Good day, and welcome everyone to the Lockheed Martin First Quarter 2024 Earnings Results Conference Call. Today's call is being recorded. [Operator Instructions]. At this time for opening remarks and introductions, I would like to turn the call over to Maria Ricciardone, Vice President, Treasurer and Investor Relations. Please go ahead.

Thank you, Lois, and good morning. I'd like to welcome everyone to our first quarter 2024 earnings conference call. Joining me today on the call are Jim Taiclet, our Chairman, President and Chief Executive Officer; and Jay Malave, our Chief Financial Officer. Statements made in today's call that are not historical facts are considered forward-looking statements and are made pursuant to the Safe Harbor provisions of federal securities law. Actual results may differ materially from those projected in the forward-looking statements. Please see today's press release and our SEC filings for a description of some of the factors that may cause actual results to differ materially from those in the forward-looking statements. We posted charts on our website today that we plan to address during the call to supplement our comments. These charts also include information regarding non-GAAP measures that may be used in today's call. Please access our website at www.lockheedmartin.com and click on the Investor Relations link to view and follow the charts. With that, I'd like to turn the call over to Jim.

Thanks, Maria. Good morning, everyone, and thank you for joining us on our first quarter 2024 earnings call. I'd like to begin today's discussion with a brief overview of our quarterly financial results, the state of the U.S. Department of Defense budget, status updates on some key programs, and recent advancements made to support our vision of 21st Century security that integrates the latest digital technologies. Then Jay and Maria will provide more detailed information about quarterly highlights and financials. The increasingly unstable geopolitical environment in the world today makes it essential for industry and government to strengthen our nation's capabilities to deter and defend against further aggressive behavior against the U.S. and our allies. We here at Lockheed Martin are continuing to invest heavily to improve our design and production capabilities, while actively partnering with leading companies inside and outside the A&D industry to incorporate a wide range of technologies. As a result, we delivered robust revenue growth across the company, and we maintained a robust backlog of $159 billion, reflecting alignment between our advanced technology solutions and our customers' key missions and priorities. These first quarter results reinforce our confidence in our ability to achieve the full year financial expectations we shared in the most recent earnings call. Moreover, the approved FY2024 defense budget reflected many positives for Lockheed Martin, consistent with national defense strategy priorities too. Highlights include robust funding for munitions multi-year procurement, continued investment in hypersonics and classified activities, and ongoing support for programs such as Black Hawk, CH-53K heavy lift helicopter, the fleet ballistic missile, C-130, and F-35. There were also additions to the original budget submission, including F-35 aircraft, C-130, and combat rescue helicopters. The initial budget request for FY2025, while still very early in the process, continues support of many of these…

Thanks, Jim. I'll cover the consolidated results and touch on some additional highlights before handing it off to Maria, who will discuss the quarterly financials by business area, and then I'll come back to discuss the outlook and close out the remarks. Starting with chart four, we had a strong start to the year. First quarter sales of $17.2 billion increased 14% year-over-year, led by MFC and RMS. While the results benefited from an extra calendar week compared to 2023, normalized year-over-year sales growth was a solid 5%. We saw strong labor and material throughput indicative of an improving supply chain. We'll continue to work closely with our supply chain partners to enhance quality and performance proactively and, as needed, expand the breadth and depth of our engagement at supplier locations. Segment operating profit of $1.7 billion was up 4% year-over-year with margins of 10.1%, and included the anticipated $100 million reach-forward loss associated with the classified missile program at MFC. Excluding this charge, Lockheed Martin segment margins were 10.7%, primarily reflecting year-over-year lower profit adjustments. GAAP earnings per share of $6.39 were down 3% as year-over-year benefits from higher profit and lower share count were more than offset by higher interest expense, lower pension income, and mark-to-market gains. Book-to-bill in the first quarter was just below one. Notably, space booked several large national security orders in the quarter, including SDA tracking layer and other significant classified awards, contributing to a book-to-bill ratio of 1.8 and record backlog of $33 billion at space. We generated $1.3 billion of free cash flow in the quarter after investing $360 million in research and development and $380 million in capital expenditures. Share repurchases were $1 billion and we returned $780 million through our dividend. Shifting over to additional highlights in the quarter. We…

Okay. Thanks, Jay. Today, I will discuss first quarter year-over-year results for the business areas. Starting with aeronautics on chart five. First quarter sales at Aero were over $6.8 billion up 9% year-over-year, and that's 1% normalized for the extra week in 2024. The increase was primarily due to higher volumes across F-35 and Skunk Works and the continued production ramp on the F-16 program. Segment operating profit is comparable year-over-year with higher volume being offset by lower margin development contract mix and lower net profit adjustments, mainly on the F-35. Aeronautics backlog remains at a healthy $57 billion, which includes 373 F-35s and 80 C-130Js, and 132 F-16s, supporting growth into 2025 and beyond. Turning to Missiles and Fire Control on Chart 6, sales increased 25% from the prior year, 16% normalized for the extra week driven by production ramps on tactical and strike missile programs, primarily GMLRS, HIMARS and JASSM, LRASM. Integrated air and missile defense also saw higher volume on PAC-3 and THAAD. As expected, segment operating profit decreased 18% year-over-year, primarily due to the $100 million loss on the classified program Jay mentioned previously. Normalizing for the loss, MFC's margins would have been 13.7%. Now, I'd like to provide a quick update on our annual production capacity plans for key programs. PAC-3 is currently at 500 missiles, growing to 550 in 2025, and 650 by 2027. GMLRS currently is at 10,000 missiles, growing to 14,000 by 2025. JASSM, LRASM currently at about 650 missiles, growing to 1,100 by 2026, and HIMARS currently at 72 launchers, growing to 96 next year. Shifting to rotary emission systems on Chart 7. Sales increased 16% in the quarter, 8% normalized for the extra week, driven by higher volume across the entire portfolio, including radar and laser programs within integrated warfare systems and sensors, various programs within C6ISR and the CH-53K and Seahawk programs within Sikorsky. Operating profit increased 23% due to higher volume and favorable contract mix, partially offset by lower profit adjustments. Finally, with space on Chart 8, sales increased 10% year-over-year, 2% normalized for the extra week to approximately $3.3 billion. The growth was driven by higher volume on the fleet ballistic missile program and ramp ups on hypersonic and next-generation interceptor programs within strategic and missile defense, as well as higher volume on space development agency transport and tracking layer programs within national security space. Operating profit increased 16% compared to Q1 2023, driven by higher volume and ULA equity earnings, partially offset by lower net profit adjustments, primarily on the Next-Gen OPIR program. Now, I'll turn it back to Jay to wrap up our prepared remarks.

Thanks, Maria. Let's turn to the outlook on Chart 9. Our expectations for Lockheed Martin’s 2024 financial outlook remain unchanged from what we said in January. With the strong first quarter results positioning us well to achieve the consolidated full year outlook, we continue to expect free cash flow to be in the range of $6 billion to $6.3 billion, including over $3 billion of independent research and development and capital investments. While the dividend, along with the expected $4 billion of share repurchases, support our returns to shareholders, targeting a mid-single-digit free cash flow per share growth over the longer-term. All right. To close out and summarize on Chart 10, we're off to a solid start in 2024 and remain laser-focused on execution to our customer and programmatic commitments while building momentum towards delivering our full year guidance. Through our 1LMX transformation, we are reengineering our internal processes by providing the automations and capabilities needed to drive efficiency, increase velocity and enhance key captures and programs. 1LMX will enable us to combine the depth and breadth of our portfolio with the expertise and dedication of our people to drive 21st Century Security solutions for our customers and continue to create value for our shareholders. With that Lois, let's open up the call for Q&A.

Thank you. [Operator Instructions]. Our first question is from the line of Doug Harned from Bernstein. Please go ahead.

I'd like to start to make sure we have a good understanding of the F-35 right now with TR-3. As you said, the Air Force has talked about this as well, and it looks like that timeline has moved back to some point in Q3. And there's just been a great deal of slippage in the timeline over the last few years. Block 4 has been delayed, and the new budget has cut deliveries in 2025 and 2026, ostensibly to avoid having to do later Block 4 upgrades. Now, you've been able to keep production and revenues up, although deliveries and cash payments are off. But how can we get confident in the trajectory? And perhaps, Jim, maybe you could talk about what a positive or more negative scenario might look like for production and deliveries over the next two years? And what it would mean for the revenue and cash trajectory?

Sure, Doug. So I think it's important to understand that we're doing, as I said earlier, concurrent development and production and then advancing the sustainment capability as well, all at the same time. Most of these complex programs go through a period of development and then a production run largely off of that design base or that engineered base of what the aircraft supposed to look like and how it's going to perform. The F-35 is different in a sense that development has been going on since the day the program started years and years ago, and it's going on today. Now, the good news about that is you have step function increases in capability every few years, and as a result of the F-35's capacity to do that, the government just came out and extended the expected service life of the aircraft another decade or two, I think it was. So this is a good thing, but it's also an extremely difficult thing to do and even to predict schedule, right? It's our responsibility to hold cost and schedule, but we're -- we don't control all the variables let me just say. And that's okay, we're still the OEM, we're still responsible. And so what we run into on TR-3 is just a level of complexity and executing the step function increase, that's pretty, I'd say, novel or dramatic. What the team is doing at our company is we're integrating a series of components, devices, software, and managing and integrating all of that. And so what's happening now is we are ringing out all of the software through all of the new hardware and integrating it into all the aircraft other systems. And that's taken longer than our team predicted. The way we're going to get at that is…

Yes, sure. Doug, I'll just add, as Jim mentioned, this combat training capable -- capability and configuration, as Jim mentioned, supports the training of the squadrons standing up to new squadrons and decreasing the amount of time of the aircraft are parked. All that, what that does is really avoids any type of significant disruption. And so what this does is really keep our production on track here in 2024 and then beyond as well. As Jim mentioned, in 2025, we'll have further capability inserted and we'll actually start delivering on the inserting Block 4 type of capability as well. And you may have heard, you referenced comments made from the U.S. military and they discussed a Block 4 reimagined, and what that would entail is an insertion schedule that's really tied to an executable plan that can be provided by industry, so we can avoid these types of disruptions. And so when you look at it in the short-term, could there be pressure on the last 15 through 17 contract profitability and potential movement around in cash flow? Yes. But I think over the longer-term and the medium-term, I think we're working in coordination with our customer to make sure that we can deliver the capabilities the customer wants, but on an executable schedule. And if we're able to do that, then we should be able to keep the program on track from a production standpoint.

Thank you. Our next question is from Peter Strauss from Barclays. Please go ahead. I'm sorry, David. Okay, great.

Good morning. Yes, thanks.

Good morning, David.

Good morning. Thanks for taking the question. So since Q4, we have a 2024 budget, looks like we're going to get a very large supplemental. You won NGI. How might all those things together change how you're thinking about where you kind of fall in, in the revenue guide this year and the potential for revenue growth in 2025 to accelerate kind of off this low-single-digit level?

So David, as we mentioned, for this quarter, we started off pretty solid, just on an apples-to-apples basis 5% growth in the first quarter lines up pretty well with a mid-point guidance range, which is 2% to 2.5% and the high end of that range being, say, around 3.5%. So we're well-positioned to deliver on that expectation. It is possible somewhere to last year that we could see some upside towards the higher end of the sales guide range there. So again really good start that enables that. As we think about 2025, what you saw in the budget, what we're seeing here in supplemental, give us higher confidence that we'll continue to grow. We talked about growth in -- starting in 2023, a year earlier than we had originally anticipated, accelerating in 2024, and then giving us more confidence that we'll see at least a same if not more growth in 2025. We'll give you -- it later in the year, we'll give you a much better update in terms of what we're seeing. But right now all this bodes well to our sustained growth in terms of what we've been driving to, not only in 2025, but beyond 2025 as well.

And the next question is from the line of Peter Arment from Baird. Please go ahead.

On missiles from fire control, can you talk maybe about the confidence in your margins -- margin guidance for the year? Just given the 1Q margin performance was certainly the lowest that we've seen in many years. And we know the classified losses are supposed to expect it to continue, but you've got kind of this reflecting top-line. I think Maria called out all the production increases and just do the losses just get smaller on the class side, or are we going to see some offsets just because of the higher volume? Maybe you just give more color on kind of your expectations on the margin performance profile going forward. Thanks.

Sure. Peter, MFC was a little light because of two factors. First, as we mentioned, we did have the $100 million loss provision that we recorded. In addition to that, their profit adjustments were lighter year-over-year by about $20 million. And so that's a function really of calendarization. We'll see profit adjustments in throughout the rest of the year improve. And so getting us back to what we had guided to. Just as a reminder, we're anticipating, and that was fully anticipated in our guidance for MFC, that we would have additional or could have additional losses in the back half of the year associated with this classified program. And so what our guide, what it implies from where we are today, we reported $100 million is in a range of another $225 million in the back half of the year, which would be provided for in this expectation. Now, going beyond that, we've talked about this, and I'll just deal with the question upfront in terms of can timing change? And it's possible that we could record additional losses here in 2024 depending on other factors as the year goes on, there's factors such as technical milestone achievement through the balance of the year, discussions with our customers, visibility to funding. So all of those factors go into the determination and whether you have to recognize a loss earlier. You'll see coming out in our 10-Q that we've actually ranged the potential losses on this program, which would be in excess, additional losses in excess of $1 billion. So at least you could have an opportunity to size it. The timing of which is still to be determined. We've got about $225 million at least embedded in our guide for the balance of the year. Going back to MFC for the year, if you really take apart their expectation, the impact of this at $325 million of losses in the year anticipated, they're offsetting a fair amount of that in their guide. I mean, the impact of that is 270 basis points alone. And their total full year guide is down about 210. And so you're seeing offsetting improvement within MFC, it's not entirely one-for-one, but their underlying performance has been solid and we expect that to continue.

And Peter, it's Jim. I used to fly these aircraft for the USAF and I can assure you that the capability that's being developed here at MFC in the classified program will have very, very long legs. There's going to be many, many years, we believe, of orders to follow. So, yes, for a quarter, for the year, maybe for a couple of years, we're going to absorb the loss provisions that Jay described. But I think if you look under the curve for the lifecycle is going to be significantly positive. And so we want to get there as efficiently as we can. This is a long run franchise program that I think the U.S. government is going to support for a very long time.

Right. I think it's important to keep that in mind that, we spend a lot of time talking about timing of losses and things like that and the magnitude of it, but we also spend a lot of time internally going through just where we are in the progress of the program as well as the business case. And I can assure you the business case is accretive to it at a above our cost of capital. And as Jim mentioned, it's going to provide strong returns for many years to come.

Our next question is from Matt Akers from Wells Fargo. Please go ahead.

Yes. Hey guys, good morning. Thanks for the question.

Good morning.

I want to ask a couple on the Next-Gen Interceptor win, I guess one just how you were able to win. I think ahead of when the original down flight was expected and also whenever there's sort of a big contract like this, and we always get questions on potential charges because we've seen some of that happen in the industry. So just your confidence that you've got the cost there sort of size correctly.

So the company made a beta about three years ago to say, okay, we've got a digital transformation program that is going to take the whole company to this model-based engineering system. And that's all the way from requirements acceptance from the government to sustainment years and years down the road. And we spoke this before; it's about a $6 billion, 8 to 10-year program to convert the entire company to a model-based engineering production sustainment operation. NGI was one of the pathfinder programs picked to implement this because there's no legacy to convert, right. There's no old blueprints to try to figure out how to make three dimensional, which is something, by the way, we are doing for C-130 and other programs right now. But we could get off to the fast start on NGI because it was in this born digital category. Right from the proposal, we were using these digital technologies, 3D, CAD and everything else, and sharing data with the government in that fashion, and they were able to receive it. And we could thereby accelerate the schedule and contain the cost of the development and ultimately of the production too, by using these tools. There were three original players in this. One dropped out fairly early. The second was in kind of this final phase, if you will, of down select. And we were -- we just ready to go and provided our proposal ahead of schedule. The other player, to my knowledge, provided a proposal also. And then the government was able to make a decision based on that. But I think because of our speed and our ability to demonstrate manageable cost over time, we won, and kind of won early, if you will. I'll let Jay talk more about financials, but what I can assure you is the process of this bid did not require us to dive to the bottom on cost. So Jay, do you want to take it from there?

Sure. Just a -- we're currently performing already under a contract, and that contract will continue. We've talked about this before. We've completed a preliminary design review in September of 2023. And we're on track for critical design review in 2025 and under the current contract as well as building test assets. So that will just continue under this down select. As far as pricing and costs, the current contract, because of development contracts, cost plus contract, it's low margin as you would expect, but nothing again abnormal. As far as future bidding that we provided for future types of contracts, there were various elements or different types of contract structures that the customer asked for. We provided those to the customer, none of which was based on aggressive pricing or bidding, as Jim mentioned. We've talked about this in the past, and we've taken a middle-of-the-road approach to our pricing, and this is no different.

Thank you. The next question is from Ron Epstein from Bank of America. Please go ahead.

With FARA off the table, and it looks like the flyer program has decent support, how are you thinking about the outlook for the vertical lift business? Where could we see some upside? What other competitions are out there? And how should we think about that?

Yes. So Ron, this is Jim here. As we kind of roll into the 21st Century, what our company is trying to do is not just look at things through the programmatic lens or I'll call it vertical kind of column but also horizontally through the actual mission and figure out what technologies can accomplish the mission that will enable our core basic platforms to be successful as well. And that's how we're looking at the rotary business. It's not just at Sikorsky anymore. It is Sikorsky plus all of Lockheed Martin, right? And that's one of the reasons we're able to work with U.S. Army, Congress and the broader U.S. government to increase support for, let's say, Black Hawk, for example, in spite of the fact that FARA is being canceled and there's another vertical lift program in the form of FLRAA, which is going to be a tilt rotor. So there are missions that the Black Hawk will be extremely well suited for in the rotary lower -- it's really the lower air domain. It's not just for rotorcraft. So how do we pair those rotorcraft, a traditional Black Hawk, let's call it, by modernizing the Black Hawk with digital technology to do what the Air Force would call CCA, collaborative combat aircraft, meaning you can in the lower air domain tie drones and unmanned, uncrewed aircraft to a Black Hawk using digital technology, and we've demonstrated that already. You can actually make the Black Hawk itself autonomous with no pilots in it being flown from a command center to do high-risk missions. So we're looking at the mission and saying, what can we do all across Lockheed Martin, whether it's through sensor fusion, AI, 5G, space-based sensor assets to make the Black Hawk, for example, a much longer lived platform, a much more relevant platform and actually a very efficient platform compared to, say, the FARA aircraft that won't be able to do some of the missions anyway. So we have a strong confidence then in Sikorsky itself and the platforms that it does produce. And that includes CH-53K, which I mentioned the Seahawk, which is a Black Hawk that's configured for maritime operations that is pretty high tech as well. And so we feel really solid, as I think Jay said in his remarks, on Sikorsky's future with a backlog of $20 billion and the ability to modernize these really reliable in production aircraft to do new things and with missions in digital technology and other -- and integrate with other parts of LM and our partners to make those platforms relevant in the future. So I'll stop there. Jay, you have anything else you want to say?

Sure. Just a couple of things, as Jim mentioned. A stable outlook is the best way to describe it. As Jim mentioned, CH-53K is really the pillar. And those revenues between now and 2027 and 2028 are going to double. And so while we will see declines in other programs such as combat rescue helicopter, some declines on Black Hawk and others, the CH-53K will really offset all of those declines. We do have to go through a rebalance, a little bit of a rebalance of the workforce because the mix of development work versus production work is different than what we had originally anticipated. So we'll go through that. But I think the business, as I mentioned, will be -- is pretty stable. We're also, as Jim mentioned, continue to have dialogue and just investments in Black Hawk modernization, which will maintain its relevancy particularly in the JADC2 environment. And so, of course, you continue to see opportunities for not only the base missions that Black Hawk performs but other missions as well. Those dialogues are ongoing with the army to determine what would be the best fit for those. And so as I mentioned, from a revenue standpoint over the next five years, it will actually go up over the next few years a little bit, come back down, but pretty much flat to where it is today. And so stability, I think, is the best way to describe it.

The next question is from Rob Spingarn from Melius Research. Please go ahead.

If we put the impact of TR-3 to the side, on the last call, you underscored the importance of the supply chain in producing F-35s at a rate of 156. And one of the things that's made the F-35 program so well supported by Congress and international countries is the breadth of the supply chain. But is the complexity and scale of the supply chain limiting the potential and affordability of the program? And on future fighter aircraft programs, whether it be NGAT or FAXX, might we expect Lockheed to do more of the work in-house, the production work in-house when compared to F-35?

So it's a great topic, Rob. And so let's start with the origination of the F-35 program. It was intended, as you said, to be a wide-based Allied program. I think it was seven literally partners, essentially treaty partners that we all get together and contribute their industrial capacity and their financial capacity to this program, given its importance and complexity and the scale that people are contemplating. So yes, we have a pretty broad supply chain. There were a couple of times when that's gotten a little tough for the program. COVID was one of those. So we had delayed deliveries out of the UK, because the factories there weren't open, although ours were. So we will be mitigating any future programs that we have. And we're eager to have international production and sustainment partners, and we're going to expand that. But we're also going to apply some anti-fragility methodologies to those initiatives going forward. No one really thought of COVID, of course. But now that we've had that example, we need to know -- we know we need to have second and maybe third sources. And geographic diversity would be a positive thing from that perspective. So we'll just be a little more broadly thoughtful about how we do this. Having single sources outside the U.S. is probably not the best idea. There's an affordability issue around that too. So we're just going to have to balance everything out. So based on its origination and essentially the commitment of the countries to the program, we do have that sort of spread out supply chain with a couple of weak spots in it. Look, another weak spot's canopies, right? How hard is it to make a glass canopy? Well, with this kind of stress and the kind of precision…

Next question is from Rob Stallard from Vertical Research. Please go ahead.

Jim, last quarter, you had some comments on contract structures and the way perhaps your customers have been dealing with defense industry in recent years. I was wondering if there's been any sort of resonance from your commentary and any willingness, early willingness from the customer to look at this in a fresh way.

So let me focus on digital service contracting because I think that's a really ripe opportunity area for the DoD to work with industry, not just the traditional defense fronts, if you will, but broader industry too. We want to play on subscription basis ourselves. We want to bring in partners that will only be our suppliers on a subscription basis. So in terms of, say, 5G, connectivity services, backhaul, those kinds of things, AI, which needs constant refreshing and modeling. We will do a lot of the AI in-house, but we're not going to be possible to do all of it. We want to bring in partners. We announced a couple of them like NVIDIA and IBM. They want to work with us. So I do think we're starting to get interest inside government on how to do this. We proposed, frankly, ourselves, which will open up opportunity for a lot of other companies in different sectors an adjacent acquisition process within the DoD for digital services alongside the traditional DoD acquisition process for largely physical goods like aircraft, ships, et cetera. There's interest in that. We haven't gotten it over the line, so to speak. But I think there's a lot of advocacy across broad industry to do that and starting to be in Congress and other places in DoD as well. Along with that, we want to drive an open architecture system so that U.S. government has a lot of diversity in its potential suppliers because we're all working off of the same standards base as far as APIs, interfaces, frequencies, use and those kinds of things and synchronize that as much as we can with commercial industry so we can use more of their IP and more of their resources and more of their people. So I think that there's a lot of opportunity here, and we're getting -- starting to get some traction on it. But it's going to take a little bit of time to get those processes and those standards bodies put in place. But we're actually on it, and we have some partners and teammates agree with those.

I'll just add, Rob, we have seen some changes where the contract structure is more closely aligned with the capability that's being requested and the assessment of the technology maturation of that capability. And so you're not seeing as many of these kind of high-risk fixed-price development contracts that really don't work well for anybody because they don't optimize a solution, and they typically end up poorly for the contractor. And so we have seen those changes. Again, they're case-by-case. But I can tell you that at least what we're seeing, particularly in the higher risk, higher technology-type risk arenas, we are seeing a shift in contracting to contracting vehicles that are just more relevant to those circumstances.

Yes. And Rob, maybe to support just another minute what Jay is speaking about in a more direct way here. I have a view, as you may have heard, that having a -- even a cost-based development project or program with a fixed price set of early production options is a tough thing to intellectually get at least my arms around, which is committing to cost and price on an object that really hasn't been fully invented yet. And we're looking really, really hard if that's -- in any opportunity that's presented to us in that context as a company. So that is one area where to, again, highlight what Jay is speaking about, more of an alignment of what can industry deliver on a reasonable risk basis. And so the government can get a successful program out of it, frankly, and not have massive write-offs in industry or cost overruns or long schedule delays. We think it's constructive to get some more of that alignment that Jay described.

Our next question is from George Shapiro from Shapiro Research. Please go ahead.

Yes. Good morning. A couple of quick one's for you, Jay. If the first quarter normalized growth was 5%, and even at the high end, you're looking for 3.5%. So will this be the fastest-growing quarter? And what slows down and obviously normalizing for the fourth quarter? And then, the second question is the guide for other net was $400 million. First quarter is only negative 61. So I was expecting you might lower that number for the year. And so what was the reason why you didn't lower it? Thanks.

Jay?

All right, George. Thank you. On the quarterly profile for sales, as you mentioned, on a normalized basis, 5% growth here in the first quarter. I'd see it will slow down to low-single-digit in the second and third. And we're thinking that the fourth quarter probably flattish to maybe slightly down. You might recall that the fourth quarter of 2023 ended up being stronger than we were originally expecting. And so our compare in the fourth quarter of this year would be a little bit tougher. And so you're talking in second and third quarters probably 2% to 3% type of growth numbers with a flattish year-over-year in the fourth quarter. As far as other net, George, you got me there. There's probably some opportunity in there. We'll calibrate that, and we'll update the guide in the second quarter for the full year. But it's probably more prudent to just wait till we're halfway through the year and just make an assessment of the entire outlook, and we'll just leave it there.

And our next question is from Noah Poponak from Goldman Sachs. Please go ahead.

You talked about Pentagon terms of trade and contract structure here, and you mentioned NGI as cost plus development. But you also mentioned they asked for -- to kind of see multiple contract structures. Curious what they asked to see, where you landed on those maybe interim windows between development and production. And then, Jay, the loss-making classified program in MFC, what year do you expect that to be profitable on an annual basis? And just to confirm, there's one program in that position, correct, not more than one?

Yes, that's correct, Noah, just one program. And I think right now, our outlook would say probably in -- if you're -- probably 2028 is where we would expect that to flip to positive. Again, it's a question of the timing of the recognition of the losses, but if you assume kind of more linear approach from here on out to be about 2028. As far as NGI, just again, the different contracting vehicles are ranging anywhere from cost plus to fixed price incentive. There is no -- the customer hasn't selected exactly which vehicle wants to pursue. So there's nothing actually under contract for the next phase or phases. Right now, we're going to continue to perform under the current contract, as I mentioned. We got critical design review in 2025. We also, as part of this contract, we have to provide some test assets. And between now and then, I'm sure we'll have discussions in terms of getting future phases on contract.

Yes. And Noah, the principle behind what Jay and I are speaking to here is that we want to be agnostic ultimately from a risk-adjusted basis on whatever contract format that the government would like to employ in these matters. So if it's going to be any kind of, I'll say, a highest risk would be again, fixed price production on something that's not been designed yet. We will put a high risk premium in the future and have on those kinds of requests of the government. And what's interesting is they're asking for multiple types on NGI. And that's going to give them an opportunity to see what contract risk transfer to industry is now going to cost, at least in Lockheed Martin's case because we will reply on that basis to say, if you want us to have this kind of contract, we have to have a risk premium that's significantly higher than, let's just say, a pure cost-based contract to give you the greatest contrast. And that's just the principle we're going to use from now on. So if you want a certain price point as government, we will provide you a contract format that will get you that price. But if you want to shift more risk to industry, you'll see a higher risk premium come back in our proposal, if you will. So that's the principle we're using and that we'll continue to use.

Lois, I think we have time for one more question since we're close to the top of the hour. So let's take one more, and then we'll be done.

Thank you. And next question will come from Rich Safran from Seaport Research Partners. Please go ahead.

Good morning, thanks. Two-part -- quick two-part question on C2BMC. I want to know if you could discuss the P&L impact in terms of timing and margins. Second and more broadly, I thought you might discuss a bit about how this fits with the -- with your strategy for pulling in mission-centric programs and what the opportunity set there is?

Okay. For timing, we're -- we've been under contract. This is a follow-on for us. And what I could do, Rich is I don't recall off-hand exactly what the annual revenues are, but I got Maria follow-up on you. But this is, again, just a continuation of those activities there. And so no significant change I don't think from a revenue standpoint or margin expectation at RMS for this.

And so from the mission-centric approach, this is actually a pretty good example of that, Rich, in pulling through or extending existing programs, right? And so we're trying to show is that you can map data flows through a full mission, right, which generally includes and now cyber, by the way, upfront. So you have a cyber-track, then you have to have a sensing capability. You then have to have a way to get sensor data, whether it comes from a satellite or a submarine back into the command and control system. Along with that, you have to have targeting and tracking quality data that comes from beyond just the sensing of an object that's a target. You have to be able to track the target in a way that you can then guide a projectile to it and take it out or put a cyber-attack against it or laser or whatever the effector will be. And so the term of art for that is not pretty. It's called a kill chain. We want to put these chains together in diverse ways that are, again, anti-fragile, which means if you take out one link in that chain, you don't eliminate your ability to complete the mission. And so that's where we're looking at data flows in addition to physical flows, if you will, right? And if we can help create an open architecture system that can provide multiple routes of data flows that can affect missions, then we will be able to have a head start on our platforms and designing to those. And that's what we're doing with Black Hawk for example. That's what we're doing using the C2BMC system. The LRDR radar and ultimately, the NGI missile will be based on a similar architecture. We'd like that architecture to be common outside of Lockheed Martin as well as inside because that will open up more suppliers to us and also provide the government more competitive options. So this is all coming together, and I'm kind of glad you asked the question here at the end because it's very intentional.

Okay. Thanks, Maria. Thanks, everybody, on the call. I want to also express my appreciation to everybody at Lockheed Martin for their relentless focus on this operational execution I mentioned, driving innovation and excellence. And we're all doing this in support of our customers. That's the reason. We have a vision for 21st Century security that we think will keep deterrence high in an increasingly complex and threatening global environment. As a company, we have a strong backlog, as you heard. We're driving operating discipline across the whole organization and this continuous improvement mindset we have. So all that's designed to position our company for U.S. shareholders for future growth and attractive and reliable returns to shareholders over a long period of time. So thank you all again for joining us today, and we look forward to speaking with you on our next earnings call in July. Lois that concludes our call. Thanks.

Thank you. And ladies and gentlemen, that does conclude our conference for today. Thank you for your participation and for using AT&T Teleconference. You may now disconnect.