Northrop Grumman Corporation

Good day, ladies and gentlemen, and welcome to Northrop Grumman's first quarter 2021 conference call. Today's call is being recorded. My name is Mariama, and I will be your operator today. At this time, all participants are in a listen-only mode. If at any time during the call you require assistance, please press star zero, and an operator will be happy to assist you. I would now like to turn the call over to your host, Mr. Todd Ernst, Treasurer and Vice President, Investor Relations. Mr. Ernst, please proceed.

Good morning and welcome to Northrop Grumman's first quarter 2021 conference call. This morning, we will refer to a PowerPoint presentation that is posted on our IR webpage. And before we start, I'd just like to remind you that matters discussed on today's call, including guidance and our outlook for 2021 and beyond, reflect the company's judgment based on information available at the time of this call. They constitute forward-looking statements pursuant to safe harbor provisions of federal securities laws. Forward-looking statements involve risks and uncertainties, which are noted in today's press release and our SEC filings. These risks and uncertainties may cause actual company results to differ materially. Matters discussed on today's call will include non-GAAP financial measures, which are defined and reconciled in our earnings release and supplemental PowerPoint presentation. On the call today are Kathy Warden, our chairman, CEO, and president, and Dave Kepfer, our CFO. At this time, I'd like to turn the call over to Kathy. Kathy.

Thank you, Todd. Good morning, everyone. Thanks for joining us today. I want to congratulate the Northrop Grumman team for a very strong start to 2021. One year after the onset of the pandemic, we have adjusted to a new way of working, and we continue to support our employees, our customers, our suppliers, and our communities by which has enabled us to deliver outstanding results to our shareholders. Our results demonstrate the strength of our team, our portfolio, our strategy, and our operating performance. Our solid bookings and competitive wins, robust organic sales growth, and excellent operational performance resulted in strong margin rates, earnings, and cash in the quarter. We also closed the divestiture of our IT services business, and successfully transitioned those employees and programs to Periton. Elaborating on financial highlights, we booked new awards of $8.9 billion, group sales 6%, and increased segment operating income 13%. Gap EPS of $13.43 reflects the IT services gain, and transaction-adjusted EPS increased 28% in the quarter. First quarter operating cash improved by more than $900 million year over year. Using cash on the balance sheet and divestiture proceeds, we executed a $2 billion accelerated share repurchase agreement that retired an initial 5.9 million shares. We also retired $2.2 billion in debt, including early redemptions of $1.5 billion. Even with share repurchases, Dividends and deleveraging, all of which totaled more than $4.4 billion, we ended the first quarter with $3.5 billion of cash on the balance sheet. As I outlined in January, this year's capital deployment plans continue to include robust investments to drive innovation and affordability and at least $1 billion of additional share repurchases. Based on what we see now, over the next couple of years, we expect to return the majority of our free cash flow to our shareholders through share repurchases and dividends. With the strength of our first quarter results, a solid outlook for the remainder of the year, and confidence in our portfolio, we are raising our sales and EPS guidance. We now expect sales will increase to between $35.3 and $35.7 billion, a $200 million increase to the prior range. and we are raising transaction-adjusted EPS guidance by 85 cents to a range of $24 to $24.50. As we look forward, we believe our capabilities will remain well aligned with U.S. national security priorities. In early policy guidance, such as this interim national security strategy, the Biden administration has signaled that it views competition with China as the most pressing long-term security challenge and will invest in the capabilities needed to maintain U.S. national security advantages. In its recent budget framework for fiscal year 2022, the administration described several priority efforts that are closely aligned with our portfolio and technology leadership. These include space, modernizing the nuclear deterrent, advanced weapons and long-range fire capabilities, and R&D for breakthrough technologies, such as artificial intelligence, advanced computing, and cyber. Turning to operational highlights in the quarter, our space business doubled its backlog in 2020 and achieved 30% revenue growth in each of the last two quarters. This performance confirms our competitive capabilities and our ability to capture market share as our nation ramps up investment in space. three competitive awards in the first quarter are good examples. The Hypersonic and Ballistic Tracking Space Sensor, the Protected Tactical SATCOM Rapid Prototype Program, and the Next Generation Interceptor. On HBTSS, we received a $155 million award to build a prototype sensor satellite capability capable of tracking hypersonic weapons from space. For Protected Tactical SATCOM, we were down-selected for a follow-on award to proceed with our ongoing prototype development with a flight demonstration of our PTS payload expected in 2024. We also were awarded a $2.6 billion contract for the next phase of the Missile Defense Agency's next-generation interceptor, known as NGI, with a period of performance through 2026. This contract is for the rapid development and flight test of an interceptor designed to defend against the most complex long-range threats. Opportunities for Northrop Grumman in space also extend to civil and commercial space. NASA's fiscal year 2022 discretionary request is $24.7 billion, a 6.3% increase over the 2021 enacted level. Importantly, the request supports human exploration of the moon, Mars, and beyond. Support for the NASA budget enabled our efforts on Space Launch System and HALO, the Habitation and Logistics Outpost Program. And in commercial space, MEV-1 continues to provide life extension services to an Intelsat satellite, and it received VIA Satellite's Satellite Technology of the Year Award. The award recognizes the technology breakthrough that reshapes the way the satellite industry works now and for years to come. I'm also pleased to report that earlier this month, MEV-2 successfully docked with another intelSAT satellite. MEV-2 will provide five years of service before undocking and moving on to provide services for a new mission. Northrop Grumman is a pioneer in this field. and remains the only provider of flight-proofing life extension services for satellites. As the U.S. continues modernizing its strategic deterrent capabilities, we are proud to be the prime contractor for two legs of the triad, the B-21 bomber and the ground-based strategic deterrent, or GBSD, as well as a key supplier on the third leg. These modernization programs, which were initiated in the Obama administration, are expected to begin fielding at the end of this decade. Both GVSC and B-21 are benefiting from our use of innovative digital tools to reduce technical risk and cost. As the Air Force has noted, B-21 development has been unique in that the test aircraft are more mature than other systems have been at this point, allowing us to validate our production processes much sooner in the program lifecycle. And our GBSD program successfully completed two major milestone reviews and remains on track to field an initial operating capability by 2029. We are working closely with the Air Force partner and industry teammates to use digital engineering and agile software development to reduce risks and shorten development timelines as we modernize this critical system. The GBSD program has earned the E-Series designation from the U.S. Air Force, affirming the program's cutting-edge approach to digital transformation. All four of our sectors are aligned to the high-priority investment areas needed to maintain military superiority. In addition to developing new platforms and weapons systems, we are enabling the modernization of existing platforms to ensure our warfighters have the best technology that their platforms, can be modularly upgraded to counter evolving threats. In the first quarter, we received orders totaling approximately 500 million for additional Sabre radar systems for the F-16. With these additional orders, we're now under contract to produce approximately 900 systems in the support of F-16 upgrades and new ship procurements for eight FNS countries, as well as upgrades to our U.S. Air Force, Guard, and Reserve F-16 fleets. Also on the F-16 for the U.S. Air Force, we were down-selected as the sole offeror for the EMD in production of a modern electronic warfare suite to provide next-generation self-protection and ensure an upgrade path for advanced capabilities against highly agile future threats. And during the quarter, the U.S. Army approved our Kirken system for full-rate production following a successful six-month initial operational test and evaluation on its helicopters. We also continue to demonstrate how we can connect platforms and sensors to enable Joint All-Domain Command and Control, or JADC2. Our fifth generation connectivity solutions will be featured on multiple platforms in the upcoming Northern Edge 21 exercise in May. We expect to participate in several other exercises over the next 12 months, including the Army's Project Convergence, where IDCS is expected to be featured. and for responding to the ADMS Digital Infrastructure Investment Priority requiring secure processing, connectivity, and data management. And finally, we are maturing our advanced weaponry and long-range fire capabilities. We conducted a successful live fire demonstration of our integrated counter-UAS solutions this quarter. The demonstration showcased our next-generation proximity ammunition and its capability to defeat Class I, II, and III unmanned aerial systems. In addition, Argonne ER had two successful static motor tests of a rocket motor, marking nine consecutive successful tests in preparation for the upcoming flight test. All of these successes reflect the quality of our team and the benefit of our recent investment in new technology to support national security for the U.S. and our allies. We are focused on competing and winning the program that enable continued growth and affordably delivering the capability our customers need. This quarter was another demonstration of our commitment to maintain strong returns and cash flows while growing the business. I'll turn the call over to Dave now for a more detailed discussion of our financial guidance, results, and trends. Dave?