NOC - Earnings call transcript Q2 2018 | Northrop Grumman Corporation

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Operator

Good day, ladies and gentlemen, and welcome to Northrop Grumman's second 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, Steve Movius, Treasurer and Vice President, Investor Relations. Mr. proceed. please Movius,

Stephen C. Movius

welcome call. And Grumman's quarter second Thanks, to conference XXXX Jamie. Northrop

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

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

presentation have we guidance. updates and our guidance summarizes posted Investor years We pension that update three a Relations initial website XXXX to with the our of an to provides our to provided information

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

Wesley G. Bush

joining Steve. Innovation by to welcoming Thanks, Systems Grumman. us. our team thanks everyone, Hello, start and for new want I the call to Northrop

fourth ATK X, and June sector. with we've on know, Systems you Orbital the Innovation as completed As our transaction we established

our second from results, see already can you Systems As quarter Innovation is contributing.

performance company, I be for the execution. It another and cash their thank XXXX. a focus this our entire was acquisition GAAP and on will solid of continued basis We on accretive to team a both expect want quarter in across

volume driven reflecting Systems. at Mission continued at Innovation Sensors sales by Systems, Processing double-digit and quarter largely growth Second the Aircraft of and sales, Manned addition higher Systems, grew Aerospace XX%,

taxes. increased XX% up sales segment Net to by transaction-related both driven and more in full-year in increased each a we're the improvement share higher $XX.X offset billion, increasing positives income, Systems to backlog. These midpoint pension the includes and than per $XX.XX as of $X.X earnings earnings $XX.XX. as of At diluted billion to well guidance which XXXX Innovation quarter, EPS and backlog billion, range of higher Our the our $X.X year, expenses. operating

During million, cash last the over improvement of to over nearly year, improved $XXX million improvement an quarter, million totaled working totaled primarily due from Year-to-date, performance. operations $XXX nearly an capital from $XXX results. $XXX operations million, prior-year cash of

strategy is Regarding capital unchanged. the deployment,

growth, reflects growth profitable balance in repurchases. is first during continued cash followed profitable and the our spending the for for dividends affordability returning by our sheet, through Our customers. managing priority of support investment share investing and shareholders quarter to Capital and long-term

new win on ramp continue large our to up new We expand workforce, opportunities. and investing and business pursue programs,

In million the the quarter capital $XXX we second addition to acquisition, and in made investments million of than $XXX year-to-date. more

continue of flow expect capital updating to $X.XX a in range We cash We're billion free our billion billion. $X.X expenditures approximately projection $X.X of XXXX. to to

during of well-funded, on plans we're year. pleased I'm the that increased Overall, the XXXX, to continue focused the our well reduction we're of first near-term And the we repurchases. pension In as dividend with share sheet, terms of report with debt ensuring In the have XX%. happy closing we've accomplishments and cash the return ATK our remain shareholders. our also resumed balance half as to to Orbital transaction, we team's

modernization. need continue both trends is to see we spending readiness in to recognition of the and terms positive our for market U.S. and with clear defense There we with our In environment, allies. that invest

emerging forward. needs, alignment important opportunities as encourage set for feel our very our going with of current well ability addition Innovation capture programs execute our good Systems, the company, look I new and our the and with as We to of about As appropriations. at and the weeks couple I I wondering I current Congress opportunity on our on should particularly administration portfolio agreement to be ago, down some why that reason announced suspect now some be continue making my timing. I'll CEO stepping steady you XXXX on reach as a regarding progress there's A asking may January understand to timely X. if of and FY customers' you

been I support about our very that healthy over change It a dynamic my to with improve the of reasons culture starts decisions of in organizations I as with transparent be about to company themselves the the strongly personal So use want years. all you, of continuously excellence. belief other a to held have and

my ninth at Over the new getting changes disciplined in our my have ready should approach key a our me. CEO changes for CEO, made in the and role taking they current Healthy in how next these course drive thoughtful succession perspectives I in requires the good many to have long importantly, very successor feel we've performance to the timely of as And on to when our all new This leadership in been the new levels we expect, tenured believe, includes this time-to-time, from at and take also succession having I our I'm role, with approach take means on proud year we've perspectives right stakeholders. company we is all culture. planning and to portfolio, is important and are change level. planning manner value business to of most the a our you the my CEO succession to level. that that and, as tenure in company. a created

fortunate lead to become and to us already next who have Many leader know now ready our so CEO a you to are is We of forward. Kathy.

outstanding you and is approach to the and knowledge breadth our to will have this executive, don't She take she based an company. is about her leader. values Kathy has but our wonderful our leadership depth a on of right a and I So core the absolutely of on. industry, I anyway. is tell is that person She great company

have As company our message tenure expectations my transition, what I've will CEO. this high Kathy's for I accomplish announcing our as during said this in to team

of a as part months. ensuring have transition and and you we end XXXX, process, opportunities execute meet the from Kathy, coming focused several seamless of many to committed And a through of I through over to the our Ken, also will of be the will As I I with a Kathy transition our Steve July will Chairman that about on I've now. board year year. remain very

over give quarter. company's the Kathy? second the to in So call us on our turn let to Kathy me an operations update

Kathy J. Warden

everyone. afternoon, good and Wes, Thanks,

to Wes invaluable operations on want and example my Systems as thank to growth update the Grumman's Before an have next directors provide joining as Northrop a electing integration, succeed to this leader. review Since I opportunity and for of Wes's I Innovation to me CEO. Northrop Grumman been take in mentorship board XXXX,

I larger our Wes. As with company, to within increasingly P&L assumed fortunate responsibilities I was work

values, on are and aligned. well Our focus decision-making, performance

I the excited importantly, is Wes. to a where smooth another forward you our can look very you, take our company Northrop working today all I where for of alongside transition am and, Grumman year stakeholders. of about more thank forward. So for team going to ensure

ever. Our as as robust value-creation opportunity is

touch Systems. of me on Innovation integration let Now

welcome $XX With Systems fourth June stood our team their as up about the and said want achieve million XX,XXX it we Northrop to cost them on million of company. we estimated to existing would to cost we the synergies X sector Innovation that place. transaction, close new joined our new employees operations XXXX, Grumman, When those the We to management of in with announced we expected achieve synergies. transaction, and annual I $XXX by

are cost estimate. on meet exceed or We synergy to track the

year cost and in to XXXX. million expect $XX We to about million spend $XX synergies achieve this

capabilities has requirements, innovative while and a that long-term our a for is meet foundation to is financially creating and the emerging us for providing very workforce. part Grumman profitable This truly strengthens a to growth. our gives combined opportunities IS compelling we're and broaden been While customers' for value only offerings opportunity provide and strategically, combination our weeks, combination expanded few solutions for excited Northrop about of our shareholders and also our

quarter, first us milestones achieved our delivered Aircraft, we're LRIP business more interval, the Turning Manned under XX center or Systems, XX center fuselage up each continue every And said LRIP producing quarter than XX, we long-term. restricted of program. activities the by LRIP XX Aerospace XX% At to quarter, compared the ramp we delivery and XX the units under in of delivered a We of on Sales last all XX. and day-and-a-half. in sector during we to completed XX, our fuselages position We've the XX to XXXX. program highlights for achieved for on second the production quarter, another way, quarter delivered increased and our X.X-day F-XX and unit under F-XX. that we've well now sectors one captured the during unit

sole expect continued Air of air formally supports their of our infrastructure Space, strong air source for We the contract the initiation continued acquisition passage reached X Overhead Northrop would affordability of vehicles. the center the Infrared full the next-generation initial XXX performance that teams. Persistent Lockheed I that to agreement Autonomous phase In through XXXX. deliver we with for Grumman milestone. fuselages is authorization and support awarded Minister the and also XX Force System Australian in Gate the nation's an a six vehicle, to note our the on customer in announced of for Martin one the for incentivizes Prime Australia LRIP F-XX successful The initial Systems, fleet with for program. Polar And Triton

threats missile will survivable OPIR more the emerging are that current capabilities system. improved generation than Next-gen SBIR warning provide against

now Webb of also compete James spacecraft the bus. the powered universe telescope and of science program. observatory. recommendation, where Instrument Space NASA, final In test, aware major the the All solar mechanical separately Review payload at programs. the integration have of that for second plan OTIS, the a mission the Telescope. premier These Independent for launch Telescope origins based of steps of The the phase the also spacecraft the of are underwent date and telescope's bus the successful beyond are JWS in value or are Optical Redondo announced on We up that world's we begun the search shock reaffirmed and the facility, an also a you Integrated new the for portions elements halves and of testing Beach space Element the XXXX our quarter, system. IRB Board critical our Science team will Most to this Module, this life telescope, two explore the OPIR

of launched The Cygnus large-class the with tested at in in in our XX first be year successful company-built experiments will vital plans ramp up supplies business XXX the International launched July and radar to deliver Systems. an The this spacecraft space we company-built to Base. turning to crew. They OmegA departed Station launch Station. the versus on-board Antares its scheduled F-XX Now September. pounds Innovation at area. conducted July Processing programs program Space Cygnus berthed to and Sensors vehicle. Force deliver spacecraft in is motor we designed, Mission And an launch XX station satellite manufacturing and Space to and on Cygnus the rendezvoused XX. test, carrying Air the mission important facility XXXX. scientific science the and At on continue IS Earth case and ICESat-X Systems, milestone the a finally, was on this radars Arizona astronaut SABR the Vandenberg to its support F-XX shipped a and to X,XXX site to it of development our rocket new subsequently conclude also built,

and The than quarter. to SABR the orders upgrade deliveries March fifth have Phase production production of F-XX progressing National Our more XXX the initial X has systems, secured team XXXX. its with year testing delivered for Guard which Air and flight of complete been this customer program through is XX of be now end for begin has schedule, on second to

F-XX new capability, Martin reliability, of agreement long-term fleets SABR's us additional superb affordability. with interoperability existing Lockheed teaming upgrades worldwide, highlighting to and capability and Our buys positions support F-XX

million During ground-based network the sustainment competition seven-year SMORS $XXX Air contract our calls The of Force for sustain nation's quarter, warning and modification an single-award of modify to and MS radars. IDIQ won worldwide critical-mission radars.

for high the its XX-year awarded Systems availability program. of on Consular At to Space attacks SMORS Through ensure while Grumman objects forces uphold ability early, also contract for awareness Technology space. radar Force's critical of Air and SMORS, Modernization Air ground-based the will the Services, with work enhance Our detect State situational providing Command. systems million missile will Northrop us $XXX Force a Department in

and on Department of TS digital for process to visa of service our as numerous support position supporting to higher-end Commonwealth reflects taken Consular application, providers. activities. profitable and we that Our services. with we We've Affairs build TS, other growth TS passport is team strategy to State focused continue VITA the the the of an win This and transition the it important systems Virginia will long-term, a support portfolio new steps the over value-enhanced to for and of work transformation

about We are in addition revenue portfolio, enabled offered around long-term globe. And growth allies synergy addressing and are Systems. by our opportunities new prospects the numerous by U.S. Innovation excited the opportunities with including the our we of the the

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

Kenneth L. Bedingfield

through I'll year. efforts the briefly our update review our thanks our everyone. afternoon, second add quarter their I'll for Today XXXX half team Thanks, my Kathy, results the and guidance. first and of to good

aware, As not all guidance I'll both June, our for of in company- guidance but the updated provide sector-level updated provide Systems you're Innovation detail. we today. and addition sector-level did

note a the full a acquisition. month partial Regarding of had the IS of deal with net on that solid and strong sales quarter, somewhat and the offset quarter growth, awards, by interest earnings costs I'd including results, expense debt associated we

in XX.X% for for also restricted F-XX Systems Turning periods, also and and the for reflects Operating is another sales Ground and activities the the quarter in the for of and in of growth. program, both Higher and number accounting was the Autonomous and Growth ramp-up both results. Autonomous up Strategic Sales the operating growth Aerospace up growth margin Systems of quarter had major second were higher partially higher with Systems restricted a to lower space. higher XX.X% Based most unrestricted income by XX%. Systems Aircraft Manned year-to-date sector periods. respectively. higher driver in double-digit Space volume. volume were with up both for both across activities volume volume sales programs, Deterrent and year-to-date, offset Aerospace Space for reflects rates quarter

margin early-phase second adjustments of expect rates last are XX.X% Space of to offset of AS performance rate quarter positives a reflect the to an Telescope multiple development includes sales Based from a billion. the on now margin the AS guidance While second we $XX matches of our restricted level first $XX negative quarter rate continue Webb half, will year's work, more program. and programs. on higher These million AS approximately results positive rate adjustment operating have James of increasing for We margin approximately XX.X%. than

Turning to Innovation Systems.

For the X.X%. rate margin sales with of a close, million totaled period $XXX since

For rate. billion will of a the $X XXXX IS approximately expect margin with we post-acquisition revenue have mid-XX% operating period,

Capabilities. activity. periods both ISR F-XX, due year-to-date. to for Mission due operating for a the several volume the quarter for quarter including with Cyber restricted, SABR by XX.X% and loss to margin Sensors Systems. programs, both in in includes on periods and Capabilities for is decreased and to X% is for Turning programs. growth program offset partially a and X% and the rate volume in also Operating the was follow-on Mission lower Processing rose program restricted X% forward and in in JRDC communications principal Sales quarter ISR the year-to-date. provision driver, higher IBCS, completions Advanced year-to-date respectively declined higher double-digit Advanced income X% volume volume Systems to due second and area. and higher

segment is year's benefit. addition, results Cost XX.X%. operating quarter Year-to-date, last Claim rate a margin In MS second included

an guidance. range No of change operating in we $XX XXXX, approximately rate margin prior For expect sales continue to mid-to-high with XX%. the billion to

in Sales shaping programs program for like rate and operating being partially Declines was and international Services. like new offset Technology second by SEMA XX% we've well year-to-date. on X.X% and our reflect quarter margin both VITA, year-to-date. KC-XX X% as JRDC for Services well the to the and X.X% respectively Declines in as quarter ramp-ups programs Turning Technology previously periods headwinds declined portfolios activity. the as are as discussed.

program. a income that be on with quarter earnings. resulting Claim. the of the of would now benefit on received for second adjustment Commonwealth, will on the margin last results, approximately a $X period Services in of a termination includes program's the rate notice Cost the expect performance range Based year's billion VITA we I included quarter sales Second reduced year-to-date Technology low-to-mid operating an with XX%. which the also note expected We negative operating from impact

As we and we up, operating expect roll $XX rate margin in the approximately range. continue a that sales XX% to all low-to-mid segment of billion

reflecting total for a estimate $XXX expense, We corporate preliminary full-year in the $XXX of million costs. amortization also a well approximately rate, to of high-XX% as includes million unallocated Systems $XX million purchased operating Innovation acquisition of margin for expect as deal which continue for intangibles

total will Moving $X.XX of change we billion to the to no net interest change be our in million. rate tax Further, pension, for expect now adjustment effective of net and prior range. mid-XX% $XXX to expense guidance no FAS/CAS pension

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

$XXX debt the liquidity the much we of one the improved Cash stronger reduction Orbital another working outstanding $XXX was initiated second performance. deploy creation. and to program capital trade retire we in we year-to-date last short-term a value than In to commercial for as paper in quarter, And XXXX. Regarding generation we debt of expect of due enhance capital we year million capital to quarter second $XXX retired million we have near-term our on Grumman Grumman deployment, ATK Northrop XX, during July million is of Northrop notes, redeemed priorities. quarter, notes and

contribution. we range free flow end by enterprise free $X.X of flow from now and after continued We to billion $X.XX to raised have second I expect strong continue billion of half planned expect from our for of Q&A. a $XXX flow ready cash we're We Steve? approximately the look cash capital performance $XXX of discretionary pension this year. $X.X that, guidance the million. bottom forward and healthy spending to year, We cash With billion our think the the million in team

Stephen C. Movius

Ken. Thanks,

long ran formal little bit Our a remarks today.

past open session each With Jamie, single extend would with we limit that, get for Q&A queue. to participant Q&A? to a themselves that, going X bit so the question, to would can we're line you I ask a So And the through up the o'clock.

Operator

question Ronald Bank line America. of first of Epstein comes the Your with from

Ronald J. Epstein

Hey. morning afternoon, guys. good actually, Good –

Wesley G. Bush

Hey, Ron.

Kenneth L. Bedingfield

Hey, Ron.

Ronald J. Epstein

segment On of Systems discussion mean There's the business, I how Grumman lot hypersonics? in a discussion to think there there's does then But about lately do of there's bring new there, Innovation we GBSD. been terms of a clearly the on classified a business the What broader about hypersonics. been lot on And play Northrop it implications? space.

does that those Grumman Northrop how acquisition, So businesses? strengthen the segment, in

Kathy J. Warden

that question. take Thanks, Ron. I will

We will us But portfolio noted. look excited Systems you of program, very about for Boeing. beyond GBSD. we GBSD, areas number Innovation also are partner of as be continue the on that they the key of a to partner with for Certainly, also because a they

value systems And traditionally part some of of the add expands counter-hypersonics now be to market, areas has you able mentioned, to in portfolio, which in the the hypersonics, also weapon Northrop's themselves. more been the this

we us much to the classified to We allows to large, expanded and community. have national traditionally with worked systems more complex systems. have This a space, security smaller expands and space offering our look also portfolio at

offerings Grumman now that Orbital the Grumman, of our has expands traditionally things done, a Northrop to across our and spectrum their wide portfolio Northrop and portfolio, part So, expanded of coming variety significantly across customers together of community. as ATK of the broad

Operator

from Rajeev question is Lalwani Morgan next with Stanley. Your

Rajeev Lalwani

just question Wes guess, for of new Thanks your role. you. I on Kathy, an congrats more obvious Hi. for and Kathy, the time.

what your what As versus key be you seeing the for going we've the transition, go been Maybe to over few through are years? Northrop? priorities change what'll last

Kathy J. Warden

sector. year, integration of smooth new I'll that in of that continue as for transition, team question. fourth on Well, exercising a up and be as through remainder the successful in standing to thanks the place our Orbital CEO focus the Wes ATK, will

well. there and believe are the of we're up performance the also working But of on to on and opportunities, and capture critical areas we a both as program. that look significant internationally, served production number have I future, focused operating solid-segment We us are development domestically as ramp I

our First, our culture, have team's way of to for all our our performance-driven performance stakeholders. deployment, and to capital drive also approach incentives the we aligned

I'm today are our going our employees. enhance value I we these look do the areas certainly assess into to our to that's of confident organization continue. for of and that customers, shareholders to structure, also a portfolio to we well to sure our the future, incorporate but the well-aligned course, for So I'm the continue have strategies make change needs and customers' portfolio, to our

Operator

Baird. Your next Peter question is from with Arment

Peter J. Arment

got Congrats, Wes. Systems, Kathy this this Hey, percentage deal? just the of thinking particularly, costs Good higher long-term amortization from a customers. Innovation contract of It's international mix the can margin afternoon. higher on rival And segment, has Mission fixed-price percentage mix. excluding the just just got a Thanks. some about Thanks. the profile and Systems of this also Kathy, of

Kathy J. Warden

Thanks, as in our we tend strong XX% as fixed-price margins XX% targets noted, we're range. you Innovation drive component has that to well up. segments, international that Systems at When It the look at features to Peter. looking for with

very a innovative it's on to they and broad portfolio have as So tended focus very of capability capabilities. well

range set about. see talked we to benchmark, the we be that will in benchmark the achieve XX% And portfolios, to that would Taking companies' when that XX% at them of portfolio, their that's that So, course, in. better similar would we, I performance. other looking drive

Operator

from Seth JPMorgan. Seifman question next with Your is

Seth M. Seifman

this consistently. growing about bit do could or little of down guidance implies again basis quarterly Good we The a million step-down you and was fairly business Services. much. in everyone. the on bottoms talk $XXX wonder in Technology where you a generating And quarter. Thanks to Ken, congratulations, the going as again very about so some We of Services? about contracts and this in Kathy half. if start the had step-up how segment I EBIT The Technology could Wes. little But where here, out morning, it's think bit wind back a

Kenneth L. Bedingfield

start, Sure, for wants Seth. the may I'll she Kathy and to add as well. some have question. color Thanks

So we've margin of margin seen has I TS been well both on a the the the multi-part a bit sales And perspective, of one strongest, that as not profile. little think the question industry-leading, from a margin if little as performer in its that challenge on quarter with saw segment. a And in we impact a VITA say program, of I of of termination the bit would early the terms impact margin. this dealing which had some

holding wins said, well as previously contract some see we and on as international the being basis the off. they as to messaging a year rate have that we for We the SEMA starting sales of we rate an feel the the From expected continued our margin take starting of estimate a that lot those full-year to sector. that perspective, ability And which the program, We've to previously to the is the now in have that. of to good team's terminate say XX% VITA TS I headwind for that headwinds, about program, margin as approximate considered. KC-XX, did impact than pretty does with, we perform do get seeing we're would year TS. inter-company the are the ability to earlier second now started on as about work out half well JRDC That the the of had talked had MS indicate some to the in from JRDC.

these come grow necessarily as we forward want wouldn't look ability with the when growth to start to the longer-term. business system, through certainly I TS in of the that but declare we as have that some should line over headwinds market again, to its look we get will So the

Kathy J. Warden

I'll the add for reshaping just a years. journey couple the of And we've on been of that TS portfolio

seeing with completion contract. outsourcing IT the We our are last as large VITA

we like value to we've and forward others, own the activities some that the where the now that of and win higher the TS the of areas the really of competitive feel well as as coming been as our place mentioned modernization value areas State so And significant of platforms this portfolio, look both at platforms I we both to needs. our are Department quarter, with is very customers' where is that with the a from we growth growing adds

team about we this So are areas of these is encouraged accomplish to in able going focus. what be to

Operator

of Your next line question Buckingham comes Research. Richard Safran with from the

Richard T. Safran

just Wes, afternoon. of Kathy, everything. to say best Ken, Wes, want and Steve, good

I wish it's whatever you worth, the absolutely I best. an terrific you And a... Kathy, did think For job. all have I

Wesley G. Bush

Thank you.

Kathy J. Warden

you. Thank

Richard T. Safran

you're a get can more on happening I was costs Well, Systems. if know so have bit welcome. reason was rose the Ken, What Mission question about there. that a much I on want you what the talk to forward program amount Just Advanced was? you took margin the the the of could Capability loss on? quantify impact. that And you a trying loss forward what to

the cyber in was Or timing? winding reason Thanks. this just missed volumes cyber the some and were I this reflects just your opening was down down? Now, just ISR but programs and that remarks, may ISR quarter all in have

Kenneth L. Bedingfield

Sure.

first, in business. that we ISR. restricted the But cyber maybe of second that we're area the business that take a me to and impact seeing the area is we question Let Rich. the part have refer as of largely ISR And

I as are we're completions, the so And the a really are was through of there that multiple of And programs Advanced restricted seeing forward look I long-term, than that of as cycle. we it say we more the were in say, certainly Capabilities a nice Processing amount on the seeing bit see for that and pickup But the robust growth life material, did program, otherwise loss the disclosed and side. the forward the way would should over as we to have programs a created Sensors offsetting would profile. those clearly program we their Aerospace. headwind on question little With XX-Q amount as your respect is working the at on some the MS we expected, sales not that that would have

to from But would trend today, a your number way of we drove had to that on are are bit other. it's we have the document, exercised challenges margin on we an option loss, impact the a the likely think materiality the the don't a certainly in are program, say going on to and growth level not on and seeing on Kathy, therefore that that our Those forward option, the of From ER. not this is And noted I the working fixed-price we which that if on cost-type a as have both have that by question any... is but you it a is So to a on a we want related why customer, XX-Q technical be some certainly program. I but we loss. that we put which some challenges driving add rate what through. had saw fixed-price know a perspective, it we cost seen recorded impact that

Kathy J. Warden

growing said, Systems about mix I'll And the growth up Sensors for some earlier for at in as that that and see in top is on maintained as talked where that, great just in about the in in Mission guide fixed-price $XXX line, Mission Ken of note Processing. we Systems these are areas I call. production. the completed. million our the programs We we've we two look headwinds

So I'm forward, and in confident be healthy Systems. Mission that, continue margin as operating both look line we to top will

Operator

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

Sheila Kahyaoglu

everyone. and congratulations, morning, Good

Wesley G. Bush

Thank you.

Sheila Kahyaoglu

opportunities? the of pieces OA, moving capital you I now within and working about talk with think could should we was how maybe maybe the those inclusion and, the wondering about if

Kenneth L. Bedingfield

happy year, I would improvement Sheila. to us. see And seen and are starting to that we've appreciate for to the that. Sure, some capital that positive turn in working this say I we

building back impact how deliveries. were an had tied capital terms on. cash deliveries production saw been of that for that as for contracts about on get programs the the some seen a couple taking years focused working as had of that some We have are well. change we years, that have are occur. we DFARS on starting couple also liquidations to the long-term thinking to the very Those We in We're looking type a right of we

and performance programs us. to have that one comes are for CRS some Innovation that capital From the in had unbilled say higher would some Systems there I is I an So working perspective, favorable balances. backlog drive as would There some had that say cash significant headwinds AXXX that The one to forward. with program it, also that milestone some some reflected expect mind. we starting payments. will some is turn are look here that that events is we

performance cash So on year, Innovation working into strong strong of entire as the so of but second the generating we the to and be year-to-date. Obviously, the business far of And lot including it, cash. managing we about work working forward to second we're look hard the capital a in for we're working half Systems. as, out do well as should year growing, half on future, capital generation the is look excited portfolio a that this

Operator

Your next question with Noah is Goldman Sachs. from Poponak

Noah Poponak

afternoon, Good congrats the on Wes, and appointment. career. Hey. retirement fantastic a everybody. Kathy, congrats on the

Wesley G. Bush

Thank you, Noah.

Kathy J. Warden

you. Thank

Noah Poponak

and for of kind just or forward And quantify the maybe getting quantification from of know VITA in asking Ken, of us I I on dig of you if the maybe at item reach MS, passed MS to could give – little the your wanted if sure Not just a bit. questions the stakeholders I the to TS. on lot I'm again you at you'd try guess a margins but into those if the has higher and size have here. I'm moving potential? as cost lower, trend margins. those moving a where like watermark you at both guess been as risk I percentage can so percentage significantly. something disclose contract-type how an have mix to both threshold from factual forward, it wondering reasonably and the been plus are I you low we wonder then, that Because the retirement because And just did and impact estimate, looking EACs make I'm a the

Kenneth L. Bedingfield

All right.

So, and again, not programs was say, on number we put the the we judgment We items to part trends. which that would the on items really in disclose I in understand a the the I the of going that $XX put what's a want on the as first it. to business significance say in certainly guess number million. clearly, restricted Systems, and, reality, Aerospace is, any about a and materiality matter did think on of individual what we I would order on disclosed give of sense in don't question, magic

look, for So issues the it to that what the disclosed which in experienced behind the guidance items, largely that they're sure number they've as indicate we We to impact us. perform an number MS about on I wanted think pretty we've We issues cover got material those second with guess to fact that the But related respect second in you. the of puts make quarter. held both or even margin understood to some significant had quarter. you And there. should a a it, those than on And to upper-bound ability was. got TS, good more feel it, that for half those about and putting and we addressed we rate programs on for a impact on the the not

out would sort on necessarily we contract-type a retirement perspective, run that, of I mix perspective. that that from and risk be think think don't So, runway Noah, have that of view my on I

the along and later reflecting are have estimates. sure to think of waiting in there of have sure always our best operating a a to our to life as possible that working a may try and program, life more we we're we early until been increases cycle historically, program bit sure we making make the the the reflect in been try taking we those little little best make as I estimate but that life, earnings of hard

last it, themselves. yet really this the that and technically or at core hasn't The I quarter. that's of think lower seen the what is more call, I our, I'll just what's we've into the margin retirements driving rate a come years, of moving couple risk of in amount earnings bit rate, the so And earnings core the has up exercised. baseline been loss of into adjustments MS should adjustment fixed-price option than rate quirk an earnings I the is the bit note because option earnings on forward maybe call little a not also a would

is So in above. it's the rates, reflected but the margin in loss schedule forward not the

see analysis ability in its don't generate But So, that margins. any as bottom change well. margins. can strong is in business this drive have to line I the some impact can the

performance our for performance expected first the in AS of half the full by and XXXX. sectors of changed strong the strong benchmark, the haven't year for year We all

Operator

comes next Carter Melius question Your with from Copeland Research.

Carter Copeland

all, the and congrats Good Hey. transitions. on morning,

Wesley G. Bush

Thank you.

Kathy J. Warden

Thank you.

Carter Copeland

Wes, could and if you want to take a excuse up the get I golf to me an of use more out seriously, office. call give

Wesley G. Bush

Carter. Thanks,

Carter Copeland

a quarter. Look, this program that's whole performance the on thing, want and a on overly last blunt, at point clearly I is the go Webb stock to bit performance that today Northrop atypical or has I lot I think I lots And But the as the I'll for of would maybe or autonomous done down are probe headlines just satellites bombers Northrop The sort over that what of so. first risk last lot of to I back I just from why. aircraft. little a to, since asked being time where guess, decade done company James And I is things what a get technology being or first-of-a-kind. Grumman's of characterize with it guess the

more a Northrop? back reveal that similarity from And program put identification from risk first of you about to As they you analysis such like the And same talked like performance the we long downers simple those the since booking is where like I think a And detailed termination, the question been course, challenges seems rates? a those risk had. atypical it aside over things that guys Or it's technical you two identification, what's want forward they it decade a in kind of so you adjustments away of and, VITA the take since between person, postmortem last isolated? it sounds negative commentary, I sounds about. have somewhat the appropriate if the time at think this go quarter you how that from to anything gave set do Are quarter. to changes loss these

Wesley G. Bush

Yeah. Carter, it's Wes.

opening Let my to to with historical said current. And how our goes I've the it to of of I you we've But as culture view. And got me as than like to and probably each perspective reflect company. of on we'll done in out this core how execute manage a and enterprise kind to I risk, programs on in them described our you the them. most since remarks, quantify risk, really the I'll just what our start sort figure take that better. to bring broader of

we've know, of really clock were you robust on very years If you we And years we turn few ago, number and those the struggling instituted ago, of a changes. that. back changes, set as quite maintained a

how And we're will to going and edge, they Clearly, very was And to be some things that is we're business there that perfect. exactly a but we be we operate. few I and perfect? Commonwealth. with faster aside clear mean help were do you very note conceived. very set have smooth we get through In to them to transition would our don't it the one, as appropriate say the mentioned, to for that for right, customer fact, and two, it's process. I between. need than become far time core committed supporting enabled just Does community if positive to continue our We've We exit not long respect we're No, press about way created been that a intent to it a that originally VITA. a transition in little to bit on think that that a

But as take of So very, that that action. mentioned. you two portfolio I view had the supportive very let our me

that actually, was the intent of the So, Webb, ago, a be program first years we invention a lot on on going James took is to program. number decade-and-a-half ago Webb. a this On with at of that there time quite the knowledge on James a

and Unfortunately, is and heck these find And little types it thing. every we this program, we going finding focus And I flagship have their working we're be when thing. to big the proud program only of we am the stick-to-it-ness of propagates it, a is going to a We of phase shot how And why get integrating to stage we together. to are you're end launch we're invention. lot to this make – test this. one out that now that a experiencing. going did, I do, credit like the and programs through have to way through what very something at the of in accomplishment with to intensity we're what actually our we nation thing at But gotten we launch do that have confident – the we engineering that is it. so ourselves give going and little we're inevitably, And incredibly we to final accomplishment a our succeeded and sure NASA because And a we parts do the to and down that absolutely and of NASA remarkable It invention. scientific we're of together. thing engineering that's for

and we it's out, So right. With we're going case going are just production. sticking broadly, sure think quite that, things out as not make was in whatever again, with were, we other found it a the do found the that through similar and to process making what to right. we're out at and we I our extensive. go looked risk way loss forward That's it the we to to in I'll it intent sure to to think find we're this extensively it's technology requirements what technical the respect this item, the on And while we tough, be covered where here. we're respect of until do, rather testing, launch particular say, and class our I areas, it's a respect comes with been flaw And management, to we

done do, pop seeing issues. on more two this we've run And to and make And program it with recognized ever that's time. that I customer right in they're so Systems see But to from for look be them again, confident these going And hard as enterprise. company that and have ahead would on or capability and the brought and as are on well. but at again we're your as they're these up to went we'll I with Innovation once the make and where add Systems other an issues we going I up isolated I perfection it. you we as performing found said, we've Innovation that perfect get that here I'm isolated, that execution we've as this sure to through going commitments about as and the we each. one through don't basis. we're feel place good question go-forward on of how the very be see going at delighted just as we the imagine program just about taken there over program we I'll have that follow across But rest a the we discipline might their And with business, investment is characterize that just signed I'm always well good way treating something execution something, of to learnings through our comes the the are we're a striving we we're sure that's what sure endemic are is There as way cases. that a I Northrop reason clearly about not at and

the be very appreciate Thank strong as that. bring a I'm we two kind much culture So it's very match another going to question, about Carter. But excited the and I of together, businesses you.

Operator

Citi. of from Your next with Jon line the question comes Raviv

Jon Raviv

Wes. and Kathy to congratulations And afternoon. Good Hi.

Kathy J. Warden

Thanks, Jon.

Wesley G. Bush

Thank you.

Jon Raviv

number recently shifted you the of that At the a bit a years Northrop risk around of had nice of over has the consolidation and had has the oversimplification, three. little segments guys,

there's at we're IS, sitting four. Obviously, maybe opportunities there. some in Orbital Now just

organization that some sorts to that pull do portfolio Where your of point? of do you this closed, what on you deal some organization levers to are is just usually make now the at the So, in those opportunity and and effect what perspectives decision? see

Kathy J. Warden

Jon. question, the for Thanks

on to strong And the the and to through our brought work the like and begin doing of up together. that forward to already can identify we're and area about have taking opportunity. we that teams else we a are company to As synergy Space, that the about some understand Space We've we're talked already talked this recapitalization revenue that's see munitions, Systems, together start. working to synergy missile opportunity in also Security where synergy. areas stood National really portfolio realize we team Innovation off and even of going as smart another look defense, we on work there, particularly the already, We've great into the

continue performance team to of experienced very that together were that We the rapid organized to attainment a transition over change near-term, stay will that of be advantage So really next believe their already you quite lot realizing they the look of best and Orbital And through the synergies thoughtfully. to work to back in keep time Sciences which in good both we significant experiencing, if quarter they to They ensure to that of for as a at first We that the gone take structurally focused a year-over-year, their that ATK, growth that was and as and anything the it's they team. should alignment in done recently had where own team be it is a so done their in process coming we to growth. assess want that as are do the period have able smooth growth performance, well together. to as program on integration future. organization want

Operator

of Your Wolfe next line Hunter the question is Research. Keay with from

Hunter K. Keay

you. Thank everybody. Hi,

Wesley G. Bush

Hunter. Hi,

Hunter K. Keay

way, both the by guys. you congratulations, Wes,

Wesley G. Bush

Thanks.

Hunter K. Keay

how at Sure. has itself you the think can talked publicly CDR progress as Aerospace, program, that you. the Force given Air The do positive about that to performance upcoming as adjustments related say? programs Thank on restricted that you is on B-XX And much about?

Kenneth L. Bedingfield

not we're program with adjustments you simply the to multiple I beyond be related documents. – The would Air on to performance that there's And to in just for Aerospace by you place say earnings I lot nothing B-XX, that would programs. what's restricted going the that. to to say a were Hunter, actually, there's the best made to able the positive on Force probably information as refer and respect progress comments get at

Hunter K. Keay

Thank All you. right.

Wesley G. Bush

our for team. job a great just add, really doing us. I'll Hunter, of we're They're proud

Operator

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

Robert A. Stallard

much. afternoon. very Thanks Good

Wesley G. Bush

Hi, Rob.

Kathy J. Warden

Hello.

Robert A. Stallard

news peace from what customers. collectively you're a Wes, I summit any been seen of had well was about to and in Korean what recently change how Have things various question NATO for wondering the also individually. you Kathy, There's obviously there. the in hearing you, on demands any breaking translated the through going Europe? clearer Any seen? And as a Peninsula, or as or than Asian has result either change out potentially. your in this we've we've

Wesley G. Bush

So we actually see up demand in picking both arenas.

our many allies it throughout it. region on their their narrow at But You as try Pacific and moment, can you to causing in conclusions that a – own big in high-risk realize see with of the And really Asia picture. going the potential investment the economic increase intentions just terms region in another look the very, big all if of the very, events in I their to picture, that have behaviors, horizon of at their their to characterize look in you their look would just but reach nations, very focused they very some both at to nations, growth and security. capacity also need continue many or for on to one nations are

also of that environment construct If Asia for is pressure, more of the think a at in to going discussions So of allies. prompted many aggressive sort all is. that investments. but their about and in to just issues themselves own for both of all of ongoing as summits lot security how Europe that of of region security their be of that have investments that our take security to recent the again, approach need some need nations the Pacific, they're allies And leaders achieve But in making. And particular, it's partnership and U.S. that variety through was I a challenge they future, investing with time. see across through about has them own recognize construct look changing across our And that too think to to their going us poses allied but concerns we in that's a and address. to I just objectives dialogue they also to significant a think both the opportunity can not security, be evident interacting you the supportive really a Europe, all of their I it cooperation clearly to some in the the from

the an technology in we capable it construct, we're I to recognize together, things make in working that be need also going construct to both all think we that We've to to operating got together. going do in are to do of that a forward. but able we're sure

want I to So that message and I as don't to for industry, is, us, like company intent. and more sound environment the be that But them. That's there are our stepping be the to from not broadly going on make we're, we're clearly, sure say an going to market up alarmist. perspective, would counting a allies a as an

Kenneth L. Bedingfield

business. part And, as And what remains Wes, sales critical this ability growth. we year forward, look the ultimately believe grow seeing in of to this is international we well international we add fact I our growth might are a just that strategy as as strong

Wesley G. Bush

Yeah.

Operator

is Cai Rumohr von next Company. & question Your with Cowen from

Cai von Rumohr

And congratulations seen been (XX:XX)... always guys much. very in probably the the than you work you to Thank at and Yes. Wes. other I've you, let join me longer

Wesley G. Bush

a It's of lot years. been

Cai von Rumohr

you by basically done increase guidance a one sales you to that touched put XXXX had of on a the business single really Could So yesterday, has of yours budget in cited this earnings significant seeing and in that flow-through were kind Lockheed new areas, similar mix that they your in that their earlier divisions respect? than comment, what add-ons as quicker March guidance reasons. FY for of expected contract wins and and are year their every the Martin somewhat

Kenneth L. Bedingfield

on view had of January, if where gave in say, a I'll But relative they were when So, their Wes or think you business guide point we wouldn't that. we But and guide amount that, let time. anyone in to sales could we believe as on XXXX. continue maybe three that's at we that for guide. can to grow that or to had guide our XXX we whether was back start and/or Cai, indicated on relative a strong, then I strong else's add see the the on XXXX And growth in pretty color a actual you we XXX I to but maybe we our had about our And to fit. this think basis pick in year, growth and sales would want updates Kathy basis, that I'll comment initial sectors' that to that the organic want that I

Systems, If had think about it's strong you Innovation growth.

in to the closing. acquisition of and You themselves a And just thinking the the hold guide strong month can sectors the sales, strong acquisition to just closed, see full growth the first then, $XXX as margins about partial we prior since quarter as million they all continue in well had for of the well, year.

So we feel pretty good about our guide.

some so being business, we've of in the referenced. of Kathy, increase any and and a I that others, of areas budget you areas. comment the want that don't say to of our missile know on few In impact ammunition if those terms more than side. would the Systems impact of probably in XXXX some in further that I of seen Innovation you

Kathy J. Warden

Yes.

So, said, anticipate earlier to and Cai, guide our And own we areas growth expect year. growth I Ken as And in in to in that the from. opportunity increase was We response are in where seeing recognizing all within we some where portfolio. of reflected our also outlook. focus our agree. budget come it munitions, year. do defense, that, space well see aligns we're Missile in strong And very that portfolio to the

Operator

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

David Strauss

Wes and Kathy, Congratulations, well. lot. a Thanks as

Wesley G. Bush

David. Thanks,

Kathy J. Warden

you. That

David Strauss

a programs earlier Could on Systems. Innovation Wanted look to looking at the you of capital, business Ken, at then, intangible of Ken, least right huge looking structurally if you're follow CRS. working million working-capital Is the anything about opportunity. levels ex-AXXX like at amortization it like legacy it up cash-flow of there Q, up? versus straight because And looks Northrop quickly number? incremental. a from perspective, a there's on and kind at you touched historically, if you you a in Thanks. even looking couple opportunity run about But that business just a at talk question how and XXXX, see that different at extremely-high $XXX that it's

Kenneth L. Bedingfield

on in of of building think been changes few room part address the then the lever. question the some working on look, take the that, ourselves. years capital the we'll would I'll of some PI. some had a capital see capital behavior of in the terms a improvement. to So working we have terms for There first cash working to first customer XXXX been side, and the changes trying last try DFARS, use I perspective, for in estimated and say over as I amortization From We terms

that our business customers to deals them in looking of so, simply And figure working and deal all flow see of with to Systems and progress business need Innovation I And of react as want are terms expect working that of out challenging meets the together forward. whether we to and and There starting it progress, we or that will type are side. it we profile work start to structure some to terms determining as will than move some more We're how terms team manage best that on the fully we we cash not and that others the that see in we the standards we capital. at evaluate are simply have return, those of of in do. to

think business that seen is pretty us we we profile. think good see includes of our we'll something also think with don't of But work opportunity as come working expected in beyond meet terms that business and I continue disciplined deals we is a hard take we're those cash and then if But pass You've that's Systems, a to if just we'll profile, deal, be I that returns, leave all in see margin front that and it else. doesn't to there We'll somebody forward evaluate as Innovation largely, and, they hard. us.

of $XXX In north have of year we of amortization an the million. for estimated question, full of terms something PI the XXXX amount of

million XXXX cash it's amortizing you in we and of just with on intangibles I the in then behind think XXXX. I in intangibles. XXXX basis and GAAP for remind on and those are an And accelerated down those the reduce $XXX XXXX XX-Q, starting that really And flow then the that would is see to that in and amortization based accordance beyond.

purchase from that only do, work process work our as accounting here refine short process, obviously. when that still a So, to is complete. We're to to and into continue forward we'll we period

Stephen C. Movius

question. more one do we'll Jamie,

Operator

you. Thank

is of Wells Your final Pearlstein Sam with the line question from Fargo.

Samuel J. Pearlstein

afternoon. Good

Wesley G. Bush

Sam. Hi,

Kenneth L. Bedingfield

Sam.

Samuel J. Pearlstein

and of about of go this. the one to to tease wanted back questions trying performance to I just through overall kind

now something future. I for right then, you a need roles for COO a Wes, the a see you it you isolated of come So, common see the future? run Is cases. Is businesses confluence you these the in Kathy, in that something COO And well lot performance things the isolated different of or future comment that is Or across see of that overseeing where in change? as is there just may together? thread one the made could about periods guess – as your any thinking that into a where don't we a

Wesley G. Bush

to would way So, good track the what record made. good I We've that Sam, long get see that today. question. think execution. that we said going that I into I had Carter's I in response see I a forward. operate the repeat I of built decisions largely see way

way say execution a teams decisions, never, ability never, see our say. our I the to that we we never, foolish to business performance and way commit customers feel I approach And customers. capture, in be of so, do the the that our hard thing our that activities about is the for company of that. the on good lot a making But having would to that really me its to confidence

the way into well it this I the does where ensure programs got that because have not you also think as a in we're development people place question been our but kind to place, go direction So, in business sustained business. right if approaching to future we've approaching is of of as see on only your our well the processes want go-forward basis, the we

get that there whenever sure will that a number to of of a we've for really require it constant So attention, been make years. we and is doing as learning, the benefit learning, just

power I of activities do the form has about it enter forward. and and fixed has into appreciate any it if role do things her process sure we going as enforcing Kathy been we're feel that are making full this as and amazing doing on corporation broad we to what new in early. especially COO thinking that see the we get way really discipline putting in company, something a I about that of good that around issue that the So

I feel that about good So, see. vector again, the I

Kathy J. Warden

we on And, view continue company. my process. that into Sam, organization our within levels, activity our was as all risk I'll executed within I be bring at not management are important role to integration as undertaking this sound, to and and remained execute we But management single that and process it it all focused also continues to this ensure on framework that the we up have And able successful. the company our they company be were how to across that operate and just to focus IS at to in risk new individual. add reliant with that needs the a that we'll or leaders and standing the that's management it's performance role And ensuring levels risk

Stephen C. Movius

in turn call to this the final point At for time, over I'd some like to comments. Wes

Wesley G. Bush

tremendous Systems lot going I team a of to think continuing say around a and is for in Northrop how but to appreciate to times all great Innovation us addition our team to All I us right. our the just I'm well Innovation by future. it and we have you've Thanks, Systems to join Steve. be our want say Grumman. to such are again. This have to say for members performance today portfolio delighted it the us. work is just drive company Well, hard in position of the XXXX heard everyone, accretive I

everybody, call interest thanks, our in joining and on your for for Grumman. continued Northrop So

Operator

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

Northrop Grumman (NOC) 25 Jul 182018 Q2 Earnings call transcript