Lockheed Martin (LMT) Q1 2026 Earnings Transcript

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DATE

Thursday, April 23, 2026 at 8:30 a.m. ET

CALL PARTICIPANTS

• Chairman, President, and Chief Executive Officer — James Taiclet
• Chief Financial Officer — Evan Scott
• Vice President, Investor Relations — Mark Kavaznik

TAKEAWAYS

• Revenue -- $18 billion, matching the prior year despite a shortened fiscal period, with growth in Missiles and Fire Control and Space offset by declines in Aeronautics and Rotary and Mission Systems due to lifecycle and material timing factors.
• Segment Operating Profit -- $1.8 billion, a decline from the prior year driven by nonrecurring milestone completions in 2025 and unfavorable performance adjustments at Aeronautics including on F-16 and C-130 programs.
• Earnings Per Share -- $6.44, down 12% year over year mainly due to lower profit and mark-to-market investment losses, partially offset by favorable FAS/CAS pension adjustment.
• Free Cash Flow -- Use of $291 million, impacted by working capital timing including an ERP system upgrade; full-year guidance is unchanged, and second-half cash flow is expected to be stronger.
• Capital Allocation -- $800 million in dividends paid, $1 billion in long-term debt retired, $511 million spent on capital expenditures, and $458 million on research and development, a 15% year-over-year increase in R&D.
• Missiles and Fire Control (MFC) Segment Sales -- Up 8% year over year, driven by higher volume from PAC-3, JASSM, LRASM, and PrSM programs; MFC operating profit also increased 8% on this growth.
• Space Segment Sales -- Increased 7% year over year, driven by Fleet Ballistic Missile and Next Generation Interceptor programs; Space segment operating profit decreased 26% due to absence of a prior-year civil space milestone benefit.
• Aeronautics Segment Sales -- Decreased 1% year over year, with operating profit down 14% from lower classified program volume and unfavorable F-16 and C-130 adjustments, but partially offset by F-35 margins.
• Rotary and Mission Systems (RMS) Segment Sales -- Down 8% year over year, with operating profit decreasing 19% from unfavorable Sikorsky adjustments and no repeat of a prior-year IP license recovery.
• New PAC-3 Awards -- $7 billion in first quarter PAC-3 contract orders with $2.2 billion awarded for 2026 deliveries and a $4.8 billion undefinitized contract to expand production, supporting accelerated missile ramp plans.
• Major International Contract Win -- $1.5 billion direct commercial sale for 12 F-16 Block 70 fighters to the Peruvian Air Force, opening a pathway for a potential second squadron.
• Production Expansion -- Announced quadruple ramp of PrSM missile production and committed to tripling and quadrupling capacity for PAC-3 and THAAD interceptors, with modernization of over 20 U.S. facilities underway.
• Venture Fund Expansion -- Lockheed Martin (NYSE:LMT) Venture Fund raised to $1 billion, more than doubling its prior size and enabling investments in 25 new companies in the past two years.
• Major Program Performance -- Artemis II Orion spacecraft successfully completed the first crewed lunar flyaround beyond low Earth orbit since 1972, confirming deep-space platform leadership.
• Updated Financial Outlook -- 2026 guidance reaffirmed: mid-single-digit sales growth, $8.4 billion-$8.7 billion operating profit, and $6.5 billion-$6.8 billion free cash flow; $2.5 billion-$2.8 billion CapEx projected to support ramp-up investments.
• Key Defense System Awards -- $700 million contract for F-35 long-lead items (Lots 20 and 21), $890 million for Fleet Ballistic Missile capabilities, and $365 million for Aegis Ballistic Missile Defense system.
• Operational Achievements -- First UH-60M X Black Hawk helicopter with fully integrated autonomy delivered, and successful first flight test of PrSM Increment 2 completed.
• Risk Management of Accelerated Missile Contracts -- Contracts feature clawback provisions and inflation-indexed escalators to protect the company if government requirements change.

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RISKS

• Segment operating profit decreased due to nonrecurring positive events in 2025 and persistent integration challenges and supplier constraints affected Aeronautics and C-130 deliveries.
• Unfavorable performance adjustments on the F-16 and C-130 programs at Aeronautics reflect design, development, and supplier timing delays, though "C-130 deliveries have resumed with four aircraft delivered as of today."
• Operating profit at Space decreased 26% and at RMS decreased 19% year over year, each due to the absence of significant prior-year events or cost recoveries, and unfavorable Sikorsky program adjustments.
• "negative cash was largely driven by working capital timing, including impacts from the implementation of a new ERP system in one of our business areas," causing temporary free cash flow degradation, but expected to resolve by the second quarter.

SUMMARY

The company reported $18 billion in first-quarter revenue, sustaining prior-year levels despite a shortened fiscal period, amid segment-level volatility reflecting both timing factors and execution challenges. Management detailed an accelerated production strategy, citing new long-term contracts in missiles and munitions and a notable $1.5 billion F-16 sale to Peru as significant drivers of future growth. The Orion Artemis II mission's successful deep-space operation demonstrated continued U.S. leadership in space and validated company technology. Guidance for 2026 remains intact for revenue, profit, and free cash flow, with CapEx and operating expense plans supporting ongoing capacity expansion. The company disclosed contract risk-mitigation features—such as clawbacks and inflation escalators—embedded in recently signed multiyear agreements to protect against downside scenarios.

• Management affirmed that the F-35's operational performance in recent combat zones has established its unique status as a fifth-generation fighter and intensified allied demand.
• The company is actively partnering with U.S. government agencies and major suppliers, funding nonrecurring expenses to unlock supply network scaling, while government clawback provisions reduce exposure to abrupt production changes.
• First quarter marked substantial investment in technology innovation, with the venture fund more than doubling, and new partnerships, such as the Fortem Technologies tie-up, accelerating the rollout of counter-UAS solutions.
• Supplier risk in missile expansion remains centered on solid rocket motors and seekers, but management cited stepped-up commitments by L3Harris, Boeing, and Northrop Grumman, combined with new financing access for smaller suppliers under long-term agreements.
• Internal AI investments focus on enterprise efficiency and classified mission performance, with deployment managed through a consolidated, cyber-secure AI center leveraging both company and outside models.
• Voluntary employee turnover at the company remains approximately 4%, well below broad industry averages of 8%-10%, attributed to mission focus and competitive compensation for high-demand roles.

INDUSTRY GLOSSARY

• PrSM: Precision Strike Missile, a next-generation, surface-to-surface guided missile developed for rapid, long-range strike missions.
• PAC-3: Patriot Advanced Capability-3, a missile system used for advanced air and missile defense.
• THAAD: Terminal High Altitude Area Defense, a ground-based missile defense system for intercepting short- and medium-range ballistic missiles.
• JASSM: Joint Air-to-Surface Standoff Missile, a long-range, precision-guided missile for U.S. and allied air forces.
• LRASM: Long Range Anti-Ship Missile, a precision-guided anti-ship missile with advanced targeting capabilities.
• ERP: Enterprise Resource Planning, a type of business management software integrating core business processes.
• Undefinitized Contract: A contract for which the terms, specifications, or price are not agreed upon before performance begins, allowing work to commence while negotiations continue.
• Increment 2: The second stage of capability development and deployment for a specific missile program (here, PrSM), typically featuring enhanced features or operational parameters.
• FAS/CAS Pension Adjustment: The differential accounting adjustment between Financial Accounting Standards and Cost Accounting Standards for pension expense.
• SANC™: The company's Counter-UAS ecosystem, integrating detection, identification, and mitigation of unmanned aerial systems.
• Black Hawk UH-60M X: A modernized upgrade of the UH-60M Black Hawk helicopter equipped with MATRIX autonomy suite for optionally piloted operations.

Full Conference Call Transcript

James Taiclet: Thanks, Mark. Good morning, and thank you to everyone on the line for joining us on our first quarter 2026 earnings call. First, I would like to highlight this week's breaking news on a recent win for our Aeronautics business. Just this past Monday, Lockheed Martin Corporation signed a $1.5 billion contract with the Peruvian Air Force for 12 Block 70 F-16 fighters, with an opportunity for a second squadron of an additional 12 aircraft. This is the first F-16 direct commercial sale contract in decades, and broadens our footprint in the modernizing Latin American region.

This was a collaborative partnership with the U.S. government and we continue to work with the Peruvian government in executing on its sovereign acquisition process. Overall, we reported solid results for the quarter as demand for our premier defense technologies and space exploration capabilities remains high. This elevated demand is supported by the highly effective performance of platforms and systems that has again been demonstrated during this first quarter. The Artemis II crew and the dedicated teams completed their historic mission in a near flawless flight and recovery using our Orion spacecraft.

Artemis launched on April 1 carrying four astronauts on a ten-day mission around the moon, the first crewed spaceflight beyond low Earth orbit since 1972, and the farthest humans have ever traveled from Earth. The Orion spacecraft served as the crew and habitation module throughout the entire mission, traveling thousands of miles beyond the moon before safely splashing down in the Pacific Ocean. Orion is the only vehicle capable of traveling into deep space and back while safeguarding human life. It will enable future Artemis missions and ultimately, exploration of the moon, Mars, and beyond. We are now assembling Orion for Artemis III, IV, and V, cementing Lockheed Martin Corporation's role in sustained deep space discovery.

While Artemis II reflects what is possible at the edge of human space exploration, it also underscores that Lockheed Martin Corporation's portfolio delivers extraordinary capabilities in the most demanding conditions both on Earth and in space. Additionally, Lockheed Martin Corporation platforms have performed extremely well in very demanding missions during recent U.S. and allied operations in active conflict zones. The F-22 Raptor and the F-35 Lightning II establish air superiority when called upon. Our C2BMC and Aegis systems combined with THAAD and PAC-3 interceptors delivered layered air and missile defense of civilian infrastructure and populations, military bases, and ships at sea.

Moreover, the Black Hawk Combat Rescue helicopter and C-130 aircraft supported successful combat search and rescue operations in extremely difficult conditions in hostile territory. The operational relevance of these systems has direct implications for our business. In the weeks following PrSM’s first use in active operations, we announced plans to quadruple production to meet accelerated demand. This is in addition to the commercially inspired long-term agreements we already entered into with the Pentagon to rapidly expand the production capacity for PAC-3 and THAAD interceptors by 3x and 4x, respectively.

In light of these multiyear framework agreements, we are in the process of construction and/or modernization of more than 20 facilities across several states dedicated to achieving these greatly expanded production rates of these sophisticated munitions. These investments are expected to support thousands of skilled manufacturing jobs across our defense industrial base, provide accretive investment opportunities for our suppliers, and enable the addition of second and third sources within our supply chain to enhance the resiliency of our production system. For its part, the F-35 also continues to execute critical missions, delivering fifth-generation air-to-air and air-to-ground capabilities unmatched by any other aircraft. The platform's combination of stealth, advanced sensors, and AI-assisted targeting enables pilots to operate with decisive advantage.

In the first quarter, we secured a new F-35 production contract for long-lead items and the initial 35 quantities. Rotary-wing capability is proving equally valuable, with a family of Black Hawks supporting critical search and rescue, personnel insertion, and resupply missions. We are also far down the road in converting the Black Hawk to both pilot-optional and fully autonomous operations, to capitalize on its range, payload, and survivability in contested environments. These examples are testaments to our strategic focus on mission execution and our commitment to disciplined investment to drive twenty-first century digital and physical technology into tried-and-true major platforms.

This initiative is designed to provide our customers with the most capable, integrated, and reliable systems that can be quickly assimilated into existing force structures, training programs, and logistical infrastructure. The urgency of the current operational environment coupled with strong performance of franchise Lockheed Martin Corporation systems has also spurred the rapid progression of initiatives that were already underway with our customers on long-term production commitments. We recently announced a $4.8 billion contract to further accelerate production for PAC-3, a tangible example of how we partner with our customers and advance from novel framework to contract to continue increasing the scale and speed at which we can deliver.

The long-term demand inherent in the munitions agreements allows us to confidently expand our investments, boost internal capabilities with robotics, and strengthen supply chain resilience, in turn delivering long-term shareholder value to Lockheed Martin Corporation’s shareholders. Chart three outlines our collaborative approach with the U.S. government to address these urgent requirements and illustrates how acquisition transformation is enabling us to accelerate and expand production. These munitions agreements provide risk mitigation for industry, and efficiency and speed for government—a combination that benefits customers and shareholders alike. We also remain committed to advancing emerging technologies. Since launching the Lockheed Martin Corporation Venture Fund, we have backed more than 120 companies, with many now serving as Lockheed suppliers.

In the past two years, we have added 25 new companies and are expanding the fund's capacity to $1 billion, more than double its former size. Our expertise in innovation and scaling to production at scale enables us to serve as trusted partners for the next generation of solutions from start-up and other new entrants to the industry. Building on this momentum, earlier this week, we announced a further strategic investment in Fortem Technologies to bring to market a fully integrated, end-to-end turnkey counter-UAS solution which seamlessly fuses detection, control, identification, and mitigation capabilities into a single commercially available offering. This partnership will accelerate Fortem's ability to scale production.

We will also incorporate its products into our deployment-ready integration with Lockheed Martin Corporation's SANC™ Counter-UAS ecosystem. This is just the latest example of our commitment to invest in innovative technologies that deliver rapid, reliable solutions for new threats. Our commitment to developing advanced capabilities is consistent with the budget environment where there continues to be broad support for national defense initiatives. The administration's priorities—accelerating munitions production, strengthening integrated air and missile defense, advancing next-generation aircraft, expanding space capabilities, and preserving long-range precision strike—are reflected in this budget request. These priorities are all well aligned with our already longstanding initiatives and product sets.

The Department of War's budget rollout that was released on Tuesday reflects continued strong demand for our core franchise programs. At a broader level, the administration's prioritization of defense industrial base investment and modernization spending provides a constructive backdrop as we execute against our significant backlog. We are well positioned. Our strategy has taken hold. Our solutions are in high demand. And we remain confident in our full-year guidance for 2026. Before turning it over to Evan, I will cover our top focus areas for the year. With that significant backlog and demand continuing to grow, enhancing and accelerating execution is imperative for us.

PAC-3 production is already up more than 60% from just two years ago, and we remain focused on converting demand into long-term growth while executing with discipline in a dynamic environment. Next is innovation, a key feature of our twenty-first century security vision encompassing AI solutions for enterprise efficiency, digital thread integration, model-based engineering to accelerate our program timelines, and a commitment to open systems architectures that allow us and our partners to rapidly integrate new technology from us or others, and continuously enhance capabilities thereby strengthening deterrence. Third, our partnerships are in full alignment with the department's acquisition transformation strategy.

This is enabling a government-industry model that we have long advocated for and under which we were the first to sign a multiyear agreement. International demand also remains robust as budgets expand and allies and partners across the globe continue to seek out our superior systems and capabilities. Finally, our people are the foundation of everything we do. Tens of thousands of workers develop, build, and sustain our systems. And we are deliberately growing this workforce by investing in training pipelines, collaborating with community colleges and technical schools, and creating long-term manufacturing careers.

Our new munitions acceleration center that we are building in Camden, Arkansas exemplifies this effort, serving both as a production facility and a development hub for the next generation of defense talent that will use the latest in AI and robotics to do their jobs. Now I will turn the call over to Evan to walk us through the Q1 financial results and outlook.

Evan Scott: Thank you, James. Good morning, everyone, and thank you for joining us. I will now walk through our consolidated financials and touch on some additional highlights from the quarter including key awards and a status update on the munitions agreements, before handing it off to Mark who will discuss the quarterly financials by business area, and then I will come back to discuss the detail on our 2026 outlook. Starting on chart four, first quarter sales were $18 billion, in line with 2025.

We saw strong growth on missile programs within MFC and on strategic missiles within Space, offset by lower volume at Aeronautics, primarily related to the lifecycle timing on classified programs, and at RMS on Sikorsky heavy lift programs due to timing of material receipts. First quarter 2026 sales were impacted due to the shortened fiscal period compared to the prior year. We expect sales to grow in the second quarter and throughout the remainder of the year supporting our full-year growth outlook. Next, segment operating profit amounted to $1.8 billion, a decline versus 2025 primarily due to nonrecurring events in the prior year related to program milestones and completions at Aeronautics, Space, and RMS.

First quarter 2026 results also reflect unfavorable performance adjustments at Aeronautics associated with F-16 and C-130. Design and development delays temporarily impacted F-16. On C-130, integration challenges and supplier constraints which occurred earlier in 2025 persisted into 2026. C-130 deliveries have resumed with four aircraft delivered as of today, keeping us on track for our full-year targets. Earnings per share of $6.44 decreased 12% primarily driven by lower profit and mark-to-market losses due to changes in the fair value of investments and liabilities for deferred compensation plans. This was partially offset by benefits from a more favorable FAS/CAS pension adjustment. Shifting to new business, MFC was awarded $7 billion in orders for PAC-3 contracts.

This includes one award for $2.2 billion from 2026 and a $4.8 billion fully funded undefinitized PAC-3 contract we signed earlier this month, advancing the first of the munition ramp production agreements we announced earlier this year. These awards underscore the sustained and growing demand for our missile defense capabilities, Lockheed Martin Corporation’s commitment to the mission, and the government's dedication to partnering on the rapid scale-up of this capability. We are partnering with the Department of War to definitize all multiyear munition acceleration agreements, and we will continue to provide updates as we progress.

At Aeronautics, we secured a $700 million contract to procure long-lead materials for F-35 Lots 20 and 21 for our international program partners, a further signal that allied nations are continuing their commitment to the F-35 program as the aircraft consistently proves itself in live combat. At Space, we secured an $890 million contract for our Fleet Ballistic Missile capabilities, a program that provides sea-based nuclear deterrence, and one that Lockheed Martin Corporation has served as prime contractor for more than 70 years. And at RMS, we were awarded a $365 million contract for Aegis Ballistic Missile Defense.

The Aegis weapon system is a proven command and control solution that links sensor and effector assets across all domains from undersea to space, showcasing how Lockheed Martin Corporation connects established and innovative technologies to enhance homeland defense capabilities. They are adaptable for missions like Golden Dome. Moving to free cash flow, we reported use of $291 million in the quarter. The negative cash was largely driven by working capital timing, including impacts from the implementation of a new ERP system in one of our business areas. The impact of this system upgrade was anticipated, and we expect that the effect will be resolved by the second quarter.

Our full-year cash guidance remains, and as in past years, higher cash flow is projected to be weighted towards the latter half of the year. Additionally, earlier in the quarter, the IRS issued favorable guidance regarding the corporate alternative minimum tax. This strengthens our confidence in reaching the upper end of our cash flow range. In the quarter, we paid $800 million in dividends and retired $1 billion of long-term debt. We remain committed to our dynamic and disciplined capital allocation, prioritizing a strong balance sheet while investing for the long term. In the first quarter, we invested $511 million in capital expenditures and $458 million for research and development, an approximately 15% increase over the prior year first quarter.

I will now turn it over to Mark to walk through the business area results.

Mark Kavaznik: Thanks, Evan. Starting with Aeronautics on chart five. First quarter sales at Aero decreased 1% year-over-year, primarily driven by lifecycle timing on classified programs, losses recognized on the F-16 program, and lower production volume. This was partially offset by increased volume on F-35 sustainment. Segment operating profit decreased 14% compared to the prior year, related to unfavorable profit adjustments on F-16 and C-130 programs and the absence of favorable profit adjustments on classified programs that occurred in the first quarter 2025. These impacts were partially offset by favorable profit adjustments on the F-35 program. The image on the right depicts an F-35 refueling from a KC-130, underscoring Aeronautics’ role in delivering integrated air power to the U.S. and its allies.

In the first quarter, we were awarded a $462 million contract to expand support of the Royal Canadian Air Force's fleet of C-130Js. Turning to Missiles and Fire Control on chart six. Sales at MFC in the quarter increased 8% from the prior year, driven by higher volume from production ramps on existing PAC-3 and tactical strike missile programs including JASSM, LRASM, and PrSM. Segment operating profit increased 8% year-over-year, primarily from the higher sales volume. On the right, you can see a photo of a HIMARS equipped with Precision Strike Missile, or PrSM. In the first quarter, we successfully completed the first flight test of our PrSM Increment 2, demonstrating its ability to engage moving targets.

Shifting to Rotary and Mission Systems on chart seven. Sales at RMS decreased 8% year-over-year in the quarter, primarily from lower production volume on both radar programs and at Sikorsky. Operating profit in the first quarter decreased 19% compared to the prior year, driven by unfavorable profit adjustments at Sikorsky programs and the absence of a cost recovery from an intellectual property license arrangement that occurred last year. In the first quarter, we delivered the very first UH-60M X Black Hawk helicopter to the U.S. Army. The 60M X includes a fully integrated MATRIX autonomy suite, enabling optionally piloted flight and supporting the Army's pursuit of open-architecture, mission-supported autonomy.

On chart eight, we will conclude the business area discussion with Space. Sales increased 7% year-over-year in the first quarter, primarily driven by higher sales volume on strategic and missile defense programs including the Fleet Ballistic Missile and Next Generation Interceptor. Operating profit decreased 26% compared to the prior year primarily due to the absence of a benefit from completion of a commercial civil space program, partially offset by higher sales volume on the programs I previously described. Now I will turn it back over to Evan.

Evan Scott: Thanks, Mark. Shifting to chart nine, our 2026 financial outlook remains consistent with the expectations we shared in January, including mid-single-digit sales growth, profit of $8.4 billion to $8.7 billion, and a free cash flow range of $6.5 billion to $6.8 billion. Our free cash flow guide continues to assume between $2.5 billion and $2.8 billion of capital expenditures in support of production ramps and key strategic growth opportunities. It is also important to note that we expect margins to improve over the course of the year with gains anticipated in 2026 as production milestones are achieved and risks are retired.

We remain focused on disciplined operational execution, scaling production, and delivering at speed to meet the urgency of this moment. We will now open the call for questions.

Operator: Thank you. Star then 1 now on your touch tone phone. You will hear an enunciator indicating you have been placed in queue. You may remove yourself from queue at any time by pressing star then 1 again. We ask that you limit yourself to one question. If you are using a speakerphone, please pick up the handset before pressing the numbers. Once again, if you have a question, please press star then 1 now. Your first question comes from Kristine Liwag with Morgan Stanley. Your line is open.

Kristine Liwag: Good morning, everyone. Maybe James and Evan and Mark, I want to focus on the F-35, the company's largest program. It was very encouraging to see the Pentagon request 85 F-35s in the fiscal year 2027 budget, up from 47 last year. And you have also called out the funding for sustainment. I was wondering, can you reorient us on where we are in the program, the F-35's role in modern warfare, and your outlook for production and sustainment? Thanks.

James Taiclet: Yes. Good morning, Kristine. Hello, everyone. First off, I will say that the performance of the F-35 in active operations over the last six months has been really definitive proof that the aircraft is standing alone around the world in its ability to do both really advanced air-to-air missions and achieve air superiority alongside F-22s, and also air-to-ground missions. In the Midnight Hammer operation, for example, when the nuclear capabilities of Iran were damaged significantly, that mission was enabled by the escorting of the bombers, the B-2 bombers, by F-22s and F-35s. It could not have happened, I do not think, without them safely.

And part of that mission was the air-to-ground side of escort, which enabled both U.S. and Israeli F-35s to essentially obviate the very assisted air defense system of Iran. So this is quite evident now, with that and other missions, that the F-35 is uniquely capable as a fifth-generation platform. It is the only one in the free world in current production right now. And therefore, the demand from the U.S. government is solidified, as you said, and also the interest in the airplane from our allied customers is heightened as well. So I think it is basically proven itself as the dominant modern fighter aircraft through its performance.

The second piece of it, Kristine, is—and I think both our allies and us have discovered this in the European and Middle East theater—that the F-35 is basically a flying command post where it can ingest sensor data from the aircraft, organize it, declassify it if necessary, and pass it off without any pilot intervention into the command-and-control system for multiple services and multiple allies. That information gets digested and then other platforms can actually act on it and other crews and capabilities can be applied to these threats that the F-35 sees when it is in flight.

And so there have been missions where an individual pilot or a four-ship of airplanes does three or four missions over a couple of hours, and those missions could include combat air patrol protecting other airplanes, close air support protecting friendly troops on the ground, and the surveillance and data-fusion mission that I also described. There have been examples of missions that have gone on three or four hours with the aircraft doing multiple air refuelings and, again, the single pilot or the formation can execute all three of those missions, even when all the munitions are expended.

So we always knew it internally, but it is superior to every other airplane in the world right now that we face, at least. So I think that is the position of the aircraft.

Operator: Your next question comes from Richard Safran with Seaport Research Partners. Your line is open.

Richard Safran: Thanks. Good morning, everybody. I thought you could give some additional color on Aeronautics and RMS results. Some of this was a difficult comp, but I wanted to know if you could maybe give some more color on your opening remarks and discuss what drove the adverse profit adjustments on the F-16 at Sikorsky and also on the F-35 that offset. Thanks.

Evan Scott: Yes. I am happy to take that. Good morning, Richard. Starting with F-16, we have a new configuration that is being delivered as part of the Taiwan and Morocco production run. We ran into some issues during the flight test causing some rework, which delayed deliveries. So the combined cost of the rework and schedule extension ran through our program estimate. Fortunately, we are back on track with a successful flight test and plan to begin deliveries of the first aircraft as soon as this week. So we are right back on track on that program and, of course, celebrating the good news on Peru.

But the team is very focused on the execution and we are off to a good start this quarter. I think one of the positive points, as you pointed out here, is the F-35 production margins. That is accretive to overall Aero margins. We have seen some real strength in performance on our deliveries as well as our cost performance, so I think that is looking good. At RMS, we had some cost growth on some of the programs there and a lot of material timing that we expect to be just a quarterly anomaly, as well as a difficult compare to last year Q1 as we had several one-time profit events that make it a tough compare.

If you look at just the quarter in context with comparing quarter over quarter, all those one-time charges across three business areas accounted for about $190 million of sales and about $240 million of profit. So when you sort of net that out, we see Q1 as on track. We expect to see successive sales and margin growth throughout the year with strength to get to our total-year guidance. Thank you.

Operator: Your next question comes from Seth Seifman with JPMorgan. Your line is open.

Seth Seifman: Hey, thanks very much, and good morning, everyone. I wonder if you could talk a little bit about the multiyear contracts that you are looking to sign in Missiles and Fire Control, and obviously, a lot of important opportunity there for the company. But can you also help us think a little bit about the risk side? Are you signing up and committing to reach these significantly higher production rates in the out years? And how do we think about what the financial downside could be for the company if these rates are not reached?

James Taiclet: Yes. Good morning, Seth. As far as the tripling or quadrupling of production rates, that is going to have to be a team effort and the U.S. government, us, and our major suppliers certainly have all locked arms on how to get that done. For example, if you look at the PAC-3 system, we are the OEM and the integrator for the missile itself, but we rely on L3Harris for solid rocket motors and we rely on Boeing for seekers. Both of those companies have publicly stepped up to meet the same level of commitment as we are to invest in that scaling within their companies. Those are just two examples.

Essentially, what the government, we, and our major suppliers have agreed to is we will go ahead and fund the NRE on the seven-year framework agreements. As a result, we can focus on the small and medium suppliers and helping them scale up as well, while our large teammates in the industry will handle their own nonrecurring costs. That has all been agreed upon between the U.S. government, those companies, and Lockheed Martin Corporation. With respect to our small and medium suppliers, we have a lot of interest in getting financial help for them to do the scaling. Part of that is going to come from the Office of Strategic Capital inside the Department of War.

They have a pretty big balance sheet, and they are going to use that to help with equity and debt instrument investments in the small and medium supply base to encourage and enable all of this. We are having the confidence now to add second and third sources in that small and medium supply base and even in some of the larger subsystems, because we have a seven-year agreement, so the nonrecurring cost to stand up those second and third sources now makes sense. I think this is a very well risk-managed arrangement.

There was some real constructive engagement between the U.S. government and Lockheed Martin Corporation that enabled us to go to a more commercial-like business model for major weapon systems.

Some of the ways that we have done that with the government are: for our commitment to do nonrecurring cost and capital expense investment to reach these new levels of production, we have basically a seven-year commitment and, if you will, a recovery element in these agreements that says if for whatever reason the government decides the production rate will not be as high in years five, six, or whatever, or there is a change in Congress that changes how this agreement can be appropriated, then there are reach-back or clawback mechanisms to make the company whole.

There are clawback arrangements with the government that will be in the contracts to make sure that we are whole if there is a change in government policy or a reduction in the production rate that they request down the road. Another element is our major suppliers being asked and stepping up to their own NREs, so we do not have to make that investment with any risk.

And then the third thing we requested and made arrangements for are two important elements very similar to the way we built telecom networks in my last industry: an inflation-index-based escalator—so a fixed price to start with an inflation-based escalator for the seven-year period that is based on an index for the industry—and secondly, a cash-flow-neutral approach. Under these agreements we will get advance payments from the government to make these long-term programs cash-flow neutral for the OEM and for Lockheed Martin Corporation. As far as risk management, I think it is quite solid. We have protected the company and also enabled the company, with our supply chain, to actually make good on these ramp-ups.

In addition, beyond the key contract provisions negotiated at the highest levels of this company and the Pentagon, the Department of War has pulled in true industry experts from our industry and others, both at our facility and our suppliers, to put best practices to use. It is all hands on deck in the best possible way.

Operator: Your next question comes from Scott Deuschle with Deutsche Bank. Your line is open.

Scott Deuschle: Hi. Good morning. James, can you share an update on the classified program in Aeronautics including how risk is trending on the program? And then are you seeing any willingness from the government to provide additional funding to support your efforts to keep that program on track? Thank you.

James Taiclet: Given the classified nature of the program you are referring to in Aeronautics, what I can say—and what is evident from our release—is there were no charges taken on the program of interest here in the first quarter. We have increased the scrutiny on that program, and the higher levels of operating in this company are now overseeing that program. We do think we have a path through the flight tests and other parts of this program that have sufficient coverage in our financials right now to hopefully not experience any additional write-downs. But it is complex. It is cutting edge, literally, and there is still some risk there. We think we have it well managed.

On the government side, there is really strong interest in this program at very high levels in the department, and they seem very committed to carrying through with this program and carrying it through to success. Therefore, there are ongoing discussions with them on making sure that the contract is structured in a way that the company and the industry can be successful in delivering this, while the government will get what it is going to pay for. From my perspective and what I can share on this call, I feel better about that program than I have probably since I got here six years ago.

Operator: Your next question comes from Scott Micas with Melius Research. Your line is open.

Scott Micas: Good morning, James and Evan. We saw Northrop reaching agreement on B-21 production to accelerate, which gives them the opportunity to improve the economics on the program. Just given the strong demand for missiles and munitions, is there an opportunity to reach an agreement with the customer to accelerate production of the classified missile program at MFC that could yield some better economics for Lockheed?

James Taiclet: Given again the classified nature of what you are referring to, I can put it in a similar context. The demand from the customer for that capability is heightened. It is something that will make a difference, as any large classified program would, in our abilities to accomplish the missions applicable for it. The interest in getting this fielded has increased over the last year or two. Secondly, the program of interest is similar to the last one you asked about. There were no charges taken in the first quarter, and we have put risk mitigation on that program similar to the Aeronautics program level.

We have it covered with oversight of some of the best and highest-level experts in our company on a recurring basis. There is interest in accelerating and expanding production potentially, and there are conversations about that with the government. There is nothing different about that system other than its level of classification vis-à-vis PrSM or Patriot. It is an MFC volume missile program which could be subject to a similar contracting approach if the government decides to do that, and there I will have to stop.

Evan Scott: And just one last piece of context to support that as well. We last took a charge there in April 2024, and there has been no change in estimates since then. So we have struck a baseline and continue to hold that while we look for additional opportunity.

Operator: Your next question comes from Ken Herbert with RBC Capital Markets. Your line is open.

Ken Herbert: Hi. Good morning, James and Evan. I wanted to ask a question on free cash flow. Significant use in the first quarter, I think, as expected, with a step-up in working capital. I wanted to just verify this was F-35 or if there is anything else to call out in the first quarter. And then second, as you think about the full-year guide, how should we think about the cadence here in the second quarter and in the second half of the year to hit the full-year guide on free cash?

Evan Scott: Good morning, Ken. In the first quarter, a few things going on. As we disclosed, we have an ERP or billing system transformation at one of our business areas that occurred to close the year last year. We went through that process this quarter and expect to be back on track in the second quarter. It is notable we drove very hard to surge in collections to close out the prior year knowing this was in front of us. That positioned us to make the additional contribution to our pension, which helped de-risk our cash flow this year. F-35 continues to make progress as we progress on deliveries. We will have more opportunities for cash liquidations.

Throughout the year, with the pace of our deliveries and program milestones, we are going to continue to see cash increase. It is going to be back-end loaded, not unlike previous years, but we have demonstrated our ability to close the year strong and hit our cash flow guide. With the support from the tax policy, which helps enable and incentivize investment in American manufacturing, that gives us additional confidence to hit the top end of our range this year.

Operator: Your next question comes from Gautam Khanna with TD Cowen. Your line is open.

Gautam Khanna: Yes, thanks. Good morning, guys. I was wondering if you could comment on the pinch points in ramping MFC capacity. I know you have the JV you are building with GD on solid rocket motors. How quickly can missile capacity actually be raised and if you are throwing even more money at it, can it be pulled forward more substantially than maybe what people are thinking? Thanks.

James Taiclet: The goal is to have a ratable increase from our current levels of production, which last year were 650 Patriot missiles per year, up to 2,000. That is going to take three to four years depending on supply chain and other considerations, but we really do think we can get it done in three to four years. The supply chain improvements that we are pursuing include the General Dynamics–Lockheed Martin Corporation teaming on solid rocket motors. Also, Northrop Grumman is looking at expanding its solid rocket motor business potentially into Patriot, and there are commitments there that we think will bear fruit.

You may have heard that L3Harris is spinning out its SRM business and also has support from the U.S. government to finance and fund their expansion, which they have already announced—where it is going to be and how it is going to happen. That is a good sign. Northrop's commitment is a good sign. The General Dynamics partnership with us is another good sign as far as SRM pinch point risk. The second area is the seeker for the Patriot, and Boeing has similarly made a public commitment and went to the government that says, “We are going to invest in that seeker business.

We are going to get to the volumes you are asking us for,” and they have been improving over the last year or two in their ability to deliver on this very complex component. Those are the two biggest risk areas. There will be a handful of others in the mid to small business supply chain. We will have—and the government will, as Evan just said—assistance provided to those companies. We are looking for capital markets providers in addition to the government Office of Strategic Capital to provide ready and efficient financing for these medium and small companies.

They are going to have a seven-year subcontract to Lockheed Martin Corporation, who has a seven-year contract with the U.S. government—pretty good credit line there. I think we are going to be able to manage those pinch points, but those are the main ones.

Operator: Your next question comes from Ronald Epstein with Bank of America. Your line is open.

Ronald Epstein: Hey, James, just circling back on some of your comments you brought up in your prepared remarks about how you are deploying AI in the enterprise and then in some of the weapon systems. How are you broadly thinking about that? Are you developing tools yourself? Is Lockheed trying to develop its own large language model? Are you using outside stuff? Just broadly, your AI strategy and what you are doing there.

James Taiclet: Thanks, Ron. There are really two dimensions to artificial intelligence adoption in Lockheed Martin Corporation. One is the in-house business systems—production system, ERP, supply chain management, all those in-house critical activities. We are applying artificial intelligence there: everything from the closing process to contract and bid provisions to respond to our customers; defect management and discovery in the factory; and supply chain breakdowns. We are utilizing AI to make all those business processes better. The second thing we are doing, as I alluded to earlier, is introducing AI into our products and services where it makes sense to do that, but under a rubric of an ethical standard that is adopted from the Department of Defense's rubric.

We are introducing AI into target recognition, battle management/command and control, target–weapons matching, and things like that—places where you have a lot of data and if you can fuse it, bring intelligence to it quickly, and provide commanders and pilots options. That is basically the way we are driving AI into our mission solutions. All of this is within what we call the Lockheed Martin Artificial Intelligence Center. We made a decision with our chief engineer to stand up a single AI center for all of Lockheed Martin Corporation instead of having each business do it.

We consolidated the GPUs and infrastructure, ensured we have a totally walled system that can operate at the classified level and has no connection to the external internet so that we do not have cyber and other risks. We also use our own data sets; we do not use any data from outside the company or outside the customer that is provided to us. So we have this internalized AI center, but we utilize external models for it. There is a range of AI models—many of them incredibly well-known—and we have access to those on a token basis or otherwise that we run in our AI center on our own GPUs and infrastructure that is cyber-secure.

There has been a pretty significant investment over these last five or six years into that, and I actually think we may have a best-in-breed AI center, at least in our industry. We are not building basic artificial intelligence models. We are using others, but we are applying them to our internal business operations and to our product set in aggressive and impactful ways.

Operator: Your next question comes from Analyst with Citigroup. Your line is open.

Analyst: James, I wanted to ask about the evolving landscape. A tremendous amount of new entrants—how is that impacting the competition for talent? How is that impacting contracting? And maybe offensively, you had some comments in your prepared remarks about how it might be impacting the opportunity to make investments or strategic partnerships. I would love to get your take broadly.

James Taiclet: We welcome competition. We welcome what we like to call other people's money and other people's talent into this endeavor—with us or in competition with us, for that matter. The traditional defense industrial base needs to be expanded, and we have been working for years to expand it with some of the major tech companies in telecom and tech—companies like Verizon, IBM, Microsoft, NVIDIA, etc. At the same time, we have been investing in the start-up and new-entrant space ourselves. We have done some acquisitions of relatively early-stage companies internally into Lockheed Martin Corporation.

In many cases, and I would say in most, we can be an investor through our venture group, have a board seat or two, get access to the technology, and figure out how to incorporate it into our products and systems in ways that will benefit our investment, the company we invest in, and accelerate our capability—again, using other people's money and other people's talent for things we may not have the bandwidth or personnel to do. I think it is a positive development for the national defense enterprise and for our company, and we are embracing this. We have another entity called Lockheed Martin Evolve where we can do medium-size joint ventures or co-investments.

We are doing that in the wildfire fighting space that we have announced before. We are eager to get access to and collaborate with small, medium, and new-entrant companies. We are a subcontractor to Palantir and Anduril in some cases, frankly. We view these companies across the board as other suppliers—competimates. Same thing with Northrop and Boeing Defense—we partner sometimes and compete sometimes. This industry is used to that and comfortable with that, and so are we. Our goal is to get the best technology and get access to it through whatever vehicle we need to deliver on a mission technology roadmap for our customer. If our goal is to have the best air-to-air combat capability in the U.S.

Air Force, for example, we want to take the platforms we have and introduce AI from the best available source. We are working with the Air Force right now at the Edwards Air Force Base Test Pilot School with an autonomous F-16 that is working tactics that will be more survivable, where even a piloted aircraft can take over and optimize a response in the fight. We want to advance these mission capabilities with our platforms or networking with others, and we want to get these resources into those mission sets. We are not very proprietary about where they come from. On talent management, we have excellent retention rates—about half of general industry.

We are at ~4% voluntary turnover; broad industry is ~8–10%. There are some places like AI/data science where it is competitive, and we have compensation plans that meet the moment. People who come to Lockheed Martin Corporation often come for the mission, and they tend to stick around. On contracting, this is a golden opportunity based on who is in government, their experience, their willingness to change, and the demand they have for what we do. We can move the contracting system from FAR-based cost burdens toward a more commercial contracting system, which is exactly the agreement we have in these frameworks with the Department of War right now.

The new entrants and venture-backed companies are constructive on this—they are helping us and the government get out of our traditions and into more agile contracting. If you get the contracting right, you can keep the talent, we will have better ROI on our investments, and better risk too. We can partner and offload certain kinds of technologies or physical investments that someone else is better off making than we are. I am encouraged by all of this in the evolving landscape and think we are positioned to take advantage for our company and for the U.S. government and our allies.

Mark Kavaznik: Hey, Sarah. We are coming up on time. We will take one more question.

Operator: Thank you. Your next question comes from David Strauss with Wells Fargo. Your line is open.

David Strauss: Good morning. Thanks for fitting me in here. One quick clarification question and then a question around cash flow, working capital, and CapEx. Clarification would be around what your growth rate would have been excluding the workweek comparison if you had the same number of workweeks this quarter. And then on the cash flow side, Evan, what exactly have you baked in for working capital this year to recover your CapEx investment? And the cash burn profile on the Aero and MFC classified programs—what we are looking at this year and maybe looking out beyond. Thanks.

Evan Scott: Sure. Think of the shorter time period of the quarter being in the few hundreds of millions of dollars of revenue, thereabouts. We will get that extra time back in April, just so we are all tracking to the same calendar. With respect to the cash burn on our classified programs, I would still think of that as in the $500 million to $700 million a year range for this year and next year. Then we expect to see a pretty sizable drawdown on that cash draw depending on how that goes. From a CapEx perspective, a key part of the tenet, as James mentioned, is cash flow protection as we make sizable investments ahead of scaling.

If you think about the $1 billion increase year over year on CapEx we have had, think about half of that tied to these agreements that have this kind of cash flow protection. That is what we have assumed in our guidance now, to have the offset there as we invest in capital to scale rapidly for the future. Thank you.

James Taiclet: Thanks again, everybody, for joining us. In 2026, Lockheed Martin Corporation products and systems proved themselves again and again in conflict situations and in outer space, literally. Our backlog is resilient. Our investments in capacity, digital transformation, and people are going to position us to deliver on the commitments we have made to you and to our customers. Lastly, and this is really important, we want to thank the service members who have put themselves out there and executed these missions with skill, dedication, and courage. That is why many of us work at this company—to help them get their missions done and come back safely.

Thanks to all of you for joining us, and we will be back in touch with you next quarter.

Unknown Speaker: Thanks.

Operator: This concludes today's conference call. Thank you for joining. You may now disconnect.

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