Lockheed Martin Corporation

Good day and welcome everyone to the Lockheed Martin first quarter 2023 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 Maria Richardon Lee, Vice President of Investor Relations. Please go ahead.

Thank you, Lois, and good morning. I'd like to welcome everyone to Lockheed Martin's first quarter 2023 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 chart. With that, I'd like to turn the call over to Jim.

Thanks, Maria. Good morning, everyone, and thank you for joining us on our first quarter 2023 earnings call. I'd like to begin today with a few highlights from the quarter, as well as an overview of the presidential budget request, and then Jay will discuss our financial results and full year 2023 outlook in detail. We had a solid start to the year with first quarter sales of $15.1 billion. led by 16% year-over-year growth at space. Segment operating margin was 11.1%, led by MFC at 15.8%. Free cash flow grew 11% to $1.3 billion, and combined with a lower share count, contributed to a strong free cash flow for share growth year-over-year. We remain on track to meet our financial expectations for the full year, and to return to growth in 2024 as we laid out in January. In terms of capital deployment, we returned $1.3 billion, or 101% of our free cash flow, to shareholders in the quarter. We remain focused on our long-term strategy of growing free cash flow per share and continue to plan to deliver approximately 110% of our free cash flow to stockholders in 2023 through dividends and buyback. Turning to the budget, the administration released preliminary details of the FY24 President's Budget Request, or PBR, in early March. This budget proposal reflects a heightened emphasis on defense and security cooperation with allies. The FY24 DoD budget request is $842 billion, an increase of $25 billion, or 3%, over the FY23 enacted funding. The near-peer threats posed by China and the Russian invasion of Ukraine is driving the national defense strategy and has created added demand for Lockheed Martin's advanced effective solutions. Key highlights include the procurement of 83 F-35 aircraft, continued expansion in classified programs, and an increase in requested funding for munitions. The PBR also includes facilitation investment and advanced funding for long lead time parts in support of multi-year procurement of JASM and LORASM. We're also engaged with DOD on multi-year procurement proposals for PAC-3 MSE and guided multiple launch rocket systems. These proposals are subject to congressional approval during the course of the FY24 defense authorization and appropriations process. The PBR also includes continued investments in key technology development efforts, such as conventional prompt strike, long-range hypersonic weapon, next generation interceptor, hypersonic defense, bomb defense system, and other space programs. Furthermore, key technology areas aligned with Lockheed Martin investment priorities received increased funding to include microelectronics, 5G technologies, and joint all-domain operations. We are encouraged by this initial request and look forward to its progression through the authorization and appropriations process. We also anticipate heightened emphasis on national security prioritization from Congress, supplemental spending requests including Ukraine, and elevated demand from allies and partners. Turning to the F-35 program, The 83 F-35 Lightning II aircraft included in the PBR signals strong support from the services and the administration. Moreover, the Canadian government's January announcement that it will procure 88 F-35s marks another milestone in continued international demand for the aircraft. As to production, deliveries of F-35 engines, which are government-furnished equipment, resumed in February. and then flight operations and deliveries resumed in March. However, we do expect a fraction of total expected 2023 deliveries to be impacted later this year due to both software maturation related to Technology Refresh 3, or TR3, and hardware delivery timing. However, we anticipate little to no revenue impact from any potential delivery delay, and therefore no material adverse effect on our 2023 P&L. Jay will provide some more color on this in a moment. Also at Aeronautics, the first Greenville-built F-16 Block 70 took flight and was delivered to Bahrain. In addition to the Bahrain customer, six countries have selected Block 70 or 72 aircraft, and Jordan and Bulgaria have signed letters of agreement for additional jets. Further related to the F-16 in the quarter, While I was at the U.S.-India CEO Forum in March, I had the privilege to announce the memorandum of understanding with the Tata Lockheed Martin Aerostructures Limited joint venture to produce F-16 wing structures in India, demonstrating our commitment to India as an industry partner and customer while bolstering our supply chain. Turning to hypersonics, it is encouraging to see the continued investment outlined in the PBR for the Conventional Prompt Strike Weapon System, or CPS, as it begins integration and testing for Zumwalt-class ships, recognizing our advancements in this critical technology. In February, the U.S. Navy awarded Lockheed Martin an initial contract for CPS, the first sea-based hypersonic strike capability for the United States, enabling long-range missile flight at speeds greater than Mach 5. First delivery is expected by the mid-2020s. Regarding our Air Launch Rapid Response Weapon, also known as AERO, we are continuing testing of the system at hypersonic speeds in order to advance technical maturation of the missile and the glide body and to ensure the final product is safe, reliable, and supportive of our customers' missions and future plans. In January, We also completed the second flight test of hypersonic air-breathing weapons concept, also known as HAWC, in partnership with DARPA and the Air Force Research Lab. We accomplished all the test objectives during the second flight test, including affordable rapid development and performance requirements. And in late March, the U.S. Navy announced its support of the Hypersonic Air-Launched Offensive Anti-Surface Strike Weapon, or HALO, Lockheed Martin was down-selected and awarded a contract for the first step to fielding a critical capability over the next decade and begin the design and development of a carrier-based air-breathing hypersonic strike capability for the Navy's fleet. As a company, we remain fully committed to developing hypersonic technology on accelerated timelines to meet this critical national security need and establish a solid deterrent posture in this area for the U.S. and its allies. But hypersonic solutions are just one element in our vision of 21st century security. We advanced several additional aspects of this strategy during the quarter, including announcing a memorandum of understanding with Juniper Networks to jointly develop integrated hybrid software-defined wide area network solutions and to demonstrate that with our customers in the future. This technology enables mission-aware dynamic routing, a foundational capability for resilient joint all-domain operations. This mission-aware dynamic routing shifts the movement of data and communications in real time across a mix of military and commercial infrastructure according to evolving conditions. Our solutions give customers the flexibility to rapidly adapt to maintain the flow of crucial data and information as their assets operate in contested environments. We also led simulations of technologies to the US Army, Air Force, and Navy to demonstrate the impacts of 5G communications and advanced analytics to significantly improve operations and maintenance performance for a variety of aircraft, as well as for unmanned platforms in operationally challenging environments. And at the Mobile World Congress in Barcelona, I had the opportunity to deliver a keynote address and meet with CEOs across the digital technology, mobile, and networking industries to encourage us working together to promote innovative solutions to protect our countries and advance our space exploration capabilities. Another example of our leadership in accelerating advanced 21st century technologies to improve national defense and deterrence to conflict is in the arena of directed energies. Recently, our RMS unit achieved success in our initial test of our DEMOS, high-energy laser, which verifies that the laser's optical performance meets the system's targeted design parameters. This 50-kilowatt class laser weapon system aligns with the Army's directed energy short-range air defense mission. In addition to delivering on absolutely cutting-edge technologies, demand for many of our well-known and long-time high-performing systems continues to be strong. For example, in January, the Australian government announced the purchase of 20 Lockheed Martin high-mobility artillery rocket systems, or the now-familiar HIMARS, providing the Australian Defense Force with reliable, well-proven capability. And we continue to grow our significant partnership with Australia beyond HIMARS. In February, an agreement was announced between the Australian and United States governments for a foreign military sale of of 40 UH-60M Blackhawks for the Australian Army, and deliveries are slated to begin early this year. The Blackhawk remains unmatched as an all-round, multi-role, durable military helicopter for Australia and for the 34 other countries around the globe that use it. Further, we're excited to work with the ADF and Australian industry to develop their sovereign satellite communications component otherwise known there as Joint Project 9102. The Commonwealth of Australia announced in April that Lockheed Martin was selected as the preferred bidder for JP9102. This multibillion-dollar project will provide the ADF with a robust solution for military satellite communications and defined by its versatility and its resilience. With that, I'll turn the call over to Jay and join you later for questions.