Lockheed Martin Corporation

Good day and welcome everyone to the Lockheed Martin second quarter 2025 earnings results conference call. Today's call is being recorded. If you would like to ask a question, please press star then one now. At this time for opening remarks and introductions, I would like to turn the call over to Maria Richard-Own, Vice President, Treasurer and Investor Relations. Please go ahead.

Thank you, Sarah, and good morning. I'd like to welcome everyone to our second quarter 2025 earnings conference call. Joining me today on the call are Jim Taklett, our Chairman, President, and Chief Executive Officer, and Evan Scott, 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 the 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.lachiemartin.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 second quarter 2025 earnings call. I'm going to cover four things today. Our quarterly results, details of the recent effectiveness of our systems and platforms in combat operations, the current status of the budget and customer environment, and an update on the F-35 program. The recent highly effective performance of many mission-critical Lockheed Martin systems have resulted recently in our customers' direction to accelerate the scaling of production as well as the development of some advanced technologies. At the same time, our ongoing program review process identified new developments that caused us to reevaluate the financial position on a set of major legacy programs. Evan Scott, in his new position, led this review. which was also informed by concurrent customer inputs and negotiations, current operational performance, and future risk profiles. As a result, we are this quarter taking a number of charges to address these newly identified risks and prepare the company to fully focus on the growth opportunity we expect as a result of heightened interest and demand for Lockheed Martin's products and technologies. As to our quarterly results, as you saw in our press release this morning, We reported $18 billion of sales, invested $800 million in infrastructure and innovation for growth, and returned $1.3 billion to our shareholders in the second quarter. We also recognized losses of $1.8 billion across several legacy programs as a result of the deepened review process that I just described and also a tax matter. The actions that we have taken this quarter follow multi-year concerted, long-term efforts to improve these programs' performance in light of the original contractual terms. We are dedicated to both supporting our customers' national defense priorities while striving to maintain our contractual commitments in an economically viable way on behalf of UR shareholders as well. We take these financial charges very seriously and are redoubling our focus on program management and performance under existing contracts across the company while also ensuring that all future contracts more robustly assess and account for future program and technical risks. Starting with Sikorsky's Turkish Utility Helicopter Program, or TUHP, and the Canadian Maritime Helicopter Program, CMHP, in the second quarter, the leadership teams for these two programs held a series of direct, in-depth discussions with their respective customers, and as a result, recognize losses when we revise the cost and sales estimates for these programs. For TUHP, we've reached a notional agreement to restructure the program, including a change of scope of work due to the impacts of US government sanctions on Turkish entities and persons involved in that program. For CMHP, we are focused on providing additional mission capabilities, enhancing logistical support, and extending the fleet's life while we continue discussions to potentially restructure certain contractual terms. Turning to the classified program in aeronautics, our mission at Skunk Works pushes the boundaries of science and technology to deliver highly advanced solutions that provide our customers a step function advantage over potential adversaries. This particular program team discovered new insights in the quarter that required us to adjust our expected future costs on that program, and then recognized the charge for doing so. I acknowledge the losses on this classified program are significant. Again, we are taking these charges very seriously and have initiated changes in program team management and assigned experts across the company to approve the performance and oversight of this program under a comprehensive risk identification and corrective action plans. This is a highly classified program that can only be described as game-changing capability for our joint U.S. and international customers, and therefore it is critical that it be successfully fielded. With our enhanced oversight of this program and rapid incorporation of lessons learned, we expect to continue to reduce risk over the next few years as we move through the key milestones of this very advanced system. The criticality of our work was made clear last month in a high-stakes demonstration of modern deterrence and combat readiness. Lockheed Martin's capabilities were at the center of recent U.S. military operations in the Middle East, reinforcing the company's essential role to American and allied national security. Pilots flying the F-35 Lightning II and the F-22 Raptor stealth fighters led the operations. providing the air dominance and defense suppression required for the bombers to reach Iran's hardened nuclear sites. Our platforms operated essentially undetected in highly defended and contested airspace, underscoring the value of advanced stealth, superior electronic warfare, and broadband communications capabilities. This tactical success was a real-world confirmation of Lockheed Martin's leading role in combat-proven air power. Our capabilities were also integral to safely and 100% effectively defending American troops. When Iran retaliated with a salvo of ballistic missiles on U.S. forces stationed at Al-Yadid Air Base in Qatar, our PAK-3 missiles successfully intercepted the incoming threats. This engagement, executed by the Patriot Missile System, occurred in a region also supported by THAAD, our Terminal High Altitude Area Defense, and Aegis. These systems form a multiple-layered defense shield, protecting U.S. strategic assets and our allied nations in the Middle East. This moment was one of several recent real-world events that validated the operational reliability of our integrated air and missile defense portfolio and underscored its scalability in joint and allied operations, including the ability to coordinate closely with our regional partners like the Qatar-Amiri Air Defense Forces. These are the exact solutions needed to make Golden Dome for America a reality. Lockheed Martin is the mission integrator with ready now capabilities across all phases of the missile defense mission to support this essential program. In addition to THAAD, PAC-3, and Aegis performing in combat, we also demonstrated our readiness in the missile warning and command and control technologies needed to make Golden Dome Homeland Defense System a reality. In addition, and in partnership with the Missile Defense Agency, we successfully executed a breakthrough flight test recently. The Lockheed Martin Long Range Discrimination Radar, or LRDR, successfully detected and tracked a representative live ballistic missile threat. The system then integrated the data into the NDA's missile defense system. Lockheed Martin is the national team lead for this missile defense network known as C2BMC. We can leverage this experience as well as our expertise in space satellite reconnaissance, tracking and communications, and the next generation interceptor to rapidly deliver homeland defense capabilities for Golden Dome. Our major systems and platforms are performing very effectively in actual combat operations and thereby contributing today to global deterrence. These achievements reinforce their relevance in the budget process as well as ongoing discussions with the administration. For example, the U.S. government's focus on securing the homeland and deterring aggressors will lead to a significant increase in munitions spending over the coming years. I'll provide a few examples of that in a moment. In addition, cornerstone platforms like the F-35 and CH-53K remain not just relevant but essential to national security of the United States and its allies due to their unique range, payload, and other capabilities. As part of the FY26 budget request, the U.S. Navy marked its intent to purchase PAC-3 for the first time, an important step for PAC-3 Aegis integration. This is the result of several years of internal investment at Lockheed Martin and a successful flight test last year. Moreover, the U.S. Army has requested quadrupling the production of PAC-3 missiles. And we are also in discussions with the administration about scenario planning to increase the production rates of a number of other munitions and launchers significantly and quickly. Hypersonics have also been elevated in priority. The President's fiscal year 2026 budget request included nearly $400 million for production of the Air Launch Rapid Response Weapon, or AERO, the United States' first proven hypersonic weapon capable of being launched from an American aircraft. This program is a great example of the kind of speed and agility we can achieve. Less than a year after Lockheed Martin began rapidly developing this program, AERO had its first flight test. We have full confidence in the maturity and production readiness of AERO's hypersonic strike capabilities and we look forward to continuing our partnership with the U.S. Air Force to transition the program into production. Also in the hypersonic arena, in May, the U.S. Navy publicized a successful end-to-end flight test of our conventional prom strike, or CPS, missile from the Cape Canaveral Space Force Station. This test marked the first launch of CPS using the Navy's cold gas launch approach that will be used in sea-based hypersonic fields. Further, the U.S. Coast Guard, in its budget, included additional MH-60 Romeos, new ships with Lockheed Martin C-2 systems, and C-130Js. And more recently in July, we reached a price agreement with the U.S. Navy on a five-year, multi-year procurement for CH-53K lots 9 through 13, and that'll be for a minimum of 85 aircraft. The award is targeted for late in the third quarter, with initial deliveries commencing in 2029. So before I hand it over to Evan, I'd like to provide an update on the status of the F-35 program. We delivered 50 aircraft in the quarter, bringing our total F-35 deliveries to 97 so far this year, and to 207 since we resumed deliveries last year. We also remain on track for 170 to 190 deliveries this year, 2025. We have completed TR-3 hardware integration, and earlier this month, we released new software to the fleet continuing our maturation and fielding of advanced Block IV capabilities. This update improves the pilot interface and provides additional weapons and electronic warfare features. We're also continuing to see strong international demand for the F-35. The UK announced its plans to procure 12 F-35As as part of its program of record. Belgium also announced it will be adding 11 aircraft to their fleet, and government officials from Denmark have expressed their intent to procure additional aircraft as well. Finally, I want to take a moment to commend the DOD's recently announced investment in rare earth mining and magnet production right here in the United States. Led by Deputy Defense Secretary Steve Feinberg and with the strong support of Defense Secretary Hegseth and, of course, President Trump, this groundbreaking public-private partnership will ensure the supply of rare earth magnets needed in F-35s, cruise missiles, and countless other defense and non-defense applications. I'll turn it over to Evan now to share more about our financial results.