With us Lockheed Martin, CFO, Jesus Malave. Jay, welcome. Thank you, Cai. Thanks for joining us. Great to be here. Really appreciate it. Rather than start on the F-35, let's talk about the Ukraine. That's changed demand prospects, particularly among the allies. You know, walk us through maybe some of your foreign order potentials. Sure. That you've got. Yeah. Let me just first start, I mean. Oh, yes. The obligatory, safe harbor. Yes. Just as a reminder, my comments in this discussion will likely include forward-looking statements, and those statements and projections are subject to risks and uncertainties that could vary materially from what I talk about today. We have information in our 10-Q and 10-K SEC filings on risk factors that could affect those. Getting right into your question there, Kai, as far as upside, you know, we mentioned on the fourth quarter call back in January that we saw about $1.5 billion of orders in 2022 that was related to kind of Ukraine in general o rders. We saw a line of sight to an incremental $5 billion in that ballpark of orders. Mm-hmm. For this year, we see of that $5 billion, we've got a line of sight to about another $1.5 billion so far. We continue to have a pretty dynamic environment. You may have seen in the news, you know, Poland has now only threw out $10 billion number out there. Not all of that goes to Lockheed Martin. Maybe half of that would be related to Lockheed Martin, and a fair amount of that was already assumed in our projections. Nonetheless, you continue to see, you know, continued demand there. We're pretty excited about being able to deliver that capability for global security requirements. What I would say is that as we continue to add to the backlog, the ability to convert on that backlog is gonna take a little bit of time. The reason for that is in areas that we're seeing this demand is in areas where we were already ramping up. We're trying to meet that with the supply chain and all that type of just that environment. It's gonna take us a few years to convert on that backlog. It's certainly, you know, more significant than we had originally anticipated, you know, in one year ago, even six months ago or three months ago. When you say, you know, $5 billion potential, one and a half in 2023, you're just talking about Missile and Fire Control or? Yeah, that is mostly all missiles and fire control, yes. Whether it's things like HIMARS, GMLRS are the two big drivers, a little bit of Javelin as well, perhaps even PAC-3 on integrated air and missile defense. Those are the, I would say, the primary drivers of that demand pretty much in MFC. Right. Are you seeing more kind of people talking about buying things so that all of a sudden in six to nine months, you know, we may see more orders? Well, as I mentioned, where we see we came into the year thinking that it could be, again, of that $5 billion of potential line of sight upside, we came into the year having thinking it could be maybe $500 million. Mm-hmm. Now we're thinking that it's probably gonna be one and a half billion dollars in 2023. This is orders. It'll take some time to convert that to sales. Yeah, it could go higher than that. This Poland news could add to that one and a half billion dollars really in the back half of this year. Right. We'll see. I mean, that's a pretty complicated, I think, buying. It could slip into 2024 as well. But yeah, I mean, there certainly could be more activity in the back half of the year. How do we get? If you have $10 billion sale, you have $5 billion of it. If you get $1.5 billion this year, I mean, does that flow over three years in orders and then four years of deliveries, or how does that work? Yeah, I would say, really five years of deliveries probably. Okay. We would start probably seeing that really start to hit us in late 2024 into 2025. Mm-hmm. It's just as I mentioned, it takes some time. You know, it's great to see the incremental demand, but these are areas where we were already increasing our ramp rates, our production ramp rates. The ability to step it up even higher, it's just gonna take us a little bit of time to do that. This is kind of direct, you know, as a result of Ukraine, but, you know, we're seeing requests from Ukraine for F-16s. You know, is there any kind of what I would call peripheral foreign demand that you're seeing that other countries in Eastern Europe are sort of warming up to buying more F-16s or buying any other products from you? Well, you know, yeah. I mean, you've heard the request for F-16s in Ukraine. Turkey has also indicated that they would like to purchase more as well as upgrade the existing fleet that they have. There's, you know, we've mentioned in the past that there's, you know, potential line of sight to additional orders of up to 300 aircraft or so, even more than that. You know, that is something that the process for that is just takes a little bit a while there. That's a State Department decision as to whether or not license would be granted. We really have to follow the government's lead on those types of systems. The demand we see there, India's another one, on their F-21, where there could be some opportunity there. It's more of a government-to-government discussion, and then we fall behind that discussion. Any milestones, like if Biden decides to send some or to allow allies to send F-16s to Ukraine, that'll. Yeah. I just wish I could give you a specific date by which I don't know. Not a date, but those are the kind of milestones. Correct. That would set off greater demand. foreign, refresh my memory, it's about 30%. About 30. That's right. Any thoughts about where that's gonna go? Is that% gonna be moving up the next couple of years? Yeah, it will grow. Absolutely, it'll grow. We see just in international that growing over the next 3-5 years by high single digit rate. It should grow as a percent of the total. Well, that's the growth rate, but the percent in total, I don't know what that will equate to, but it's +35% probably in terms of what that means in terms of the absolute. Got it. Yeah, that's a certain area. You know, besides Europe, Australia is another one where there's significant demand. Right. We're competing currently for a program called AIR 6500, which is a total really Joint All-Domain Command and Control type of system for the Australian forces. We were successful in defense of Guam, which is a U.S., but it's INDOPACOM. There's also, you know, opportunities in Japan as well. It's not just Europe. There's Asia, and Australia is a big one as well. Got it. What about space and directed energy? You're on transport layer 1. I think you missed out on the tracking layer. Mm-hmm. What's your potential on these and kind of those other LEO systems? Sure. you know, space transport layer is a communication system for the SDA. We're right now in the process under contract for tranche zero and delivering on that. We are due to deliver 10 satellites on that, and we expect those to launch mid-year of this year. The follow on tranche one is another 42 satellites. When we get into tranche two, it could be even double of that. A lot of opportunity there as they build out that constellation for SDA transport layer. As far as tracking, you know, I think it's important to remember, we have these systems in GEO, SBIRS, OPIR, we're operating, and we've delivered our final satellite vehicle for SBIRS, but we're also now we've got 3 vehicles, space vehicles for OPIR that we'll be delivering over the next few years. We've partnered with Raytheon Technologies on a MEO missile warning and tracking system. Mm-hmm. We're gonna be competing on that. We're excited about that opportunity. When you think of just about national space, security space in general, we've got a number of classified programs, which are pretty substantial, which will drive growth in our space segment as well. I obviously can't talk about those, but pretty strong demand for those important missions, and those will drive growth in that segment. Got it. I can't go without asking you about FLRA. You've protested. Correct. I don't know what you can tell us, but can you give us any color in terms of, like, what were you saying in terms of we should have had another shot, or we should have won it? Yeah. I think it boils down to, Cai, is that what we saw based on the information that we had is an inconsistent application of the evaluation criteria. You know, it's simply stated. That really is the basis of the protest. You know, the GAO, the Government Accountability Office, GAO, will have 100 days to make an evaluation. Mm-hmm. A recommendation on where it should go from there. You know, we don't take these things lightly. Lockheed Martin does not protest a lot. Our record of protest is very low. Right. If we didn't feel we had a basis for it, we would not have filed a protest. Got it. Do you expect that it'll basically go the full 100 days that go to? I think so. Yeah, I think it will. Got it. Okay. The execution size, what are you seeing in terms of supply chain, labor availability, inflation? You know, supply chain is still a step forward and a step back, Cai, the best way I would describe it, and I'll take maybe the fourth quarter and the first quarter of 2023 as an example. You know, in the fourth quarter, we over-delivered to our expectations in sales and really almost got exactly back to the original guidance we had provided back in January of 2021 or of 2022. Part of that was just getting on contract, but part of it was better supply chain performance in the fourth quarter. As we looked at our forecast now in the first quarter, we saw that taking a step back. So we've got some calendarization pressure in the first quarter. Part of it is program schedules. Part of it is supply chain pressures there. We're not out of the woods. It's still touch and go. You know, we've got a calendarization issue a little bit here in 2023. We feel confident for the full year guide that we provide, provided, but the first quarter is gonna be a little bit bumpy, partly due to supply chain. Got it. What about inflation? Are you able to sort of? Yeah. Let me, I guess, break apart inflation into two areas, one being labor inflation, our internal labor, and the other one being in the supply chain. Just, you know, maybe taking a step back, when you look at our revenue exposure, almost 40% of our revenue exposure is cost plus. Mm-hmm. That generally just flows through. The other 60% is some form of fixed price. On those, in many cases, we go back to back with our suppliers. Our current contracts on the material escalation, we have fixed price from our suppliers, so we're not really. We've got some level of insulation against that. Where we did see impacts in 2022 is in our labor inflation. Mm-hmm. We, in a few areas on critical skill sets, we did mid-year raises for either attraction or retention of employees. When we did the merit cycle here, the cycle for 2023, it was higher than what we had originally anticipated in our base contracts going forward in our EACs. I would say that Lockheed Martin's got a pretty strong cost reduction program, essentially mitigated most of that headwind through our cost reduction program. I think, we've been able to manage that, I think, fairly well. Where, I see it kind of being more of an issue going forward is as we look into new awards. Now we're seeing suppliers that are unwilling to provide multi-year fixed pricing. They want some type of escalation clause tied to it, rightfully so. I mean, it's hard to criticize that type of request. The dialogue we're having with our customer is that we're looking for that to flow through. If in an area where we're unable to get a contractor or subcontractor on a fixed price for whatever the reason it may be, we're looking for the trade-off at, on our contract with our customer to flow through any type of escalation clauses. There's been dialogue where they're receptive to it. Of course, they're going to drive because their job is to drive the best result for the US taxpayer, which is, which is what they should be doing. Ultimately, they understand that we're in an environment where we've had material inflation and material escalation. Right. We're trying to do it so no one gets harmed. Right. If you look across the industry, I mean, as you're aware, Northrop's 10-K, they indicated that the B-21, where they've been telling everybody execution was good, that they have the potential for a loss of over $1 billion, you know, on the five lots. Do you have any long-term contracts that are firm fixed where, you know, we should be nervous that, you know, this one might come back and create a problem? Yes. I would say that we do have production options on contracts where we've got a particular one. You know, in the first quarter call, we talked about MFC's margins, where they were declining. They did 14.5% in 2022, and we're you know, around 13.7% in 2023. Right. There's further pressure there from that. That's fundamentally due to option, production option pricing on a classified program that we have. Okay. We're gonna see continued pressure there, which is kind of a known entity there. I've been talking about that. Their margins will wanna go step down another 50- 100 basis points from where we are in 2023. Mm-hmm. We'll see what the mixed benefit of this incremental demand is and whether or not that dampens that headwind, we'll have to go through that planning cycle, as we do during the summer. We'll have a better feel for what those estimates are, when we talk about, you know, start thinking about 2024 in our October call. There's certainly pressure there, which is due to, a production program that has, a challenged pricing in it. Mm-hmm. We're going from a low margin kind of development contract to essentially a negative margin production for a period of time. That's what's driving MFC's margins to wanna continue to slide down. That's a classified program? Classified program. Okay. You know, we'll go through that. I mean, our job as a, as a management team is to see what we can do to offset that, try to mitigate those, and that's what we'll go through over the next few months to see what we can do with that over the next few years. That's the context when I, when I've talked about in the past, there's still some continued margin pressure beyond 23. It's really there is where we're seeing it. Mainly at MFC. Right. Okay. You know, you've talked about, you and Northrop are talking about digital transformation, in your case, o ne Lockheed Martin. Mm-hmm. Where are you in this journey, and what impact do you think this could have on your profitability? Yeah. Let me describe our program because it is a all-encompassing program. It starts with engineering design, systems, so it's embracing and proliferating digital thread and digital twin engineering. It extends to our ERP. It extends to our manufacturing execution systems. It also extends to our human resource management systems. This is a broad... It's not like we're just updating an ERP system. We're going end-to-end, all the way from development all the way to sustainment of lifecycle, cycle of our program, updating all of our systems. Where we've gotten a head start over the past few years is really on the engineering development side, where we've had a program adoption of the digital thread and digital twin systems. We ended 2022 with about 112 programs that are now have adopted this method of design. The whole intent of doing that is being able to compress our design schedules. The efficiencies that you get from that are you get better visibility. As you're designing, you're able to see a digital twin. There's a digital replica of that hardware, so you can understand, better understand dependencies, you can better understand form, fit, and function on components that you're designing. That should not maybe necessarily eliminate, but significantly reduce rework in the engineering cycle and the design cycle. What that ultimately will culminate to us, for us is a more competitive company. We see this going towards as being a really a ticket to play in the future. These are the type of design cycles that we're gonna have to operate under, a tighter design cycle, delivering a capability earlier to our customer and doing it in such a way that's affordable and reduces risk for both us as well as the customer. It's not necessarily a margin play per se, but We will see cost reduction, but it'll make us a more competitive company. It's predominantly, I would guess, on newer programs as opposed to, you know, other programs. Yes. Yeah. Legacy programs will have the, you know, the previous product lifecycle management systems. You can't really disconnect those because of where these originated. Right. Right. You've talked of, you know, the pillar, the four pillars of growth programs of record, hypersonics, classified, new awards. Walk us through, you know, maybe the relative growth, you know, we should think about for each of those or the relative trends? Yeah. When you look at our four pillars of growth, it's about almost $20 billion, but $18 -$19 billion bucket of sales. Our biggest ones there are our programs of record. Just the select programs of record are around $8.5 -$9 billion of that $18 billion or $19 billion of sales. We see that growing at a high single-digit clip. The reason for that is the demand cycle as well as We've pushed some of these schedules to the right. Mm-hmm. When you talk about things like CH-53K, PAC-3 Fleet Ballistic Missile and our space business and F-35 sustainment, all of those we feel very comfortable that they're gonna grow because we have the visibility to the programs of record there. You tack on what we've seen now in some of these legacy MFC programs is gonna drive that growth rate to the higher end of the high-single-digit number. The next one is classified. Classified, again, is about an $8 billion portfolio for us all in. Whether it's in ARRW, whether it's in space or in MFC, we see some pretty significant growth there. It's probably closer maybe in the mid-single-digit range. These are five-year CAGRs that I'm talking about. Those are the two biggest drivers we you know, that we'll see in those three business areas really fundamentally driving that. Hypersonics is another one, we've talked about that. That growth rate is a little bit lower than the other two, but that'll contribute to growth. The last one is new awards. In new awards, you know, we just talked about FLRAA, so, you know, assuming that the decision holds, we still have our Next Generation Interceptor is a big program for us. There's FLRAA behind that which is, we expect to down select in 2025. Those are two. Then we have an international integrated air and missile defense system that is pretty sizable in the Middle East that we expect that we can win that as well. When you put those all together, that $18 billion, $18 -$19 billion portfolio of sales, we expect that to grow in the high single digit percent growth area that will drive us and fuel us for the next few years. The international, air missile defense, that's a sale or of existing equipment or a new program? It would be a new program. New capability for us, yeah. A new capability. Mm-hmm. Okay. All told, I think what are the downers? I mean, certainly C-130J looks like it's going flat to down. F-16, which I think was looking down, is now moving up. Right. Talk about and, you know. Well, Yeah, if you go around a portfolio, if you look at, you know, if you start with Aeronautics, I mean, you know, production in F-35 is actually down this year. Right. Flat to up next year, in a grand scheme, it just, it's flat. Mm-hmm. When you think about that, you know, production is a $12 billion portfolio in and of itself, just F-35 production, it's a big number. As you mentioned, F-16 is growing. We've got a first delivery here in the first quarter on the F-16 aircraft. We'll ramp that rate up. We have about 20 aircraft in whip today, that will continue to grow over the next few years for us. C-130, yeah, I mean, we've delivered, I think it was 24 last year. That'll drop to about 20 between now and 2027, we'll see a little bit of pressure there, but it's not dropping all that significantly. Mm-hmm. Aeronautics will have, I think, a stable portfolio to slightly up over the next five years. Mm-hmm. MFC is where we've talked a lot about. We had ramping, you know, programs. We talked about things like PAC-3 and some of these other areas of demand, whether they be GMLRS, JASSM or LRASM are other areas that we're growing. Yeah. To grow over, we see a solid mid-single digit growth rate there over the next five years. RMS, you know, yes, they had the, you know, FLRAA, we'll see what happens with there, but Sikorsky still has Enduring Hawk, we would call it. We still think there's opportunity for further deliveries and further extension of the Black Hawk program there. We've got FLRAA in 25. There's also international opportunities both in the Black Hawk, international Black Hawk, as well as some of our X2 technology there at Sikorsky. When you go outside of Sikorsky, this is where our command, our battle management systems are, our Joint All-Domain Command and Control systems are, Aegis. We see a lot of opportunity there when we talk about joint all domain operations, for them to provide both domestic and international systems and be a driver of growth. We have some new radar systems. You know, Jim announced in his prepared remarks on the fourth quarter call, our TPY system with Norway. I think there's pretty good, we feel pretty good there into kinda maybe a low to mid-single digit there, growth rate at RMS. Finally at space. You know, space is dealing with some programs that we've had in the past that have just been fundamentally great programs for us. SBIRS, OPIR, as I mentioned before, those are gonna wanna trend back down. Orion, even though we have production contracts, that will wanna normalize as well. While they've got solid growth in national security space, they've got a little bit of overhang from these 2 programs that'll limit their growth a little bit. I'd say probably low single digits there in that ballpark. RMS, you know, you. What's the growth look like if you don't win FLRAA? What, you know, what difference does FLRAA make? Well, I mean, FLRAA, I would say where we are right now, given what we know, we're probably looking at a low single digit growth rate, without FLRAA. Without FLRAA? Without FLRAA, yeah. Okay. Mid-single if you do get FLRAA. Yeah. Basically, if you lose FLRAA, you get the mission systems on the V-280, correct? Yeah. It, but the contribution of sales is nowhere near what the overall- Right. Right. Yes, we get some work, yeah. Right. Okay. As we look out, should we see acceleration in your growth, 24, 25, I would assume, sequential acceleration? Absolutely. You know. Both years? I'm sorry? Both years, I mean. We should certainly, you know, this year our guide in 2023 was for sales to be down roughly 1%. Right. Flattish to down. you know, I expect us to resume growth in 2024. you know, right now I think the starting point for that would be a low single-digit on growth rate, and then we'll go from there. Again, we have to go through our planning cycle during the summer. We'll get much better visibility to all the things that are going on, as we mentioned earlier, related to kind of Ukraine demand, Poland, and see what that means. It's really a question of when those opportunities can convert into sales. Right. Right. On the cost side, what about hiring? Hiring's been an issue, I think, about a number of people are talking about, well, attrition starting to come down. Talk to us about your kind of your hiring. Yeah, I think that, certainly attrition, I think, is so far, we're seeing some indications that's better. Hiring is still a challenge. I mean, some of these critical skill sets that we're looking for, particularly software engineering, remains a challenge for us, particularly in a defense environment in aerospace. We've been working that, and it's I would say, the indications are it's better, but it's, we haven't really seen, we haven't turned a corner and flooded in. You know, look at our headcount last year, we grew by 2,000 heads. A lot of that isn't in the critical skill sets. We have demand, though, for higher than that. We're still, it's a very competitive marketplace for those critical skill sets, and we still haven't seen, you know, the labor market really loosen up there. If attrition is down, did you say attrition is down a little bit? Yeah. If attrition is down, I know some of the other guys have said, well, like actually you had Parsons, and they said that their wage growth this year is less than last year because, you know, they had to pay to keep some folks. Do you think the rate of wage growth is basically flattening out or? I don't know. You know, if you kinda use like almost like a 3% as a benchmark. Right. Historical, I don't know that we'll slip exactly right back to 3% as we think about 2024 planning. Mm-hmm. We were higher than that for our 2023 planning, you know, we've still got a number of months before we kinda think about what that's really going to be, but I'm not sure that it dips right back to 2023 and for 2024 planning. Right. It may step down, but not exactly back to what it had been last 10 years. Right. Right. F-35. Mm-hmm. You've had some issues, you know, the engine problem, that's really Pratt's problem. I mean, TR-3 software delays. Where are you on those? You know, when do they think they'll be resolved, and what impact, more importantly, does it have on your revenues and your profit accrual, and what sort of risk? For TR-3, we certainly, we've got a number of software drops that are happening over the next few months into the test program. We have to do, you know, we've done and are doing lab testing. They will also go into flight testing. We believe that we're still on track for the cut-in of TR-3 capability, so that would be hardware and software for the back half of this year in Lot 15. That's our objective, that's our target. We remain on track. It's tight. You know, the program itself has had, as you know, has been delayed, there always could be some type of learning between now and then, but right now we're on track. Got it. Okay. The engine issue, I assume that's basically Pratt's issue. You're still building planes, so that should have relatively little impact. Yeah. You know, Yes. I mean, I think that we will see a cash flow impact this quarter. Mm-hmm. It affects our ability to deliver, aircraft to our final customer. Mm-hmm. There is a final payment that's tied to aircraft delivery that are gonna fall outside the quarter. That, we'll see some pressure here. It's timing in the year, and knock on wood, we believe that they're on track to, you know, complete their root cause corrective action investigation and get us back on track. I guess we'll hear with the budget drop whether we get a new engine for the F-35 or whether we go with a derivative. Does it matter to you in terms of, you know, your financial performance on the program that one might be more difficult than the other? You know, right, you've got these two different solutions. Yeah. Either upgrade or a brand new engine. I think either require or has some level of risk to them. I don't know what that cost trade-off is with the Joint Program Office. That's a decision that they make. They have all that information. Right. Right. Right. All that data, and I'm sure that they'll make the best one they think for the program. What we've done is provided what we believe is necessary for cooling requirements, for this new hardware that's being cut in, these capabilities, as well as the thrust requirements. Right. We've given them technical data as far as the trade-offs, but ultimately it's their decision there. Right. We would prefer, I think, the lowest risk solution so that, you don't have to deal with delays and things like that. Right. Again, you know, it's really the performance requirement that's important as well. You know, I think there's gonna be trade-offs that the Joint Program Office is gonna have to make with their service customers. Again, we give them the requirements and it's their call at the end of the day. Right. I guess still going to 156. Right. You get there in 2025? Twenty-five. 2025. I think the last time we talked, I had been thinking there would be a pickup in revenues, but what is the revenue profile between here and 2025? The interesting thing is when you think about deliveries, this year, you know, we're, you know, assuming that this issue gets behind us, would be between 147-153. It's kind of the same range that we provided for next year as well. We talked about that, I think, in the summer. We get to 156 in 2025 there. The interesting thing there is, though, when you go back 2-3 years. We were, when you think or talk about a lead time, you're talking multiple years, 2-3 years. You have to order materials, start bringing it in and all that type of stuff. We were operating under the assumption that the program volumes could be as high as 170 aircraft. Mm-hmm. We were running a production ordering system and material ordering system at that level of demand. Mm-hmm. As we, you know, as we settled it back in at 156, there's a level that we have to essentially allow the delivery schedule to catch up to that inventory that we built. Got it. You're seeing lumpiness in sales. This year, our production sales will be down about 5% because of that phenomenon. It'll be flat to slightly up next year, as we kinda normalize this. I think over the next few years, it'll normalize back on once we get kind of on track with this 156, but we're, you know, we're kind of coming down this kind of inventory, you know, reduction cycle, as you will. Right. That's what's causing the sales lumpiness. You know, if you have inventory burn off, you know, this year for next year, does that mean that 2025, you're kind of everything's back in sync, as the delivery rate goes up, that the sales also should pick up in 2025? Is it still? It may be a little bit in 2024, you know, I think it'll be marginal. Mm-hmm. I don't think we'll see a big step up in sales on the production, on F-35 production. Got it. Then I think we just had, you know, the, the F-35 PEO. Mm-hmm. He was talking about going from 48 depots to 71, I think it was by 2026, 2027. Mm-hmm. What sort of a growth, does the growth rate for sustainment kind of accelerate here, flatten out, or how should we think of it? Well, it's interesting. That's right. We have this thing that's called just separate contract. It's called site activation and hardware, which is predominantly for these depots. It's been a little bit slower than we originally had planned. Mm-hmm. You know, I think if you go back a year, what we've said that is our F-35 sustainment on a five-year CAGR would grow around 6%. Mm-hmm. We still believe that to be the case. Mm-hmm. While you do see, you know, as General Schmidt talked about higher depot and stocking inventory and those types of things, at the same time, we're also taking costs out, so reducing the cost of sustainment. You've got the growth with the higher, with the growing fleet, you got depot requirements, and partially offsetting that is you've got better cost performance. Mm-hmm. You know, we're proud of that. I mean, we've got big targets that we've been assigned to deliver, and we believe that we are delivering our piece of those reductions. That you've got this counterbalancing. It counterbalances it. You know, intuitively, you sit there and say, "Well, shouldn't it be growing high single digit or even 10% plus? Mm-hmm. There is you've got the reductions associated with cost reduction, which drive it back down. When you talk of 6%, is that kind of every year is, you know? It's an average. 5- 7? Average rate, yeah. There's no big lumpiness, or is there? No, I don't see any type of huge lumpiness, no. Got it. I think you indicated t hat EACs as a percent of EBIT should be about 25% this year, flat with 2022. This ratio has been trending down past couple of years. To what extent is inflation eating into the cushion you have in your accrual rates? It's a good question, and it goes back a little bit to what we were talking about before, Kai, is on the material side in our existing contracts, we really haven't seen that much impact on existing contracts. It's really been we'd had to assume or put in higher labor escalation for our internal labor into our contracts, and we've been doing that over the past year. What I'd say is, Lockheed Martin has a very good cost reduction program. Mm-hmm. We really have offset those impacts. Right. In there. it's not where we've necessarily reduced our management reserve buffers. Yeah, sure, that's happened in certain cases, but I think our cost reduction performance has helped us really offset a lot of that headwind that we've seen. I think that on existing contracts, we've performed quite well and we've been able to manage this well, and I give credit to our operations and our programs teams for being able to do that, anticipate it and deal with it and manage it and drive our cost reduction programs higher. I think overall, we've been managing that. What I would say is that 25% is probably a good equilibrium. This is probably where we'll be around that ballpark this year in 2023 as well. Mm-hmm. What I would say about that as well is that what we're seeing is our recurring margins are increasing. Yeah. This is just really more of a function of program life cycles. Right. As these programs mature, you just are running at a higher recurring rate. Just kind of call it more learned out. Your opportunity for EAC benefits has come down, but you're operating at a higher margin rate to begin with. Got it. As you see, you know, we do have margin pressure, but margin pressure is not due to that. Margin pressure is due to, you know, these production options I talked about. Right. It's more of kind of a contract mix issue that we have to work through. Got it. Cash flow conversion expected to ease below 100% this year. When do you think you can get to back over 100%? You look at our cash flow the next few years, our goal is going to be to increase our absolute cash flow and continue to reduce our share count, so we can deliver a solid free cash flow per share growth rate. Over the next few years, we will have some cash flow pressures. Our CapEx is still in excess of depreciation over the next few years. Mm-hmm. We've got potential pension contribution in 2025, so we have to overcome some of those headwinds to still deliver, absolute free cash flow growth, and that's our goal. I'm not sure between now and 2025 that I can tell you that we'll get right back to net income, but our goal is to actually continue to grow it. Got it. Is where we are. One of the issues of cash flow has been Section 174. Mm-hmm. You've taken a different tack, I think, on R&D, where basically you have not so paid on R&D on cost plus. Right. Cost plus contracts. You know, although Northrop and RTX have, how should we think about does the IRS kind of say, "Lockheed, you gotta pay," or, you know, how does that get resolved? It's a great question. Let me just maybe explain the basis of our position for a moment and then get into what we expect could happen. You know, we view this as essentially a cost of goods sold. Right. It's a cost of delivering the revenue to a particular customer. We're providing engineering packages or design to an end customer. We don't view that as R&D, we view it as cost of sales. That provides a certain level of symmetry to the R&D tax credit. Right. Which is, which is viewed as in the same exact way. We don't take those types of costs and take credit for those when we're calculating for credit purposes. We have no risk because the customer is actually bearing that risk of the development. We also have While you do have benefit, and you get some type of know-how benefit, that benefit can be transferred to any other third party because the customer owns it as well. Right. We view that that's a sound basis for the position that we've taken. We've had multiple law firms validate our position. They agree with us. Mm-hmm. It's not something like we just decided we're going to take a position and. Right. Right. You know, plant a flag. I think it was very thoughtful, very well-researched. Right. We have a sound basis for it. As far as where the IRS is, we believe that there could be some guidance, general guidance that goes out sometime this year. We're not sure that they will specifically address this issue. It could linger beyond this year. We'll see. We've asked them if they, you know, had any thoughts of providing guidance. We just haven't seen it. They've got a lot of priorities that they're working through, and I think so that what we may see is just general guidance related to this Section 174 issue, not necessarily specifically addressing this issue that we're dealing with. Got it. Got it. In terms of cash deployment, you've been aggressive in stock repurchase the last couple of years. Any thoughts looking forward, you know, those priorities change at all? Well, we still have $10 billion remaining in our share repurchase authorization. We expect $4 billion this year. Right now, our planning assumption would be $4 billion in 2024 and then $2 billion in 2025. If you think about that's when you add both 2023 and 2024, that's about $7 billion in each year of deployment between that and the dividend, which exceeds our free cash flow estimates in both years. I think we've got a pretty robust and pretty healthy capital deployment plan over the next two years. We'll continue to reevaluate it. When we came out with our share repurchase program in the third quarter, we went through our just our planning cycle during the summer. We'll do that again this summer, and I'll sit down with Jim and have a discussion, provide him a recommendation, present something to our board, and we'll go from there. Got it. This has been terrific. Any final thoughts, you know, that we should keep in mind as investors think about Lockheed Martin? Well, you know, this was a pretty comprehensive discussion, Cai. I really appreciate your time. You did a terrific job. Thank you. It's been a great dialogue and, you know, as I mentioned, we're pretty laser focused on returning and resuming growth in 2024. We're making sure that we can drive our free cash flow, as we just mentioned, to growth, continue to take down the share count and provide an adequate, and what we think is a reasonable free cash flow growth over the next few years. Between that and our industry-leading dividend, a pretty good fee and rest of return as we really start to recrank the flywheel on growth. Excellent. I appreciate everyone's time. That was terrific. Yours. Yeah. Thank you. Good work.