Lockheed Martin Corporation

Good day and welcome everyone to the Lockheed Martin first quarter 2021 earnings results conference call. Today's call is being recorded at this time for opening remarks and introductions. I would like to turn the call over 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 2021 earnings conference call. Joining me today on the call are Jim Taglet, our Chairman, President, and Chief Executive Officer, and Ken Posenreid, our 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. These charts also include information regarding non-GAAP measures that may be used in today's call. Please access our website at www.lockemartin.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 Jim.

Thanks, Craig. Good morning, everyone, and thank you for joining us today on our first quarter 2021 earnings call. As today's release illustrates, we had a strong financial results this quarter and continue to perform at a high level strategically and operationally. Our achievements reflect the quality of our workforce, the breadth of our products and services, and the focus we all have on delivering value to our customers and stockholders. We continue to deliver these results in spite of the ongoing difficulties presented by the COVID-19 pandemic. And my thanks go to the men and women of Lockheed Martin, for their outstanding contributions during these challenging times. I'll begin today with a quick update on the strategic acquisition of Aerojet Rocketdyne that we announced in December, a transaction we believe will enhance Lockheed Martin's ability to develop and supply advanced products in support of national security and our civil space objectives. We also plan to strengthen Aerojet Rocketdyne's capabilities as a merchant supplier with improved offerings for all of its industry and government customers, which is a critical component of closing our acquisition business case. Last month, Aerojet stockholders approved the merger agreement, with over 99% of votes cast being in favor of the transaction. Also this quarter, as expected, both companies received a request for additional information, or a second request, from the Federal Trade Commission as part of the regulatory review process. The second request extends the waiting period pursuant to the Hart-Scott-Rodino Act. We're working cooperatively with the FTC and continue to expect resolution of the regulatory review process by the latter part of 2021. Moving to our financial and operational results, Lockheed Martin got off to a strong start for the year. Ken will discuss our financial results in more detail and provide an update to our 2021 financial outlook which increases key financial metrics across the board, but I'd like to continue by providing a few highlights right up front. First quarter sales increased 4% over the year-earlier period, with rotary and mission systems growing 10% due to the delivery of an international pilot training system and ramping production of Sikorsky aircraft. Segment operating profit increased as a result of our sales performance, and earnings per share also saw strong growth. Our EPS benefited from gains in our Lockheed Martin Ventures Fund. LM Ventures makes strategic investments in early-stage companies developing disruptive, cutting-edge technologies, and it supports our technology roadmaps and growth strategies. Ken will give a little more color on this in a few moments. Our cash generation remains outstanding, driving over $1.7 billion of cash from operations this quarter, which includes the nearly $1.4 billion downward impact of accelerating payments to our suppliers, including thousands of small and vulnerable companies that are especially stressed due to COVID-19 impacts. Altogether, these results reflect the high level of execution being achieved across the company. Our outstanding cash generation and strong balance sheet also provide us the flexibility to complete a $1 billion accelerated share of purchase agreement this quarter to opportunistically buy back stock. We expect our cash generation to remain strong, and we plan to continue our balanced cash deployment actions by investing in innovative technologies, executing our 21st century warfare strategy, providing our customers with enhanced capabilities, and returning cash to stockholders. Turning to federal budgets, as a reminder, the fiscal year 2021 budget cycle marked the final year of the Budget Control Act that was originally enacted in 2011. The Department of Defense appropriations approved as part of the FY 2021 Omnibus Funding Bill resulted in a fully funded national defense budget of approximately $740 billion. The White House recently released their preliminary budget proposal for fiscal 2022 targeting an approximate $11 billion top-line increase for the Department of Defense, an indication of the desire for continued stability in national security funding and in line with our expectations. Similarly, the President issued an Interim National Security Strategic Guidance Document, which incorporates key elements such as diplomacy, economic development, innovation, and modernizing our military capabilities. into a broad framework for addressing accelerating global challenges. This guidance document places emphasis on deterrence, investments in emerging technologies such as artificial intelligence and secure next-gen 5G infrastructure, as well as the need for having strong defense and intelligence capabilities. We believe this vision is well aligned with our 21st century warfare strategy and plays to the strength of our broad portfolio and our culture of innovation at Lockheed Martin. Also in the quarter, the American Rescue Plan Act of 2021 stimulus package was enacted into legislation. This bill extended the CARES Act Section 3610 provision until September 30, 2021, enabling federal agencies to continue to reimburse contractors for the cost of keeping employees and subcontractors in a ready state as a result of the global pandemic. Importantly, this legislation also contained cash funding relief provisions affecting single employer pension plans, the primary reason for our increase in our cash outlook. Ken will discuss this further during his remarks. Turning to our business areas, I'd like to touch on several notable achievements demonstrating our focus on operational performance, strategic growth initiatives, and the strength of our portfolio. I'll begin with Aeronautics, where our team participated in this year's Orange Flag exercise. That's the U.S. Air Force's annual event to assess integration maturity of their warfighting platforms. This year's Orange Flag featured a broad, network-centric demonstration showcasing the integration of the F-35 and other legacy aircraft, including the F-22 and the U-2. with land-based long-range fires, naval fires, and space-based sensors. This exercise demonstrated a fully functional Internet of Things, or IoT, architecture, integrating a number of our nation's most advanced weapons systems. Our team was on the vanguard of this effort, enabling F-35s and F-22s to pass data to a U-2, all Lockheed Martin aircraft, with the U-2 then relaying the information to a ground-based control center. Targeting data was then transferred using machine-to-machine data sharing with an Army engagement operations center as well as to Navy ships. By providing data via fifth-generation aircraft to multiple command and control nodes, that information could be used for real-time targeting. This exercise demonstrated Lockheed Martin's readiness to provide unmatched situational awareness and to rapidly field capabilities today in support of our customers' joint all-domain operations concept. In rotary and mission systems, the CH-53K King Stallion was selected by the Israeli Ministry of Defense as the winner in their heavy lift helicopter competition. Upon contract award, our Sikorsky line of business will provide new CH-53Ks to replace the Israeli Air Force's current fleet of legacy Sikorsky 53D aircraft. Israel will become the first international customer for our new 53K variant And we look forward to working with the Israeli Defense Force and the U.S. government to finalize the agreement. In our Missiles and Fire Control business area, the U.S. Army awarded our Precision Fires Team a $2.8 billion contract for additional Guided Multiple Launch Rocket Systems, or GMLRS, products and services that continue a relationship that's lasted for over 40 years. This quarter, MFC also delivered the 50,000th GMLRS system another sign of the enduring demand of our signature programs. Moving to our space business area, the Missile Defense Agency down-selected our space team for the Next Generation Interceptor Program, awarding a $3.7 billion five-year contract for technology development and risk reduction activities. This award leverages our internal investments and experience from our THAAD and other programs to deliver the capability to respond to multiple threats with a single interceptor. NGI will be a key element of homeland defense of our country against ballistic nuclear missiles, and we're extremely proud to be selected to pursue this opportunity. Our space team also announced a strategic interest agreement with telecommunications firm Omnispace to explore collaborating on a hybrid communications network using both satellites and ground-based wireless technologies. Tying together space and terrestrial systems into a seamless 5G network has the potential to greatly enhance military applications and help manage complex information-centric warfare in all the operational domains. We continue to explore opportunities like this one with the goal of accelerating the benefits of commercial telecommunications technology into our 5G.mil initiative to rapidly increase the capabilities of our soldiers, sailors, and airmen in the 21st century. I'll close by again highlighting our space team and their contribution to the recent successful Mars Perseverance landing. Lockheed Martin Space designed and built the Mars 2020 aeroshell, which encapsulated both the Perseverance rover and the innovative Ingenuity drone helicopter, protecting them during entry and descent through the Martian atmosphere. Lockheed Martin also designed and built the Mars helicopter delivery system, which transported Ingenuity on the rover and successfully deployed the helicopter for its historic first flights on Mars. We've built aeroshell systems for every one of NASA's Mars rovers and landers, and we've been part of every NASA Mars mission, beginning with the Viking program in the 1970s. We continue to incorporate innovative technologies and decades of experience into each new spacecraft, and we're excited to continue our Mars heritage with the Perseverance program. These many achievements highlight the breadth of our portfolio, our focus on innovation and next-gen technologies, and our commitment to providing the United States and its allies with 21st century capabilities to support crucial national security missions. And with that, I'll turn the call over to Ken.