Northrop Grumman (NOC) 25 Apr 182018 Q1 Earnings call transcript

Company Profile

Participants

Stephen C. Movius	Northrop Grumman Corp.
Wesley G. Bush	Northrop Grumman Corp.
Kathy J. Warden	Northrop Grumman Corp.
Kenneth L. Bedingfield	Northrop Grumman Corp.
Noah Poponak	Goldman Sachs & Co. LLC
Ronald J. Epstein	Bank of America Merrill Lynch
Peter J. Arment	Robert W. Baird & Co., Inc.
Seth M. Seifman	JPMorgan Securities LLC
Sheila Kahyaoglu	Jefferies LLC
Carter Copeland	Melius Research LLC
Hunter K. Keay	Wolfe Research LLC
Douglas Stuart Harned	Sanford C. Bernstein & Co. LLC
Robert Stallard	Vertical Research Partners LLC
Cai von Rumohr	Cowen and Company, LLC
David Strauss	Barclays Capital, Inc.
Samuel J. Pearlstein	Wells Fargo Securities LLC
George D. Shapiro	Shapiro Research LLC
Robert M. Spingarn	Credit Suisse Securities (NYSE:USA) LLC

Call transcript

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Operator

Good day, ladies and gentlemen, and welcome to Northrop Grumman's First Quarter 2018 Conference Call. Today's call is being recorded. My name is Jamie, and I will be your operator today. At this time, all participants are in listen-only mode. I would now like to turn the call over to your host, Mr. Vice Relations. and Treasurer Movius, President, Investor Steve Mr. Movius, please proceed.

Stephen C. Movius

Northrop quarter XXXX Jamie and call. first to welcome Thanks, conference Grumman's

Before we Harbor constitute forward-looking Securities start, today's statements on please Laws. pursuant understand that to Safe provisions Federal matters of discussed call

release. also reconciled may results everyone for statements measures our differ in reflect of period accounting. press of our that detailed the on and prior materially. in These recast and Matters release standards comparable X which actual Schedules that information, cause call recognition filings. today's adoption uncertainties I these SEC discussed involve accounting our to remind may new would present risks the also our company first earnings X Forward-looking financial uncertainties, risks and are are include standards. and non-GAAP adoption and quarter results earnings of revenue today's release pension new reflect to

an the overview also company slide be will to posting deck We webpage. updated Relations Investor

today I'd our Officer, and call Wes call Operating our At CFO. the Bush, Bedingfield, to Chief CEO; time, turn Wes. this Chairman Kathy our over the and Ken are On like Warden, President to and

Wesley G. Bush

everyone joining is to three us. good thanks Steve. off all and delivering of start XXXX with solid businesses Thanks, a our results. Hello, for

focus strengthen sustainable continue We continued entire to performance. growth want long-term for profitable team and on for I their a our company's foundation the to thank

driven to quarter's continues which Net Manned $XX.XX. increases by production very taxes information up programs first year. increasing by to and phase to improvement more ramp full-year sales Based pending development opportunity operating continue performance EPS earnings expense. quarter growth offer quarter, can which to this course, volume last innovative XXXX about items capabilities acquisition. segment XX% and and to Processing First early half expect This pension results, in to programs. implement the diluted Kathy on volume we're income driven particularly dollars We're net ATK in ATK focus to very strength Orbital and of Mission on first Aerospace of higher income increased the capabilities at other and close of segment of each Systems. as status and Orbital excited operating the in we to we our guidance together of both that Grumman pleased of guidance, We're community. several earnings the additional than the the on of our excludes $XX.XX share provide on Aircraft over Systems sales our bring grew grow more higher volume X% and at offset acquisition interest we demonstrate quarter a range on the that and the program Sensors will customer Northrop the new year's per

long-term profitable cash, our over quarter showed spending that first pleased pattern support customers. this the growth improvement quarter year's Capital typical million operations investment funds reflects is of we're from affordability in during continued a our For $XXX quarter but quarter. about our the use cash for first and last of

expenditures to billion We billion $X.X free $X billion. range will continue to capital cash between flow expect XXXX be will $X in and approximately

through the business, Our balance returning dividends continues investing shareholders to capital call deployment for and share cash and strategy in to sheet managing the repurchases.

business an to dividends we the off-cycle We time profitable paid opportunities. workforce, which a growth, to in remain was in sheet previously some increase continues for our foundation we cash pursue allow to At new with programs, balance and large on dividend us through repurchases. March. and announced focused near-term XX% strong January on capital reduction returning ramp invest debt long-term Our share shareholders strong to same new strengthen and as cash our expand generation up

continuing will process. May, the ATK quarter dividend our repurchase shares in we not in the consider are did pattern. first pause repurchase as Orbital any during is We transaction the typical our to as We again share program

missions. the pleased provided for for environment national top a over actions near-term March expiration that defense that ceiling to to turn fiscal in note in and security budget year established our year XXXX. and which $XXX Kathy, extended customers agreement at bipartisan we're billion Before, the I'd their the increase funding fiscal appropriations, stable the These call a I line provide XXXX XXXX execute of more until significant debt important should

transaction Now operational I'll as ATK on Kathy? pending update turn the the Orbital over an some for highlights. well Kathy as to call

Kathy J. Warden

good the team for for share shareholders. delivered our want Thanks, operations the afternoon I thank our of quarter, our to Wes, and they our results and to customers everyone. this outcomes I'm and pleased

Before, our on current ATK. I touch me let with talk pending combination about operations, our Orbital

we transaction in first We We in and U.S. close the continue to the the received continue process in the to support approval to the expect regulatory February half European Commission of year.

offerings, progress to We also and customers. the continue combination on excited capability good innovative planning including our expect yield about cost, to potential we future We're integration synergies. our operational make for

versus quarter restricted sales XX on fuselage XX%, Aerospace the and our of we increased we activities captured center in continue F-XX last units the Systems to delivered in of business for quarter, Turning sectors and quarter this position milestones units well F-XX the program the and year. up each for highlights by XX long-term. to Manned us that program. achieved the sector At ramp nearly Aircraft, first

initial next continuing Department very State recorded and request flight two Pacific. The buy the to hours up we're that high-altitude, XXth demonstrating James procuring required in Germany's make Australia has Space, of to deployed Systems, requirements. perform production our continues Telescope. through the production. progress towards Space low good our ISR humanitarian expects Autonomous NASA's operations. recently military successfully now and to are celebrated that be long-endurance in Triton, its the ISR on We we're to XXX,XXX continue end of with pleased its missions year. make the Triton. rate generation platform we progress Xth Webb missions maritime Hawk than In will first to customers. Guam Navy curve by support approved moving is flown more by operational anniversary Navy's progress the critical this support Fleet And Tritons for to To Triton Global

five for Poland launched enables With Corps. capable milestone capture SBIRS and and we Social rate IBCS of And entering TS Air reside The G/ATOR all Task-Oriented Integrated an Also facility current the Cape the Under Air the Corps. the its and allies and country to control growth the first of sensors excited arrival XX-year incorporation the Force open Lot X Technology in in full Services, JWST G/ATOR been and a our of Redondo defense Station IBCS U.S. look satellite has the the Aircraft telescope Science Support module, for missile Offer at in of architecture, Social the production now contract numerous we which also a competitive our And Instrument long-term to of the partner for capabilities. and integration awardees systems or successfully Electronic Canaveral the provides and it about systems IT program of efforts. optical transitioned war elements modernizations missile Mission enabled last and new and truly the to transform Beach. major for with recompete of will Integrated successfully approved international Advanced deliver support from Flight picture defense early unprecedented transformation or to X and in G/ATOR's three Mission of This more Systems, globe fielding performing we're the or addressing January this to Marines. our operating Security test the we IBCS. SEMA, Acceptance continue a Poland Technology and LRIP for continue flights initial Letter forward Administration. six. by the integration and capability Missile weapon With is we activities Radar and We're follows Command system achieved systems purchase Marine Systems, Battle future now on portfolio. payloads that their Lot air Defense one initiatives prospects for is Special systems our and Ground/Air and system. Mission delivery the after well Mission integrated signed systems our command Systems program At six our the were Information and as X around has Government year. and integrated our air Marine our is payload of capabilities Administration's on opportunities And to by fighters. four, the Security to will and contract final delivered undergoing EHF At Services calibration. it our Army, a getting

we however, continue, the disciplined We very bid. about be opportunities to to select

of recently satellites as DAS, we performance. believe not critical were sustained determined to not bids, two attractive assessment and next to business elected example, criteria long-term strict generation that For F-XX in pursue We for GPS us. applying our selecting pursuits the is that we they

Now Ken more of I'll, turn the detailed financials. a discussion call to over for our

Kenneth L. Bedingfield

far afternoon, our Today review Thanks, and efforts guidance. our update add this good Kathy, our quarter everyone. briefly to I'll year. XXXX first team and I'll results for their thanks so my

first Before number just parts in I the let quarter our of moving to comment quarter. on first results, me get the

the a and recognition in new operating adopted the regime and standards. began we quarter, the During new tax pension revenue we

Orbital FASB new Act on transaction. closing did Orbital does that guidance equity, integration impacts plan also the the amortized Tax We while remind working on of costs. presenting implemented the for on everyone the benefit largely the items I ATK also reflect certain all on We in would our recorded of not guidance planning the combination. ATK this

However, related transaction debt months last interest include million of net costs. issued October related acquisition, guidance the to six the of to and $XX does

the of year. update as transaction will after closes half our we the which, expect in Kathy first We continue guidance to mentioned, the

higher Aircraft the Turning were primarily the sales up to F-XX volume restricted driver, for major Aerospace Systems to growth sector program. due XX%. and Manned was activities results,

and was revenue operating operating had grew X% Space. income at XX.X%. rate and first Systems also higher We Systems' quarter Aerospace Autonomous margin

last higher volume modest year, this to non-programmatic this benefit from In addition development year. we benefited that early a results have year's didn't phase

to the change to XX% XXXX prior billion No with low-to-mid margin continue we in expect For rate. AS a high range revenue guidance. $XX

year's due Processing, first driver and Mission Sensors to programs sensors the self-protection to at is rate Turning primarily X%. Systems, be represents F-XX Higher quarter continues well XX.X%. than Margin MS for and and of and volume sales, higher last restricted as income about electro-optical/infrared, the which as was operating sector. to activities. XX% both slightly sales growth rose targeting

the to we guidance. prior than ramp-ups Revenue No to we've with in at discussed. margin of programs rate programs year's KC-XX $XX SEMA. by change Services on first JRDC quarter For last to mid-to-high due slightly like are XX%. like continue operating and the expect offset Technology billion being headwinds lower an range sales XXXX was previously in Declines approximately partially new

to mid For approximately expect sales prior continue Technology billion XX%. range XXXX Services of with $X margin in be rate the an will to change operating No we guidance.

of that sales a portfolio higher segment the a and that mid margin all continues mix. expect we up, of percentage which the contract to range, approximately to roll early in work $XX low we phase have reflects billion in As continue rate a XX% development operating to

margin accounting We presentation. XX% expect operating total new reflecting rate continue to pension approximately will the our be

As you're into we're split XXXX, pieces. required FAS to aware, starting in two

prior million. before FAS income income are for XXXX pension million earnings our total were non-service $XXX FAS to This and and There benefit no would by guidance million. $XXX to pension taxes below other operating guidance. from income service that to in $XXX moves $XXX an update quarter reduced expense net from CAS our $XX adjustment operating also note by our million we million increase increasing our increases $XXX million I in estimate assumptions. FAS/CAS updates reflects First

expense quarter, million comparable in expense. expect remind year. of unallocated the was is would While first corporate continue of that of $XXX to unallocated Orbital expenses our higher unallocated also XXXX corporate ATK unallocated contemplates $XX expense half approximately year's we typically the and ongoing expense corporate to you second corporate of the million $XXX million I which transaction last

$XX contemplates Our last interest guidance approximately expense million, to and $XXX fund or of debt of our months the comprised million ATK we of six on $XXX million net a net acquisition. which October expense interest issued approximately for is pre-Orbital debt

million compensation. tax rate the share-based to XX.X%, the to approximately reduction tax, tax a We for expect our $XX effective be reflecting well XX% effective rate benefit quarter now Turning related rate statutory XXXX. as will tax was in our as excess XXXX employee

to $XX.XX guidance average EPS range As XXXX our to $X.XX of Wes noted, to weighted share a This assumes increasing our $XX.XX. we change by are diluted count. no

more expect I also $X.X billion note of free the of $X flow expect year. weighted billion. be that to capital to to cash approximately after billion we $X of spending half first spending heavily continue capital We would will the

was to year. for team forward from start it So, the look continued and the good we our of a year performance the strong to remainder

we're ready Q&A. think I for Steve?

Stephen C. Movius

Thanks, Ken.

reminder, we to a each themselves single a ask limit question. As participant to

have queue, line. You you open if additional can re-enter the the Jamie, questions. please

Operator

comes Your the of Sachs. Poponak first line from Noah Goldman with question

Noah Poponak

Hey, good afternoon everybody.

Wesley G. Bush

Hi, Noah.

Kenneth L. Bedingfield

Noah. Hey,

Noah Poponak

On from the increase functioned higher. step again doesn't capital in what level it's year. guess expenditure, so But and had the year-over-year front-end Ken, heard sustain be the up just said, through it you big already quarter I the that will I first a loaded

XXXX? much how level, beyond one, longer you mean out is what to build do this do at need two And how do So I we be that going?

Kenneth L. Bedingfield

Appreciate are to. are yielding to that all what we that that, approach CapEx dividends the say I would taking that they capital, been a I making in I to. diligent them expect business deliver think cases the question. making the we need the sure investing think investments We've

back case the we're a we're and investments that we're taking fact in making sure look that business smart investments making. we're we're then make upfront that the to So at and looking on delivering again

quite we're there. what's on happy think I going with

profile to been the the growth for terms I we've know you In business. we've that the of fact the talking say, would of about invest got

to a XXXX bit reform about we little comfortable a capital we us. for than Not with loaded bit And benefit about we another also tax initially allocating to had a XXXX. fact us We planned in billion continue front-end the in more talked $XXX million. little $X as surprise the to that mentioned. It of be was result estimate the

larger that necessarily as just were the remind that to is think consistent number will plan. a think start we significantly downturn a and We consistent new was at then normal would point not And that company return with well in you it to in back, stays XXXX. time. pretty years normal where we new the elevated our in I a we'll with of be XXXX I

Wesley G. Bush

fortunate successful that we very, further it find about If in of those which being would extent just ourselves in to I just degree think add on investments And are depends as capturing successful we over to we out-years, also a additional the large business. the require position time. new very may

actual to have So give updates to we success information those more we turns insight get be. more as have you simply and on capture what out our

Operator

from Bank comes question of line Epstein next Merrill Ron Your America the of with Lynch.

Ronald J. Epstein

Yeah, hey, guys. good morning,

Wesley G. Bush

Ron. Hi,

Kenneth L. Bedingfield

Hey, Ron.

Ronald J. Epstein

think you not when beyond So, I'm to we ask unaskable GBSD you for it opportunity the of what anyway. you have combined sort kind question, classified we we the you with but contracts. the if could that When that's guidance, and today, think versus sense it's how company open you can the just a guys a opportunities Orbital space combined – that there's what could out to a opportunity you as give have us there is framework to getting ATK better about you bunch of company asking Northrop the I about going of going When was company to the some do in of my chance ask but I'm space combined kind post-merger that. Wes, and after like about of other of think know because

Wesley G. Bush

the in what of a your so complementary about mark pending that is the transaction. really the question and very today a are big two on in to space. terms Yeah, reason we the of right do part match companies excited goes It's

mission environment is moving Orbital clearly of a particularly set tends those to more today, environment future address systems larger the a focus very that the missions you And that need what size. to with class capabilities And we attendant of us happening capability it space you we in the agile the where the a of of that's demonstrated – is spacecraft. on not arena and more platform that is today address, about the has mix of space contested of say on we an of I in small have class that that is space, ATK know, given would are Northrop only whereas to need set already. think applications into if the As medium significant very,

you to if those space conduct do to blend architecturally inherently think we a that are So capabilities space want we of are about needed architectures capabilities. that threat the have the that mission in both to those classes address of in the and

of full this be as complementary. it the I with very ability our enhanced customer the coming companies, to offering is will of range together bring set a because said significantly So to

So to opportunity of offerings available we sort forward significant our of to create, make full that as it's us an revenue capabilities to of our a very customers. synergy set having believe much by we go to

Operator

Your Arment next Peter of line question is from with the Baird.

Peter J. Arment

Kathy. Hello, Wes, Ken,

Kenneth L. Bedingfield

Hey, Peter.

Peter J. Arment

on mentioned some just Services, know how of that about thinking think get business. given some are growth Hey, place, Wes. long that out backdrop to the Maybe just be down, the is a understanding term better profile. KC-XX budget looking I we're should the now there just we trying of the growth about winding how If one-time you programs of and Technology of should kind we others. and in

Wesley G. Bush

Yeah. Kathy, don't why you us? that address for

Kathy J. Warden

Wes. Thanks, Yeah.

parts seen a Technology business company we business as XX% year-over-year. is other sustainment at look Peter, support their about of for So, that significant of a accounts And is we've portion in and the grow that portfolio Services portfolio. our that our there growing as of result the to of

the have that recently been and of of the anticipated about of a year. the winding that wind-down some their the to program is VITA that the programs this talked most down through the past wind way offset portfolio, in So KC-XX we've

quality the and see replacing good business the healthy very Services Technology that we with that you margins However, are level. at of organization sustaining a

synergy we're our support build. the really systems with we the of forward to rest business, of with pleased modernization So still particularly it portfolio and their the to has our look ability we and sustain that as

Operator

Seifman Your of Seth next JPMorgan. question from line with the is

Seth M. Seifman

Thanks very much. And afternoon. good

Kenneth L. Bedingfield

Hi, Seth.

Seth M. Seifman

level Kathy on aircraft, as mentioned that a that the on F-XX. and bunch I not you in decision of you're bid on out look the made work And guys program that that think you some a places about on do how profitability the you to wonder about additional different those program's as to you of and to target returns things maybe you think challenges work on versus direction some that have, given have wanting between the of balancing that holding the you gone?

Kathy J. Warden

for Thanks We opportunities the come. questions, they at Seth. each as look those of

significant three As of you electronic the of Systems a program, portion the components. AS just fuselage within not but that know, Mission we F-XX have builds, center the

was are specifically not the an that take decide that my comment the look of business us. You to that referencing DAB, we system attractive upgrade that and about at did a and

so for procurement it us. at building DAB, We for And we've to of we continue and sensor have as good sensor. a deal a deliver years time looked the even quite XXX% the with been decided business that with future it when number doing well on and wasn't we attractive that

the portfolio just see same And using generally are so that we discipline. and we'll that the program F-XX and that continue discipline to modernization to the across but there, we apply efforts not

Wesley G. Bush

their there's that and of wide to activities unique mix they an F-XX perform business. own that array each continue our optimistic and business sort important and positive very of as things about F-XX, we I profile add, think arrangements on be of are business of we part we on a would the just when have Seth, and

our the of to, quality we've with bring high of out, to and delivery pointed that able as elements. delighted Kathy all on-time are We approach been very

that in are through additional on activities front We be are to on taking the work of us F-XX. delighted sustainment

would We're us. So the where you aspect is reflection take supporters But a broad out, that from sure to program. of as F-XX not decision to F-XX positive with Kathy decisions a the business very every a and your I critical want big our very question. very, sense the us, is on do at of know very it a I discrete as very The we make but you not important and would going see we're of nation, that I quite portfolio on very, those. security in future important were and as of program you to case opportunity partnership look to program. wasn't to as our somehow particular absolutely you of our F-XX. is want allies See view and points

Operator

question comes the of Your Sheila with next Kahyaoglu line Jefferies. from

Sheila Kahyaoglu

Hi. Good morning, everyone.

Kenneth L. Bedingfield

Sheila. Hi,

Sheila Kahyaoglu

development give they've how stay broadly, of some progression pieces quite program you development despite it on year color in margins mix. margins it On And just strong about Aerospace to enter outright then margins, until we Can throughout Systems us in the maybe the more should moving when been comes production? or productivity think Is you that flat in programs? two do quarter?

Kenneth L. Bedingfield

start I'll or Wes development margin and a that AS and that a by question. the the and driving. phase us in on have. is on the would of taken and that Kathy they they've for the the programs bit on that performing have that feel margin say we're the are is that largely been well free. if pleased work enabling And production impacts early that largely We on the taking early sector biggest hold that's do from volume mix Thanks margin wants and performance its that sector say in, and while know where would are mix. strong work of from seeing largely we're phase are in compression I jump to being I portfolio performing we've to past programs that strong driven we

reference restricted largest, working of some probably be In pursuits driven back being for our as sector that space some early margin the well. respect, other certainly phase in are GBSD the we the as look on the at success profile Wes's AS, we I'd future on. by but opportunities, that some is to forward, In would terms to forward, looking I of say, comments. going

margin by at AS. about the growing and quarter at three sales all we're growth divisions driven strong performance really Significant this XX% top line, maintaining growth, at the the Aerospace. margins So within performance and dollars excited of

we're excited it's how and about where So going. Kathy? it's performing

Kathy J. Warden

I'll just margin I've at of core early profile, execution said, change add we as mix but production strong programs delivering when can stage is And development the been Aerospace very programs, with with their development performance to our each those deliver allowing phase in sector mix, production. that Systems pleased on is margins. they're Ken that contracts strong and that, the whether early or look margins really this us of

Operator

Your the next line Carter Copeland question of from comes with Melius.

Carter Copeland

Hey, good afternoon.

Kenneth L. Bedingfield

Hi, Carter.

Carter Copeland

on seriously and that over that it several really have guys wanted done just you I what some contract and But the stuff you of Wes, like NASA think some an means sort kind the and any issue that exposure if given how could you should necessarily Can just commentary give the taking un-Northrop-like, – about of performance the don't the the mean, isolated color deficiencies financially. ask would helpful. – and I clearly escapes have how of Webb last and training I quality it? think about I or Just seems that execution, years. you much contract evolved you're color you think, briefly Thanks. about things that's type to James from I be not around there. we (XX:XX:XX) how performance realize and us if like

Kathy J. Warden

Thanks, Carter. I'll take that.

kind a mission real the think system a what space. of a It's we about As that James explore to a it's kind; really first leap important is. of technological talk we in about and it's the that one Webb,

origin. help galaxies our who of formed back at those familiar us billion aren't with the For it, stars universe to was it the look to earliest actually XX.X you when and will understand years

make program it is hardware, is it's that, And an that the new integrating continue priority; complete. good a And launch it's fully And NASA telescope diligently time sure full The for have engineering quite is all the so assurance we important with news reflect to for when the have phenomenon. when you work mission and we and date flight that think we to launch, additional that us mission does like spacecraft. about that testing success. now the top we

do are adequate to to partnering NASA ensure with So that. being taken we are steps

challenges some there the about happens. doing for of asked the ever, is time learning You when that people first and things we've that are encountered

with And be can that them here. so the some mission are training that we're to first are time giving identify of come our risk exploration success successfully a fulfill best and inherent we for so able so space the give and But ensuring people chance to doing the partnering the that all get NASA it all that focus something of we be and does mitigate continued can and launched we that successfully that this to to want see we successful. we

Operator

Wolfe question Keay with Research. next Your from comes Hunter

Hunter K. Keay

is positioning on Or I'm Hey, to curious know with Northrop you, about prioritization you. itself years? Thank saw next We thank kind guys. that program. broadly, XX that program X you're incremental developing some of budget request and how to how maybe the NGAD thinking (XX:XX:XX) the more most of over recent

Wesley G. Bush

will have we're to to this able superiority, in and of our military to effort significant just we nation provide is broadly sort technological that be we have an in of engaged a will We ensure that that class of that at serious on to very set continue let to important way. of effort. specifics to me intend supportive be this very going activity, as the be capabilities clearly be things going to that into I Hunter, not and say any future but broadly looks our need get

Department's I details in it the today. of nation reflection will ensure all and But see a particular as things over of right that time serious doing to So again, this superiority. technological about the maintain a not, as the be something say anything of emerging very intent are to positive that we can I

course we happy and support So I'm engaged. of to it really will for see be the

Operator

from of line comes next Bernstein. Doug the Your Harned question with

Kenneth L. Bedingfield

Doug. Hi,

Douglas Stuart Harned

a Hi. afternoon. you've XX% follow been to the moved plus. Mission won, work you I work if Aerospace a they've wanted than more more where Thanks. with to the to Good development because and in point they've of at look Systems, go lot cost development question back on Sheila's each

at fixed if where And the how does long-term so see that plus today, look few you versus cost next you price? evolving like in two And what got the or are given big you've some versus those contracts, development over mix production you years? do look mix that

Kenneth L. Bedingfield

taken So, type me some would lot numbers and the level AS sector that we is Doug, heavier normally of than I a would but on. don't cost around let the development And do mix, the that they've work say put some delivering I development say sectors, time that at take they other of strong production the given the that margins probably portfolio have XX% at offset that work. able are same on. are programs of the to plus solid of a

to pressure. margin got good focus cost-type that the the on And burn earliest cost-type programs same. is rates. where in you tried all programs highest that down are And the booking there to phase where generally have work most still you've fact we've Now, some margin solid not cost-type very see the the risks fact are

margins think to as try programs cost-type things of in of being or risks or homogeneous wouldn't I So terms that. like

in sectors some look But There how the there in price fixed can on the continues of kind down. last sector, it. revenue characterize if they're Systems XX% Systems XX-Q, that's I new some breakdowns find revenue in of break charts and you Mission way would of more and couple and as at disclosures information footnote. exact of the far I I to But than As the terms you the largely go more recognition run is a don't number. remember Mission think the

of our I think portfolio. of its representative power the

across programs production We sectors have there's of in sustainment. not a terms different and lifecycle the programs different a of across customers, of but only mix and strong the across mix strong development,

benefits know results I you you on our and reference. it's we're very So think taken we healthy seeing that look as development work the as that of at we've the even

Wesley G. Bush

I new are about development And, is point consequently advent pretty natural get as timing, that couple between production believe underway the Doug, these here the issues. of new one be or particular. to the in they would production. some question will add development modernization addressing I balance intent mix thing versus on over the and work next do this of transition going additional the to activities be years it's administration your hard will clear And is work of to that And

timeline of the to to period will going little So additional But of from into exact that put the of production onset development just into important and and of the that uncertainty production. broad of some case a us to really activities the limited to that those as some how transition to extent transitions happens current of time that big be on. of perspective, And the activities for it's as there's activity into sooner development development some strategy a be bit new capture in transitions successful current these with for the additional that the development focused that activities. the key we than other production if activities were of we're pressure experienced could phase

we of of of timing variable to is we that those terms it it's these the they but now as on efforts contract. to very the as in on be right and hard are supporting of because pursuing startup So intently the them desire them will focused there development customer new get activities, call quickly

Operator

with of comes Research. Robert Stallard Your the from question line next Vertical

Robert Stallard

Thanks so Good afternoon. much.

Kenneth L. Bedingfield

Hi, Rob.

Robert Stallard

sort get any to the of And looking trying what put Doug's sales Hi. perhaps. under I from question follow of of whether indications to up quarter in more be your of forward? percentage classified really customer sort under work the of on umbrella? was that may I wanted was some classified you're color your getting they going to

Wesley G. Bush

say broadly Rob, a of additional in we activities. direction just do the I that trend restricted see would

we you that classified. growing I think means that operating the technological drive these keep understanding reflection in of all security superiority days, a are of number that that actually aspects environment of is it activities important the to need a

a of Future some And in to the way. so Back respects in little bit that

into do to term detail of I nature not our understand we'll but percentages, community But that ours continuing make a as to good do direction and expect see to adequate it's be trying on, that information trend. the longer stronger we're the ensure how a focus that providing of there it in I investment business. we a and go will that So something even much, trend that what

Kenneth L. Bedingfield

posted but revenues on Steve Relations just the I would as will year our Rob, information information estimated sources and latest disclose webpage full IR that deck website, will and And, be referenced Investor that we out to quarterly have point XXXX don't there that and new the a our like customers and things that.

there. would you I just reference So

Operator

of von Rumohr Your next and question line with the Cai comes from Company. Cowen

Cai von Rumohr

my taking for much question. so Thanks Yes.

the of an the no first have. rare it's no DAB, incumbent bid they have very an and incumbent not you were system F-XX a So for to you bids upgrade already on

more us the the that James no-bid much. and at by Thanks Webb on also so the your little color give So there? decision to GPS, having on Zuma? issues issue was with maybe you're And a all impacted

Wesley G. Bush

Thank you, Cai.

the relative nothing resources we're attractiveness pursue opportunities space going GPS the anything where And comparison it our there. had absolutely invest with broadly of makes different to at to the to in portfolio than of for sense else decision – a do most Just those pursuing the opportunities. that a on look us the other

so to a a when that Ron array about the actually good see question we earlier environment. comments space I relative the And had the asked quite

to best any do community. at X-XXB, MQ-XX and of said it's think when shoo-in stack support next what's we don't that It to use we deal, don't you we relative again So position, extent, so. step is how a on of unheard opportunities the and thought looked that other well, activity. those individual the I of up customer a if and go different resources our not the of to To on that. our just take And everyone the incumbency an pursue we're some experience will, for opportunities do had go view why we

each at investment, pursue we're our and going conduct the broad opportunities and something that's in every business, our that's our how merits of to we be investing of business. look to these of how merits we conduct them our and is resources And way them. are a application set to this one really wise see So we test going aggressively that to to continue them

we for over and decisions where decisions think decided conditions And were winner I our us changed the the served There and very we not I then programs and years. apparent pursue think it's those company. been them. to good have in been well have general, terms the

and has exceptionally sort And So the important put going us. I into for I it's Kathy think make those category these to well appreciate doing portfolio the and we really in that those been work really discipline with teams the our within through decisions, decisions. organization sector our making that

Cai von Rumohr

Just contract as the was or you? on follow-up were that make a the that unattractive was technology to F-XX, didn't terms path it sense

Wesley G. Bush

we of up of that any into again decision details We things of stack list we're bid I things look others. the those that would plus few you and we're listed items And the include at other all individual won't at. the looking making. things to get has the that quite it relative to assess a

Operator

next of comes that question Barclays. Your David from line with the Strauss

David Strauss

in on about anything key there Thank terms amortization, you. the we for intangible Orbital update Wanted any deal, Any of on deal parameters of ask deleveraging the as the you're wait thinking close. how post some on do follow-up, update about about to to and given XXXX, so then more beyond there? diligence as cash we the wanted you from a XXXX synergies And Ken, Thanks. as from due have flow you XXXX CAS? headwind ask looking think operations about as to

Kenneth L. Bedingfield

try Orbital that this no aspect question I point would and well. PI update from at with And I'll the address Let in part the to as Orbital time. the on say start an cash of me perspective, then

and there are of Clearly, provide being be be will reset pension actuarial with had the continue in perspective all the some perspective, say accretion put purchased out to previous the remind that of would And just respect some information integration after be be deal an assumption deal. work synergies the We you going accounting, intangibles of flow to as cost to changes. I EPS way we and you're economic the that accretion amortization as continuing aspects the once the able of deal synergies comfortable on the operational through from terms well PI EPS, with a no as the of amount then we'll capability closes. From per and longer information the a cash their But to the quite we early and will amortizing driven GAAP other ultimately of free of closes. where kind that well. there then by I and share would revenue

forward, to excited from should XXXX, perspective, be respect past getting and a on the provide So, we cash, we from question But don't a a business is positive that cash. we obviously. that, and as cash closed. that to perspective, say would guidance forward very continue I that be look about strong generator With I as of think we this look

dollars a we to, reductions develop ought our we profile. as significant don't look are I CAS we And strong of forward, we has business margin while firmly into see CAS component But growing flow. business; and rates to the able into believe as growing that turning are We dollars growing cash. grow, margin those I a maintaining our growing cash. headwind cash be been to that

Operator

from with Sam next Wells comes question Pearlstein Your Fargo.

Samuel J. Pearlstein

afternoon. Good

Wesley G. Bush

Hey, Sam.

Kenneth L. Bedingfield

Sam. Hey,

Samuel J. Pearlstein

this about XXXX in for we additional give you think a How should that materialize starts for agreement something least hadn't guidance an about we CR, something deal is now that when projections January and you? budget How we to under been were done for XXXX. think really when have should and still XXXX So at the beyond? that that XXXX it or year we help Is that's can spending? and some

Wesley G. Bush

was and would. we've you not a decade history, if in going On of big today we've of half, you the things you the from constraints in really where think the Yeah, more through clock would curve we on in kind XXXXs. the rapid and ourselves of an with reflect ability was our there a just capacity we had important really kind budgetary Sam, that to position of I'll and technology back an we that's a enacted perspective then know lot happening to But a something that into opportunity that you if period tight I around the in little we're invest bit really point have innovation very over question a I as Act capabilities really nation. on in our broadly Budget the we globe, last sort the do during if and had extremist partway There of what globe the Yeah, in a appropriately; ball dealing are where And and us ourselves that appreciate time. I your And to and self-imposed very in threw a globalization going Control hubs our of weren't over understand. one spent hand, see rather treasure turn inflection parts other maybe organizations when question these do the seeing we violent a military our world put we be. take things to back around many there ways that. look timeframe, at created as three that

And lot as military So future domains. that for my perspective, that primacy contest of might Those adversaries a across all our opening our be who and real major in the contest looked of those things created opening. together at took a really a of full opportunity. U.S. I to the competitors competitors from different advantage it think

an So military going where to as of some we add today and that that very this it's are, significant about invest about capability. we're as have up to in all inflection sort just think modernization. have point, that think you we major deficit we clear of I if And think

look I So aggregated at to the just think you that in this a macro we've to about the have things of of issues more think across these perspective do. and it got CRs

we lot that of security a We sort to posture. tool that's That's enough, the recapitalizing have adequate a protect the our do globe. that. an clearly around that's not of foundational our ensure to hear interests you not about Now, can of element But triad. talk

we're and recapitalizing of look structure if talking the about $XXX force is conventional your the So you FY about it's you what the focus doing, recapitalization clear, at altogether. – strong particular, doing, the itself when you capability, the turn the investment a triad billion is question of what clock on were different at the was in that look to DoD sort investment see and about in accounts all the and budget those in and takes DoD period And spans a if the back of is lot that's point domains. budget growth around – that accounts, of billion. time. like XXXX, a some if you XXXX, And your clarity deal with. with that company it of moving of the all accounts to to level. But XXXX appropriations know types those investment at and we're in sort it's FY to for of to having has $XXX issue the typically billion those $XXX sort couple range. up over translate of recognition revenues President's of FY And the way of more average the We on through a budget years outlays into both

everybody's a flow quickly and a is these trying process move the days. through this more So to of kind

that defense understand budgets, now. the driven historically their threat that's budgets years accelerated us, little doesn't our in are think also But not see U.S. get only deal away. we So in issues. largely increases I going that if the what and not bit. as think of issues those budgets all have allies making concerns And these defense these environment we're but threat It's by think with we right in seeing and we'll to of number see next front the their about we I been

of be Orbital we by that to So the this years we've been our being around the environment modernization that to acquisition the to position working ATK at center hard threat the our over see pending of company including driven of investment globe. a in enable is portfolio, lot

CRs past what that in where And defense budgets look for they great of are application though the kind think for source about that. see well-positioned are a that I capability? and why the I in community, of being us but for technology even going, So the of are everybody driven they these means and frustration direction

big work support that to our frankly continue significantly And as making our and investments for do to in to are the to need able others make way they're to we're quite are they're doing going going industry We to that well. that and investing customers time. be sure in some

think understand because question the where it look terms important appreciate broader back to kind what in at stand that it's and heading. I context of this we're of So in I and means

Operator

the Research. next comes of from line Shapiro Your with Shapiro George question

George D. Shapiro

three to to XX% I wanted in you the year first in comments type pretty in Ken, go the fixed from versus fixed with if dropped at mean, that it because, cost price I Yes, cost growth do to contracts price rapid this the XX% Q, the months look contracts. disclose last year back on the Aerospace

being it part stand Does biggest the where the continue? reflect trend exactly or that we of in do on growth does So the piece F-XX it?

Kenneth L. Bedingfield

run didn't numbers catch you again? your can quite that. I George, the Sorry, through of part question, me

George D. Shapiro

down year the Yeah, sales cost cost-type quite And the Q only obviously that rapidly over fixed the contracts price this and grew the grew X%. to XX% discloses XX% XX% year. last were

unique going steadily type contracts to where go down So my trend this the a question and is is, a of higher Aerospace? just going or is in to quarter to cost-type we're this revert beginning cost are back percent

Kenneth L. Bedingfield

changing. the of questions program various over last quarter AS the first the almost a of the split would of as as reference relatively the can business, programs and as work. the and plays but work trying mature some I earlier that price I'd But Yeah, cost-type we're does year's fixed expect more out, same out programs George, life Those margin that the There about mature the cost to to you of strong constantly we'll some comments of risk have F-XX And phase not is being is we growth one production, I And early to production the and we've MS type not first both year seen all that think guess, are profile in into rest phases more on to you are will seeing margins. of why delivers strong other. cost growth see the development. might my and one that production say kind that's quarter again cost quarter. cost-type side work again, look see to akin I their make year's respect a than the development parse cost-type on at but very And side cycle, that both the is type and would price And, of other the the on this clearly trend. and programs. to how fixed with mature know them some that type in say well there

and broad scope So pretty of it a array work of lifecycle of we really deal is that here. with

Kathy J. Warden

portfolio just it as it I'll them. how Ken it well. opportunities exists to have And win we what and win some plays but could year that that we if change on that spoke out, add depends as this we today the

Stephen C. Movius

And more one and Jamie, I we'll think it finish question do up.

Operator

of each Credit for quick Securities the Your at Credit I'm final Robert you. M. LLC with Suisse ask could Robert here, from one line but end they're think question the of two - I comes just Spingarn Spingarn ones, (USA) Suisse. If since quick I

I basis wanted of there request a where the sense lengthy that what yesterday to marks where is plus similar talk got pension? you quantify Sam's ups if had answer you you're question, on, out of ask Lockheed are could to billion Wes, XXXX beyond a So, what to you way a and the to omnibus. you've on some a then if awarded competing not all about President's up talked omnibus akin to the what did us X%, Is to the those at detailed but they worth of XX-year do or Ken, least And the give there way the yet? about something $X

Wesley G. Bush

be broadly, is stuff XXXX to the things have Yeah, well. were say that, if the at associated But we in we were pleased base. And get happy the our of of let the as that on opportunity sure my want is and it's course business me with the that added, some as things in budget. of of out. came really to how the we're a with but we And that And focus lot added. I base make just that added good level with really to that looks FY going sure things focused budget really make number on priority nice they're are we're that clearly saw things a of our always we're

to capabilities of So, overall the the we're I think and doing of the a just of was that reflection of we're our work sets importance providing that customers. nature it the

Kenneth L. Bedingfield

I if From Treasuries to we gave for rate was the And XX-year the a discount I year it say to on XX XX XX roughly question Treasuries, your the X.XX%. points. on up pension about XX think based guidance side, basis points, would about say let's of that we that maybe XXXX, basis are think basis time points

remind our change just change little would and a you of discount the XX on points every $X FAS expense, in in I'll shy So, rate $XX about that result basis million change in the billion liability. a

I'm around really which look – sensitivity order on got returns bit if that's also I than it's sensitive to than how apply than talking continues in But sensitive we I the more just based on a works. is referencing the accounting. magnitude, FAS a do or and to FAS that a XX-year sensitivity it's CAS, So assumptions sensitive And average just on we rate, the and have would therefore, that. think here, to for. think curve we that's less to as looking the XX-year you're those and that. smoothing either rough CAS entire XX And is be CAS I'm little discount more side on asset more changes FAS at on CAS XX is. rate, remind about the and you you that Obviously, how you've

FAS the sensitive. is So side more

Stephen C. Movius

Wes, comments. final

Wesley G. Bush

see past All minute right, hour. that we're a well, our I

really up start wrap thanking for outstanding a for quickly I'll work our delivering So strong across the by team and XXXX. company their again

everybody in for and interest our joining thanks call thanks your our today continuing So company. for us on

Operator

call. this gentlemen, today's conference Thank concludes you participation. your and for Ladies

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