Lockheed Martin Corporation

Good day and welcome everyone to the Lockheed Martin first quarter 2022 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 2022 earnings conference call. Joining me today on the call are Jim Taklett, our Chairman, President, and Chief Executive Officer, and Jay Malave, 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.lockheedmartin.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, Greg. Good morning, everyone, and thank you for joining us on our first quarter 2022 earnings call. I begin today by welcoming Jay Malavi to our executive management team. Many of you have worked with Jay during his two-decade-plus career in the aerospace and defense industry and know him to be an exceptional financial professional and an outstanding leader. We're excited to have Jay join our company on a personal level. I'm extremely pleased to be working with them. I'd also like to recognize John Mahler, who's with us today for his tremendous contributions as our acting CFO. We're grateful to John for his leadership and financial acumen, and he's continued as a key member of our team, leading our treasury organization. Moving to our financials, Jay will discuss our first quarter results and 2022 outlook in detail in a few moments. but I'll begin with a brief overview. Our first quarter sales were slightly below our expectations. However, our full year 2022 outlook remains intact. We did experience some adverse impacts from the winter surge and the Omicron variant in our operations and our supply chain, but we expect these to reflect short-term timing issues. I'm proud of how our team responded to these challenges, and we remain committed to delivering all the objectives that we laid out in our January outlook. Our operational performance was solid, with our business areas delivering increased profit margins from last year's first quarter, and free cash flow was ahead of our projections. We also progressed well on our cash deployment plan, executing a $2 billion accelerated share of a purchase agreement during the quarter. We are well on our way to achieving our full year outlook, of $4 billion in repurchases as we look to deliver over 100% of our free cash flow to stockholders over the course of the year, inclusive of dividends. We will continue to execute on our long-term strategy of disciplined and dynamic capital deployment, growing free cash flow per share and thereby delivering strong long-term returns to shareholders. Turning to the F-35 program, Germany recently announced their intent to procure 35 aircraft. Lockheed Martin will support our U.S. Government Joint Program Office in this process as we look to partner with Germany to provide this unique capacity and capability for its national defense. The Government of Canada has also announced it will enter into the finalization phase of their procurement process with the United States Government and Lockheed Martin to purchase 88 F-35 fighter jets for the Royal Canadian Air Force. Canada is one of the original eight partner countries on the F-35 program, and we're very pleased to have the opportunity to provide this unrivaled plane to strengthen Canada's national defense. The German and Canadian announcements followed similar award decisions last year from Switzerland and Finland, and these four competitive wins have the potential to add 223 F-35s to our backlog when all are finalized. All four of these recent announcements underscore that the F-35 fighter jet remains the most capable, survivable, and highly connected platform in production, as well as the best value available today for our warfighters. And although the initial quantity of F-35s requested in the FY23 President's Budget Submission was below our expectations for Lot 17 aircraft, we expect that the services adds via the unfunded priority list and increased international demand will enable us to deliver on the stabilized production profile we had previously established. With respect to the overall Department of Defense budgets, this quarter Congress passed the fiscal year 2022 Omnibus Appropriations Act with strong bipartisan support in both the House and Senate and the bill was subsequently signed into law by President Biden. This legislation approved approximately $742 billion in DOD spending, an increase of nearly $40 billion over the FY21 enacted amount. The final bill resulted in increases that will benefit multiple Lockheed Martin programs over the next few years, including fully funding 85 F-35s, 21 additional C-130J transport aircraft, 10 additional Blackhawks, two additional CH-53K helicopters, as well as increases to some of our franchise satellite and missile programs. This quarter, the President also submitted the fiscal year 2023 Defense Department budget request, the first step in the FY23 budget process. The President's submission added an additional $30 billion to the enacted FY22 appropriations, and totaled $773 billion in requested DoD funding. This initial budget submission continues the administration's emphasis on the Indo-Pacific region. It supports Ukraine and focuses on strengthening our nation's deterrence capabilities, all initiatives that are well aligned with our portfolio and with our 21st century security strategy. The DoD also expanded investments in important technology development efforts, such as future vertical lift and hypersonics, also key elements in our multi-pillar growth strategy, and we look forward to providing our customers with innovative solutions for these and other important missions. On a related note, I'd like to take a few moments to bring you up to date on two of the four pillars in our long-term growth strategy, our programs of record and new business opportunities. As to programs of record, this quarter, our Sikorsky team received over a billion dollars in orders for the CH-53K platform, one of the main contributors in our program of record growth pillar. These announcements included awards for 13 low-rate initial production Lot 6 aircraft, including four for Israel, as well as long lead time items for full-rate production Lot 7 helicopters. The program is performing very well, and as it continues to inflection to full production, we anticipate tripling our deliveries in the next few years. We also continue to see significant opportunities across the competitive new business landscape. Beginning with our space business area, we are very excited to be awarded Transport Layer Tranche 1, one of three prototype agreements from the Space Development Agency. The $700 million award to design and build 42 small low-Earth orbit satellites is part of the initial tranche of the National Defense Space Architecture. This transport layer constellation will connect assets in space with platforms in other domains in a highly capable mesh network environment for joint all-domain operations. and it's an outstanding example of 5G.mil-enabled JADO technology maturing into a program of record. This award built on our current Tronch Zero contract that will deliver 10 space vehicles later this year, and we look forward to continuing our support to the SDA in the development of our country's next-generation space architectures. Continuing with competitive new business activity, in March, our Sikorsky team delivered our final updated prime proposal to the U.S. Army in response to their future long-range assault aircraft solicitation. Several weeks ago, we flew our defined aircraft 700 nautical miles from West Palm Beach to Nashville to be displayed at the annual Army Aviation Association of America conference. That was completing a seven-hour mission that further demonstrated the capabilities and the maturity of this remarkable road of craft. We believe our defined offering is the most mission-capable platform available, one that will provide our soldiers with transformational capabilities and unparalleled maneuverability, and we're excited to offer this unique solution in support of our armed forces. Before I hand the call over to Jay, I'd like to take a moment to express my sincere sympathy for those affected by the Russian government's unprovoked invasion of Ukraine. The conflict has resulted in devastating impacts to the Ukrainian people and heightened security threats to the European continent. While we hope that this conflict is resolved peacefully soon, Lockheed Martin is taking steps to help address the resulting humanitarian crisis through multiple partners. These include committing aid to the Polish Red Cross, Project HOPE, the USO, and others to provide assistance to refugees, and we will continue to support ongoing relief efforts in Eastern Europe. With that, I'll turn the call over to Jay and join you later to answer your questions.