NOC - Earnings call transcript Q3 2021 | Northrop Grumman Corporation

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Operator

Good day, ladies and gentlemen, and welcome to Northrop Grumman's Third Quarter 2021 Conference Call. Today's call is being recorded. My name is Catherine and I will be your operator today. At this time, all participants are in a listen-only mode. If at any time during the call you require assistance, please press star 0 and an operator will be happy to assist you. turn over to Mr. your like now the to call host, I'd Ernst, Investor President and Todd Vice Relations. Treasurer Mr. please Ernst, proceed.

Todd Ernst

Thanks, Catherine. Quarter XXXX And Grumman's conference Northrop good call. morning, everyone. Welcome to Third

on PowerPoint We to presentation the IR that will webpage. a is refer posted

Harbor Before laws. they XXXX and we pursuant constitute based information forward-looking beyond, including time the Safe judgment guidance available Company's statements start, at on Provisions the of call, securities discussed on matters of today's federal reflect this to call,

are which uncertainties noted today's statements Company involve measures uncertainties, Forward-looking reconciled our filings. call and and and that release risks results Today's to release. SEC financial GAAP may in our include materially. risks press actual non-GAAP results will are earnings to in These differ cause our

Kathy and turn to Kathy. today, Chairman, CFO. our our Keffer call, Kathy. President, Dave call this the time, would CEO, At over to On are I and the like Warden,

Kathy Warden

which thank and I our delivering results our against our for evolving morning as look their I'd effects customers Thank increasingly this their our focus our resiliency to for how to developments has we've growing at inflation. today's call, macroeconomic seen our updated challenges, adaptability insights tightening discuss our provide our provide relentless labor shareholders. and Northrop us. Northrop of for initial such we've the during third-quarter strong our also national of these and as and time. market, last chain But fight value in suppliers, the and employees you seen proud changes like and and into and team dynamic eliminated We as an services. On XXXX. year thank remarkable and Good to quarter quarter, Grumman our the developments results supply these you on the including demonstrated and have security, Todd. of products further business date, extended threats performance team, Grumman well am on we will in environment. outlook for In global another joining COVID-XX everyone, complex an delivered

Our Company continues performance. operating strong to deliver

today, had rate of the of year-to-date segment margin announced an operating XX.X% a we segment rate margin exceptional we and quarter XX%. As earlier third in operating

quarter flexibility earnings per to increase our transaction ended $X.XX, year-to-date and to share With an our over addition, deployment continues robust In $X cash, free in in to last in top-line, growth This We providing future needs. of the our be reflects XX% XX% X%. increasing cash were And organic compared strong, of growth capital the the generation adjusted our was year-to-date. and customers with support quarter billion priorities just broad initiative. significant to alignment our portfolio the respect of strength year.

quarter we in from rate the our in the first As of half slowed saw rapid growth that pace expected, the organic the year.

In last -- addition the discussed to working on calls. half of days two we fewer year, second the our each having which in viewing of

economic due We sales an also impact the our are environment on to from COVID-XX. broader seeing

planned, than this quarter, leave-taking challenges. market, employee third at level tighter higher certain a chain supply the During included labor a and

on focus of and well-being to impact of the work We continue the to as these partners safety our we employees, customers, mitigate and factors.

early generally an the vaccinated know, December. President recently contractors, Order you to or As by issued Executive fully requiring employees be federal

help our We workforce the U.S. working to we meet have requirements. details shared with them to and the are this mandate

initial today, strong updated on we the and the OM increased increased provide team's attrition. and quarter our hiring our XXXX. see billion. third as help guide, of guidance more We the details and to also the plans as in the Dave impact for consideration we our narrowing performance, our macroeconomic EPS sales year, on Based increasing quarter will XX fourth quarter, for of potential are mitigate our to outlook factors any as segment for for well guidance them approximately

we're seeing agreement We're through from was fund debt-ceiling the support continuing will specifically. reached third. updates on for December national an Grumman budget to strong resolution Turning security bipartisan Washington, and Northrop that broadly the that pleased and government programs

We are appropriations bipartisan we defense avoid continuing hopeful defense fiscal and the request. president's above With a will spending, that budget for Congress the the protracted funding budget year finalized increased adding overall, resolution. XX to including respect see XXXX FY support

be supported We are that this additional hopeful appropriations. in will funding final

national need weeks, consistent officials deter made investing, the threats. the message members customers, of several more comments and advanced been and the competition evolving and rapidly increasingly senior has field One security the Congress, past the has capabilities. to need administration and counter Over environment and strategic in to public about clear

share portfolio and aligned priority the than are to and a few position Company's to using security to continues weapons, Mission our and capabilities highlights find entire digital Our for I'll in deploy today particularly advanced strategic more performance our demonstrate strongly capabilities Space. we're us the across future. and technologies faster areas, national Systems, how portfolio. And to develop ever efficiently before deterrence,

XX a of quarter, sophisticated speed initial way long-range received Northrop we our is we clearing production. to just to Mach developed standoff in this And Northrop Systems, for ER target speed address know of emergence higher achieved after manufacturing high-speed Defense during Jet (ph) scram as low today's allowing Also industry with more as two examples program. providing of we're needed concept third quarter, partner and threat our in critical HAWC. Missile. the for X along the development, Grumman argum Air our the Raytheon, production the than how and greater we customers. requirement, capabilities With for months system hypersonic the September, gum to environment. longer-range the our engineering, In HAWC, relevant HAWC Propulsion and weapons for To Air-To-Ground for need milestone, speeds successfully supplies a tested are known in be award weapon Grumman's ER the Hawk. first critical the and just rate air-breathing

key their in disclosures recent area to customers, where deterrence of are nations supporting we investments, our our other the in of The enhance capability. of and and strategic for allies need light is strategy capabilities. been country's peace aggression. are its the the effective security decades, and foundation making it's and preserving U.S. strategic detouring deterrent triad in the Another an is urgency modernizing Especially for

by recent likes strategic are bomber highlighted for and the As remains a the high modernizing Tri-Ed on missiles, the with prime supplier Northrop administration Grumman the and we well. customer and is Tri-Ed comments, significant priority. of as submarines a

B-XX advance. For to program the the continues bomber,

in are in his recently are And making production. systems various fielded secretary force air there good noted, the of Frank As Kendall stages to word, real X progress now units capability.

Deterrent missiles, on has significantly solid approximately earlier that program. and will expect For we and to we as the Xbillion program continue we We tracking toward are progress of it and completed XXXX. in ramped planned. this EMD XXX portion our milestones flight incremental key strategic our add over revenue year, million Ground-Based make year, first Strategic to GBSD in now this incremental revenue of another results, The just the XXXX

in system's GBSD, to a shorten both which the be time, to and the transformation equip electronic we quarter, improve third had advancement to domestics, portfolio, its capability next-generation and Mission platform threat productivity, to allow environment, contribution is and first To a addressing rapidly ability applied the our the therefore technology test capable, our communications threat. to will relevant risk, more radar, enabler with in reduce more In XX end of system, warfare This and digital have full spectrum Saber threats. changing survivable, this in For towards cycle sophisticated a testbed adapt system increasingly changing during increased concepts the stimulated environment. including legacy on needed key in aircraft and as at flight demonstrated conjunction exercise. Systems lightning the contested intelligence, artificial interoperability making electromagnetic our today's critical Northern a and

strong missiles. radio challenges Grumman and becoming provide electronic by review satellite which address $X sensor customers program. them. and space In frequency a and They this In with in to domain, contract capabilities programs XXXX awarded critical contested. contract expertise. a capabilities working increased a next-generation in increasingly awards missiles We conducted capabilities sensing evolving classified differentiated design of That's a deliver of is anticipate from spectrum a domain critical quarter collaboration with year, we threats were hypersonic electronic ballistic highlight will signature are Earlier space leadership, advanced helping contributions challenges demand third to TSS to this the order new and all very program new profile have for touched accelerate as applying successful with lifetime are customers. share technology September, is progressing our part and Space than vehicles, EMD Northrop And platform technology, are prototypes our examples billion. threats. remain range track for different defense, warfare Many these broad in restricted quarter. overall opportunity major of detect solutions warfare this want to our tracking and several creating missile our and discriminating set billion the required to made that We're in track advanced of these in which to This an the innovation $X.X the up I ballistic performance, in of to I've area, technologies. partners to with received we create security, to flight hypersonic of designed on and survivable. to we've hypersonic portfolio. in also consistent launch. HV new to we allow towards XXXX detect MDA's emerging national and on With a to

the are vision fab, technology partnering in in on-orbit defense space. well and put As our goal space logistics stage Space I've before, satellite logistics quarter, gas refueling a Company non-traditional investment early and stations capabilities. we Their we engaging whose orbit companies. closed with and with actively is In noted to fits an

Digital, both software for learning provides we as for software-defined enhance Deepwave We national solution enabling the as also applications innovative at end which with in venture create our efforts other a Digital enhanced our and in very work edge, to Deepwave strategy solutions These security hardware year. toughest continue customer's and speed at autonomy jets our the investments, well partnerships, challenges. believe last at efficient we CX. will support Company an of to invested radios deep AI

Dave, our outlook. and Now, to XXXX I call on Dave? over XXXX updated will Third the who more our will Quarter provide results, turn our guidance, detail

Dave Keffer

with morning, X. and comments Okay. Thanks, Third begin everyone. on slide Kathy, Quarter highlights my I'll good

higher We continued earnings margin sales delivering organic quarter growth, to generate strong cash operating segment free rate, share, another operating of and and flow. adjusted transaction per results, outstanding solid

third dividend, quarter return a quarterly program the over to cash X $XXX Slide bridge sales. and to returning and provides XXXX million quarter continued between third We our in shareholders buyback XXXX, through quarter.

services rate Excluding sales percent. was IT our and was part supply to first below broader market trends half This three Kathy organic from in the growth divestiture, that chain outlined. labor the due our growth

earnings share XXXX, former ATK the X allocated our costs intangible involving also of deferred performance lower $X.XX. Next, step-up Strong the about state contributed I by $X.XX results contributed as higher acquisition. non-service change This per segment prior our as to Pension million will $XX another litigation Orbital of on our depreciation. of expense corporate driven shareholder a and review XX% income. benefit EPS PP&E amortization $X.XX Corporate and unallocated operational to a increased on income Quarter asset from decreased compared added to taxes, FAS in insurance growth business Third well due $X.XX. to related Slide to lower included growth settlements

Our markets. a equity strong the to compared represented which of third marketable $X.XX from benefited securities of XXXX, headwind particularly performance quarter

the from benefits a period we due slightly Income. to Intangible Lastly, rate foreign lower higher in federal experienced derived tax

six, quarter. most the Turning X% down results our Aeronautics we Year-to-date sales declined broad-based sector. impact. on which sector -related some Aeronautics were COVID are it's to significant of X%. slide sales saw in The for

growth. would entering As plateaus, AS expect we've quarters, several see a cycle our where of are recent in to portfolio not life you phase programs described in or their

Hawk Global we F-XX, volume across quarter, lower efforts. portfolio, This restricted BXB, DMS, slightly the programs. and experienced including

MS in to sales X%. in and periods partially at X% they're a the XXXX, contract a the quarter, last Mission Lake of readiness basis, in Organically, more were by systems, higher the momentarily. detail year-to-date. was City $XX continue and small-caliber offset million and quarter year-to-date. ammunition of down expect year. roughly At the million increased on QX, year-to-date an by down XX% $XXX X% up completion robust headwind decreased organic by the overall this AS volume were and represented quarter in several sales on year-to-date, Lake roughly sales We and mission X% X% City, discuss year-to-date. sales Systems the driven in our This quarter up sales programs. activities XX% in which defense we'll trend On in

at the various third periods timing As was weighted half the noted restricted the J been as of previously, programs second. Organic we've first towards the of growth in efforts. than more XXXX MS material and quarter across volume broad-based and Crew, year-to-date such sales has Gator,

Finally, on XX% in outstanding programs and GBSD as growth, year-to-date. sales increasing periods, Artemis. the higher in well in quarter were higher based quarter systems continues reflecting both deliver business XX% to and and volume areas continued NGI, as and ramp-up third unrestricted Sales the year-to-date

related third Aeronautics XX.X%. operating The to Defense quarter income year-to-date services decreased Systems the XX margin income XX% Operating in the margin net performance F-XX program. Space program Third Operating in driven was management year the of slightly favorable due production XX% and Operating $XX EAC of performance by and at the improved quarter by income XX% by operating was year-to-date, rate excellent Turning driven At largely decreased largely quarter changes quarter, was delivered to segment on impacts margin adjustments. year-to-date, higher and mix strong lower systems, higher lower a on and XX.X% XX% margin margin impact income net IT in percent and XX.X% the XX.X%. rate at the battle to we operating Systems sales a million Operating adjustment, driven improved mix, missile last the The Quarter unfavorable rate due adjustments. sales business services ahead and X.X% in operating volume. quarter labor-related operating by increased this adjustment rate another as the performance, year-to-date, mission was contract of X, of year-to-date, adjustment in offset driven margin to in favorable XX.X% in divestiture. reflecting EAC quarter flat result XX% at in divestiture. partially IT systems, XX.X% the in rate result rate EAC with reflecting quarter Segment rose to inefficiencies, in operating COVID XX.X%, year-to-date, higher relatively with of and and as operating volume decreased up to year-to-date and income the Margin XX% also by on AS a program. QX slide by

vaccine relatively Moving on what from so that workforce with X, to it sector to of the impacts does on consistent guidance QX on the year slide the far potential include effects chain. and level note COVID in been not And financial experiencing this outlook of any Company assumes this we've a related mandate. impact supply the

and XXXX sales based for segment We for year-to-date current our our updated QX. have estimates each results on expectations

guidance our rate, unchanged. and and For AS at Space, at increasing remain defense rates MS we're margin the operating margin and

our headwind X QX percent based our grow in sale consolidated generated In XXXX, moment our I'd of fewer the last latest a full-year contributed the services XXXX million. XXXX, some comparing year Slide take the $XXX at would in the same $XXX and QX consider discuss to at almost these revenue factors to XXXX representing than Adjusting get QX on items, a AS days guidance, to X% sales X%. to over to for of we business X about our equipment million guidance. X. Before also of of fourth-quarter of also like to sales has working IT on period

approximately total sales margin outlook operating raising for $XX what we to EPS. and see, our We're billion. and Moving we on slide segment expect for of XXXX now Based XX.

is rate points XX.X% performance. continued segment margin operating XX to XX.X%, Our reflecting basis our at higher guidance strong

$XX Our the net full FAS/CAS, increased pension year. million for adjustment has

we As corporate performed a guidance. our QX. are unllocated million result of the update below $XX annual demographic Other previous in costs

Now for at the million approximately year. $XXX

insurance XX.X% operating our points for from an our additional guidance. These margin $XX that well full year. updates translate settlement from the contributed XX% of rate to increase basis in QX updated a taxes. costs As range from I unallocated corporate X divestiture benefit approximately Remember margin state benefited IT in the gain million QX, as a XX mentioned, percentage in of in operating services benefits points overall our into the to as of

project XXXX We the continue the guidance. prior tax to the effective rate federal in consistent effects divestiture, high excluding of our range, the XX% is with which

is contributing EPS pension which Segment EPS the $X.XX our on guidance, XX. we're of performance improvement $X.XX In up beginning and allocated our transaction increase on about Slide increase, is to total, about the Lastly, the initial raising an year. cover our the with represents benefits remainder. contributing guidance adjusted corporate in the we'll by With EPS $X guidance latest our since guidance. XXXX of this this in

$X the to billion a Before our payroll sheet. have generated billion we you I mind the in on million transaction in give from with ended to percent wanted XXXX. Keep flow we And XXXX, to in over cash Year-to-date, we cash Cares over compared payment on QX the up move of quarter tax an update XX we free have adjusted $XXX $X.X cash Act roughly legislation. performance. that balance

With in the payment second XXXX. similar

to tax transaction-related from of balance divestiture we fourth in our the services Additionally, IT the the expect pay quarter.

us enabled $X to of Our healthy target or year, of on track $X.X cash full-year our repurchase this so position stocks over billion billion has with far more.

beyond to b that environment for debt on assumes not assumptions it regarding It our and XXXX, mandate. XX, on the resolution also a that same COVID XXXX described we guidance, our XXXX that extend experience slide As assumes do ceiling. the the based set vaccine is of the does look XXXX and of guidance, reach ahead outlook we not we like continuing

XXXX, produce segment in by several to Systems our space GBSD, Mission and growth. again expect and restricted as efforts fastest-growing they continue Systems also to We Defense NGI driven organic ramp. should be

of growth, trend the projecting sales Systems, Jay portfolio. for our a mid-single-digit headwinds in as talked years XXXX as hail stars, And we quarters decline. We're our in Aeronautics We've XXXX. well several strong on lower in after about latest continuing that Regarding see portfolio. also guidance F/A-XX, calls sales recent our restricted

Rapidly to Xth-generation decade new sparing defense the a this aerospace. it's vehicle, all-time development. wave are threats for and exciting further future, Looking an evolving of fighter

AS in the customers continue that So at remains Company threat cutting-edge the XXXX of stay organic ahead continued to allow sales we the will the Altogether, solid. And invest technologies currently set environment. opportunity in reflect growth. our to level we to expect

at excellent margin, we with QX XXXX segment benefit the Looking XX portion continue overhead pension-related results rate we the generated in program we've a in changes XXXX. of to XX expect strong performance, basis offsetting from XXXX in point demonstrated of to

While down result project adjusted year operating $X. and margin, higher headwinds. earnings year we EPS per an to several be Lower pension CAS more corporate share next sales of expect strong create unallocated projected than headwind non-operational currently we as are and recoveries, expenses to transaction segment next a of higher

will pension, and at asset operating on Earnings discount For updated to performance, our and share items. the our offset outlook lower depend the for we from of FAS determine will driven help will XXXX strong plan actuarial count sales margin non-operational per these end growth, share rates assumptions, which year. returns, including

discussing moment to a Next, cash. I'd like spend

factored the there into the expect XXXX. comparison in We a that should program year-over-year be at overall are level free of cash flow cash temporal few stable But items flow. relatively

lower is CAS First pension recoveries.

year. XX, million lower see can our to expected currently Slide on recoveries CAS are next by be $XXX you As

is taxes. second cash The

taxes expect Excluding the be year. next transaction IT modestly the services we higher impact of cash to

years could billion next provisions. year There require subsequent that other in we've tax past, environment in as potential change amounts uncertainty around amortization be R&D XXXX, would so years. would costs, to smaller which we're in in continues $X by increase taxes in provision with addition, the current new X the starting tax noted and amortize to cash companies our the In law legislation

we adjusted each by these through on factors free flow provide call. January to strong updates of a CAGR cash of double-digit will on into all followed growth decline items in Cash would consideration, XXXX, transaction these by expect Flow, XXXX Taking driven We operational our performance.

Regarding and business continues be deployment, our spending to the disciplined R&D investing capital through in capital priority.

flat We CAPEX expect business. technology next to absolute in invest allow year at terms. believe of be We these to us we our dollar as the in roughly stay investments forefront

said, expect over I back XXXX to the our we've return through turn you, to As of continue call that, to Kathy. the free shareholders we share and cash dividends With to majority flow repurchases. will

Kathy Warden

results summary, Guidance for be increasing Thanks, have we operating and the to consecutive Dave. year-to-date pleased quarter. In our performance, excellent we and are full-year delivered EPS third

we supply risks programs are and We work our employees actively chain keep mitigate broader COVID as to related continue with our engaged to on our and track.

in the by capabilities align the that our and security national milestones quarter, priorities. many we As requirements, well to have funding relevant programs customer shown highly and

XXXX well-being margin expected year of on need So to flow deliver as sustain focused free term, protecting way another the customers is delivering security safety to to our we growth. and the and remain excellent forward, our cash for longer value planet and look growth national of our paving protect expansion, delivering performance the shareholders. and sales organic capabilities our employees, and We

open phone questions. line if So, you the Catherine, would for with that please

Operator

wish if one ask you telephone. Again, press question. question, by ask to followed a star, please press touchtone gentlemen, Ladies on a and to your star one

be If exit question operator of if Stallard to to star for X answered, any follow-up the assistance. Vertical with queue. has question one press your queue, first key yourself question time, the Please please time your Press respectful the been to and And you Research. from exit wish comes limit question to and question. or Robert at one pound

Robert Stallard

morning. Good

Kathy Warden

Rob. morning. Good

Robert Stallard

about would very some XXXX that on expecting of be on you -- much the parts, you. takes, can't decline helpful. give if you AS, sort of wondering just that consciously your puts moving bit I the could talk more could give and Dave, you you're that the expectations detail little scale was or for Kathy Thank but classified, a if

Dave Keffer

can a Sure, further. Robert, touch that bit on I

projecting about the a AS, we we're where next decline programs in mentioned, trend in same lot mid-single-digit that's in our growth of of this we A.S point. year the cycle of a a is trend and key that consistent we life of factor year but anticipate light As that are the lion's There X even sector. contribute decline, X the factors in of at the rather across or our lot key this trajectory fairly that programs or in single share no a in

mentioned, front. You we our on say certainly about much portfolio, restricted can't agreed that

We Hawk of XX's have portfolio projected is stars is to projecting in Jay -- that continue Global next decline mentioned there. program. a the decline portion year their for as F-XX and black I is highlight XX's that process. another retirement would our

some the is in going look across we've consistent relatively to forward so AS modestly of drivers, there And it's program in at as of of F-XX, the outlook. the these about 'XX declining pattern fairly board, flat QX. And the portion talked kind impacts COVID the are we

drivers, key So of I mentioned, specific the sense some anyone's not it's program. hopefully gives a of you as that

Robert Stallard

And just a quick -- sorry. up follow Dave

Kathy Warden

impacted would thing challenges only add and most our the been has the be is spoke Rob, that COVID expect may Quickly about. to the I we we related AS that by continue sector

Robert Stallard

Just for these other of these is issues a programs think start the grow to beyond? in trough follow-up. you mature as some likely XXXX less Do XX

Dave Keffer

point get the more a talk programs in XXXX we'll as Obviously, to similar XXXX, will year, portfolio. within on insight we throughout provide about that and we more specific

we continue, beyond. as they we at you and specifics defer look to trends will the for give date XX the later some, more won't I outlook to others and think for will

Robert Stallard

thank Okay, much. very you

Operator

comes Your Walton next Myles the of question from with line UBS.

Myles Walton

Good I Thanks. was morning. hoping

Kathy Warden

Good morning.

Myles Walton

being -- can and you're the the and about, level, Dave. a a that on bit commentary through base a XXXX. headwind? taxes amortization cash the you XX billion-dollar to cash get the headwind, you question about talk taxes touch related the and could so or headwind? rule You thinking taking to similar all for sticks then cash that around same double-digit growth is Is that Regardless, Are assuming you have we just when

Dave Keffer

Sure.

increase into it, gave the view of XX. on level you be XX about what had would assuming R&D not So, the similar, that from record XX you us the talked in working XX does last lowest it be similar continue kind to in certainly trend efficiency call. we amortization will provide guidance capital we've through done effect. of XX Though line costs let's a go of a that business program that high does think What steady level of with this assumes on and is 'XX those would not in into talk years year, go expect an can good we which couple track I But of across the over capital to help our drive cash volume working and of improvements to the that about that to driven effect.

We a talked year, steady pretty also about next capex slightly lower as percentage of sales.

of consistent basis. we project million expect That what what or reduction, dollar volume less we pension cash today. means non-operating items With growth, the to on kind the is fairly year-over-year a but the provide a $XXX sales recovery

now was I think where sustainably going flow reimbursement. level free cash we've a of point cash as come of purification our so, reaching for and while a the that day of lower more reached that stream. That we're to

without tax higher legislatively. the changes in provisions would side, On cash or the be amortization those R&D or we'd other modestly the other projected provision, rate key

the course, don't have change Of then all of tax removal example. R&D a for or further item, that if for could legislation we

fronts So on, all those on more to of the January call. come

Myles Walton

Okay.

Dave Keffer

gives for But a sense today. it hopefully that you

percent as sales. continued decline As we capital expect and 'XX we do a expenditures about in 'XX, of think

our level, the 'XX expect the the some what on 'XX, 'XX benefit also program and is we continued in not payroll and confidence and having key us that payroll and those will in working increase of at 'XX which tax from as in years. to We 'XX programs gives capital in efficiencies in 'XX, we have

Myles Walton

recoveries outlook slightly prior CAS in and quick holds? still CAS in moderate Okay, that 'XX, just trend line The clarification. had one growth

Dave Keffer

point, At yes. this

I think --

Myles Walton

Okay.

Dave Keffer

XX, You'll we've movement well XX, no see in on in what either direction XX XX had cash environment much actuarial based today reductions significant expect recovery. on significant again, today. less see in based in out-years. we longer significant We as to as those From and really changes to XX and the XX,

Myles Walton

you. Thank Okay.

Operator

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

Doug Harned

And want Good morning. uncertain. back being like referred But think long I were Aeronautics. that, to fighter, the to as you long of things those those Thank to sixth-gen reverse described when opportunities go the term to Aeronautics you revenues new and autonomous term fairly systems. you. fairly I in lower XXXX,

reverse when If a trend? And Do you certainly come the that. growth might to B-XX, that see you that look trajectory, strong grow a at that? we we point from should about this sufficient see as to revenue that would see that

Dave Keffer

obviously it into that one overall detail more and we've get programs that they're in much Doug, to that phases Sure, on on, importantly I'll maybe we you the I the lifecycle and described guess, B-XX these refer see to of can't our that much tend that so and as that's trends customer portfolio trajectory been of years growth something Certainly the contributor timing about. to more the restricted our and we last can't go-forward that the on over the described pace program. growth say but as a AS in is has has we've several described as

we're cycle and in you the phase. and the where given sense this to that's stands program what a able its say we've there outlook at about So life XX for

Doug Harned

perhaps and at upgrades. heart systems kinds the Okay. on tech If you're the F-XX Aeronautics, of of things of refresh I go doing F-XX the switched is to right I outside X that think of

the say it, some growth on X, opportunity growth a lot -- you're dealing refresh challenges have can I'd expect good tech few would have also as But, I have with should that of you quite as there. there, with as be Now some up? that around have they come how been talk challenges that there about F-XX the well of highlighted both been news you has a that

Kathy Warden

this that. I'll Doug, is Sure, Kathy, take

to noted So slightly Systems as minimal this They on there those has delays our this of for of work opportunity, into performance result a our terms the overall see think is the you on just saying year. is just And we been overall some experienced funding Mission while some our next. been production timing issues have as volume production that not and volume impacts the in support is work. pressure down noted, consistent sales But we Systems delays, of had to upside this year have in we opportunity There work, the our sales aircraft. and We've at our provide the across refresh and it's the F-XX sectors. that as tech Mission out shifted has in the driving Systems the we in look board. outlook particularly price that of Mission do flat, some

sustainment And well. Systems to aircraft, other ask the all for that sectors didn't led predominantly area Systems for we our sustainment as opportunity you Mission an Defense The with the our through three see Mission contracts about, that business business and in continues be airframe, the Systems.

Doug Harned

Thank good. Very you.

Operator

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

Sheila Kahyaoglu

than we think to if if follow-up as million, just GBSD? about what Thank revenue XXXX? revenue about morning, Kathy, which is Good was Aeronautics color. are up maybe fair major maybe any guys. time. space portfolio noted GBSD less about you thought. the down, outside XXXX the headwinds. you is rest question, you for you to earlier the about to up, growth And how that, to we it other on the $XXX a X% talk And framework, just growing X% for Maybe could an follow What of gave think it thinking you roll but is some

Kathy Warden

the for question, thanks Yes, Sheila.

year -- point And expect into be might you to has the in to XX% bit sales and over growth XX% GBSD to quarter year XXXX. calendar XXXX. continue a the billion anticipated, incremental data roughly So have budget year that a unpack years. for that is growth looking your next this than an next remind we government less which showed you ' To year, in the But might XXX into continue trend in being I'll XX expect that at the growth at XXXX. space trends little of about you we of contributed million in space each to two

seen the calendar over in in we've a year course XXXX, significant more our than So, of anticipate months we XX XXXX. ramp the

your it's to for Company fall change profile, the on calendar regard how how not to translates With overall. into it's our different. So, It's a outlook year. in that broader nothing our question just that

at level At those to saw I early do that we is bumps the what XXXX, I safe as speed suggest in point say those point anticipating in same We speed know we referenced. difficult to stay project based see in reasonable we we is, it more We're expectation. in will impacts some this that XXXX see low-single-digit than year, think XQ. to it what this today, is in QX. that But on at rumpers. that but maybe what growth COVID impact a we've is them

backlog, priorities, see these we've intact, of call we're way that we been and are fundamentals great helps. We I budget that to Our our bumps speed as strong alignment have about. have Hopefully them, talking the growth portfolio path pipeline, that just COVID, to some we strong working so still through.

Sheila Kahyaoglu

Sure. thank you much. so

Operator

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

Ron Epstein

GBSD I morning. a question of Kathy. clearly, a on questions, asking just I this series Good obviously of of do not following And think behind we're is that's because production how along. mind. speed coming in are we on a guidance for kind but bumps is out be growth, people's B-XX, about else up the of Maybe humming think kind whole on lot when would I'm of is So along. right? kind of And kind the game, of Whatever us. medium-term

of medium-term the years, So growth? think we if over about do out step how couple we next

Kathy Warden

down will look of a slowdowns quarters award path into couple levels on today and the seen. path how award we of because saw that people content. see cost we rates leave third comes where as we supply a see on it's up supplier market labor taking pipeline We've with grow backlog it's seen have plus and strength they're We but this because GBSD. of new of like issues few that appreciate of I those a their and say, But one the labor about continued impacts that a includes to only continuing B-XX bit based jobs programs have balances. over should we the were the industry like also that fairly programs I address quarter, being at that. a you and not highlighted talked business content have referencing opportunity to leave a years. inflation, of relatively And I that growth burning drive roofing higher versus are they some external to that of the our leave of it's as We phase see minimal the matter and they quickly next a And, finite a over the of in in up still in when next longer-term high we've We've the a I Ron the several just result to medium-term, the production take growth highest course work. in may labor or is period trends at chain to

So those with costs on customer. shared get passed and our

Now do we that that working no want they're to not in their those for minimize our want so benefit. shareholders, we I those onto carrying impacts costs way, it customers, to pass But emphasize exposure. are to our

on in short-term these impacts or and good our still really be feel to that path weather of short-term the grow. to any I ability about impacts we we So, expect be a what portfolio have to

Ron Epstein

Thank Great. you.

Operator

with the next comes Liwag Stanley. Your Morgan from of Kristine question line

Kristine Liwag

guys. good Hey, morning

Kathy Warden

morning. Good

Kristine Liwag

Aeronautics also labor, thinking Kathy mandate other you segments? potential specifics in right does into of if why about December provide impact? just seeing, are following the chain what up how you they're more the on effect on come more terms you're can challenge, that X, And versus supply vaccine the prevalent in

Kathy Warden

are vaccine us as requirements do. U.S. So, our the we requires across to implementing the workforce mandate

process the employees, collecting certainly other And be too early being but Company do where they have are vaccinated those our who impact. meet pure and employees employee as and X, some December therefore, to we work by are a those It's of, sense increasing our requirement We quantum data have that majority impacts meet in proactively are what mitigate in anticipation not place. good workers. just that and sense ensuring now early may about vaccinated, our employees stage of their our But and training through programs vast until working they the that in are of loss of of really would we we our may how building status have not what of a or with we we are we in options might mentioned, have better that a I requirement, predict to their and in hiring we skill

can and workplace productive as the So, as we as they bring those get efficient quickly new possible. employees into

difficult they're quantify too mitigate impacts, for just this working time. you to at to actively So really

Kristine Liwag

supply the Great. chain on Aeronautics? And with the challenges specifics

Kathy Warden

the and recovered people up, open vacation. and was similar case seen people relatively needed was was suppliers thing same Then our been the our had We taking took of we have they've things those deserved close delta leave while estimate primarily either us, the to third and supplier actually we've by leave staying same in taken, that on they or from the some For we increases been as X variant. in workforce saw contact at phenomenon. that started based driven therefore minimal out understood in own quarter. well one other the things increased and not counts out COVID we're rate, people seen but We the as

saw temporal as in down that those are as limited slowed that we our saw which But in a leave So, the bit. deliveries and being that point primary is noted, two the I taking we at those same drivers suppliers see time. somewhat

Kristine Liwag

Thank you.

Operator

Goldman comes Noah, of question next is Poponak with open. line Your line your from the Sachs. Noah Hi

Noah Poponak

hear Hi, can you me?

Kathy Warden

Good Yes. morning.

Noah Poponak

Hi. tell talked in you Good morning, flow you cash I projection will everybody. the on that Dave, about

Dave Keffer

you. we Are you lost Noah, there?

Operator

go question. I to next will right get back to we the Noah. Can

Dave Keffer

Sure.

Operator

you is open. Oh We line have Are there? David. Noah, your

Noah Poponak

could was David, just from margins that I on to speak Hi, total basis. assuming Yeah, you. projection directionally sorry. a Thank what you're if you wondering Company in

Dave Keffer

Xnd increase to segment the been XXXX We're ten-basis this now to guidance point another pleased rate for able our to time have year. margin really Sure. operating increase

specific 'XX we're think years. of I anticipate talked it's as to CAGR to for no we look that a point opportunities outlook relatively what a won't as the side that driven as drives noted the from benefits have XX XXXX 'XX the healthy relates up level. about it of And deferral, to on rate our to providing reduction We'll rate first some 'XX don't XXXX. margin we the we overhead specific year. basis really pension double-digit general we cash in base efficiency experienced margin trend those more bit program-driven a the we offset But, would the payroll to trends are about have EACs rate that for portion 'XX requires margin to year we XX and that. get a closer benefit the able I that in flow we assumption tax rate in from that X, we've free think to quarter and that this expenditure get of being As to with Again, the capital and those stable you to be years. 'XX in get a

Noah Poponak

Okay, thank you.

Operator

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

David Strauss

Thanks for taking the question, (ph). Loraine

that follow I'm Just on Dave so up to Clear.

in than you're and XXXX, guess flow adjusted XXXX an on 'XX whatever terms free it, lower call that basis? 'XX cash flow on free Your and margin an guiding overall then I cash segment basis it transaction absolute flow versus in just free midpoint lower is XXX absolute for higher cash 'XX guiding of

Dave Keffer

Sure.

both those, me David. of Let address

basis XX portion We'll to get tech the performance, XX we free as to for things to see say mentioned, move outlook and anticipate XXXX. often we've the we of segment the know growth we that guidance terms rate, tax And provide of and not We'll and more think rate described points look, lot to about the the XX more through got the we in side. from a we'll of as of know XX all strong would note growth of rate X side, January on benefits also. healthy and determined we what to I to points the operating are in flow, that offset yet and think moving than on level flow do what's in a the today, today 'XX as OM On XX factors offset increased free but compared those of absence a we side. look XX XX on the on basis cash today, right look specifics XX XX points of pieces XX in to that cash in provide you're basis continue and OM reduction of best XX today detail legislation to we've a where the further portion our to to in bit on on to as 'XX, we the terms with they pension the rate XX can XX, such. comparison be Based could continued

David Strauss

All thank right, you.

Operator

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

George Shapiro

you clarification you or wanted X% of see? I declined because that taken -- XX, rate out just at say talking it when s Dave, sale you to Yes similar AS is the organically equipment more a down are that with it's like X%

Dave Keffer

XXXX when actual It's question. a trajectory to in good clarification, Thanks a We're the Right. a in decline expecting say XXXX. mid-single-digit we we -- similar are comparing George. the for having

George Shapiro

expected to Okay. I much down And it it magnitude to anything, dropped changed or down, pension coming the come that talked I but is. you've hadn't year? next that it about then if so the -- what changed, what know CAS

Dave Keffer

that The $XX from has came the out the the reduced affected $XXX months the pension some this pretty been and earnings earlier projecting that million actuarial consistent Sure. we've used in XXXX, tougher, for number XXXX XXXX that purposes The the since April other number. to regarding assumptions us stable got number in by CAS pretty level Then July in calls, came recent the today. CAS is been there and that and with in but million is spring. for compare call noted what XX year was about on legislation million, $XX up as of new legislation factor we

George Shapiro

Thanks very Okay. much.

Dave Keffer

You bet.

Operator

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

Cai Von Rumohr

the taking call. thank Yes, for you much so

the saying, of 'XX, you we'll "Hey, repayment. you're So R&D tax don't about as at look the middle And we by payroll have tax credit. 'XX, know the 'XX

lower CapEx. We have

cas we We in h". less have of ops and terms better downside have

low ratio. saying you net flow. And a basically strong better sheet, debt good your So we're EBITDA considerably have going cash also to balance to have

similar use they although peer, share to them, dividend CAS major shareholders. in aggressive a their to somewhat of a has more basically going toward value have hikes stance taken return strategic Your and situation, against repurchase

that actually not looks situation Your consider? something better. you if would Is similar,

Kathy Warden

billion consider throughout period is we not committed that to just cash part to repurchase and and, in We this we the being at share year again this we it's over in dividend Cai, our free increased have have XXXX. been returned we least something of year the majority by, shareholders it a $X of articulating would see do flow

You as returning next couple see those trends to the shareholders cash expect of in for to could well. years

Cai Von Rumohr

is implying go debt their you But number. actually their consider all if net up, will Lockheed that of

because debt sheet. going or debt consider the of is basically they're they're their balance somewhat basically the would strength up, that's is So saying it Is increasing because that at EBITDA cash of available? something that basically net looking flow net the you just

Dave Keffer

next priority we in or net our years. balance not will few debt returning is years do cash next next couple Whether around years of think noted point our businesses, all we and and than first to choose to continue change these that the the couple some to those as legislation over making we've we'll in will and quarters about is more Cai, beginning shareholders into important said so, the tax investments priority in our stable we're factors, others credit mean, rating we feel know today achieved I more the good the these we foremost, allocation the affected think Sure, Kathy's of we the remain more do I we'll about our budget We'll of at and factors. in environment few after you that as and like, know there. and a ways appropriately get environment, targets know and we COVID look we next the by next that position other you over around on plans. us broader one factors capital for front.This year, XXXX about be will critical at update over are the

all, as we'll know and do. again, So you more we update

Todd Ernst

-- Catherine And

Cai Von Rumohr

Thanks much. Good answer. so

Todd Ernst

question. more have we If

Operator

Seth from come Alright, with will JPMorgan. Seifman question your last

Seth Seifman

for me very Thanks Great. on. much. getting Thanks

I one more here. think I got

and the confidence backlog, as to outlook we've on you So, expect seen given the there? Systems as backlog when stabilize year-to-date in you I gives would the decline growth what guess far Defense backlog,

Kathy Warden

don't we times kind over at in so have Seth, there your several it's awards we of significant expect backlog So, been our is year -- growth close the grown accelerated years XX% see of Fourth has come. in continued XXXX, two book-to-bill sales, the our to that since to it we quite business of over sits the currently being we our and backlog supports for end growth Quarter. strong, this that again feel And X so to point the anticipate

Seth Seifman

[Indiscernible] Great. on then defense?

Kathy Warden

What is Defense [Indiscernible]? Sure. question specific the on

Seth Seifman

segment year? has in some Just year-to-date what I year. that significantly that there backlog know you for growth growth in next of the fairly Defense Defense down programs calling confidence business growing and the are been kind next but Systems gives

Kathy Warden

next growth for That business of year. quarter its fourth that in position year awards key also some has this would

see in the and Dave? we will Anything as ratio backlog it's course, to year-over-year And of cycle Lake do compare. have in business. business, been impacted defense a tough and shortest that We so new forward, we sales at there to But sales in has trailing to also looking run point more thing that City look add, other awards you would stabilize one-to-one that off the ratio. backlog our they only -- is of tend I a to

Dave Keffer

would comparisons thinking change in a DS of IT particular Yeah, this divestiture But the be more is particular in in affected the MS in services lesser year-over-year of organic certainly, to degree of by that important in DS course, of the backlog Space. year. business and backlog an

Seth Seifman

much. very you Thank Great.

Todd Ernst

will there, I leave it Kathy?

Kathy Warden

solid I the Northrop quarter. to Grumman once Yes, for well, delivering thank again, want another

to other talked solid and actively performance, year COVID we cash flow. EPS and today related We with working robust mitigate free are risks the about that this finish sales strong and growth, strong

around initial wish we performance XXXX in next for so, January that operating said, growth some look thanks continue to guidance today. call, and again joining expected we've and you outlook and forward Our well, as again all deliver is our details call providing we strong you year to our to

Operator

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

Northrop Grumman (NOC) 28 Oct 212021 Q3 Earnings call transcript