洛克希德·馬丁 (LMT) 2024 Q3 法說會逐字稿

G ood day, and welcome, everyone to the Lockheed Martin and Third Quarter 2024 earnings results conference call. Today's call is being recorded. You would like to ask a question, please press one then zero. We ask that you please limit yourself to one question and re-queue for follow-up time permitting. At this time for opening remarks and introductions, I would like to turn the call over to Maria Richard, all Vice President, Treasurer and Investor Relations. Please go ahead. Thank you, Steve, and good morning. I'd like to welcome everyone to our third quarter 2024 earnings conference call. For Joining today's call are Jim Hagedorn, our Chairman, President and Chief Executive Officer, and Jamie Levine, our Chief Financial Officer. Statements made in today's call that are not historical facts are considered forward looking statements are made pursuant to the safe harbor provision of federal securities law. Actual results may differ materially from those projected in the forward-looking statements. Please see today's press release in our SEC filings for a description of some of the factors that may cause actual results could differ materially from those in the forward-looking statements. We posted charts on our website today that we plan to address during the call to supplement our comments. These charts also include information regarding non-GAAP measures that may be used in today's call. Please access our website at w. w. w. dot Lockheed Martin.com and click on the Investor Relations link to view and follow the chart. With that, I'll turn the call over to Jim Gregory or good morning, everyone, and thank you for joining us on our third quarter 2024 earnings call. The demand for Lockheed Martin systems and services remains robust across all four of our business areas. We ended Q3 with record backlog of more than 165 billion, reflecting a book to bill ratio of 1.3 in the quarter. Precision and air defense munitions drove the increase, including large orders for Javelin Guided Multiple launch. Rocket enjoyed air to surface stand up and long range and I ship missions compared with last year's third quarter sales increased segment operating margins expanded 20 points to 10.9, led by Missiles and Fire Control, reflecting increased production volumes. Free cash flow was 2.1 billion in the quarter as we continue to implement working capital efficiencies and optimization, high confidence in our future cash generation prospect, supported with our Board's recent decision to raise the quarterly dividend by 5% to $3.30, the 22nd consecutive year of increases and to extend our share repurchase authorization. Turning to the F-35. We delivered 48 of 35 aircraft in the quarter. We expect to deliver 90 to 110 aircraft in 2024 and the remaining balance of the last 15 to 17 aircraft thereafter. In addition, TR. three flight testing continues with 95% of combat capabilities validated and additional capabilities progressing with over 1,040 aircraft delivered in growing the F-35 lease become an essential component of the collective security of the US. Our global allies. For example, by the 2030s, over 635 will be in operation across more than 10 European nations. And in July recently announced that it will be the 19th nation to fly the F-35 and all acquired 20 aircraft plus the rollout of the initial F-35 for Poland in August marked a significant milestone in our 20 plus year partnership with that country. The F-35, superior centers, Stealth and data sharing capabilities are setting new standards for interoperability and German operations with our allies serving as the cornerstone for NATO's deterrence and defense posture to further augment the capabilities to be up 35 and our other major platforms, we are investing heavily in autonomy and a I as well as other enabling digital technologies as an example, or Lockheed Martin AI. center and our RMS business area conductor realistic teaming scenarios with unproven aerial systems or drones and unproved ground vehicles at the U.S. Army in their recent experimental demonstration events, successful demonstrations exhibited our abilities for using a I by launching an autonomous drone to provide guidance and navigation instructions to a ground-based robot to help us navigate a dangerous urban environment and enable greater safety for our soldiers that any current approaches can do. The rapid integration of digital technologies and capabilities is one element of our 21st century security strategy. Another example of this in the third quarter was Lockheed Martin Skunk Works team partnered with the U.S. Air Force test pilot test pilot school to conduct full-scale live flight tests have an adaptive technology that may ex real-time adjustments to flight control algorithms resulting in substantial time and cost savings. And we do these kind of tech insertions on real scalable combat platforms, those that when implemented en masse can have theater level of effects on combat capability and thereby the turns from great power armed conflict. The second element of 21st Century securities designing resilience, and then I fragility into the defense industrial base. To this end, we just we signed a teaming agreement with our partner, General Dynamics in the third quarter for the production of solid rocket motors. The initial work will focus on producing SRM.s, the gamblers rocket and will start in 2025 AGT's facility and Camden Arkansas. This third source of solid rocket motors will enable us to move more quickly to ramp production for critical deployed. The third element of 20% sorry, security is the implementation of a global and regional approach to production and sustainment. With our allies and partners. We have expanded international collaborations to enable indigenous military capability development in countries, including Australia, Germany, Poland and India. I recently had the opportunity to discuss the expansion of Lockheed Martin sustainment and production operations in India with Prime Minister Modi in July, including growing the capacity and the capabilities of our joint ventures with Tata that already manufactured to see one 30 JM. packages of 16 wings and helicopter cabins in Hyderabad. Turning to the US defense budget. We are currently in a continuing resolution that funds US government operations through December 2020, 24. For our part, our teammates across all of Lockheed Martin will thereby be able to continue to work diligently to deliver on our customer commitments. We'll also be dedicated to delivering strong financial performance through the remaining months of 2024 and to carry that momentum into the coming year as well. So now I'll turn it over to Jay. Thanks, Jim, and good morning, everyone. Today I'll provide an overview of our consolidated financials and operational highlights in the quarter. Before handing off to Maria will cover business area results, and I'll come back to discuss the 2024 outlook and some longer-term trending. Starting on chart four, sales of $17.1 billion were up 1% year over year, led by MSC in RMS as expected, aeronautic down primarily due to delayed revenue recognition of approximately 700 million associated with the lapse in F-35 program funding as we continue to work through a lot 18 negotiations. Normalizing for that impact, consolidated sales would be up 5% year over year. Segment operating profit of 1.9 billion was up 3% year over year, with consolidated margins at a respectable 10.9%. Net profit adjustments in the quarter were higher than prior year and amounted to 20% of segment operating profit. Gaap earnings per share of $2.80 increased 1% year over year, driven by higher profit and lower share count, partially offset by higher interest expense, a higher tax rate and lower pension income. Turning to new business reported over 22 billion of orders in the third quarter for book-to-bill ratio of approximately 1.3, led by MFC. with orders exceeding $8 billion in driving overall backlog to over 165 billion. Free cash flow was 2.1 billion in the quarter, aided by strong collections, including international program advances. This brings our year-to-date total free cash flow to just over $4.8 billion, enabling another 700 million of independent research and development and capital expenditures in the quarter, further enhancing our leadership position in 20% sorry, security in integrated deterrence. Finally, we returned 1.7 billion of our free cash flow to shareholders via share repurchases and dividends. Turning to some key operational milestones and program highlights in the quarter. At Aeronautics, through the third quarter, we delivered 48 up 30 fives. In addition, the team continues to make progress towards tech refresh three combat capability with incremental milestones on track for completion in the fourth quarter. Beyond the 35, the C1000 franchise had a very successful quarter. The worldwide fleet of over 550 C. one 30 J. super Hercules surpassed 3 million flight hours, demonstrating the platforms unmatched global reach in multi-mission versatility. We also delivered the first eight C1 30 Jay Doshi, 30 tactical airlift. There's to the high yield CStone air reserve station in July and delivered the first Jay various aircraft to long-time C1 30 customer New Zealand. At RMS, the US Marine Corps formally accepted the 23rd and final next-generation VH. 90 to eight presidential helicopter, built by Sikorsky, marking a significant milestone for the company whose aircraft have flown every U.S. President since 1957. I hope this highly tailored solution based on the proven S-92 helicopter, Mr. Marino cores unique and critical mission of supporting the commander in chief around the world in the space. In September, NASA awarded Lockheed Martin, a contract to design and build the next-generation lightly Mapper instruments for the National Oceanic and Atmospheric Administration, or Noah GOXO. program. The baseline contract is valued at approximately $300 million for to install events with options for an additional two. This award follows on the GOX. will award we received in June to design and build the core Noah spacecraft constellation. This continues our long tradition of designing and building weather and environmental spacecraft, including many Earth observation in instruments. I'll stop here and hand it over to Maria to talk more about the business area of financials. Cca. Today, I'll discuss third quarter year over year results for the business area, starting with aeronautics on chart five. Third quarter s ales at Arrow declined 3% year over year, primarily driven by lower at 35 volume due to delays in a lot 1819 contract negotiation and K previously mentioned, partially offsetting that headwind with higher volume at C. one 30 in the queue continued production ramp on the F-16 program segment operating profit decreased 2% with lower volume and unfavorable mix being partially offset by higher profit booking rate adjustments, mainly due to a favorable adjustment related to legacy five clean with the F-35 surpassing 1,000 aircraft deliveries this quarter. I'd like to highlight a few other notable items from the other major platforms. More than 2,600 C. 1,000 aircraft have been delivered to 63 nation with more than 550 k. Varian delivered 22 countries in Egypt set to become the 23rd and the F 16 has delivered more than 4,600 aircraft to 27 countries over the past 50 years. Turning to missiles and fire control on chart six. And this fee had another solid quarter with sales up 8% year over year, driven by production ramp on precision fires programs within the tactical and strike missile segment primarily Guided Multiple Launch Rocket System, GMLRS. and long-range anti ship Nissan. The Resins segment operating profit increased 15% year over year due to the higher volume and higher booking rate profit adjustments, primarily attack three, while margins were again solid at 14.4%. Msc's book-to-bill ratio in the quarter with a strong 2.7, leading to another record backlog now over 40 billion, driven by continued global demand. In the quarter, the U.S. Army awarded the largest single year production contract for Javelin and related equipment worth 1.3 billion to the Javelin joint venture well as the Air Force awarded and over $3 billion multi-year large lot procurement contract for Jazan Marathon, providing a key anti fragility measure to increase industry resilient and ensure operations can be ramped more quickly going forward. Shifting to Rotary and Mission Systems on chart seven, sales increased 6% in the quarter to 4.4 billion, primarily driven by higher volume at integrated warfare systems and sensors on radar programs as well as the Canadian Surface Combatant program. Sikorsky programs also saw higher volume led by CH. 53 K. Black Hawk and Seahawk operating profit was comparable to the prior year with higher volume being offset by lower profit booking rate adjustments. Finally, at based on chart eight, sales decreased slightly year over year. The reduction was driven by lower volume at commercial civil space, primarily on the Orion program, partially offset by higher volume at strategic and missile defense on our strategic reentry programs. Operating profit increased 5% compared to Q3 2023, driven by favorable mix, partially offset by lower equity earnings from United Launch Alliance. New LA recently faced was awarded a contract continue nearly 70 years of partnership between the U.S. Navy and Lockheed Martin through the Fleet Ballistic Missile SBM program, a key component of our nation's strategic deterrent. Under the contract, we will provide Trident missile production support and reentry system hardware as well as operations and maintenance to support the readiness and reliability of the missile systems. Fbm will continue to be a growth driver for space for years to come. Now I'll turn it back over to Jay to wrap up our prepared remarks. Thanks, Maria. Turning to chart nine in our outlook for 2024. With one quarter remaining, we've shifted to approximate point estimates that reflect increased expectations for sales, segment, operating profit, earnings per share and free cash flow. We have slightly reduced our share repurchase target for the year to approximately 3.7 billion, primarily due to the redeployment of capital to the parent Orbital acquisition. All told, we still expect to return greater than 100% of free cash flow to shareholders in 2024 via repurchases and dividends. Quickly stepping through the other metrics, we estimate sales of approximately 71,250,000,000.00, reflecting reflecting growth of 5% over 2023, as our backlog continues to convert across the portfolio, also increasing the segment operating profit expectation driven by the higher sales volume to approximately 7,475,000,000.000, and we continue to anticipate consolidated segment operating profit margins of approximately 10.5%. Moving to our earnings per share, we're increasing our forecast by $0.3 to from our prior midpoint to approximately $26.65 primary drivers of the change or incremental profit of about $0.17 with other below-the-line items and taxes, bringing in an additional $0.13. Lastly, on free cash flow, we now estimate approximately 6.2 billion for the year, up slightly from the prior midpoint, while absorbing the unfavorable impact of the recent F-35 Lot 15 to 17 aircraft delivery center, which we estimate will be approximately 600 million in 2024, with expected to recur every over the next few years. Before I talk about trending, I'd like to reiterate a few key assumptions regarding our 2024 outlook. First, we expect at 35 lot 1819 to be awarded this year, maintaining program funding and continuity. We continue to make progress in negotiations toward the contract secures our mutual goals of delivering advanced fifth-generation fighter capability to our services. Should the negotiation time line beat and extend to be on your end, the financial impact would be one of timing. We could see about 3% or 2 billion of our sales shift into 2025, along with associated impact to profit in about 1 billion of free cash flow. The second key assumption is that we continue to anticipate 300, 25 million of full year losses on the MSC classified program. That said, we will continue to assess facts and circumstances that could lead to the recognition of additional losses in the year. And third outlook does not assume any pension contribution in 2020 for Arch. Let's shift now to the outlook beyond 2024, and I'll provide a multiyear framework on chart 10. To start with our record backlog position provides a strong foundation for sustained top line growth over the coming years. Looking at sales through the 2027 time line, our baseline assumption still reflects a low single digit compound annual growth rate off of the higher than expected sales expectation for 2024. As we've stated previously, the demand signals point to mid-single digit growth through 2027 for the outlook remains tempered by our current assessment of the pace at which the value chain can meet the demand. Our confidence in the mid-single digit growth rate will grow as clarity increases on new business campaigns, funding stability and capacity acceleration of the production systems. On segment margins, we have to say anticipate improvement of 10 to 20 basis points per year based on our continued focus on operational excellence and program performance combined with program de-risking. So in other words, steady improvement to a normal more normal range of around 11% ROS by 2027. Thinking about EPS trends over the three-year horizon. While we anticipate year-over-year benefits from higher segment operating profit and a lower share count. These benefits will be diluted by continued fast cash pension headwinds, particularly in 2025 and higher effective tax rates from a change in certain functions. Based on current law free cash flow, we continue to target a low single digit cater through 2027 based on delivering cumulative working capital reductions that partially offset known pension contribution headwinds while offsetting the pension contributions dollar for dollar in each each year. With working capital reductions alone is a challenge. We have confidence that we could fully offset the headwinds and improve the growth rate to mid-single digits through the combination of organic and inorganic cash generation initiatives. We'll provide more details in January as we shore plans with better visibility to 2020 for pension asset returns post election policy and interest rates. Overall, this baseline multiyear framework remains consistent to the investment thesis we've discussed previously. We still expect single digit, low single digit free cash flow growth over the next three years, supplemented by share repurchases to deliver mid-single digit free cash flow per share return over the same horizon with upside potential. So in summary on chart 11, performance year to date gives us confidence to raise the full year outlook for 2024 and in our ability to deliver solid sales and free cash flow growth over the next few years. At the same time, we continue to invest in digital transformation capabilities and innovative solutions for customers. And we remain focused on operational execution to deliver on our commitments and long-term value for our customers and shareholders alike. With that, Steve, let's open up the call for Q&A. We will now begin the question and answer session of today's conference. If you have not pressed the one zero or you wish to ask a question, please press one then zero. Now on your touch tone phone, you will hear an announced theater indicating you have placed yourself in queue. You may remove yourself from queue at anytime by depressing the 1.0. Again, if you are using a speakerphone or blue tooth, please pickup the handset before pressing the numbers. Once again, if you have a question, please press one to zero at this time. Our first question will come from the line of Ron Epstein of Bank of America. Please go ahead. Yes. Thank you. Good morning, Tim and say how we run maybe circling back on some of your in your prepared comments, Tim, when we think about the current situation in front of the tactical side, a world where it seems the Air Force's, given everything to end at the system, what it should be, you mentioned some of the work you guys are doing on AI. and drones. If you looked at how Increment one of CCA was awarded to maybe no unusual companies right now and kind of new players, how are you thinking about increment to and what the interplay between manned and unmanned systems, tactical fighters drone? I mean, does it change how you think about going forward, what and that could be what it means for Lockheed? Sharon, we're preserving optionality based on what the US government and services determined to be their strategy for tactical fighter deployment over the next, you know, 20, 30 years. And so part of that strategy is of having our skunkworks continue to develop technologies that could be implemented for a generation second generation tactile aircraft. That's a step function above what the F-22 and F-35 can do today. So we are investing time on that energy into that and skunkworks such as in this setting, all we can really say about the of the second piece of it, though, is the crude on crude timing element of mothers and GAD or F 35 plus CCA, if you will, or multiple CCA's were already working that out to We've developed a pod that will enable the F-35 to control even today of CCA's, if you will. And we have a flight control system and communication system in development that will enable that as well. And that could be converted, I think that 22 as well. So we are working both of those elements, but the key part of it is still going to have volume. I mean, ex Air Force pilot myself up, we have to be able to meet the J. 20, which is the Chinese combat tactical aircraft for generation as well. And with enough numbers in the Pacific or at least field enough and others of you know, it's up 35 and up 22 now is the only really competitive jets against the J. 20 from one to one. We have the field enough of those aircraft in the short enough time, frantic to maintain an effective deterrent in the Pacific. And the Russians are also developing a fit the fifth generation aircraft as well. So the threat will emerge in Europe to. So we got to have volume to start with on fifth gen. We need to be able to bring autonomy and in the CCA concept into fifth gen six gen if there is one. So we're keeping all of those avenues open. And we're investing really in all three of again, to be can preserve the optionality for the defense industrial base and our partners to be able to deliver on which of those strategies or what combination that the U.S. government decides to pursue. Not just to add run on just to our outlook to multiyear outlook that I gave you that accounts for in assumes that we'll have incremental significantly incremental investment in areas such as autonomy, KI. crude on crude teaming command and control systems. So we feel that our investment is going to the right places these platforms and systems evolve. And as far as the increment to the CCA, Ron, of the way it's been described to us is increment. one was proof of concept, more of an experimental kind of approach increment to is going to be targeted to be fielded, BULL combat ready, scalable design and production of fixed on crude team, a half of the system. So we are fully dedicated to that. Like I said, we have skunkworks out working on both the parent and child, if you will, when it comes at all CCA concepts and increment to is going to be really where we're I think most competitive because we can show that we can control these vehicles up with today's technology already at scale. So we're going to be eager to compete for that. Our next question comes from the line of Sheila Kahyaoglu of Jefferies. Please go ahead. Good morning, Jim and Joe, until maybe once a year, maybe if we can go to Slide 10, and I appreciate you giving the long term, our medium-term targets for low single-digit revenue growth. Can you maybe rank order the segments with and that's EBITDA? And I think we've talked about mid-single digit growth of 750 million there. And what other segment follow what campaigns, but in that mid-single digit up opportunities for our top line growth? Yes, sure. Thank you, Sheila, and good morning. You kind of nailed it in your in your question, the leader of growth will be MSC over the over this time period through 2027. And I would put them at the high single digit clip, very comfortably based on the backlog that they have today. In the visibility, we have two incremental orders, the other three business areas in this framework, at least starting off off with this low single digit. The rest of them will be in this low single digit on framework, pretty pretty kind of consistently. Now how do we go from from a low single digit to high-single digit? Quite frankly, a lot of that opportunity is already sitting in the backlog if the system can convert and actually the entire enterprise, what's not the supply chain is our operations as well can convert on that backlog quicker. And we did see this in 2020 for Wi-Fi. Recall, we came into the year thinking that we would grow low single digit and we converted that and changed it to 5% growth here in 2024, cylinder the same framework, it is a step change from where we are 2024. So we demonstrate that we can improve throughout the year. So was that visibility gets better that would enable us to go from a low single digit to mid-single digit? Yes, there are some other campaigns and some of those are classified. If you go back a few years, we talked about the four pillars of growth from new new awards were was it was an element of that as well as classified growth, new awards. We got one of those, which is the next-generation interceptor. So that's already on a win. The other one would be in our, um, through their classified portfolio. And those are campaigns will happen over the next, I would say, six to 18 months because as I mentioned, I mentioned my prepared remarks, the foundation for the growth to mid-single digit is pretty solid. It's at least in the short term, is more of a conversion issue. Our next question comes from the line of Noah Poponak of Goldman Sachs. Who you're going to run the morning, Joe, I was hoping to from get some more help from you on the MFC. margin. Do the last two quarters suggests the operating performance is better or is it just that the Veloce accrual is loaded into the fourth quarter? And I guess remind me why the accounting is that way as opposed to taking it all when you when you know you habits? And Tom, if you could talk about how you expect that to progress through 25. But I guess just fundamentally, what is the new classified program or the overall operating performance in the segment? Is it improving or worsening? Or is it just the volatility of accounting? Yes, I would say the volatility that can I would say in this year to date, their performance is better than prior year. We've seen an improvement when you put aside the losses related to the classified program there of profit adjustments year to date have shown growth and they're performing, I think pretty pretty well in the basal. This was a good quarter. As an example, we had at really record any losses related to the classified program and we delivered 14.4% margins in the quarter and that's essentially with our operating this year, ex the losses you got it right. As far as timing, we would expect we recorded 100 million in the first quarter. So that would say that about 200,000 million record on or was included in our guidance for the fourth quarter. Almost is towards your question on the accounting. It's a good question. It really depends on the facts and circumstances and the probability we have to make an assessment and a probability of the exercise of certain options. And so the visibility is clear as things are more short term visibility gets a little bit more murkier as you go out a little bit further. So you have to make assessments of similar fact, some facts such as customer interactions that we have their intentions on visibility to funding or a longer period of time. The performance of the system is one in how we're doing from a testing perspective. So all of these factors taken together on have to have to go into this mess assessment to determine if and when we record a forward loss. And so that's that's where we are. As far as 2025 or a baseline assumption would be that we go from three, 25 five to anywhere between, say to 50 to 300 million in losses in 2025, assuming a one per year type of framework. As I mentioned in my prepared remarks, we have to take another look at whether or not it will be additional losses that have to be recognized early on to your question. And again, that's a really quarter for the quarter assessment that we have to make. Our next question comes from the line of Myles Walton of Wolfe Research. Please go ahead. Thanks. Good morning, Jim, just a follow-up first on CCA from are you currently competing on the autonomy portion of Increment one? And is that what gives you a better feeling for where increment to Lockheed could be? And then, Jay, could you just update us on the aero classified contracts keep up to another charge in the quarter? I'm just curious if there's any line of sight to when you're sort of back on the rightsizing program? Myles, it based on the classification of the CCA program, especially longer term, I can refer to as directly as far as who's competing for what element of it. But what I can tell you is and echoing Jay, we are investing heavily in autonomy, AI. 5G connectivity, distributed remote node cloud, those kinds of things that enable a CCA. type device to be effective. Now we're testing and open air, I'll call it a these kinds of technologies with existing platforms, which is another use case, but it's one we could talk about. So you've already seen potentially that we've got an autonomous Black Hawk up and running full capability helicopter that can do missions. When you sitting on your couch in your living room programming, the mission in and change ago into flight on their iPad, right? Is this is scalable, big hardware, big effect on platforms that can be elevated in their compute capability with autonomy, AI., et cetera. We've also done the same thing with an F-16 with the Air Force that shows that we can actually dogfight and F-16 and without a pilot in it and be effective. So these technologies of if you had one, can probably surmise that you can apply them to legacy hardware at that level of scale that you can certainly apply them to hardware. That is a smaller scale and on crude as well. On the other question on the classified program at Aeronautics, we did realize incremental risk in the quarter in the press release and at about 80 million there. To date we're about 145 from. So we have obviously realize some incremental learnings that have have converted to incremental losses. It's a classified program. So can't really talk too much about what it is. But what I can tell you is that we are essentially meeting our schedule objectives, albeit at a higher cost in I say the cost is really a function of the aggressive pricing we bid originally and so on. As we recalibrate, we are kind of keeping an eye on our costs will do continuous reviews, as you would expect us to do well in the review here in November with the team. So we can go back and understand in pressure test the risk management plan, but it's not just an oversight function. I think it's incumbent upon us as leadership team to not only provide oversight, but also make sure that we're providing the tools and resources to make sure they're successful. This program will be managed as well as a whole team role in it together. And as I mentioned in the costs, it's up again, it was bid aggressively on Jim and I have been pretty firm over the past few years that done really reining in those practices. And we really haven't seen any of those since that time. And so we've got a contractual commitment that we've got to meet and we will meet dumb and we'll manage this program as best as we possibly can. And I think part of what we're trying to do is change the trajectory drive toward better outcomes, while at the same time delivering the Mist, deliver the mission capability that we've contracted to give our customer. Myles, I can speak to one command-and-control system that we have demonstrated for those. And again, an open space recently, the Air Force put on its Air and Space Force put on it sort of annual gathering, if you will, on outside of Washington, D.C. And in our it's a bit of a trade show us set up. So it was public. We were demonstrating to our customers there and open space, again, classified our US ability to use that. I've had technology to controls eight CCA's often at 35 flight control and comp system. So we've already shown that out in the open of. But again, that technology we've been working on for literally a decade or two at skunkworks. Our next question comes from the line of Doug Harned of Bernstein. Please go ahead. Good morning and thank you. Well, you know, on F-35, you said that you expect, though, while you know for sure, but the but 18 and 19 negotiations hopefully will be completed in Q4. But what I'm what I'm trying to understand are really two things. I know a lot of times you can have 5% left on something we've been going on a long time on getting tech refresh to be done. How how do we get confident that phone you're going to get there in Q4? And does this have an interplay with the slot 18 and 19 negotiations? Because if I missed out separately, we're trying to understand what the cash implications are in 2025 if you get all this done or perhaps if it slips. So Doug, it's Jim. I'll start off. I wanted to lay out the fundamental framework of the F-35 program, and then I'll turn it over to Jay for some of the cash flow impacts and expectations in the financial results of that. So first of all, just to reiterate, there's a very important distinction between the F-35 production system and how we book revenue and profit on the production system versus the event of final aircraft delivery, which is a actually fairly small proportion of the revenue and profit, but that an aircraft 35 aircraft generates for industry, right? So that important distinction. Now there's two current program conditions that you touched on that affect both of these outcomes, right? So what I want to also emphasize is both of the outcomes are not necessarily economic value outcomes. They are timing related outcomes. So there's a time value money aspect of it, but the economic value of an F-35 that's delivered out of the system. It is not much affected if you will find these two issues, but the timing is effective. So let me just start with TR. three software finalization. So that's one of the conditions that were that we're managing through with the F-35 program and how that affects the delivery schedule. So about a year-and-a-half ago, we had conversations and I did personally about a release one in the release to concept the government calls that truncation. But that's really what the concept is like we would do in telecom, we're going to do or release one of software. We're going to work through the discovery of that. And then when that is ready, we will be able to have and initial product. And the initial product is TR. three, which is capable of doing unit, stand up facing operations and training at operating Air Force and Navy and Marine bases in our as well as our allies with the TR. three I'll call again release one software in it. You can fly the jet. You can practice of basic advanced fighter maneuvers. You can deal with develop tactics in your Squadron the and you can train your maintainers on how to do this through this new aircraft stuff. You're swapping out at 15 Squadron to an F-35, Squadron maintainers actually need to get their hands on the planes, just as much as the pilots do and then make sure all the tooling and everything is working for them. So release one is what's being delivered now that was the 48 in the third quarter. They all have release once you can fly the jet, what it doesn't have as some of those incremental software validations that show that all combat systems and all weapons will be able to be effectively deployed because the testing program and flight test and bench test has been complete needed and we get a certification of reliability for that weapon. For example, there are a lot of test points there and those tests points are going to be developed, not just in the fourth quarter, but they're going to be developed over the course of 2025 as well. Because when I say a weapon, is it an MRAM. is in a nine? What are we talking about? There's got you literally dozens of weapons. And there are multiple test points on things like the student after system, et cetera. So this is a complex path to what I'll call release to, that's the full up combat capability. And as we work through those capability certifications and individually, they'll be diminishing cathodes. Withholds along the way is a slight tests were completed in the certifications happen taken kind of aggregate that for you in a minute, but that's how this part of the program works on a fundamental basis. So we feel that our projection of 2020 for 90 days, 110 deliveries out of that process into release one in 2025 and beyond, 180 deliveries a year of F 35. Now those going to be a mix of those coming off the line brand new and those that are part. So the one 80s will be a mix of those worlds working on a weekly basis right now to prior to prioritize specific aircraft deliveries. Literally one at a time does one go to the Dutch Air Force first and the Marines second. And whenever we reprioritize, which we're doing by the weak based on the needs of the customer base, now we need to change a bill of materials will be weather things and parked aircraft may remain when a new aircraft may come right out to the fleet. So the complexity of this TR. three software, definitization and release is going to take some time. But we will be able to deliver a mix of aircraft above the 156 production rate for the next few years because we'll be mixing based on what the customers looking for. So that's one of the issues that you talked about. The other issue is actually I would consider completely unrelated from this. And that issue is is any lot negotiation for a program such as this and the scale that this program is that. So we are on a lot contractual negotiation with the U.S. government. And by we I mean, our major suppliers with us and all the way down to our smaller suppliers, not currently that lot negotiation has 18 and 19, and it's not completed yet. And under the Federal acquisition, requisite right regulation. If the government does not have a formal agreement with the supplier completed, the government cannot pay for either work being done under that undefinitized contract. In fact, this is not completed contract to be clear or pay for products that is actually completed the deal. So that is where we as industry then have to prioritize keeping our production system on pace while the government bylaw cannot pay us. So it's essential for the health of the lower tiers suppliers that we do, that we all kind of step up and do it as an industry. But the prime and majors subs cannot book our revenue and profit, even though we're expending cost and that's where the cash impact of the negotiation comes in, we're not going to stop the production line because it would be unwise assay until the formal agreement is signed. We are going to keep it going until the formal agreement is signed at which time these cat, these cash payments will be releasable. So those are the two issues we're facing. I want to say one of the thing, Doug, why you've asked about this topic about 35. This isn't just a Lockheed Martin and commitment to make this program a success. It's an industry wide commitment. And I would also add a government commitment to make it a success. I'll just give you a few of the things that we've been part of an LED over the last settlement of the top five industry partners in Fort Worth at the factory where we took an entire day determining how we can integrate our systems, IT systems, test systems, our processes, how we develop up subassemblies and other items that go on the jet and integrate them with the jet, those processes and personnel moving more people between companies is on either a temporary or almost semi-permanent basis to make sure we've got the best talent work on every problem. So that's one thing that we've done that same CEO level team followed up with the government and the meeting there was chaired by the Chief of Staff of the Air Force. The Joint Program Office leader was their general Schmidt. The U.S. Navy and Marines had their Airbuses there. And that was in the Pentagon to lay out a similar integration framework with US government systems processes and personnel that's appropriate under law and regulations. And then we add another CEO update with you as senior government officials. And this was just two weeks ago and seven partner nation customer officials in Washington to to trade a status of what we were all doing together and then two more weeks on bringing my executive team at Lockheed Martin across thus all the businesses and functions. We're going to gather in Fort Worth to make sure that every resource, every operational practice, every supply chain element that we can bring from across the company. And certainly all the technical talent is devoted to this program. That is what we are doing to make sure this is success in the last thing I'll say there is that the customers need and want this process, this aircraft that were the opinion of the U.S. government and are meeting with the chief. There are six customers since the 2020. I think these are all the competitions that we're in actually that shows look at 35 that weren't in the original partner group for the original order team that will Switzerland, Finland, Germany, Canada, the Czech Republic in Greece and then follow on from partners that already have the aircraft in operation also were added Japan, Netherlands, Republic of Korea in Israel. So the demand for the aircraft and actually essential need for the aircraft is their industry is getting together with government. And I think in ways that we haven't done before to really make this a success and we got to work our way through the lot negotiation, which is, again, it's a timing issue as far as payments. And we got to work our way through to our three integration, which is a technical issue. But literally, it's an all hands on deck, not just an industry, but I'd say in government to get it there, it's all done. J. Any Yes, let me just I'll just add. I don't know if you could give you a little bit color on the cash impact to your question, as Jim mentioned, is that what we're looking at here is an output estimate of about 180 aircraft deliveries per year over the next three-plus years. So effectively what will happen as cash collections will smooth out over this period of time, just as important to point out that that remains consistent with the low single digit free cash flow growth framework that we've articulated today. And previously, just maybe a little bit on 2024. As I mentioned in my prepared remarks, we estimate the impact this year of unfavorable impact of about 600 million consisted of two factors, number one, less deliveries than the than the one 56 rates will deliver in that range of 100 aircraft or so. So there's going to be less aircraft delivered. And so there's an impact for cash flow from that. Second impact is the impact of the withholds, while we will release some of those withholds this year based on completion of milestones, that will still be some carryover into next year in a little bit into 2026. Now in 2024, that's unfavorable impact of 600 million. That was entirely offset by other working capital efficiencies in the rest of the portfolio of about 600 million, mostly through advanced is that we've seen there. And so the net impact in what enabled us to deliver the same free cash flow. And in fact, better than the midpoint than we'd originally guided to was that offset as you go to 2025 will deliver more aircraft. And so we will see the benefit of having delivered more aircraft, and we will also see the benefit of having incremental withholds released. I would quantify that today at around three to $400 million. And then that will that will then continue to flow in 26 and beyond. And hopefully that helps. Our next question will come from the line of Rich Safford, Seaport Research Partners. Please go ahead. Jim Jaye, Marie and good morning. How are you might come from K from on your opening remarks on pension on, I think in the past and made some comments about possibly reducing some out your pension headwinds. So I want to know if you could maybe update us on what your thinking is there if you still intend to reduce the headwinds after 2025 using debt our cash? And if so, what do you what the timing of that might be? Thanks. Yes, thanks, Rich. Digital. Essentially in my prepared remarks, I talked about the inorganic inorganic means of managing this pension headwind that the inorganic would essentially be the issuance of debt as a primary enabler to be able to do that. That's still on the table. As I said on my prepared remarks that we're going to go through between here and the end of the year and finalize our plans are based on various factors. And as you would expect, we're trying to exhaust all of the the opportunities on an organic basis. So what can we bring out and working capital over this period of time to be able to offset as much as possible to the extent that we can't, we do have the ability to go on on financing to take out. I think that's the key takeaway there is that out, I remain confident that we'll be able to do that to the Company nation of organic working capital reduction as well as some level of inorganic, mostly on the debt side. Our next question will come from the line of David Strauss of Barclays. Please go ahead. Good morning. Thanks for taking my question. Yes. I'm just wondering, I wanted to clarify on the longer term, bringing more relative to what you had said previously on 2025 and incremental talked about a 2025 growth in line with 20.4, which is a 5%. So it is that still the case or not? And I know this is and this is out through 2027, if you could just touch on that. And then maybe, Jim, if you could touch on progress on the solid rocket motor side of things in terms of how that's going. Obviously, you, you know, you announced this partnership with with General Dynamics during the quarter as well. Thanks. Just on the framework as it relates to 2025 at 2025 is very consistent with the multiyear framework that's on that chart, which is our starting point here is the low single digit growth framework on off of the 2020 for a number. And again, it's a we're looking at MFC. being the driver there, kind of starting off with a high single digit rate in the other business areas being either flat or slightly flat or or on the loss up and is low single digits. And so that's really our starting point. Again, we'll give a lot more color on in January as we finalize these plans for, let's say, 25 is consistent what we're seeing in the multiyear framework. I guess just a reminder, David, and I think it applies a 25 as it does in the three year framework, we went to 24. We started a low single digit. We upgraded it to mid-single digit remarks. There's still the case where we could be mid-single digits in 2025, but we need to see it come through. We need to see the production and operating systems to be able to consistently grow at a mid-single digit kegger, which is a lot easier said than done in the environment that we've been living under over the past few years. David, as far as the solid rocket motor industrial base, I think this is a really positive example of how industry does come together in the service and national security, right? So first of all, I've just read this search circulated this question with our Chief Operating Officer. Frank say John is outstanding for on Northrop Grumman and Aerojet Rocketdyne, which is now managed by L3Harris. My question to Frank is, are these companies putting all the resources that we think they could be putting into their solid rocket motor off operations, quality delivery, schedule personnel, et cetera, and open to us collaborating with them to make sure those deliveries happen? And his answer to me was yes. So our industry existing industry partners are stepping up to meet that at the elevated demand and investing to do that. So that's great. So we still need a third source from, I think, a anti fragility perspective as we call it. And that is some a partnership with General Dynamics. And that started off with the CEO level. And and we figured out there was complementary capabilities between General Dynamics, Lockheed Martin, where we can. I actually have the design done at Lockheed Martin for the SRM. And the General Dynamics had the ability, the facilities and the kind of a production operations and personnel that could actually produce it. And so we are working together on that. We'll have to get that new a solid rocket motor certified. It'll be a again, Lockheed Martin for FIIP. design, if you will. And General Dynamics is standing up simultaneously, the ability to produce some rate. We have to do a few test articles next year in 2025, there'll be further testing, and it's done by the services to get their certification, the military services in 2026 and should be producing at rate, we hope by 2027. And that allowed us a third supplier for the national defense industrial base, not just for Lockheed Martin, but for for others as well and really strengthen our US guilty to produce sees these systems. Our next question comes from the line of Jason Gursky of Citi. Please go ahead. Seeing. Good morning, everybody. Thanks for taking the question of bringing can I just wanted to go really, really pound the table not powered to beat a dead horse here, I should say and make sure I fully fully understand the multiyear outlook here. So I'm just saying is low single digits. The baseline you can outperform that into the mid single digits. So long as the supply chain and the production system kind of maybe performs as well as it did this year relative to expectations? What's the blue sky scenario here, let's say, the supply chain, all stamps back into place, the production systems working well, you are then in this context producing mid-single-digit growth. But I would imagine that you've got a pipeline of additional opportunities out there, or is there a blue-sky scenario where you're actually doing better than mid-single digit? You know, it's a great question, Jason. Let me just first say, terms in the framework. I mean, obviously, over 2025, there's better visibility than there would be for 2027. So the outlook feels good. And so my comment in terms of confidence as far as the demand signal being able to drive to a mid-single digit growth rate and 25 is heightened by the by the better visibility, if you think about what we've seen in over it. And I'll take 24 as an example in answer to your question, given what we've seen, the demand cycle would have also enabled a higher growth rate than 5% in 2024. So I think the answer to your question in the short term is yes, I don't know that I can sit there and say that on a multiyear framework would be a high single digit number. But I think that given all the right circumstances, you could definitely see a year that could deliver high single digit. But again, we're starting from low. We've got to get to mid, we get to mid and then we can talk about anything beyond that. First things. First. Our next question will come from the line of Rob Stallard of Vertical Research. Please go ahead. Thanks so much. Good morning. I'm appointing brief K A question on the cash situation. Can you give us an idea just how much working capital benefit you have to get through in the next couple of years to offset pension? And just how risky this prediction was that from rather where would I would characterize it is just quick math. one day equates to about 200 million of free cash flow. And I would say through 25 and 26, we would have to do on at least two days of working capital improvement. So is it possible? Yes, in both years, CW cumulatively, four days to 25 and 26. It's possible. But it's it's it's, you know, it's a stretch. And that's why I believe kind of a better higher confidence plan would be to combined combined the initiatives on working capital with some of potential inorganic capabilities or or cash generation with the ability to really drug draw that back down over a period of time with continued cash flow growth. And so I think it's a home. It's what I would say next year that we've probably got two days that are not yet solution between now and the end of the year. So we got to go figure out into the extent that we can have relates to 2025 will, um, that become the the inorganic becomes the gap filler. All right, Steve, this is Maria. And I think we've come to the top of the hour. So I'll turn it back over to Jim for some final thoughts, Sierra. Thanks, Maria. Look, look, I just want to recognize the employees across Lockheed Martin, their dedication, their resilience, and they consistently are innovating now in ways. I think we've never have and cooperated across businesses and functions before like we never have. So I want to really make sure that they're recognized us this afternoon. We want to make sure that our allies and our country can defend itself and therefore, deter any aggression against us. And that's what they think they're doing and what they are doing every day. So I want to thank them and thank you for joining us. All I look forward to connecting again for our Q4 call in January. So we'll see that, Steve, that concludes call for today. Thanks, everybody. Ladies and gentlemen, that does conclude our conference call for today. On behalf of today's conference call, we'd like to thank you for your participation, and thank you for using AT & T. Have a wonderful day. You may now disconnect.