Lockheed Martin Corporation

Good day and welcome everyone to the Lockheed Martin fourth quarter and full year 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.

Thanks, Sarah. Good morning, everyone. I'd like to welcome you to our fourth quarter and full year 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 today that are not historical fact are considered forward-looking statements and are made pursuant to the safe harbor provisions of federal securities laws. Actual results may differ materially from those projected in the forward-looking statements. Please see Lockheed Martin's 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 posted charts on the 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'll turn the call over to Jim.

Thanks, Maria. Good morning, everyone, and thank you for joining us on our fourth quarter and full year 2025 earnings call. As you saw in our press release this morning, 2025 marked unprecedented demand for Lockheed Martin's industry-leading defense technologies. We finished the year with record high backlog of $194 billion, about two and a half times annual sales. and delivered 6% year-over-year sales growth. We also generated free cash flow of $6.9 billion, which was above our prior expectation and after we pre-funded our pension at almost $900 million. We also made a significant $3.5 billion investment in capital and independent research and development in support of transformative innovation. and increased production capacity. This strong financial performance is a direct result of our team's relentless focus on operational execution. Some examples of this from 2025, including delivering 191 F-35 fighter jets, 620 PAC-3 MSC interceptors, both record numbers. We also pioneered over-the-air updates to the Aegis weapon system, for real-time battlefield advantages using AI, and successfully launched GPS-3 and Tranche-1 transport layer satellites to strengthen national security architectures in space. This is what you can expect from Lockheed Martin, continued significant investment to advance technology development and produce proven major weapon systems at ever greater scale. We've built on this momentum with a powerful start to 2026. Lockheed Martin products once again proved critical to the U.S. military's most demanding missions. The recent Operation Absolute Resolve included F-35 and F-22 fighter jets, RQ-170 Sentinel stealth drones, and Sikorsky Black Hawk helicopters, which helped ensure mission success while bringing the men and women of our armed forces home safely. In addition, we worked closely with the Department of War Leadership to reach the landmark seven-year framework agreement for PAC-3 NFC interceptors that we together announced earlier in January. This groundbreaking agreement was just the first step in bringing commercial business practices to large-scale production within the defense industrial base. And progress continues as we just announced this morning a similar framework agreement for the THAAD interceptor along with additional systems from our industry colleagues also being discussed this week. As the first implementation of such a long-term multi-year agreement, the PAC-3 MSE will increase annual production capacity from approximately 600 to 2,000 per year. That's more than tripling the production rate to support U.S. forces, allies, and partner nations in today's increasingly unsettled geopolitical environment. These types of agreements fully support the Department of War's acquisition transformation strategy, and we look forward to continuing our partnership with the U.S. government to definitize the contract and unleash a renewed era of innovation, accountability, and execution across the defense industrial base. In fact, I am in Tandon, Arkansas today, which is where we build PAC-3 MSC missiles and other munitions. Lockheed Martin has produced more than 700,000 missiles and rockets here in Camden. We've been steadily increasing PAC-3 MSC production since 2023, more than 60% over the last two years alone. And the progress we've already made will give us the critical head start in ramping up to 2,000 per year. And further, we intend to make a multibillion-dollar investment to accelerate munition production over the next three years, including building facilities across five states, such as in Camden, Arkansas, with a brand-new Munitions Acceleration Center facility breaking ground today. I was also recently in Fort Worth with Secretary of War Pete Hexeth, visiting the F-35 production line as part of his Arsenal of Freedom industry tour. The visit underscored Lockheed Martin's role in driving acquisition transformation, and delivering critical capabilities to the U.S. and its allies. Our mile-long Fort Worth facility employs more than 19,000 people, and over 1,900 suppliers across the United States contribute to the F-35 supply chain, providing skilled jobs to many thousands more Americans nationwide. Together, these talented Lockheed Martin and supplier employees enable an F-35 production rate that is five times faster than any other allied fighter currently in production, highlighting the program's scale and maturity. With regard to our 2026 financial outlook, we expect year-over-year sales growth to be approximately 5% at the midpoint, with the year-over-year reported segment operating profit growth to be more than 25%. Free cash flows anticipated to be in the range of $6.5 to $6.8 billion, which is well above our prior expectation and includes a year-over-year increase in investment of about 35%, with capital and independent research and development approaching $5 billion in 2026, which is a step-function increase in internal investment. Given the size and scope of Lockheed Martin, in 2026, we will continue our disciplined and dynamic approach to capital allocation, enabling the step function increase in internal investment to fund capacity and growth. Evan will provide more detail on our 2026 outlook in a moment. Turning to our programs and highlights, first on the F-35 and during the fourth quarter, we delivered 48 F-35 aircraft, bringing total deliveries in 2025, as I said, to 191, beating our own expectations. As noted earlier, Lockheed Martin ended the year with record backlog, and the largest awards in the quarter were with the F-35 program. We definitized Lot 18 and 19 contract with the Department of War's Joint Program Office. We were awarded the Fiscal Year 26 Air Vehicle Sustainment Contract, and we received a contract modification in support of lots 20 and 21 production aircraft. These awards total over $15 billion and reinforce the continued demand for the most advanced fighter jet by both domestic and global customers. For example, in October, Belgium's first F-35A aircraft to be stationed in country arrived at Florence Air Base, marking the F-35's official incorporation into the Belgian Air Force. In December, senior U.S. and Finnish officials gathered at our Fort Worth facility to celebrate the rollout of Finland's first F-35. In 2026, we will make further investments in the program to advance its position as the world's most capable multirole fighter with a focus on making further progress on Block IV capability improvements. We've also committed to an additional $1 billion of strategic internal investment for the F-35, with an emphasis on the aircraft sustainment system to improve mission-capable rates across the fleet. This is an absolute priority for us and one we are working closely with the Department of War on. Also in aeronautics, we are making investments in the most advanced technologies, such as unmanned systems. At Lockheed Martin Skunk Works, with industry partners in the U.S. Air Force, we together demonstrated the capability to control a drone wingman from the cockpit of an F-22, the first time ever that a fifth-generation fighter showed the ability to control an uncrewed vehicle in flight together. Further at Skunk Works and in partnership with NASA, we successfully completed the first flight of the experimental X-59 aircraft in October. This is a revolutionary, quiet subsonic aircraft designed to pave the way for faster commercial air travel, even over land. At MSC, we continue to experience unprecedented demand across many critical munitions. We were awarded a contract for 31 THAAD interceptors and secured the largest production contract to date for the infrared search and track ERS-21 Block II POT system. This brings fifth-generation sensors and data links to fourth-generation aircraft. At RMS in November, Secretary Hexeth remotely piloted an autonomous Black Hawk from DARPA headquarters. This AI-enabled unmanned helicopter technology will enable critical missions such as contested logistics, air evacuation, and even wildfire fighting without putting pilots and air crews at risk. And speaking of amazing technology, we successfully used a shipboard laser system, Lockheed Martin's Helios. to knock an incoming UAV right out of the sky. The Helios weapon system successfully neutralized four drone threats in a U.S. Navy-operated counter-UAS zone demonstration at sea, showcasing an opportunity to eliminate drone attacks using lasers and saving U.S. and allied air defense missiles for more advanced threats. This development of laser weapon systems is just one example of Lockheed Martin's support of the Homeland Defense mission, including Golden Dome for America. We also continue to collaborate with government and industry in our prototyping environment at our Center for Innovation in Virginia to support the command and control aspects of Golden Dome. We're also, as mentioned earlier, making substantial investments to rapidly increase production capacity across missiles, sensor suites, battle management systems and satellites, as well as the rapid development of space-based interceptors that will be directly relevant to achieving the overall objective for Golden Dome. Also in the quarter, the Space Development Agency awarded Lockheed Martin Space a contract for 18 satellites for its Tranche 3 tracking layer constellation with a potential value of more than a billion dollars. These satellites will provide next-generation missile tracking capabilities for the FDA's proliferated warfighter space architecture. Finally, on the U.S. defense budget, as the FY26 appropriations process unfolds amid this dynamic geopolitical environment, there continues to be broad support for national defense initiatives from the administration, the Department of War, and Congress. Lockheed Martin's core programs remain fundamental to defense priorities, such as PAC-3 missiles for homeland security and for forward force security as well, the F-35 fighter jet for air dominance, the CH-53K heavy lift helicopter for contested logistics, and the fleet ballistic missile for the nuclear triad. We remain fully focused on converting our backlog and partnering with our U.S. customers, as well across defense and commercial industries, to deliver the systems and solutions necessary for global security and deterrence, and to keep our soldiers, sailors, airmen, and guardians safe in doing their missions. I'll now turn it over to Evan before we take your questions.