Northrop Grumman Corporation

Good day, ladies and gentlemen, and welcome to Northrop Grumman's third quarter conference call. Today's call is being recorded. My name is Josh, 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 Ernst, Vice President, Investor Relations.

Mr. Ernst, please proceed. Thanks, Josh, and good morning, everyone, and welcome to Northrop Grumman's third quarter 2023 conference call. On the call this morning, we'll refer to a presentation that is posted on our IR website. 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. Forward-looking 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 Kaffer, 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. We are all witnessing significant geopolitical tensions across the globe. including the ongoing war in Ukraine and the horrific attacks in Israel. We truly hope that peace and safety can be established for the people in these regions and we'll continue in our steadfast support for the U.S. and our allies in their pursuit of global security and stability. On this morning's call, in addition to reviewing our third quarter results and important program events in the quarter, I'll address the U.S. budget and trends we see in the global environment. And as usual at this time of year, I'll provide our initial outlook for next year. So starting with a quarter, our book to bill was one and a half times with approximately $15 billion in awards and our sales increased 9% year over year with growth across all four of our business segments. Our backlog now stands at $84 billion. It's a new record. and it strengthens the foundation for our future growth. It also continues to reflect the alignment we have with our customers' priorities and the continued success of our business strategy. Segment operating income increased by 8% year over year, and the OM rate increased over last quarter. Earnings per share were $6.18, up 5% compared to last year. Strong earnings drove nearly $900 million in free cash flow in the quarter, and we remain on track to achieve our 2023 free cash flow target. Excellent Cash Generation continues to provide us the flexibility to invest in our capabilities and capacity while returning capital to shareholders. We remain committed to returning over 100% of our free cash flow to investors this year, including $1.5 billion of share repurchases. And year to date, we've returned approximately $2 billion to shareholders in dividends and repurchases. So turning now to the U.S. defense budget. As is common in recent years, the federal government is operating under a continuing resolution to start fiscal year 2024. We're encouraged by bipartisan support for national security priorities and are hopeful an agreement will be reached on full year appropriations soon. Our guidance and outlook assume a full year budget is passed by the end of this calendar year or early next year. And as we saw last week, the administration continues to make supplemental requests for urgent needs, including those in Ukraine and Israel, to include investments in weapons systems and defense industrial base readiness. The federal government is also developing its budget plans for fiscal year 2025. which we expect to be submitted to Congress early next year. We are working closely with our customers to plan for future capabilities and navigate the fiscal pressures they see to ensure our programs remain well supported. As we have been discussing throughout the year, we are also seeing an increase in international demand for our capabilities. We've seen a particular increase in our weapons systems portfolio and missile defense technologies, like the IBCS product line. One notable example of this growing demand is with Argom ER, where we've now received interest from more than a dozen countries, and just this week, the opportunity for a foreign military sale to Finland was announced. We are also working with the U.S. government to provide new advanced weapons capabilities. During the second quarter, we received a $705 million contract from the United States Air Force to develop the stand-and-attack weapon, also known as SAW. an air-to-ground weapon with the capability to strike mobile defense targets. Our SAL offering builds on the capabilities we provide with our high-speed Argon missile, which is in production. Building off a mature product baseline, we're able to reduce the developmental time, cost, and risk to the SAL program. These missiles are expected to be the air-to-ground weapon of choice for the F-35 and other fighters. In our space business, We remain focused on being at the forefront of technology and that strategy has enabled us to build a differentiated portfolio that provides end-to-end solutions for our customers from new space architectures to launch capabilities. We see broad applications for the technologies we've developed with a particular focus on national security missions. This includes helping to turn the Space Development Agency's vision of a new low Earth orbit constellation of satellites into reality. In August, we were awarded a $712 million contract to design and build 36 satellites for SDA's Tranche 2 transport layer beta constellation. With this award, along with our work on SDA's tracking layer and Tranche 1 of the transport layer, we are now building nearly 100 satellites for the proliferated warfighter space architecture. Our success in this area highlight our ability to compete and win in highly competitive and dynamic new markets within the space domain. In addition, we had two notable launch events in the quarter. We successfully launched our 19th resupply mission to the International Space Station as we continue to execute under NASA's commercial resupply contract. and five of our GEM 63 solid rocket boosters help to power ULA's Atlas V launch of a national security payload. These rocket motors will continue to support future ULA launches to include ULA's Vulcan rocket. For Next Generation Interceptor, we successfully manufactured the first set of solid rocket motor cases in August and we're on track for our preliminary design review in the fourth quarter. more than a year earlier than the original contract date. These are just a few examples of the focus we have on strong program performance across the portfolio. Now, before I turn the call over to Dave to provide more details on the quarter, I'd like to provide some initial color on our 2024 outlook. We continue to see solid growth across all four of our businesses, with sales growth of approximately 4% to 5% compared to our latest 2023 guidance, which we've now raised by $800 million throughout the year. We also expect operating income to grow by 4% to 5% year over year. We reaffirm our free cash flow outlook range of $2.25 to $2.65 billion in 2024, which accounts for continued investment in the capabilities and capacity needed to grow our business and support our customers. So in summary, Northrop Grumman is well positioned to drive value creation for our customers and our shareholders. We are focused on executing our strategy, driving operating performance, and generating cash for our disciplined capital deployment. So now with that, I'll turn it over to Dave to provide some more details on the segment results, 2023 guidance, and our outlook.