Northrop Grumman Corporation

Today's call is being recorded. My name is Michelle, and I will be your operator today. At this time, all participants are in a listen-only mode. I would like to turn the call over to your host, Mr. Todd Ernst, Treasurer and Vice President, Investor Relations. Mr. Ernst, please proceed.

Thanks, Michelle. Good morning, everyone, and welcome to Northrop Grumman's third quarter 2022 conference call. We'll refer to a PowerPoint presentation that is posted on our IR webpage this morning. Before we start, matters discussed on today's call, including guidance and outlooks for 2022 and beyond, reflect the company's judgment based on information available at the time of this call. They constitute four looking statements pursuant to safe harbor provisions of federal securities laws. Four 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. Today's call will include non-GAAP financial measures that are reconciled to our GAAP results in our earnings release. On the call today are Kathy Worden, our chair, CEO, and president, and Dave Kepfer, our CFO. At this time, I'd like to turn the call over to Kathy. Kathy?

Thanks, Todd. Good morning, everyone. Thank you for joining us. The Northrop Grumman team delivered another quarter of solid performance. Our top line returned to growth with continued strong execution. Demand for our products remained robust. with a book-to-bill ratio of near one, including a number of key awards in our restricted and missile defense portfolios. And we remain on track to deliver strong results for the year, with growth expected to accelerate as we look toward next year. Taking a step back for a moment from the quarter, I'd like to start with an update on the global security environment. Earlier this month, the Biden administration released its full version of the National Security Strategy, which is used as a guide for policy and budget decisions. The strategy spotlights the dynamic and challenging threat landscape around the world and stresses the importance of working with allies, maintaining a strong industrial base, and continuing to invest in advanced technology. It also reinforces the triad as a top priority. So it's clear that Northrop Grumman's portfolio continues to be extremely well aligned with the requirements outlined in the National Security Strategy. This is reflected in the administration's fiscal year 2023 budget request, which showed alignment with these priorities and strong support for many of our key programs. Throughout the summer, congressional committees marked up the administration's defense budget request, generally increasing the proposed level of funding with the intent of strengthening the country's defense posture and addressing the impacts of inflation. Based on these additions, we believe that the ultimate fiscal year 23 based defense budget will be higher than the president's budget request. And as you know, we started off this fiscal year in another continuing resolution, which currently extends to mid-December. And this is factored into our guidance. We are confident in our program funding positions and hopeful that the annual budget will be passed by year end. Meanwhile, Global commitments to invest in defense and national security capability continue. In Europe, we've seen increased demand for our integrated air and missile defense solutions and precision weapons and advanced ammunition. In the Asia Pacific region, we've seen similar interest in air and missile defense, as well as maritime ISR, advanced radar, and other mission systems. All this points to a strong demand environment for Northrop Grumman. And we're doing our part by investing in solutions and capacity to address many of our customers' most pressing needs. This year, we expect to invest over $2.5 billion in CapEx and research and development. And as a result, we're winning new business and bolstering our backlog for long-term growth. Our backlog has increased year-to-date in each of our four segments and is up nearly 5% overall. Given this, we now expect that our full year 2022 book-to-bill ratio will be over one, a significant improvement from where we started the year. This increase is attributed not only to the robust defense budget environment, but also a strong competitive win rate. That said, we recognize that our industry and many others are experiencing macroeconomic volatility that we haven't seen in decades. Inflation remains at 40-year highs, Lead times have been extended in certain areas of our supply chain, and the labor market shows signs of easing, but it remains tight for critical skills. Our team is tackling these challenges, keeping a focus on our people and performance, and driving efficiencies across the business. In the labor market, we've driven improvements in hiring and retention over the past several months, which Dave will describe in more detail. This was instrumental in our return to growth in the third quarter, and it's worth noting that this favorable trend has continued into the fourth quarter as well. This supports our full year 2022 guidance and our outlook for accelerated sales in 2023. In the supply chain, we continue to experience disruptions and delayed deliveries in certain areas of our business, which they have been a headwind to growth. It's a risk that we're closely monitoring and we're working with our suppliers to mitigate. But we do anticipate that supply chain challenges will continue in 2023. And this is now reflected into our 2023 outlook. Elevated inflation levels in both labor and supply chain have persisted more than expected as we came into this year. To address this, we are implementing operational efficiencies and working with many of our customers on program funding and other contract actions to support the health of the defense industrial base. We believe this balanced approach is the best solution to allow continued investment in the capabilities that support our customers' mission. With that said, we see these as temporal challenges and remain committed to driving our segment margin rates higher over time. Turning now to the execution of our long-term strategy, one of the key elements of our strategy is a relentless focus on performance. That's why I was particularly pleased to receive the 2022 Deming Cup for Operational Excellence on behalf of Northrop Grumman earlier this week. The award recognizes our achievements and leadership in creating a culture of operational excellence and continuous improvement across the company. Our customers recognize this commitment and have entrusted us to deliver some of the most technologically advanced next generation systems and solutions. The B-21 Raider is one such example, and we're excited to unveil the aircraft to the public on December 2nd. The B-21's outstanding performance can be directly tied to our company's investment in digital tools and facilities and the incredible U.S. Air Force and Northrop Grumman team who are developing this sixth-generation platform. The program continues to progress through testing and preparation for first flight in 2023. Last month, we announced a data sharing agreement on B21, enhancing data access and collaboration across the program, including the launch of a shared environment for the B21 digital twin. This data sharing agreement enhances our partnership with the Air Force and further demonstrates our digital maturity on the program. Our mission system solutions are another area of our portfolio where innovation is critical to success. where the fast pace of threats and new technologies is driving the need for platforms and sensors to be able to connect with one another, share data, and be part of a broader family of systems. In this growing market, we're building on our strong position in sensors, secure communications, and networking to compete for and win new opportunities. For example, last month we were selected to be a member of the Air Force's ABMS Digital Infrastructure Consortium. And we're also seeing interest from global customers, including the Australian Defense Force, where we recently demonstrated a product solution with robust C2 functionality to link sensors and effectors across domains. Another significant area of focus for the US and our allies is the modernization of missile defense solutions to address current and future missile threats. We continue to strengthen our position in this area. with a $1.3 billion ground-based midcourse defense weapon system award in the third quarter. This award builds on our missile defense portfolio and helps our customers defend against intermediate and intercontinental missile attacks. And turning to our weapons business, I'm pleased to share that we've now delivered more than 100,000 precision guidance kits to the U.S. Army. These projectiles provide enhanced precision to artillery units, and come embedded with built-in safety features. We've exceeded requirements on both accuracy and reliability with these upgrades. And one last area that I'll highlight is hypersonics, where we continue to win new competitive business. Last month, the Air Force selected our Raytheon and Northrop Grumman team to develop the hypersonic attack cruise missile, also known as HACM. HACM builds on our scramjet propulsion technology and ushers in a new era of faster, more survivable weapons. This program is one of several hypersonic opportunities within our portfolio. We're approaching this market as both a prime and a sub, bringing our expertise in high-speed propulsion, survivable navigation and targeting capabilities, and systems integration to multiple solutions. These are just a few examples of markets where we continue to grow our business by delivering the products and solutions that our customers want and need, while also building long-term value for our shareholders. So now I'll turn it over to Dave, who will provide more color on our Q3 results and touch on our expectations for 2023. Dave?