Lockheed Martin Corporation

Ladies and gentlemen, thank you for standing by. Welcome to the Lockheed Martin Corporation first quarter 2019 earnings results conference call. At this point, all the participant lines are in a listen-only mode. There will be an opportunity for your questions. Instructions will be given at that time. If you should require any assistance during the call, please press star zero, and Operator will assist you offline. As a reminder, today's call is being recorded. I'll turn the conference now to Mr. Greg Gardner, Vice President of Investor Relations. Please go ahead, sir.

Thank you, John, and good morning. I'd like to welcome everyone to our first quarter 2019 earnings conference call. Joining me today on the call are Marilyn Hewson, our Chairman, President, and Chief Executive Officer, and Ken Posenreid, our Executive Vice President and Chief Financial Officer. Statements 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. please access our website at www.lockeymartin.com and click on the Investor Relations link to view and follow the charts. With that, I'd like to turn the call over to Marilyn.

Thanks, Craig. Good morning, everyone, and thank you for joining us today in our first quarter 2019 earnings call. As today's release illustrates, we had exceptionally strong results this quarter, financially, strategically, and operationally. These results reflect the quality of our workforce, the strength of the corporation, and the focus we all have on delivering value to our customers and stockholders. My thanks goes to everyone in the company for their contributions in driving this outstanding performance. This performance from across the corporation and expectations for the remainder of 2019 enable us to increase our full-year outlook for sales, operating profit, earnings per share, and cash from operations. Our first quarter results and increased full-year outlook reflect the execution of our entire team, as each of our four business areas was able to contribute to our improved financial outlook. Our backlog grew to a new record level, another sign of the strength provided by our broad portfolio of products and services. Kim will discuss our financial results in more detail, But I would like to begin by highlighting a few of the elements that drove our exceptional performance. Sales this quarter exceeded last year's first quarter by 23%, with each business area growing revenues significantly from the first quarter of 2018. The growth was led by missiles and fire control, as deliveries of tactical and strike weapons, particularly in our precision fires organization and our PAC-3 missiles, grew from last year. Our aeronautics business area also saw strong sales growth as we continued to increase production of our F-35 Joint Strike Fighter and delivered 26 aircraft this quarter compared to 14 in last year's first quarter. Our segment operating profit increased by more than 30% year-over-year as strong performance across the board contributed to the growth. Missiles and fire control experienced outstanding operational performance over multiple programs, which allowed them to complete the retirement of risk items planned for later in the year. And similarly in space, our government satellites team, producing the fifth and sixth spacecraft in the advanced extremely high frequency constellation, was able to complete crucial testing milestones ahead of schedule, as well as achieve program efficiencies to increase margins this quarter. These strong results in sales and earnings and our focus on maximizing cash returns also allowed us to increase our full-year outlook for cash from operations. Our team continues to drive growth and performance in all financial metrics with a portfolio of products, technologies, and services that are in great demand by our customers and continue to provide value to our stockholders. I'll touch on some significant performance milestones in just a moment, but I want to first highlight a few of the notable new business items that demonstrate the lasting importance and strength of our deep legacy portfolio. In aeronautics, our F-16 team received two notifications from the State Department of the approvals for F-16 foreign military sales to Morocco. The first is for the potential sale of 25 new F-16 Viper aircraft and related equipment with an estimated value of $3.8 billion. The second State Department approval will allow us to upgrade Morocco's existing 23 F-16 aircraft to the modernized Viper configuration. This opportunity has a total estimated value of nearly $1 billion, and once definitized, Morocco will be the fifth international customer to upgrade its legacy F-16 fleet to this enhanced version of the Fighting Falcon. These notifications, coupled with the recent announcements from Bahrain, Slovakia, Bulgaria, and Greece on planned future new F-16 aircraft production and upgrades, show the enduring support of this venerable fourth-generation fighter. In Missiles and Fire Control, we received a contract award for over $1.1 billion from the U.S. Army for Lot 14 of guided multiple launch rocket system munitions and associated equipment. Demand for this program has increased significantly, both domestically and internationally, and we now anticipate that we will deliver nearly five times the number of rockets and launcher pods this year than we did just two years ago. Rotary and mission systems saw continued strong interest from several international customers this quarter. RMS received a $200 million award from the Japan Maritime Self-Defense Force for development and integration of the Aegis weapon system on new Japanese ships. RMS has already delivered the Aegis combat system to four of Japan's Kongo-class and two of their Otago-class destroyers, and we will now provide this capability for an additional two Otago ships, continuing a relationship that began over 30 years ago. RMS's Sikorski line of business was awarded a contract from Poland to build four S-70Is, our international Black Hawk helicopter variant, for the country's Special Operations Forces missions. The award, announced by the nation's prime minister at a signing ceremony inside the Sikorski Protection Center in southern Poland, follows delivery of two S-70Is to the Polish National Police in November of last year. and continues our 10 years of Sikorsky helicopter production in Poland. Keeping with Sikorsky, the State Department announced a potential $2.6 billion foreign military sale to India for 24 MH-60R Seahawk helicopters. This Romeo version of the Black Hawk is the world's most advanced maritime helicopter, and this contract, once definitized, will allow us to deliver unparalleled anti-submarine warfare, and anti-surface weapon capabilities to the government of India. And in our space business area, the United Kingdom's Ministry of Defense awarded us a contract worth approximately $3.6 billion to oversee the operation of the MOD's atomic weapons establishment sites for another three years. We are honored to continue to support the UK government's important mission as part of the AWE management limited venture with our strong focus on security and safety. These announcements reflect the continued demand both domestically and internationally for our portfolio of products and services. Our legacy platforms remain vibrant and our focus on innovation and new technologies provides us with growth opportunities for the future. Moving briefly to the defense budget, the President submitted the FY20 Presidential Budget in March with a total defense request of $750 billion. Included in this request is $718 billion for DoD total funding, an increase of nearly 5% from the 2019 enacted appropriation level. The FY20 submission continues the focus on missile defense, nuclear, space, cyber, joint lethality, and intelligence capabilities in support of the national defense strategy. And we have demonstrated that our portfolio remains well aligned with these priorities. To achieve the funding objectives contained in the administration's request, Congress will ultimately need to pass legislation to raise the Budget Control Act ceilings, which are still in effect for discretionary defense spending in FY20 and FY21. We are encouraged by recent congressional support for raising the spending caps. However, we expect significant discussions to take place before the budget process will be finalized. We have seen strong bipartisan support for national security initiatives and the recapitalization of our nation's armed forces over the past several budget cycles, as well as for our programs in general. And we are hopeful the fiscal year 20 process results in a similar outcome Moving on, I would like to highlight several significant events that occurred across the corporation during the past quarter. Beginning with an update on our F-35 program, we saw several important milestones and accomplishments take place this quarter that spotlight the program's maturity and the continuing support we see from the international community. First, a truly significant event took place in February as the Department of the Navy declared Initial Operational Capability, or IOC, for its fleet of carrier variant F-35s, deeming the F-35Cs are ready for combat. Beginning with the U.S. Navy's receipt of its first F-35C test aircraft, the joint government and industry team embarked on a rigorous path to IOC, including participation by two carrier vessels, three squadrons, multiple sea trials, and significant logistics and support efforts. which resulted in 10 F-35C jets from the Strike Fighter Squadron 147, the Argonauts, being declared ready for operations. Preparations can now begin for the first carrier deployment aboard the USS Carl Vinson, and this achievement will mark the first time in over half a century the U.S. Marine Corps, Navy, and Air Force will all be mission ready and combat capable with the same family of fighter jets, a tremendous achievement for the entire F-35 team. Keeping with the Joint Strike Fighter, I was proud to attend the ceremony this January to celebrate the rollout of the first operational F-35A, or conventional takeoff and landing variant, for the Royal Netherlands Air Force, becoming the third overall plane to be delivered to the Dutch. The Netherlands has been an F-35 partner since the plane's inception, and continues to be a strong advocate for the program. The first two CTAL aircraft were delivered in 2013, and we are currently supporting operational testing, and this latest addition to the Dutch fleet will ferry to Luke Air Force Base to be used in pilot training. The Netherlands Air Force, with its plan to acquire 37 jets and its role as a sustainment hub in the European region, is a key partner in the F-35 community, and we are honored to help support their national security objectives. Moving to missiles and fire control, we were very pleased to see the first and second tranche of orders from the Kingdom of Saudi Arabia to procure our Terminal High Altitude Air Defense, or FAD, Air and Missile Defense System. In March, we received the initial order for over $900 million for initial tooling and front-end procurement items. And on April 1st, just after our quarter closed, we were awarded a second order for approximately $2.5 billion to supply interceptors and equipment to support KSA and U.S. government THAAD batteries. These orders are the most recent actions following the U.S.-Saudi Arabia announcements in 2017 and support the beginning of the development and deployment of the seven planned Kingdom of Saudi Arabia bad battery installations. In rotary and mission systems, our Sikorsky team celebrated a key milestone with the first flight of the SB-1 Defiant helicopter, a revolutionary aircraft developed jointly by our Sikorsky organization and Boeing. The Defiant is designed to fly at twice the speed and with twice the range of conventional helicopters, taking advantage of our innovative X-2 technology and coaxial rotor blade design. The SP-1 is currently participating in the U.S. Army's Joint Multiple Role Technology Demonstrator Program, helping define the requirements for medium-lift utility helicopters for the Army's future vertical lift program. I'll close with our space business area, which received an order for over $800 million from the U.S. Navy to design, develop, build, and integrate technologies to support the flight test demonstration of a new hypersonic boost glide weapon system. Lockheed Martin Space was awarded the Navy's conventional prompt strike weapons contract and will provide flight articles and support equipment for the system's flight test. This order follows three previous awards the Corporation has received on hypersonic weapons, the Tactical Boost Glide Contract, the Hypersonic Conventional Strike Weapon or Hacksaw Program, and the Air Launched Rapid Response Weapon or AERO Program. These wins are being performed in three of our four business areas with the cumulative value of our Hypersonic Strike Weapon Awards now exceeding $2.5 billion across the corporation. Air and missile defense and hypersonic weapons are key priorities of the Department of Defense's National Defense Strategy, and Missile Defense Review. And we look forward to continuing to lead the development of these emerging technologies in support of the customer's missions. With that, I'll turn the call over to Ken.