Lockheed Martin Corporation

Good day and welcome, everyone, to the Lockheed Martin Third 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 Third Quarter 2022 Earnings Conference Call. Joining me today on the call are Jim Taklett, our Chairman, President, and Chief Executive Officer, Jay Malavi, our Chief Financial Officer, and Maria Richardone Lee, our new Vice President of Investor Relations. 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.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 Jim. Thanks, Greg.

Good morning, everyone, and thank you for joining us on our third quarter 2022 earnings call as we review our quarterly results, our 2022 full-year outlook, and our preliminary expectations for 2023. But before we begin, I'd like to welcome Maria, who I'm excited to tell you all started as our new Vice President of Investor Relations just yesterday. I'd also like to thank Greg, who announced his plan to retire at the end of the year, for his more than 37 years of dedicated service at Lockheed Martin, including five terrific years as our Vice President of Investor Relations. It's been a pleasure to work with you, Greg, and we wish you all the best in retirement. Thank you, Jim. I'd also like to note that we continue to await the U.S. Army's selection for its future long-range assault aircraft competition, FLORA, as it is known. We'll modernize the Army's rotorcraft fleet and represent a long-term franchise growth opportunity. We are confident that Defiant X is the transformational aircraft that the U.S. Army is going to need to accomplish its complex missions today and well into the future. And we look forward to the Army's announcement. Lockheed Martin had a solid quarter financially with 3% increase in sales from last year's third quarter and strong operating margins and earnings per share. Our free cash flow was outstanding as we generated $2.7 billion in the quarter, and our backlog grew nearly $5 billion, closing at $140 billion. We remain on track to achieve the full-year outlook for all of our financial metrics that we discussed last quarter. In a few minutes, Jay will provide a detailed review of our quarterly results, updated 2022 guidance, and trending information. But before he does that, I will provide a framework for our outlook and discuss our plans for delivering value to customers and shareholders over the next several years. We continue to anticipate growth over the long term, but with residual pandemic impacts and supply chain challenges continuing, We now expect a return to growth in 2024 with 2023 sales being approximately equal to our 2022 outlook. We are confident in our four pillars to drive growth in 2024 and beyond. Importantly, we expect to deliver solid growth and free cash flow for share in 2023 and thereafter through a combination of cost reductions throughout the business, improved working capital management, and an expanded share of purchase program. Our board of directors has approved an increase to our share of purchase authorization to $14 billion. You will see in Jay's charts that we're doubling our share of purchase plan outlook for this year, increasing our outlook by $4 billion for a total expectation of $8 billion in 2022. We also announced a 7% dividend increase this quarter. So altogether, we're on track to deliver approximately $11 billion to shareholders in 2022. We are also elevating our commitment to drive long-term growth through strong independent research and development and capital expenditure funding with an expected total of nearly $4 billion in 2023. These investments will support our customers and deliver on our 21st century security vision to accelerate leading-edge commercial digital technologies in defense of our nation and allies. A key driver of this strategy is our new 1LM transformation, or as we call it, 1LMX, a multibillion-dollar, seven-year company-wide program to transform our end-to-end business processes and systems. 1LMX will create a model-based enterprise with a fully integrated digital thread throughout the design, build, and sustain product lifecycle. As part of our ongoing corporate stewardship approach, we are conducting an internal review to identify potential synergies between our four business areas, further cost reduction opportunities, and a general portfolio review with the goal of increasing operating efficiency in anticipation of our future growth. We are confident in long-term growth as domestic and international demand for a wide range of our products and services remain strong. We will continue to actively reinvest capital into our business to meet our customers' requirements and drive organic growth. And we will use our disciplined and dynamic capital allocation process and strong balance sheet to drive attractive total returns for shareholders. Moving on, I'd like to highlight a few key accomplishments from each of our business areas, beginning with an update on our F-35 program. Last month, the Swiss government signed a letter of offer and acceptance for the procurement of 36 F-35As. This milestone completes the government-to-government procurement process that was first announced in June 2021 when the Swiss Federal Council shared its selection of the F-35 for its future fighter. The signing officially makes Switzerland the 15th F-35 customer. Also in August, we received contractual authorization from the Joint Program Office, enabling us to book a Lot 15 order of over $7.5 billion and recognize revenues and earnings from the second quarter as well as from the third quarter. Our space team celebrated the successful launch and deployment of the space-based infrared system GEO-6 satellite, the final spacecraft in the SIBRS constellation. SIBRS has been one of our longest-running signature programs, providing the Space Force with an integrated system for missile warning, battle space awareness, and intelligence gathering. We will also continue to support and advance this important mission to our Next Generation Overhead Persistent Infrared, or NextGen OPIR program, which will deliver even more advanced and more survivable missile warning capabilities to the country. At Rotary and Mission Systems, the Sikorsky line of business secured an order for 12 Seahawk helicopters from the Australian Ministry of Defense. Over the past 40 years, we've delivered over 1,000 Seahawks. to the U.S. and international customers both, with more than 50 remaining in backlog. And in missile and fire control, the State Department approved a potential sale to the United Arab Emirates for two THAAD systems, including 96 interceptors. The UAE currently operates two THAAD batteries, and this opportunity would significantly increase their air and missile defense capabilities, and once finalized, could be worth over $2.2 billion. Turning to budgets, both chambers of Congress have advanced appropriation bills in support of fiscal year 2023 Department of Defense budgets. We have seen strong bipartisan support for increased defense funding in congressional authorization and appropriation committees. Final legislation approving these funds has yet to be passed, and the federal government is currently operating under a short-term continuing resolution for FY23. limiting DOD funding to prior FY 2022 levels. As part of the continuing resolution, Congress did approve additional supplemental spending to support efforts in Ukraine for the defense of their country. The CR added $3 billion in funding for Ukraine Security Assistance Initiatives, a program to provide equipment, weapons, and military support to Ukraine, bringing the total amount appropriated for this effort to $9 billion. In addition, the continuing resolution appropriated $2 billion to replenish U.S. stocks of equipment sent to Ukraine and to increase production of critical munitions, with the presidential drawdown authority funding now having been increased to over $14 billion since the beginning of the year. The international community has also increased their focus on global security, with nations across the world having announced a planned five-year increase in defense budget funding of approximately $60 billion in total. We continue to have discussions with customers to expand the manufacturing of multiple products and have submitted offers for consideration. While many of these contracting actions remain in the early stages and may take time to be fully implemented, we believe our signature programs and 21st century security technologies have us well positioned to address the challenges presented by a resurgence in global great power competition. Turning to our 21st century security strategy, I'd like to highlight two examples of Lockheed Martin's leadership in deterrence technologies and how our 5G.mil open architecture can be used to enhance performance and drive effective join-all domain operations. During the third quarter, Lockheed Martin and AT&T teamed to transfer UH-60M Black Hawk helicopter flight and performance data from an aircraft flying in Connecticut to a receiving location in Colorado using both an AT&T 5G private cellular network and Lockheed Martin's 5G.mil multi-site pilot network. Operational performance was also improved with the efficiencies introduced by this technology shortening the total processing time of the task by nearly 85%. Also this quarter, Lockheed Martin and Verizon flew 5G-enabled drones to capture and securely transfer high-speed real-time intelligence, surveillance, and reconnaissance data from aircraft in flight to geolocate simulated adversarial positions. This demonstration showed the capabilities of our hybrid base station to bridge commercial and military technologies together, providing our service members with enhanced deterrent capabilities and further enabling the mission all the way out to the actual battlefield. With that, I will turn the call over to Jay and join you later to answer your questions.