Lockheed Martin Corporation

Good day and welcome everyone to the Lockheed Martin Fourth Quarter and Year End 2023 Earnings Results Conference Call. Today's call is being recorded. If you would like to ask a question, please press 1 then 0 now. At this time for opening remarks and introductions, I would like to turn the call over to Maria Richard-Owen, Vice President, Treasurer in Investor Relations. Please go ahead.

Thank you, Lois, and good morning. I'd like to welcome everyone to our fourth quarter and full year 2023 earnings conference call. Joining me today on the call are Jim Taklett, our Chairman, President, and Chief Executive Officer, 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 statement. We've posted the 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, Maria. Good morning, everyone, and thank you for joining us on our fourth quarter and full year 2023 earnings call. In 2023, the 122,000 men and women of Lockheed Martin, working closely with our customers, made excellent progress advancing our 21st century security strategy and delivered strong financial results for our shareholders. Turning to chart three. Robust demand for our broad portfolio of aircraft, helicopters, satellites, radar systems, and other products, services, and advanced digital technologies boosted backlog to a record $161 billion. Full-year sales of $67.6 billion increased 2% year-over-year and came in stronger than anticipated, as did earnings per share of $27.55. To position the company to take full advantage of these future growth opportunities, we invested more than $3 billion across research and development and capital in 2023. We generated $6.2 billion of free cash flow, as expected, which resulted in year-over-year free cash flow for share percentage growth in the mid-single digits. We returned approximately 145% of free cash flow to shareholders, over $9 billion through dividends and share purchases combined. Our expectations for Lockheed Martin's 2024 financial outlook include low single-digit growth in sales off of the higher 2023 base and a range of $6 to $6.3 billion of free cash flow. Our ongoing dividends and expectation for $4 billion of share purchases will sustain our focus on returns to shareholders in 2024. We also plan to further advance our vision for 21st century security in the year as we believe that it is our responsibility at Lockheed Martin to bring the best of U.S. and allied technology and industrial capability to help maintain an effective deterrent to armed conflict and to provide our armed forces with the capabilities to win should we need to. First, we work closely with our supply chain to apply anti-fragility measures and increase resilience through teaming arrangements to expand sources of supply, and by making strategic investments in startups with cutting-edge technologies. For example, we are collaborating with a supplier in which we have a minority investment to accelerate our additive manufacturing progress, reducing material and process dependencies in complex thermal management applications such as heat exchangers. We also stood up a wholly-owned subsidiary called Forward Edge ASIC, to work with major semiconductor fabs to design and manufacture the cutting-edge microprocessors that we need. Second, we led the industry to broaden and strengthen the defense industrial base by making significant progress with our commercial technology collaborators to bring their innovations into the service of national defense. For example, in the fourth quarter, Lockheed Martin worked together with a team including Intel, Verizon, Microsoft, Juniper Networks, Keysight, and Radisys to successfully demonstrate a secure, resilient, hybrid 5G and military data link network in a live field demonstration in Colorado. Our 5G.mil unified network solutions performed as a tactical and commercial multi-node hybrid network for integrating land, air, and space operations. Together, we demonstrated absolutely cutting edge system capabilities, performance, and operation for customers in a field setting by combining the best of our technology with those of our commercial teammates. Third, we deepened relationships internationally with partners and allies to ensure that the U.S. can drive maximum interoperability in both industry and in military operations. We are making progress towards a mission-centric approach that uses the latest digital technologies to network aircraft, satellites, command centers, and other key elements together to vastly improve their effectiveness and deterrent value across our U.S. and allied customers. One example from 2023 is work with Australia to develop phase one of Air 6500. That's a joint battle management system and the first of its kind in terms of situational awareness and interoperability. This increases collaboration with trusted allies and partners can also help reduce the fragility and increase the capacity of the defense production system. Last week Lockheed Martin was awarded the guided weapons production capability risk reduction activity contract which will provide a mechanism for swift knowledge and technology transfer and serve as a pathfinder to manufacturing our suite of guided munitions in Australia with their workforce and with contributions from their society and their economy. Turning briefly now to the status of the U.S. defense budget, the current proposed agreement being discussed with the administration and Congress would support an $886 billion top-line budget, 3% higher than 2023. We will continue to monitor the status of the U.S. budget process and strongly believe that Lockheed Martin programs will continue to be well-supported as the process unfolds. I'll now review a few notable highlights from our operations, starting with aeronautics and the F-35. We delivered 18 F-35 aircraft in the Technology Refresh II or TR-2 configuration in the fourth quarter, bringing the 2023 total to 90 HS. We are making continued progress towards delivering the first TR-3 configured aircraft. Today, over 90% of the TR3 functionality is currently in flight test, and we are further advancing the software integration to include additional aircraft and mission subsystems. While this system maturation process continues to advance, it is taking somewhat more time than we originally anticipated. A second quarter of customer acceptance of delivery software remains our target. However, we now believe that a third quarter may be a more likely scenario for a TR3 software acceptance. We are taking the time and attention to get this technology insertion right the first time because it will be absolutely worth it. The Step Function technological advances of TR3 will provide our customers with the onboard digital infrastructure of data storage, data processing, and pilot user interface to provide unmatched capabilities for many years to come. These include increased types of capability for air-to-air and air-to-ground munitions, advanced sensing, jamming, and cybersecurity capabilities, and more accurate target recognition. To achieve this level of reliable capability for the long run, the resulting aircraft delivery range for 2024 is between 75 and 110 and requires the TR-3 hardware suppliers to keep pace with production demands both this year and in the future. Given the increasing operational capability and digital connectivity of the aircraft as a cornerstone of all domain operations, international demand for the F-35 remains very strong. In December, the Republic of Korea made the decision to procure 20 additional F-35 aircraft. Also in December, we presented the first F-35A to the Belgian government, which will be one of more than 600 F-35s that will be stationed in Europe across NATO member bases by the 2030s. Aero also continued to advance the F-16, as the first European F-16 training center in Romania was inaugurated in November, in a partnership with Romania and the Netherlands. This center will provide world-class training to enhance mission readiness and ensure safety of flying and operating F-16 fighter jets. In addition, we delivered the first two Slovakian F-16 Block 70 jets in the fourth quarter. Deliveries for Slovakia, totaling 14 aircraft, will continue through 2025. Aero's Skunk Works continues to pioneer groundbreaking innovation as well. And for a change, I can actually tell you about one. The X-59 experimental supersonic aircraft built by Skunk Works and NASA Aeronautics was selected as one of Time Magazine's best inventions of 2023. The X-59 is expected to transform the future of commercial supersonic flight over land by quieting the sonic boom, one of aviation's most persistent challenges. The X-59 was unveiled at a rollout ceremony earlier this month and is expected to take first flight later this year. Our MFC business continued to push technological advancements forward as well, through modernization of air and missile defense and precision strike capabilities. In the fourth quarter, we delivered the first precision strike missile, or PRISM, to the U.S. Army and conducted system qualification tests for an extended range guided multiple launch rocket system, or GIMLERS, which will extend the range of the HIMARS system that many of you are familiar with. MFC also delivered the 800th THAAD, That's a terminal high-altitude area defense interceptor to the U.S. government in October. And also, we successfully integrated the PAC-3 Patriot missile with the U.S. Army's new air and missile defense radar system to defend against cruise missiles, tactical ballistic missiles, as well as hypersonics. International demand for the PAC-3 remains strong, too. This year, Switzerland and Romania each signed letters of offer and acceptance for PAC-3 MSEs. marking 15 partner nations for this program. RMS also sought strong international interest in the fourth quarter. The U.S. Navy awarded Lockheed Martin contracts to produce eight MH-60 Romeo Seahawk helicopters for the Spanish Navy and six of them for the Norwegian government as well. To date, Sikorsky has delivered 330 MH-60 Romeo aircraft to five countries, including the United States, 67 more are on order or in production for India, Greece, South Korea, Australia, and now Spain and Norway. Also in the quarter, Sikorsky installed the U.S. Army's improved turbine engine on our Raider X, designed for the Army's future attack reconnaissance aircraft, or FARA program. This final phase of the Raider X build brings us one step closer to completing the system that will support the Army's high-tech future missions requirements, and we anticipate the first flight of RaiderX in late 2024. Finally, turning to space, United Launch Alliance successfully launched the Vulcan Centaur rocket earlier in January. This launch was the first of two flights required to complete national security space certification, and the second planned mission can happen as soon as April. The U.S. Air Force awarded SPACE a nearly $1 billion contract to develop a new reentry vehicle for the Sentinel Intercontinental Ballistic Missile. The reentry vehicle, or MK-21A, will be mounted atop the Sentinel. The award follows a technology maturation and risk reduction contract, and the ICBM recapitalization contributes to modernizing strategic deterrence and reinforcing Lockheed Martin's critical technological contributions to the nuclear triad. And last week, the Space Development Agency announced Lockheed Martin was awarded an almost $900 million contract for Tranche 2 tracking layer to provide 18 smallsats. Sixteen of those space vehicles are for missile warning and tracking, and two space vehicles are for missile defense infrared sensors to be on board. The first group of nine satellites is expected to launch in April of 2027. A lot going on at Lockheed Martin, all of our operations. And with that, I'll turn the call over to Jay and join you later for questions.