Northrop Grumman Corporation

Good day, ladies and gentlemen, and welcome to Northrop Grumman's third quarter 2025 conference call. Today's call is being recorded. My name is Bella, and I will be your conference 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, Bella, and good morning, everyone, and welcome to Northrop Grumman's third quarter 2025 conference call. Before we start, matters discussed on today's call, including guidance and outlooks for 2025 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. In addition, we will refer to a presentation that is posted to our investor relations website. On the call today are Kathy Worden, our chair, CEO, and president, and Ken Cruz, 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 our call. Disciplined execution of our business strategy has continued to position us well as global defense demand grows and our customers transform the way they acquire capability. We continue to prioritize providing technology leadership to our customers through innovation in both the way we do business and the capabilities we deliver. In doing so, we are building a strong backlog of future business. We are also performing well on our current programs, building the capacity for sustainable growth, and transforming our operations by embracing digital technologies to deliver with speed, quality, and affordability. The Northrop Grumman team delivered another strong quarter of performance amidst a dynamic global environment. We achieved mid single-digit growth, expanded our segment operating margin, and grew free cash flow year over year. These results are aligned to our long-term financial outlook. The investments we have been making in capacity and capability over the last six years enables us to deliver with urgency against our customers' highest priorities. In fact, we achieved an exceptionally strong book-to-bill of 1.17 in the quarter. Our organic growth rate was 5% year over year, and our international growth rate was 32%. It is also worth noting that apart from our space segment, where we continue to have a challenging compare related to the wind down of two large programs, revenue growth was approximately 9%. Despite strong growth in the quarter, we are revising our full year revenue guidance down due to delayed timing on certain awards and programs. In addition, the team delivered another outstanding quarter of operating performance. Segment operating margin increased to 12.3% in Q3, which drove a 10% year-over-year increase in earnings per share. We also increased our free cash flow by 72% year-over-year and are on track to meet our full year guidance. In the quarter, we made significant strides across multiple programs to position our company for the future. Last month, the second B-21 aircraft entered flight test, another significant milestone for the program as we continue to gain momentum. This starts a new phase of the test program, transitioning from general flight performance evaluation to integrating weapons and mission systems. Our testing campaign also involves multiple B-21 aircraft undergoing ground tests prior to flying, which is validating performance and minimizing risk. With the progress we've made, we remain on track to receive the LRIP Lot 3 and Lot 5 Advanced Procurement Awards later this year. We continue discussions with the Air Force on the framework for an agreement to accelerate the B-21 production rate. If an agreement is reached, as previously disclosed, we expect to deploy additional investment to achieve the increased rate with the opportunity to earn improved returns. We've also made important progress on missile defense programs that can support emerging requirements. In the quarter, we received a multi-billion dollar extension on the ground-based midcourse defense weapon systems contract. This contract award extends our period of performance through 2030 to provide new GMD capability. GWS is an integrated system designed to protect the U.S. from long-range ballistic missile threats. System enhancements include integrating the next generation interceptor into the GMD system, updating launch equipment, and advancing the communication capabilities between the GWS and the interceptor fleet. In addition, IBCS continues to be an effective and ready-now solution to meet the global air and missile defense mission. In this quarter, IBCS successfully completed live-fire testing events for both Poland and the U.S. Army customers, continuing its record of strong performance in operational tests. With these latest events, IBCS is now 32 for 32 in successful flight tests. We are also advancing the capability to introduce cloud and mobile technologies into IVCS, as well as enhanced artificial intelligence. We have demonstrated our ability to rapidly adapt to changing mission requirements, adding new operations capabilities through software in a matter of hours to effectively defeat evolving threats. I have previously outlined the investments we've made in solid rocket motor capacity and capabilities over the last several years. Leveraging those investments in the quarter, our Gem 63 XL rocket boosters played a crucial role in powering a ULA Vulcan rocket that delivered the third batch of Amazon Kuiper satellites to orbit. With additional launches and backlog, the Kuiper program is poised to be a key growth driver for the company going forward. Additionally, we've self-funded investments in tactical solid rocket motor capabilities that have enabled us to pursue and win second source opportunities. Recently, we were selected by the Navy as the second supplier for the SM-6 missile. This is one of several initiatives, including the 21-inch motor award that we discussed on our last call that we've undertaken to enhance our SRM competitiveness and broaden our market presence. There are many notable accomplishments from the quarter, but let me now take a step back for a moment. and talk about the transformation that is underway in the Department of War and how they acquire capability and what they seek from an industry partner like Northrop Grumman. I noted earlier that we are innovating, both in the capabilities we deliver and the ways we work. We are bringing proposals forward to accelerate our programs, embrace new technologies, and partner more effectively. We also continue to invest in American factories and workers, where we design and build the most advanced systems and technologies in support of our nation's warfighters. Over the past two years, we've allocated over 4% of our sales towards capital expenditures, well above industry averages. This investment is essential in providing the capacity to meet demand for next generation aircraft capabilities, ramping up production in munitions and propulsion, laying the foundation for significant growth in microelectronics and expanding production facilities to deliver hundreds of satellites and aircraft. We have also invested over $2 billion in the infrastructure and development of our enterprise-wide digital ecosystem that continues to yield phenomenal results as we test and prove that digital models have extremely high correlation with the physical products we are delivering. This is game-changing for the way we design, build, and produce our products. It opens paths for more affordable solutions for our customers and more predictable and improved returns for our shareholders. And as we look even further over the horizon to five or ten years into the future and beyond, our team of world-class engineers is undertaking research and development in pushing technology boundaries today that will support our competitiveness tomorrow. Over the past two years, we've invested over $2.1 billion in IRED to maintain our technology leadership and for continuous innovation to disrupt the market and ourselves with the objective of maintaining long-term sustainable advantage for our warfighters and policymakers. As I mentioned earlier, we are exploring creative ways to bring solutions to market faster. and focusing on priority areas, such as the development and fielding of multifunction sensors, new and innovative ways to incorporate AI into our solutions, and developing fielding new, smarter weapon systems that bring unmatched superiority on the battlefield, to name just a few. The themes we are seeing in the US are also true in the international market. Our allies are committed to modernizing their armed forces and investing in deterrent capabilities. And the current geopolitical environment has increased the urgency for them to act now. This is being reflected in a significant increase in defense spending that is expected to carry well into the next decade. Allied nations are prioritizing investments in air and missile defense, ground-based radars, airborne ISR, and other advanced weapon systems to enhance their ability to deter and defend against conflict. This growing demand presents substantial opportunities for our company, and we are well positioned to deliver solutions that meet the evolving needs of our customers worldwide. These factors contributed to our international sales growing 20% year to date. Before I turn to 2026, let me address the US government shutdown. It is unclear how long it might persist, but we are hopeful it will be resolved in the near term. Assuming it is, we do not anticipate any significant impact on our financial results. In the meantime, we remain focused on executing our programs and delivering on our commitments. Looking longer term, there continues to be strong bipartisan support for national security priorities with robust levels of investment provided through reconciliation and being considered for FY26 appropriations. We believe this continued commitment to funding will result in a long tail of demand as resources are allocated and invested into the industrial base. Our confidence in these underlying trends reaffirms our outlook and positions us well for sustained growth. As we look ahead to the new year, I'd like to take a moment to provide you with some color on how we're thinking about 2026. We expect mid single digit organic sales growth supported by growth in all four of our segments. This top line growth will in turn enable us to also grow segment operating income. We expect a segment OM rate in the low to mid 11% range. Lastly, as we look at cash, we are reaffirming our existing outlook range for 2026 free cash flow of $3.1 billion to $3.5 billion. I'd note that these estimates are not inclusive of a potential win on SAX or an acceleration of the B21 production rate. And as usual, we plan to provide formal guidance during our Q4 earnings call in January. So in summary, I'd like to emphasize our unwavering commitment to our technology-focused business strategy, which continues to drive our profitable growth. We're experiencing an unprecedented demand environment, and our capital deployment strategy is enabling us to meet this demand and prepare us for opportunities in the future. As we move forward, our primary focus remains disciplined execution of our strategy and creating lasting value for both our customers and our shareholders. So now, let me hand it over to Ken to provide more detail on the quarter's financial results.