Northrop Grumman Corporation

Good day, ladies and gentlemen, and welcome to Northrop Gummins' first quarter conference call. Today's call is being recorded. My name is Lisa, and I will be your operator today. At this time, all participants are in a listen-only mode. I would now like to turn the call over to your host, Mr. Todd Ernest, Vice President, Investor Relations. Mr. Ernest, please proceed.

Thanks, Lisa. Good morning, everyone, and welcome to Northrop Grumman's first quarter 2023 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 2023 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. Forelooking statements involve risks and uncertainties, including those 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, and thank you for joining us. Northrop Grumman is off to a solid start to the year. Our team is driving industry leading growth by executing our strategy, meeting the growing global demand from our customers and performing on our program. As a result, we increased sales by 6% and delivered strong earnings per share in the quarter. Additionally, we're delivering on our capital deployment strategy, which prioritizes investing in our business and returning cash to shareholders. In the first quarter, we continued thoughtful investments in the capability and capacity needed to support our customers' operational initiatives, and we initiated a $500 million accelerated share repurchase plan, returning a total of nearly a billion dollars to shareholders through dividends and share repurchases. Based on first quarter results and our continued expectations for growth and strong operational performance, we're reaffirming our 2023 segment guidance. We're increasing our EPS guidance based on our continued confidence in our business outlook and to account for the divestiture of a small minority investment signed this week and expected to close this year. As we look to the long term, increasing threats to freedom and security persist around the world. Given this, we expect continued support in Congress and the administration for the priorities outlined in the National Defense Strategy. which align well with the Northrop Grumman portfolio solution. This support was reaffirmed in the administration's budget request, which was released in March. DoD investment accounts are up by nearly 4% for fiscal year 2024. Northrop Grumman programs continue to be well supported in the budget request, particularly in the areas of strategic deterrence, space, missile defense, and advanced computing and communication technologies. The 2024 budget request also reflects the growing need for weapons capability and capacity, with overall funding increasing more than 20% compared to fiscal year 2023, and significant funding increases to major weapon programs, including many of which we provide key components. Two of our franchise programs, GBSD and B21, each saw total investment account funding increase by approximately 10%. The Future Year Defense Plan, or FIDIS, also prioritizes these programs, with funding projected to nearly double from about $8 billion in fiscal year 2023 to $15 billion in 2028. Outside the US, the geopolitical landscape remains dynamic. Global defense budgets are increasing, as many US allies modernize and expand their defense capabilities. An important part of our long-term growth strategy is focused on leveraging our portfolio to meet these growing global needs, and we continue to make progress in this area. In February, Australia issued a request for ArgomER, a high-speed, long-range, air-to-ground missile that provides counter air defense capability. Northrop Grumman is a prime contractor for ArgomER, and this recent FMS request has a potential value of over $500 million. Australia is one of over a half dozen additional countries expressing interest in this capability. In addition, last month the Defense Security Cooperation Agency approved the sale of five additional E-2D Hawkeye aircraft to Japan. These aircraft, along with the existing backlog, are expected to extend E-2D production well past mid-decade. These international opportunities, together with a broad set of others in IBCS, munitions, and sensors, form a strong foundation to grow our international revenue at a double-digit rate over the next several years. With this global demand signal as a backdrop, we've been executing a strategy over the past few years to significantly enhance capabilities and capacity in our weapons portfolio. This portfolio includes components such as electronics, propulsion systems, warheads and fuses, as well as missiles, armaments, and interceptors. And as a result, we have multiple positions on key programs as both a supplier and a prime contractor. Let me share a few examples of progress we've made on this strategy. In the first quarter, we received awards for nearly $350 million for medium and large caliber ammunition, Bushmaster cannons, and propulsion products for the Guided Multiple Launch Rocket System, or GMLRS. In addition, we're developing smarter, more advanced weapons required for future high-end fight with innovations in next-generation strike weapons, high-speed propulsion, and smart ammunition. One example of this advancement is the Air Force's stand-in attack weapon, also known as SAW, a high-speed, longer-range air-to-ground missile. During the first quarter, we received an award that takes us to the next phase of this competitive program. To meet our customers' growing demand in this area, we have invested nearly $1 billion since acquiring Orbital ATK, building our capacity for weapons and missile components. Our investments significantly increased capacity to produce solid rocket motors. Supporting our expectation for continued demand for this capability as well as increased capacity for GEM-63 boosters, which supports the growing launch needs of our civil and commercial customers. We're also investing to increase capacity at our missile integration facility located at the Allegheny Ballistics Laboratory in West Virginia. Our newest 113,000 square foot facility is a factory of the future. It is designed to support production of up to 600 strike missiles per year. Production operations will commence with the second lot of low-rate initial production for Argom ER, adding to other programs that we currently support at this complex, including GMLRS, tow, hellfire, and precision strike missile, among several others. In addition, we're building a new hypersonic center of excellence in Elkton, Maryland. Plated to open this summer, this new production facility is designed to provide full lifecycle production for hypersonic weapons from design and development to production and integration, using the latest digital engineering and smart manufacturing technologies. The Elkton facility supports programs like hypersonic attack cruise missile, known as HACM, an air-launched gramjet-powered hypersonic weapon that we're producing in partnership with Raytheon Technologies. We're not only a provider of missile systems, we also are a leading provider of missile defense systems. This is a rapidly growing area within our business and includes a diverse set of franchise programs. Our work in missile defense is now approaching 10% of company revenue, and we see an opportunity to expand that in the years ahead. Our broad end-to-end missile defense portfolio includes sensors, interceptors, and command and control systems. One example is our prime contractor role on the next generation overhead persistent infrared or OPIR polar segment. This OPIR satellite constellation will operate at a highly elliptical orbit and provide critical strategic missile defense warning capabilities. Importantly, we also provide proliferated low earth orbit missile defense capabilities on programs like HBTSS, and recent awards for SDA tracking tranche 1. In addition, we're a prime integrator on next generation intercept capabilities, including NGI and glide phase interceptor. They protect against advanced ballistic and hypersonic missile threats. Shortly after the close of the quarter, we received approval for full rate production for IBCS, an integrated air and missile defense system. This key milestone allows the U.S. Army to set the fielding schedule for IBCS to its air defense unit, which will significantly bolster regional defense capabilities. Over the fight-up period, domestic deliveries of IBCS units are expected to increase by 40 percent. And as a reminder, Poland selected IBCS to serve as the centerpiece of its air and missile defense modernization, and a number of other allies are also evaluating the system. Before turning the call over to Dave, I'd like to touch on a couple of key program updates, starting with B21. The program remains on the government's baseline for cost and schedule, and we're continuing to work toward first flight, which will be informed by events and data and remains on track for this year. There are no material changes in our EACs this quarter for the EMD nor the LRIC phases of the program, and we continue to expect to receive the first LRIC award later this year. The B-21 program is expected to be the centerpiece of the Air Force's long-range strike portfolio for decades to come. With steady growth in the projected funding across the FIDUS, as I outlined, and strong customer demand for its unmatched range, stealth, and survivability, the long-term outlook for the B-21 program remains robust. On GDST, we achieved two key milestones in the quarter. This includes its first full-scale static test fire of the Stage 1 solid rocket motor and the successful completion of a series of wind tunnel tests, which tested the system in both subsonic and hypersonic environments. The comprehensive test campaign validated our digital modeling and simulations and proved design maturity of the missile. And earlier this month, the James Webb Space Telescope Industry Team, led by Northrop Grumman, won the prestigious Collier Trophy for revolutionizing the field of astrophysics. I want to congratulate the team for a pioneering design and unwavering commitment, which were instrumental in winning our industry's highest honor. Overall, our strong start to the year is a clear indicator of this team's performance. We see continued robust demand for our solutions in the US and abroad, and we believe we're well-positioned to maintain our industry-leading profitable growth and deliver value creation for shareholders and customers alike. With that said, I'll hand the call over to Dave to cover the details of our financial results and our outlook. Dave?