from the outside of the will enable both teams to work together to institute support measures as needed faster than before. We've also added technical resources and experts with experienced in the risk areas to help bolster the team and mitigate risks as they arise. We've added automated testing procedures as well to accelerate test results and issue resolution should they all those things taken together give us confidence that we have significantly de-risked this program and significantly reduce the risk of future charges on this. As far as maybe the multiyear outlook, you look at 2025 and certainly, the 2025 outlook is better than what we had projected in October. If you recall, we have said our baseline was low-single digit with an opportunity to get to a mid-single we believe the opportunity was realized for 2025, which gave us confidence to increase our growth outlook to 4% to 5%, and that's the same type of process that we'll continue to look at in '26 and beyond. And again, it's based on our ability to really drive throughput through the entire value I mentioned before in my prepared remarks that we've continued to have rising expectations there and rising confidence that not only our supply chain, but our internal operations can move in a quicker pace, enabling the unlocking of this revenue growth. So our confidence is growing there. Operator Rob Stallard, Vertical Research Partners. Rob Stallard Thanks so much. Good morning. Question for Jim. At the same time as you're taking these charges on these classified programs, it looks like the new administration and the Department of Defense is actually getting more [pro] fixed price contracts and commercial terms. Are you worried that the defense industry could be taking on more risk and opening yourself up for more charges in the future? James Taiclet Not necessarily, Rob, because we're going to apply this disciplined bid process to fixed price and cost-plus contracts. And if the proportion is moving and potentially towards fixed price, we're going to use the same discipline. And there's no trend in this industry to be much more deliberate about how each company bids, each company has its own is something I brought over from my last business experience, which is risk-adjusted return on investment. It is the key criteria and be honest about the risks upfront and price them in. And if that price, it doesn't meet the competition, so be it. We'll move on to other I'm not concerned about that. As I said, I look at those as an opportunity because as far back as 2021, I have been advocating for systemic change in the way that the defense enterprise operates. And that's meaning Congress, executive branch, Pentagon, aerospace and defense industry, commercial tech, startups. We need to expand our ability as a country to get everybody involved and I welcomed (inaudible)'s effort and the administration's efforts to reduce the bureaucracy limit that the administrative burdens that the Pentagon now puts on all companies, big and small, that want to work with I look at all this is an opportunity to move a little bit more towards fixed price proportions, so be it. Jay Malave Rob, the only thing I would say is we've seen really a bunch more over the last probably a year to 18 months, a more of a contracting regime that's more commensurate with the risk associated with the programs. So those that have lower technical maturity, higher risk, the customer has actually been much more receptive and cognizant. Those probably are not going to be best delivered under fixed price type of contracting so you may be hearing words on the one hand, but I think there has been a recognition more to make sure that the risk profiles commensurate with the right level of contracting and that's shared both by the customer as well as the industry. And so it's a different approach. We'll see. We've got a change in administration and where that goes forward, but I would say there's been a recognition over the last 12 months to fixed price contracts for immature technology, really doesn't help anyone. Operator Richard Safran, Seaport Global Securities. Richard Safran Good morning. What I'd like to ask is, starting with your 2025 guidance for 8% growth, I'd like to know if you could give us maybe a long-term look at MFC in terms of growth and margins and what the potential for the business is. Just kind of wondering, you have the GD rocket motor deal and how that factors into your growth and margin outlook given the volume limitations you've had thus far? Thanks. Jay Malave From what I see for 2025, it's really more of the same. We continue to see growth on programs like GMLRS, HIMARS, PAC-3, JASSM, and LRASM. And many of the same growth factors and drivers in 2024 are also the growth drivers in 2025. That demand have projected on orders growth in 2025, things like a multi-year definitization on JASSM and LRASM, which is pretty sizable, multiyear contract and so the demand cycle there, both domestically and international was quite strong. And as we've said before, that will be the growth driver for Lockheed Martin for years to come beyond so again, when you couple the backlog with the ongoing demand, we feel pretty solid again in these programs, just as a solid back pinning of the underlying demand for the margins we've talked about when you strip out the impact of the classified program, we've talked about 14%. If you look at our -- at the midpoint of our guide in that ballpark we're right around 14%, not necessarily as high as Maria reported on an adjusted basis for 2024. But that's because right now, we're expecting some lower net profit adjustments, but their underlying margins are generally in line with what our longer-term expectations are and that's the way we should think about MFC, around 14%. Operator Ken Herbert, RBC Capital Markets. Ken Herbert Hi, good morning. Hey, Jay, in the past, you've talked about working capital and specifically the opportunity there to improve the free cash flow. Can you provide a little bit more on what's implied in the '25 guide for working capital improvement?And has anything structurally changed now as you look at the portfolio in the opportunity as you've talked about taking days out of the ability to eventually -- or continue to drive towards sort of pre-pandemic levels over time? Jay Malave Sure, I'll start with maybe 2024. We had a good year in 2024 in spite of some of the headwinds that we've faced. We reduced our working capital days by a couple, and we're in the mid-30s, as far as cash conversion cycle. For our outlook in 2025, what's implied in there is about one day, which essentially offsets the growth. Then we're going to see from -- we would otherwise see in working what we're trying to do here is prevent it from being a use of cash and have it be neutral. The opportunity set obviously would be to drive beyond one day. And there's still opportunity I talked about before, particularly in our contracted assets, our unbilled receivable. There's some opportunity there as we work through on the F-35, both in production as well as sustainment, but there's really opportunities across the has a number of opportunities there on their programs as well as even (inaudible) segments, space in MFC, those are outstanding working capital businesses on a stand-alone basis. But even so, there's opportunity in the contract assets there. So I would expect in the years to come that we still have opportunity to continue to drive asset productivity there and that's going to be part of our [forward motto] going forward as it was in '24 and our outlook for '25. Operator Gavin Parsons, UBS. Gavin Parsons Thanks, good morning. Could I just dig in a little further on the free cash flow bridges, the [EBIT] and EPS bridges as we're super helpful in the deck. But just given a lot of moving pieces and cash flow like the F-35 inventory unwind, pension contribution recovery, Lot 18, cash timing, maybe I missed that if we could just kind of do a bridge walk on cash flow, that would be great. Jay Malave If you just start from this year in adjusted cash flow of $6.1 billion. So adjusted for the pension contribution in 2024. As we mentioned, that we expected anywhere around close to $1 billion of benefit on F-35 with the delivery of -- with higher deliveries as well as progress on the withholds. We also, though -- as you remember, in 2024, we got the benefit of significant international advances to the tune of $600 partially offsetting that, as you know, it's the net impact of those two things, about $400 million in that ballpark. We do expect a benefit from taxes with lower R&D capitalization as that's coming down, and we expect a little bit of benefit from, I'll call it, cash-based net income. All that taken together takes us from $6.1 billion to $6.7 billion midpoint. So those are the key drivers of free cash flow for 2025. Operator Scott Deuschle, Deutsche Bank. Scott Deuschle Hey, thanks. Jay, it looks like if you're guiding -- looks like you're guiding aeronautics margins down about 20 basis points year over year in '25, if I add back those unplanned charges from the 2024 base. Can you talk about what drives that underlying margin decline, particularly given that you are on these newer contracts for F-35? Jay Malave So for F-35, we do have -- I'm sorry, for aeronautics in total, right now the outlook for their margins does assume lower net profit adjustments, and that's on -- I'll call it an apples-to-apples basis. So excluding the impact of the $555 million in the C-5 adjustment in 2024. Profit adjustments there are declining. There is a mix benefit. But right now, the net profit adjustments offset that and that's what drives the margins down from 10 to around also have classified growth, which is just a mix headwind there. But we've got some benefits from F-16 margins as well. But bottom line again, it comes back to the net profit just being lower. Operator Matthew Akers, Wells Fargo. Matthew Akers Hey, guys, good morning and thanks for the question. I guess a couple on F-35. You talked a little bit about the progress towards (inaudible). What exactly is left to get kind of the final withhold? How big is that? And are you assuming get that within 2025? And then wondering if you could touch on Lot 19 and kind of how the discussions are going there. Jay Malave On the TR3 capability, we continue to make excellent progress there. There's a number of things that we still have to complete, the submission system integration work as well as improving system stability overall. We expect that will continue throughout the year. We will meet -- we'd expect to meet some milestones this targeting as much as possible this year, but I think for purposes of financial modeling, we would expect this to bleed into 2026. Ultimately, the declaration of full combat capabilities, one that is left with our customer. And so we'll be coordinating with them and working with them on that. But what I can tell you is that they were pleased with the progress we've made thus far. And the team is working at a pretty good pace here with our supplier partners on improving: A, emission system capability; and as well as improving overall system the second part of the question was on Lot 19, so that has been negotiated some really in parallel with the Lot 18 negotiation. Just for clarity, Lot 18 is under undefinitized contract actions. So we still have to definitize that. As Jim mentioned, we expect that to be done in the first half of this year and then shortly thereafter in the second half of this year, we would also expect to close out on the Lot 19 contract, which would be an order and a range of about $10 billion. Operator Myles Walton, Wolfe Research. Myles Walton Thanks. Good morning. I was curious on the charges that were unplanned. Jay, how should we think about the cash effect of those and obviously, the MFC part of the unplanned charges planning in the future? So I'm going to guess there's nothing really to think about on the aero side, the $400 million of cash charges taken in the quarter, is that $400 million headwind being observed mostly in 2025? And then as we look to '26, do you still have the pension funding requirement coming back at about $1 billion? Jay Malave Yes, just starting with the aero classified program, that will be certainly a cash flow drag over the next few years. It's not all borne in 2025, but it's something that we expect over the next two to three years that we will have to liquidate that and from a cash perspective. As far as pension in 2026, we've talked about ongoing cash contribution requirements. The formula to deal with that is similar to what we saw here in what we've been talking had the prior discussion here and one of the questions related to working capital going, we're going to continue to see what we can do to drive working capital down, improve our asset productivity to offset as much as possible in the pension. And then as you know, we've got a very strong balance sheet that gives us a lot of optionality and flexibility. So we can expect to continue to deal with pension with the options that we have before us. Operator Gautam Khanna, TD Cowen. Gautam Khanna Yes, good morning. I was wondering at the MFC program that had the charge, is there an opportunity on that program as we scale it to improve the profitability dramatically? I'm just curious over the option period, I imagine demand is pretty strong for that product, and I don't know if the pricing may adjust favorably at some point. If you could speak to that. Jay Malave Again, it's a classified program, Gautam. So there's really not much -- what I can tell you is outside of the fixed pricing related to this next phase, the pricing would be open and we would expect to return to reasonable type margins over that period of time outside of where we have the fixed committed pricing. I wouldn't expect it to bounce back to MFC-like at that point in time, there still would be kind of ramp-ups that you got to deal with. But certainly, the margin profile will get substantially better. James Taiclet And we expect this to be a long-life program based on the technology and the value to the US. The next (inaudible) file, I can assure you that this is something they will want. Operator Peter Arment, Baird. Peter Arment (technical difficulty) opportunities maybe still grow your backlog? Your backlogs at record levels is up 10% for the year. Big drivers in MFC and space. But how are you thinking about the opportunities to grow backlog in '25 and any international and kind of awards that you're kind of our pursuits that you would highlight? Thanks. James Taiclet So Peter, it's Jim. And I'll start with the some of the public statements of the administration, which is reforming the Pentagon. The opportunity there is more long lead time orders, less fragility in the system. In addition to that multi-year contracting, which has been so far limited to munitions. Makes sense in a lot of other places in the Pentagon budget. So with some of those policy changes getting implemented, you might see backlog for a company like ours accelerate up due to multi years and longer lead time preorders. Jay Malave The line of sight, we do have a line of sight to growth again in 2025. I wouldn't say that it's 10%, but we certainly have some level of growth that we're expecting in 2025 on the backlog. I talked about the $10 billion order on the F-35 or Lot 19. I talked also earlier about the JASSM, LRASM multiyear, that's in the range of multiple billions of others, there's the international opportunities as well. (inaudible) on the F-16 aircraft. There's just a whole slew of opportunities. We also have just continued F-35 sustainment contract, which will be multiple billions of dollars as well. CH-53K, Lot 9 is another one will be negotiating this year, which is well above $1 billion. So there's still an excellent line of sight to continue to grow this backlog. But as you know, we're also focused on making sure that we can accelerate the speed of our throughput and drive that backlog conversion faster. Operator Pete Skibitski, Alembic Global Advisors. Pete Skibitski Hey, good morning, guys. Jim or Jay, just a follow up on M&FC, as you guys think about what DoD is signaling to you in terms of the peak production volumes on the key munitions on M&FC, do you guys need additional supplemental bills to kind of get to those levels and sustain those levels? Or do you already have kind of funding line of sight from the Ukraine supplemental and maybe what's in the '25 baseline budget, maybe '26 baseline?I just wanted to get a sense of budget risk there in terms of what your peak rates are assuming. Jay Malave It's really not dependent on additional supplementals. A lot of this is some -- a lot of that capacity is going to committed and or contracted with our customer. We just run through a couple of programs. We had always been under contract to get to [%550 million] in the PAC-3 program to 2025. We initially self-funded the investment associated with getting ourselves of [$650 million] on recently received a contract to work for incremental funding on that related to the facilitization. We are driving towards 14,000 on GMLRS. We've been driving, as Jim has mentioned in the past to 4,000 on Javelin, 96 on HIMARS. And again, the line of sight to those and the funding that's been allocated to those is quite strong one of which is under contract already. So we view that as fairly low risk at the moment. Operator Doug Harned, Bernstein. Douglas Harned Good morning. Thank you. On the F-35, and there's been some noise and the new administration is coming in about the F-35. If I put all of that aside, during the first Trump administration each of the budgets, F-35 volumes were cut. There seem to be a view that we didn't need as many. Congress, of course, added some back. But when you look forward, you're looking at a 156 per year production rate for a do you think about the interplay of budget decisions in the US with what has been some very strong export demand? In other words, if we should see some reductions in quantities in the US. Are you still very confident you're going to be able to continue with that more than 156 level? James Taiclet Doug, it's Jim. I'll start off and say, yes, I am confident of the 156, and I think it will come from strong demand from the US government and from our international partners. And what reason for that is basically, part of the tourist areas that you have to have the capability to make the adversary reconsider an adverse action against China based on open-source reporting has increased production of J20, which I don't believe, just so personally it's equivalent to F-35 but it is the fifth-generation airplane to over 100 units a year. We're going to do about 156, we're ahead of them. I think if there was a dramatic change and even US, the US order book and production, that might be a signal that would be adverse to maintaining an effective deterrent to similar munitions, right? I mean at (inaudible) movie or Clint Eastwood movie, when you run out of ammunition, you're highly, highly vulnerable and that supports some of the conversation Jay was just having. So my view is that there are some very capable people coming into the administration. They under standard the turn last thing I think President administration would want is to create a period of vulnerability with any of our major adversaries in the next few years. So I feel really confident about F-35 production. And the other thing I'll add is that we can already control F-35 out of eight autonomous drones. We've shown this to the Secretary of the Air Force a few months public knowledge. There's some classified things that we're doing in the same arena, if you will, to be able to drive manned unmanned teaming off the F-35 and the F-22. And the reason we're starting with the 35 is because of TR3. TR3 gives the F-35 the three things that you need for an effective of five nodea and a 5G [IoT] system, which is what we're talking about. Those three capabilities, our data processing with our core processors, Ten-X from the from the prior, it's the have a large storage at larger storage unit and a multi-pack connection back to the cloud as you defined the cloud. Ours is DoD classified, but those are three technical elements you need to have to be able to drive 5G level connectivity among nodes in a network like this. And that's what we have to build up. F-35, and we're upgrading F-22 in the same way. We'll have at least one and often more orders of magnitude capability in those digital arenas than the fourth-generation fighter jets we the capabilities alone that the F-35 can bring to an integrated fight with drones and manned aircraft is unique. Jay Malave Doug, I'll just also add that just maybe one data point here is that the age of the existing fleet is beyond 25 years. And so that is set necessitating a recapitalization with the F-35. And so this is a certain reality that is going to require the demand of the F-35 to bring the age of our existing fleet back down. James Taiclet And then the last thing I'll say is that there's -- based on, again, open-source reporting, the experience of the Israeli Air Force against the Iranian air defense system, which they took out in one night was what they characterize this fifth-generation aircraft. And you can match up what's in their inventory of with no would clear the way for fourth-gen aircraft drones to come in and devastate that country if the Israelis decided to do. So that's the kind of impact that the high end of platforms have, especially if you can network satellite imagery, autonomous vehicle drone imagery and a command-and-control speed that no one else can can have that kind of lopsided victory. And that's another reason I think that F-35 is going to demonstrate its value here, through these experiences. Operator Michael Ciarmoli, Truist Securities. Michael Ciarmoli Hey, good morning, for taking the maybe a just a bit more color on on supply chain.I know you know, the general update had been, you know, the demand signals were pointing to mid single digit and any changes with that under the new administration?And then just given the supply chain and you do administration, should we think about that multiyear kind of framework now firmly in mid single digits for both revenue and cash flow? Jay Malave On a good just to answer your question kind of supply chain have seen saw improvement certainly in 2024 and were at levels where they have approached and in certain cases have exceeded, um, what they were said that, there are still discrete on issues that we're dealing with the portfolio.I think I may have seen a good done an outstanding job of managing a number of supply chain issues, but yet they still are so the way we have a group of a solid growth outlook there and a strong growth growth outlook, there are still being paced.A certain extent in that goes across much of the portfolio is, of course, gives another one C. 53 K. on has been hampered where we have seen still not to the level that where we need to be operating from a contractual we continue to see, though what we have seen since Sure, I would see it fuel a lot more confident in a multiyear outlook that is more in is 4% to 5% range like we are guiding for for 2025.I think that we need to just go do a little bit more the passage of time as we go through midway through this year, we get a better outlook on how 2025 is shaping up and how that in Forms 2026 would be able to give you a clear, clear view of a longer at the moment, for encouraged by what we're seeing in surely, we've seen it here in 2025, and we're starting to gain confidence, as I mentioned before, that I can continue in if you take one more question, I think we're approaching it after the after this question will hand off to Jim for closing one more question, please here. Operator Ron Epstein, Bank of America. Ronald Epstein Hey, guys, for the maybe just kind of a two-parter, the first party, I think maybe when when they discuss this Iron Dome over the USMATNGI., their contract that you guys already first or am I thinking about that wrong?Because this is that what engineering, Ron Kim here, it would be an integral part of us have a more comprehensive solution to homeland what the administration has laid out is a defense homeland against some a multiple set of attack options for any of them is, as you say, Intercontinental intercontinental ballistic missile attack, that is something that the NGI. is specifically designed to then there's also hypersonic have a Hypercom hyper thought counter hypersonics effort in this company, knowing that we're going to need to be able to do that by the way to do going to need a I and you're going to be High Speed Data Tree missions and you're going to have to multiply centers and multi-domain to do that's the second one.A third one is cruise missiles, right?We've shown that we, for example, we can shoot down cruise missiles lasers now and that could be part of the then maybe the lowest level of adversary would be a cheap in-country new, a UAV attack, a drone attack on on a public place or an Air Force base or some other you at our that's another set of technologies, which is counter though we haven't heard back from this administration yet on this topic, but we offered the prior administration at the sector level to organize the national team on counter-UAS because I think we have some pretty good want to add a lot more from some mid and large companies that do have the relevant technologies as well. James Taiclet So I ran out of time on your second part of your first question, but that's what I think of what I consider what Iron Dome would have to look like.I got it was a broader thing and just sort of call it missile defense that yes, there's a public statement by the U.S. government and outlines a if I can squeeze in one last 100 and then I've got to go and how you're thinking about.I mean, Denmark is an important F-35 international customer, and there's a lot of rhetoric in the press around the U.S. market and how do you think about that?And now you're mixing that up with them being an important customer and what message that might send other these are policy issues by the US government are completely out of our for a review I'll just leave that demand for the aircraft is we've talked about keeps building, especially in international really, that's all I'd like to comment on on a policy matter you, Maria, for managing all the we close, I want to thank the Lockheed Martin workforce for constantly pushing the boundaries of innovation to help our country and our allies accomplish their missions and maintain our ability to provide a strong return to armed if we must do the feed animals that have taxes in the Air Force to call that fly fight and win as we did first term, we look forward a very productive working relationship with President Trump and his team and the new Congress to strengthen our national share our commitment to achieving piece through strength, and we're focused on delivering the best critical defense technology in the world and the greatest value to the American that will wrap up the has the joint today, and we'll see in April and our first quarter call. Operator This concludes today's conference call. Thank you for joining. You may now disconnect. Sign in to access your portfolio
