Lockheed Martin Corporation

Ladies and gentlemen, thank you for standing by, and welcome to the Lockheed Martin First Quarter 2020 Earnings Results Conference Call. At this point, all the participant lines are in a listen-only mode. However, there will be an opportunity to ask questions. You may queue up at any time simply by pressing 1, then 0. If you need any assistance during the call, please press star, then 0, and operator will assist you offline. As a reminder, today's call is being recorded. I'll turn the call 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 2020 earnings conference call. Joining me today on the call are Marilyn Houston, our Chairman, President, and Chief Executive Officer, and Ken Posenreid, our Executive Vice President and Chief Financial Officer. With safety and caution in mind during these unusual times, we are using a more virtual approach and exercising social distancing while conducting this call. 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. These charts also include information regarding non-GAAP measures that may be used in today's call. Please access our website at www.lockiemartin.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.

Good morning, everyone, and thank you for joining us today. I hope this call finds you and your families safe and healthy as we collectively work to address the many issues brought on by the coronavirus outbreak. Our nation and the global community have seen the dramatic effects of the COVID-19 crisis. We are all saddened by the rise in illness and the tragic loss of life that has resulted from it. And our Lockheed Martin family has not been spared from this pandemic. The world continues to battle this disease with experts predicting improvements will be seen in the coming weeks and months. And while this is certainly encouraging, we must remain vigilant to ensure progress is achieved. The Corporation is taking necessary steps to help combat this virus and keep our employees safe, while assuring our customers can achieve their important readiness and mission requirements. We are beginning to experience some issues in each of our business areas related to the coronavirus, primarily in access to some locations and delays of supplier deliveries, which have caused us to adjust our full-year sales outlook and we will discuss that later in the call. Our teams are successfully addressing many of the risks that have arisen due to the COVID-19 impacts. Our manufacturing facilities are open and our workforce is engaged. The situation will evolve and we will continue to monitor our business environment for areas of concern. The corporation remains committed to delivering the products and services needed for our customers and to maintaining a safe and healthy workplace for our employees. In recognition of this unprecedented situation, the U.S. government has taken several actions that continue to reinforce the importance of our nation's defense industry. The Department of Homeland Security deemed the defense industrial base to be part of the nation's essential critical infrastructure. And the Department of Defense has issued guidance that confirms the expectation that companies providing products and services in support of national security continue to maintain staffing and work schedules to perform their crucial functions. The DoD also published a Deviation on Progress Payments memo, issuing a blanket increase to progress payment rates for both large and small businesses. Stable and reliable cash inflows provide needed visibility for all businesses and will be especially important to many small and medium-sized suppliers. These actions underscore the country's commitment to our industry and importantly, to our supply chain, which provides tremendous innovation and strength to our national security products. The international community is also deeply affected by this crisis, and our company is committed to perform with excellence for our global customers and to support the health and well-being of our employees around the world. The corporation is taking steps to aid our employees, teammates, and others, And in a few moments, I will discuss some of the actions we have taken to help provide support to those affected by this crisis. I will touch briefly now on the Department of Defense budgets and the recent presidential budget submission. This quarter, the President submitted the fiscal year 2021 budget recommendation to Congress, consistent with the Bipartisan Budget Act of 2019 enacted values, with the total national defense request equalling approximately $741 billion. Notably, the DoD reiterated their commitment to the National Defense Strategy in their submission, with the space domain, air and missile defense, and hypersonic programs, key pillars in their strategy and our portfolio, all receiving increases from the previous submissions. Congress will continue the process with the authorization and appropriations phases Our programs remain well supported and our portfolio is broad and expanding. We look forward to the finalization of the process and supporting our warfighters' needs. Kim will review our first quarter financials and updated full year outlook in more detail in a few minutes. I would like to begin by noting that the disruptions introduced by this virus have caused us to reduce our 2020 sales expectations. as production and supply chain activities have recently slowed in our aeronautics business area. The changes in our outlook represent impacts we anticipate being recognized over the remainder of the year. We are not projecting any changes to our expected fiscal year operating profit, earnings per share, and cash from operations outlooks that we set forth in January. Our results this quarter were very strong. Sales in the quarter exceeded last year's first quarter by more than 9%, led by our aeronautics team, as the aeronautics business area grew 14% from the first quarter of 2019. Our segment profit came in just above the first quarter 2019 amount, as risk retirements in all business areas allowed us to exceed our expectations in this quarter. And we had a strong quarter of cash generation. bringing in over $2.3 billion of cash from operations as we look to achieve our full-year target of greater than or equal to $7.6 billion. Moving to orders and backlog, we received more than $15 billion in orders this quarter, maintaining our backlog at approximately $144 billion, our all-time high. RMS garnered the largest set of awards with the total exceeding $7 billion, led by our Sikorsky Organization, which booked over $4 billion of orders, including over $2 billion for a performance-based logistics contract for the U.S. Navy to provide sustainment services on our MH-60 Seahawk platform, an award of $500 million for the second low-rate initial production, or LRIP, contract for 12 combat rescue helicopters, and $470 million award for LRIP 2 of the Presidential Helicopter Contract, adding six aircraft to the program and bringing the total order to 12 rotary aircraft out of a total program of record of 23 aircraft. Aeronautics also had a strong quarter, with aggregate F-35 orders approaching $900 million. Other awards, including a new classified order brought the aeronautics business area total to $3.6 billion for the quarter. Missiles and Fire Control received a pair of sizable awards this quarter, led by Precision Fires, which booked a $1.1 billion order to supply guided multiple launch rocket systems to the U.S. Army and international customers. MSC also received an order for over $900 million to provide THAAD interceptors and equipment to the U.S. Army in the Kingdom of Saudi Arabia. And our space business area received a fleet ballistic missile order of $600 million for continued Trident II production. Our performance to date and resilient portfolio have positioned us to achieve strong results so far this year. The effects of the COVID-19 outbreak are being felt by our teams, but we remain committed to delivering the vital solutions that our customers require. This pandemic has caused dramatic impacts to our employees and their families, our customers, our supply chain, and the communities in which we work and live. Our corporation is committed to use our know-how, resources, leadership to assist during this global crisis. Lockheed Martin is implementing multiple actions to help support affected groups, including accelerating payments of over $150 million to our small and medium-sized supply chain partners. And we have already flowed the first $50 million of an additional $450 million in accelerated payments to our global supply base as a result of the actions taken by the Department of Defense in changing the progress payment policy that I mentioned a moment ago. We have also donated $10 million to nonprofit organizations involved in COVID-19 related relief and assistance with emphasis on veterans and military families. And we have activated a $6.5 million employee disaster relief fund to assist Lockheed Martin employees and retirees impacted by COVID-19. In addition to supporting our global customers through our ongoing contract activity performance, We recognize that providing jobs during this period of economic downturn is also critically important. We are committed to continued hiring during this crisis and have added close to 1,000 new employees over the past few weeks, in addition to advertising for 5,000 open positions. The journey to full recovery will be one which we will all share together. Lockheed Martin is committed to performing with excellence for our stakeholders as we navigate through this crisis in the weeks and months ahead. Moving on, I would like to highlight several significant events that occurred across the Corporation during the past quarter. Beginning with aeronautics, we are excited by two significant milestones for the F-35 that show the program's continued maturation and ongoing demand. In February, the F-35 team celebrated surpassing 250,000 flight hours for the program, including developmental test jets, training, and operational U.S. and international aircraft. The program has now trained more than 1,000 pilots and in excess of 9,000 maintainers as this unrivaled stealth fighter progresses towards full-rate production. In March, the F-35 team delivered the 500th production Joint Strike Fighter aircraft, a conventional takeoff and landing variant for the Air National Guard. Production continues to ramp as we progress towards the joint government and industry plan of record for delivery of more than 3,300 aircraft. Moving to RMS, this quarter our Sikorsky line of business was down selected in two key rotary wing competitions for the future vertical lift program. The Sikorsky Boeing team was awarded one of two future long range assault aircraft contracts to continue design and risk reduction efforts on the next generation medium lift helicopter for US forces. Our SB1 Defiant offering uses our Collier award winning X2 technology, providing enhanced maneuverability and speed. We look forward to working with our Army customer as we collectively define the next generation assault aircraft for our warfighter. We were also excited to be down selected in the future attack reconnaissance aircraft phase two competition. The Sikorsky Raider X rotorcraft uses the same unique technology as the SP-1 Defiant and provides the same speed and maneuverability advantages. Each of these competitions represent long-term growth opportunities, and our Sikorsky organization has been investing for years in pursuit of innovative technologies and designs to fulfill the warfighters' objectives. Our space business area celebrated a pair of milestones this quarter as well, as the first two GPS-3 spacecraft were each separately accepted into operations by the U.S. Air Force Space Command as healthy and active, officially joining the current GPS constellation of 31 satellites. These are the first two of 10 modernized GPS-3 space vehicles that will be deployed to enhance navigation and positioning capabilities for millions of users. The next generation GPS-3 program will deliver signals three times more accurate than the current satellites with improved availability, reliability, and anti-jamming capabilities for our military users. And we are proud to continue this legacy of innovation for our warfighters. In Missiles and Fire Control, you may recall last quarter, we commented that Missiles and Fire Control had passed an important milestone on the U.S. Army's Precision Strike Missile, or PRISM, competition. This quarter, Our tactical missiles organization performed its second consecutive successful flight test of this next-generation long-range precision missile. Our team demonstrated the missile's flight trajectory, range and accuracy, and overall missile performance from launch to the conclusion of the mission. We look forward to building on our long-running Army tactical missile system legacy in preparation for our third PRISM flight test in the coming weeks. as we continue to pursue this potential franchise opportunity. And with that, I'll turn the call over to Ken.