Lockheed Martin Corporation

And good day and welcome everyone to the Lockheed Martin second 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, Brad. Good morning. I'd like to welcome everyone to our second quarter 2022 earnings conference call. Joining me today on the call are Jim Taklett, our Chairman, President, and Chief Executive Officer, and Jay Malawi, 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, Craig. Good morning, everybody, and thank you for joining us on our second quarter 2022 earnings call. I will begin today with an update on our F-35 program. Yesterday, we signed a bilateral record of negotiation with the U.S. government, reaching agreement on the lots 15 through 17 production contract. Through a collaborative effort with the F-35 enterprise, including the joint program office, suppliers, and teammates, we have concurred on the major parameters of the program, addressing inflationary and pandemic-related issues unanticipated at the start of the negotiation process. The agreement supports our long-term objective to produce 156 aircraft a year. However, COVID impacts experienced by the F-35 Enterprise have required us to modify our near-term production plan. Deliveries over the next two years are expected to remain in the 147 to 153 range of aircraft, similar to our 2022 plans. before we then achieve our 156 aircraft delivery target in 2025. We continue to anticipate annual deliveries of 156 jets beyond 2025 for the foreseeable future. I'd like to thank the entire team for the dedication and professionalism shown throughout this process, and we look forward to delivering these unmatched fifth-generation aircraft for our U.S. Air Force, Navy, and Marines. our partner countries, and our international customers. Moving to our quarterly results, our business area operational performance was solid, delivering increased profit margins from last year's second quarter. Our new business activity and order flow were also favorable, and we continue to anticipate our backlog ending the year significantly above our 2021 levels, positioning us for longer-term growth. Our sales in the quarter were $15.4 billion, lower than we expected due to the delay in contract agreement on the F-35 and supply chain impacts. We anticipate the supply chain challenges to continue for the remainder of the year, and we've reduced our 2022 outlook to reflect that, as well as some other items, and Jay will cover this in more detail in a few minutes. We also progressed well on our cash deployment plan, delivering over $1.1 billion to stockholders in dividends and repurchases, exceeding 100% of our free cash flow. We will continue to execute on our strategy of driving cash generation, disciplined and dynamic capital deployment, growing free cash flow per share, and delivering attractive long-term total returns to you shareholders. Turning briefly to budgets, Both the House and Senate Armed Services Committees approved their versions of the FY23 National Defense Authorization Act. The SASC recommended approximately a $45 billion increase to the President's request, and the full House chamber passed a completed authorization bill with a $37 billion increase. While the budget process remains in its early stages, we are encouraged by the support our programs have seen. with the Senate recommending additional F-35s and Black Hawk helicopters, increases over the lower-than-expected volumes that were in the initial President's request. Both the Senate markup and the House bill receive strong bipartisan support and committee with recognition of the need for greater investment to respond to increasing global security threats and the imperative of improving the readiness of our armed forces. Congress will continue the next phases of the authorization and appropriations process over the coming weeks and months, and we look forward to its timely finalization. Turning to our 21st century security strategy, I'd like to highlight an important example of how our signature platforms can be integrated into effective joint all-domain operations. These efforts are designed to benefit our soldiers, sailors, Marines, airmen, and guardians by continually upgrading their mission capabilities with the latest physical and digital world technologies. This quarter, our Rotary and Mission Systems and Missiles and Fire Control business areas partnered with the U.S. Indo-Pacific Command in Valiant Shield 2022. This is a biennial training activity focused on integrating forces in multiple domains. Valiant Shield 2022 is a cornerstone of Indo-PACOM's integrated deterrence strategy to prevent conflict in the region, and it's the largest U.S. joint force exercise in the Western Pacific. We linked our Diamond Shield Battle Management System, Aegis Weapon System, High Mobility Artillery Rocket System, or HIMARS, and PAC-3 missiles to successfully demonstrate integrated multi-domain operations at strategic and tactical mission levels across air, land, sea, and space. During this 12-day event, our Lockheed Martin team demonstrated all domain capabilities and collaboratively engaged in experiments within DOPECOM using artificial intelligence to enable rapid decision-making in seconds or minutes compared to hours. Technical demonstrations like these are key enablers to our four-pillar growth strategy, and we will continue to demonstrate to our frontline commanders and servicemen and women in many additional exercise and real-world demonstrations to come. Moving to our four-pillar growth areas and staying with the Pacific region, RMS's Aegis Weapon System was selected to be the backbone system for the Missile Defense Agency's Defense of Guam architecture. This is a pathfinder for joint all-domain operations for the DoD and for regional integrated air and missile defense with an expected program value itself of over $1 billion. This architecture will defend against ballistic, cruise, and hypersonic missile threats through the integration of capabilities across multiple industry products, and not just Lockheed Martin's. Aegis and our TPY-X radar, a derivative of our long-range discrimination radar product, will be the core systems to outpace the potential threat and expand JADO capabilities for Guam. This Guam architecture leverages existing Lockheed Martin capabilities, such as Terminal High Altitude Area Defense, or PHAD, PAC-3, Sentinel-A4 radar, and our C2BMC command and control system, highlighting the advantages of our broad portfolio and cross-business area collaboration with missiles and fire control. RMS will also fully integrate future system capabilities, which may include space-based sensors, directed energy, and advanced missiles in the defense of Guam, a critical cornerstone in Western Pacific deterrence. And we'll be using an open architecture where we can tie in other prime contractors' products and systems along with ours. Staying with RMS, this quarter the U.S. Marine Corps approved our Sikorsky team's CH-53K heavy lift helicopter, one of our key programs of record for initial operating capability. The IOC declaration validates the operational readiness of the King's Stallion to forward deploy Marines across the globe and positions the Marine Corps for a full-rate production decision in 2023. The 53K has a plan of record to deliver 200 domestic aircraft and a total program lifecycle value expected to be approximately $50 billion. We're also excited this quarter to receive a $2.3 billion award for Sikorsky's 10th Blackhawk multi-year contract to provide 120 H-60 helicopters. This contract includes options, which if exercised, have the potential to deliver an additional 135 rotorcraft with a value of up to another $4.4 billion. Also this quarter, Missiles and Fire Control received a $1.6 billion contract award to produce THAAD interceptors for both domestic and international customers. Under this combined buy award, the THAAD team will provide both the U.S. government and the Kingdom of Saudi Arabia with additional interceptors in support of integrated air and missile defense. Our MFC business area was also awarded a contract by the Missile Defense Agency to initiate production of the eighth THAAD battery. The eighth battery expands the U.S. government's ability to field the integrated air and missile defenses and builds upon the previously delivered seven systems, a clear demonstration of the value delivered by the signature program and defending against current and emerging threats and maintaining deterrence. Before I turn the call over to Jay, I'd like to express my appreciation for the presidential visit to the Javelin Manufacturing Facility in Troy, Alabama, supporting the men and women who produce this remarkable product. The Ukraine conflict has been a dramatic reminder that we're in a global power competition, and we at Lockheed Martin stand ready to support our nation and its allies with advanced systems and technologies. The U.S. alone has committed more than 5,500 Javelin missiles to Ukraine in defense of their country, and this visit spotlighted the continued need for a focus on global security and deterrence capabilities. With that, I'll turn the call over to Jay and join you later to answer your questions.