Good day, ladies and gentlemen, and welcome to Northrop Grumman's 1st quarter 2022 conference call. Today's call is being recorded. My name is Renz, and I'll be your operator today. At this time, all participants are in a listen-only mode. If at any time during the call you require assistance, please press star zero and an operator will be happy to assist you. I would now like to turn the call over to your host, Mr. Todd Ernst, Treasurer and Vice President, Investor Relations. Mr. Ernst, please proceed. Thanks, Renz. Good morning, everyone, and welcome to Northrop Grumman's 1st quarter 2022 conference call. We'll refer to a PowerPoint presentation that is posted on our IR website this morning. Before we start, matters discussed on today's call, including 2022 guidance and beyond, including outlooks, reflect the company's judgment based on information available at the time of this call. They constitute forward-looking statements pursuant to safe harbor provisions of federal securities laws. Forward-looking statements involve risks and uncertainties, which are noted in today's press release and our SEC filings. These risks and uncertainties may cause actual company results to differ materially. Today's call will include non-GAAP financial measures that are reconciled to our GAAP results in our earnings release. On the call today are Kathy Warden, our Chair, CEO, and President, and Dave Keffer, our CFO. At this time, I'd like to turn the call over to Kathy. Kathy? Thanks, Todd. Good morning, everyone, and thank you for joining us. We've seen significant changes to the geopolitical landscape since our last earnings call. Russia's invasion of Ukraine has consequences for the stability of the region in addition to creating a profound humanitarian crisis. Our thoughts are with the people of Ukraine as they defend their freedom and protect their way of life. Through the Northrop Grumman Foundation, we are committing aid to help the people of Ukraine, including matching our employees' personal donations to select charitable organizations. This situation underscores the importance of having strong defensive capabilities to deter broader aggression and contain global conflicts. At Northrop Grumman, we've worked to ensure our country and its allies have these deterrent capabilities. Modern deterrence depends on our customers' ability to maintain advantage over competitors in multiple domains, from under sea to space and cyberspace and every domain in between. Northrop Grumman continues to demonstrate our ability to bring deterrent solutions to a more complicated world through unique capabilities in areas such as stealth, cyber, space, computing, propulsion, and communications, to name a few. I'll talk more specifically about our capabilities and our strategy in a few moments. First, let's address the budget trends we see in light of this threat environment. In the U.S., there is bipartisan support for increasing defense budgets. Congress finalized the fiscal year 2022 defense appropriations in March, and the administration has since issued the fiscal year 2023 defense budget request. Both of these base budgets show solid 4%-5% top-line growth with additional potential in supplemental funding. Based on initial indications from Congress, the final fiscal year 2023 appropriation could be even higher than the initial request as Congress looks to address the evolving threat landscape, but also to offset inflationary pressures. Currently, the fiscal year 2023 budget request includes a 4% increase in the investment account. The main driver behind this increase is a 9% increase in R&D to fund development of critical capabilities, particularly in space and deterrence. Space continues to be one of the fastest-growing defense budget areas, with a 30%+ year-over-year increase. The request also fully funds modernization of the strategic deterrent, including initial production funding for B-21, as well as a significant year-over-year increase in development funding for GBSD. NASA budgets are also growing in support of a new era of space exploration. The FY 2023 budget request includes an 8% increase over FY 2022, including funding ongoing programs such as Artemis and new initiatives for Moon to Mars efforts. Globally, there is an ongoing paradigm shift regarding national security, and several allies have pledged to increase defense spending as a result. We stand ready to support them in achieving their national security objectives as well. With the budget environment as context, I'll take a few minutes to step back and frame our business strategy. Our fundamental goal is to be the leading technology company enabling the U.S. and its allies to protect freedom, deter conflict, and sustain our planet. Our business strategy, which we've been executing for several years, is focused on four core areas. First is maintaining technology leadership and delivering innovative and affordable solutions with speed. Next is sustainably and profitably growing our business in our customers' highest priority missions while maintaining contracting discipline. Third is keeping a laser focus on performance and driving cost efficiencies. Finally, we are focused on deploying our capital in value-creating ways for our customers and investors. This strategy has created strong alignment with our customer priorities and strengthened our portfolio position. As we sit here today, we expect this will enable us to accelerate our revenue growth rate in 2023 from the low single digits% in our 2022 guidance. By 2024, we also expect that by growing our business and delivering strong operational performance, we will be able to drive our segment operating margin rate to approximately 12%. We continue to expect to grow our transaction-adjusted free cash flow at a double-digit CAGR through this period. From a capital deployment perspective, investing in our business to support this growth outlook remains our top priority. After making such investments, we are targeting the return of at least 100% of our free cash flow to investors in 2022. Underlying these performance goals and expectations is our position in several priority growth areas for our customers. Our role in supporting deterrence across all domains is in direct alignment to the needs of today's changing global national security environment. For nearly 7 decades, the U.S. has successfully mitigated the risk of broader global conflict through strategic deterrence. Northrop Grumman is the prime contractor on two of the three current deterrence modernization programs. For the B-21 program, the Air Force confirmed that the first aircraft has entered the ground test phase, paving the way for first flight, and there are five additional test aircraft in various stages of assembly. This progress is partly enabled by our digital design capabilities and advanced manufacturing technologies, which reduce risk ahead of the aircraft's first flight. Looking forward, we expect sales on the B-21 program to grow as the EMD phase continues and we progress into low rate initial production. This assumption underpins our expectations for aeronautics revenue to be flat next year and return to growth in 2024. For GBSD, we remain on schedule. The program is expected to continue to ramp over the next couple of years as we execute on the $13 billion EMD contract, with nearly $1.9 billion in expected revenue in 2022. We still expect the program to enter production in the 2026 time frame, with initial operating capability planned for 2029. GBSD production is expected to be a material growth driver in the middle of the decade, as is reflected in the president's budget. In addition, our space business continues to experience rapid growth as our customers re-architect their space-based capabilities. This growth is in response to adversaries developing more sophisticated weapons, the need for more capable missile defense warning systems, as well as the migration of some airborne missions to the space domain. In the 1st quarter, we have received several new awards that showcase the breadth of our space portfolio and our ability to compete and win in various domains, including ground systems and proliferated LEO constellations. These awards build on our significant backlog and positions our space business for expected double-digit growth once again this year. Notable wins in this quarter include a nearly $700 million award for 42 satellites in low Earth orbit that provide high speed, low latency communications for the Space Development Agency's transport layer. We won a $340 million contract for Deep Space Advanced Radar Capability, or DARC, that dramatically improves situational awareness, particularly in geosynchronous orbit. In Q2, we anticipate an approximately $2 billion award from ULA to provide GEM 63 motors for launch services, including in support of Amazon's Project Kuiper. Another area where we see meaningful future growth opportunities is in mission systems, particularly our networked information solutions business, which at its core is a communications and processing business. In this area, we have proven technology leadership in connecting and linking military systems with a broad portfolio of products, including networking systems and radios and cyber computing and AI capabilities. We're seeing a rapid evolution in this area with ambitious goals from our customers to field open, distributed, secure networks that are more survivable. Initiatives like JADC2 are providing demand for our existing platform-agnostic solutions, as well as providing opportunities for new technologies we are developing. We are creating partnerships like the 5G partnership with AT&T that we announced this month to strengthen our competitive position. We believe this communications business will be the fastest-growing area of MS over the next couple of years. Given all that I've just outlined, you can see that our portfolio is aligned to the evolving national security environment and priority areas for our customers. We continue to demonstrate our ability to deliver compelling solutions in this environment. Ultimately, executing on our strategy depends on having the right culture and people. This is one of the reasons we focus on remaining an industry leader in ESG. I encourage you to look at our annual sustainability report, which we published in March. It provides insights to our progressive governance structure, our culture, our commitment to ethics, diversity, equity, and inclusion, and environmental sustainability. As we shared in this year's report, we are committing to net zero emissions in our operations by 2035. We also published our first TCFD report, which provides additional transparency around our approach to managing the climate-related risks and opportunities across our business. With that, I'm going to turn the call over to Dave to provide more detail on our results and guidance, and then we'll move on to Q&A. Dave? Thanks, Kathy, and good morning, everyone. Our 1st quarter was a strong start to the year. We generated more bookings than we've been expecting, including competitive wins on several new programs. Our robust backlog of $76 billion continues to be over two times our annual sales and provides the foundation for future growth. First quarter sales totaled $8.8 billion, down 2% organically and up sequentially from the fourth quarter of 2021. Q1 sales represented about 24% of our full year guidance in line with our prior projection. We experienced some temporal COVID-related productivity and volume impacts to start the year, which receded as the quarter progressed. Continued tightness in the broader labor market represents a challenge that we're working hard to mitigate as we ramp on large contracts and address strong market demand for our capabilities. We continue to make progress on this front and are pleased with the trajectory that we're on. Our execution remained solid in the quarter. We delivered a segment operating margin rate of 11.8% in line with the midpoint of our full year guidance, and we made progress on several elements of our long-term cost efficiency strategy. At the program level, net EAC results varied across sectors, as is common in any given quarter. One of the positive EAC changes in Q1 was a $67 million favorable adjustment on the B-21 program related to performance incentives. In addition to what Kathy noted, I wanted to take this opportunity to provide a bit more color on this franchise program. B-21 is currently in its cost type EMD phase, with a variety of incentive fees for which we accrue based on anticipated achievement. Our projections for certain EMD incentives improved in Q1, leading to the favorable EAC adjustment. We are in a critical integration and test portion of the EMD phase this year, and we continue to focus on production efficiencies. The low rate initial production or LRIP phase will begin over the next year and run in parallel with EMD for a period of time. LRIP for B-21 is fixed price, and we expect to recognize revenue for the LRIP lots separately from EMD. The LRIP units were priced as part of our original bid for the program. The full rate production phase, or FRP, has yet to be negotiated and includes the majority of the aircraft volume in the program of record. Based on our current projections, which run roughly through the end of this decade, we continue to expect production to be priced and profitably executed within the program's average procurement unit cost target. Now turning back to our Q1 results. Diluted earnings per share in the quarter were $6.10, reflecting our strong segment performance. Keep in mind, we had a headwind of roughly $0.46 resulting from lower CAS pension costs in our overhead rates that we booked in the 1st quarter of last year. In aggregate, our transaction adjusted earnings per share were down 7% compared to Q1 2021, primarily due to non-operational factors such as lower net FAS/CAS pension and the performance of marketable securities. It's worth noting that the after-tax net FAS/CAS pension adjustment in Q1 was nearly $250 million, representing $1.58 of earnings per share. This was $40 million lower than Q1 a year ago and a $0.19 EPS headwind. We expect similar impacts in each of the remaining quarters in 2022. That total net FAS/CAS pension adjustment primarily reflects the actuarial gains and losses in our pension plans and is not something we consider when assessing the company's operating performance. Moving to 2022 guidance, we have minimal changes. We're increasing the sales guidance for our space business due to continued strong momentum and recent capture of new awards, as Kathy outlined. We now estimate sales in the mid- to high-$11 billion range, which would result in another year of double-digit sales growth. At Defense Systems, we are adjusting our estimate to the mid- to high-$5 billion range to reflect a lower 1st quarter, particularly on some of our international training programs. These two adjustments offset each other and our full year company level sales guidance is unchanged. With respect to our quarterly sales profile, we expect Q2 sales to be between 24% and 25% of our full year guidance midpoint, with our expectation near the middle of that range. From there, we expect accelerating year-over-year growth in the 2nd half of the year. Next, I wanted to take a moment to talk about cash. First quarter transaction adjusted free cash flow was consistent with our expectations and in line with our historical seasonal trends. The decrease compared to the 1st quarter of 2021 reflects timing of collections and disbursements, and our full year guidance is unchanged. After the quarter ended, we made our first cash tax payment of the year, which included the projected effect of current R&D tax law. Our next estimated tax payment is due June 15. We continue to project that cash taxes would be about $1 billion higher for the full year should the current law remain in effect. We remain optimistic that we will see it deferred or eliminated, given the broad bipartisan support for doing so. Our base case assumption for cash flow and P&L continues to be that Section 174 R&D tax law will be changed. If and when that happens, we would expect to file for any appropriate refunds of taxes paid. We also recognize a spike in corporate unallocated costs in that quarter associated with the re-reversal of the deferred state tax asset that had been building year to date. I'd note that we've already incorporated these items in our full year EPS guidance. We remain committed to providing excellent shareholder returns with at least $1.5 billion in share repurchases targeted for this year on top of a healthy competitive dividend. As Kathy mentioned, in aggregate, we expect to return at least 100% of our 2022 transaction adjusted free cash flow to shareholders via dividends and share repurchases. Over time, we expect the cash on our balance sheet at a typical year-end to be roughly $2 billion, which would continue to provide flexibility and liquidity. Our capital deployment strategy also prioritizes investing in our business. We continue to expect capital expenditures for 2022 to be in line with 2021 levels. Later today, we will file an S-4 with the SEC as the final step of the obligor exchange process that we executed last summer on certain debt instruments. Overall, we're pleased with our 1st quarter results and achievements as we continue to build a strong foundation to accelerate growth and deliver on our long-term value creation strategy. With that, we'll open your call up for questions. Thank you, sir. Ladies and gentlemen, if you wish to ask a question, please press star followed by 1 on your touch-tone telephone. Again, press star 1 to ask a question. We ask that you limit yourself to one question and one follow-up. If you have further questions, please reenter the queue. Thank you. Our first question is from the line of Doug Harned with Bernstein. Please go ahead. Good morning. Thank you. You know, Kathy, you talked about aeronautics and how you're looking at the top line, 2022 to 2024. You know, this has been complicated. You've got several mature programs that are set to decline this year. Even F-35 trajectory looks complicated. You know, E-2D appears to be ending in 2024. Beneath that, you've got, you know, high growth on the B-21 ahead. You've got a budget boost for Triton. Can you help us understand the puts and takes here that get you to those revenue expectations for the next few years? Sure, Doug, you did a nice job of outlining the key moving parts in the aero portfolio. Let me start with the mature programs. These are the ones we've been talking about for several years, Global Hawk, Joint STARS, that are in the Air Force plan for retirement, and that is happening in the near term. We have things like what you noted with E-2D. It will reach its program of record quantities over the next several years. We don't see this as an issue in 2023 and 2024. Uh-huh. As we look to 2025 and beyond, that program will be reliant on international sales. I will say that we are building a quite a bit of international interest for E-2D and prosecuting on a pipeline there, but the Navy program of record will reach its full quantity. Then F-35, we look at that as fairly stable over the next couple of years. That is what we've been saying, and I know there's question about the quantity in the budget request and how that impacts the Northrop Grumman quantities. It really doesn't have a material impact because we already were planning to build toward our capacity and working with Lockheed Martin, it appears that that plan is still intact. As you know, there are some opportunities that layer additional sales into the plan over the next several years, B-21 being the most notable. For the first time, the president's budget shows the production lay in starting in 2023, and you can see that that grows significantly in that same timeframe. Lots of puts and takes. As we look forward to 2023, we see those netting out to about flat with where we expect to finish 2022. Largely based on B-21 growth and not having any major headwinds in 2024 from the other programs I just outlined, we see growth in 2024. Well, and just as a follow-up within that, you know, the new budget, there's a big boost for Triton. If I look at unmanned systems, this has been an area where, I mean, at least a while back, the company had talked a lot about differentiation because of the operating architectures that had been developed at Northrop Grumman. You know, we've seen Global Hawk come down, HALE systems. You know, I think the Triton boost is good, but how do you think of growth potential in unmanned systems overall from this point? We still see both the Air Force and the Navy looking at unmanned systems as a key part of their architecture, but these won't be either the highest quantity or the highest priced assets in their fleet. When you think about the overall materiality of unmanned systems in an aeronautics portfolio, whether it be ours or others, it's not gonna be one of the bigger drivers for growth over the next decade. It'll be important, and the capabilities that we have and that we have refined through our work on our HALE platforms as well as some smaller platforms, I think is highly relevant to our positioning for this market in the future. Okay, great. Thank you. Thank you. Our next question is from the line of Robert Stallard with Vertical Research. Your line is open. Thanks so much. Good morning. Good morning, Rob. Kathy, thanks for the additional detail on the B-21 there. I was wondering if we could, I don't know if we can dig in any further on this. You mentioned that the LRIP portion is fixed price and would have been signed a few years ago. I was wondering how this now stands with regard to the inflation that the whole world is dealing with and how you're gonna manage that. Yes. Thanks for the question, because this is an important thing for us to touch on, and it's why we've provided a bit more clarity on what production looks like on the B-21 program as we are approaching that phase. We did bid that quantity. That quantity is not something I can share, but it's a small portion of the overall program of record as part of the initial bid, and that is what constitutes LRIP, and that was bid as fixed price. As we put that bid together, of course, we, at the time, laid in some expectations around growth, inflation, to adjust to this time period. We will continue to look at whether those assumptions still hold. I'll remind you, we're not really gonna be into the production phase for a couple of years in any significant way. We still have a good bit of time, and we expect inflation is gonna modulate, and we're not seeing, based on the assumptions we've made today, a material impact to the program. Part of why Dave shared how we think about the accounting on the program is so that you know we are already looking at those LRIP lots since we are obligated under our initial proposal for those quantities and still expect to be able to produce those within the government target price, which is published and is updated and adjusted for inflation on a regular basis. The last time the Air Force did that was in 2019, a little over $600 million APUC. We continue to look at our own bids and make sure that we see a path to executing those quantities profitably. We reiterated that again today. That's very helpful. Thank you. Thank you. Our next question is from the line of Sheila Kahyaoglu with Jefferies. Please go ahead. Good morning, Kathy, Dave Keffer. Thank you. Since we're on the topic of profitability, Kathy, you laid out some margin expansion targets through 2024. I think you mentioned 12%. Given the growth drivers you have, how are you also thinking about just mix? Again, you touched on inflation, it doesn't seem a big deal, and productivity overall. Mix is becoming less of a factor for us in the next few years. We had talked about our mix being roughly 50% cost type and 50% fixed plus price. That's exactly where we are as we sit here in the 1st quarter. We don't see that varying too much over the next couple of years. Maybe a percentage point higher on cost plus or 2 as we look at the next couple of years. When we see that inflection point to more fixed price is as both B-21 and GBSD start to move into their production phases. You can think of that notionally around the 2025, 2026 timeframe, the middle part of the decade. Even then, we don't see a very large swing in our mix because we still have development work that we'll be bidding and continuing to execute in the pipeline. Mix is less of a factor as we look forward at the company level. Now, I will note that when you get into the segment level, for instance, in space, those drivers are more pronounced, and so we do see a bit more of a mix shift there. You asked about how we think of that in terms of profitability. Mix no longer being a big driver when we think about profitability and cost efficiency and performance being the two big drivers that we are focused on. I talked about that in our strategy. In terms of cost efficiencies, we've put in place a dedicated team at the company level, and we're working all elements of cost to ensure that we're operating as efficiently as possible. Great. Thank you. Thank you. The next one, we have the line of Peter Arment with Baird. Please go ahead. Yes, good morning, Kathy and Dave. Hey, Dave, maybe I could just follow up on kind of the Kathy's comments on the outlook kind of through 2024. You mentioned double-digit growth and free cash flow. How do we think about it from kind of the puts and takes on it, just an overall conversion rate, you know, below 100% currently, and just, you know, what's the right way to think about as we look out through 2024? Sure. Thanks for the question, Peter. No significant changes to our free cash flow outlook from when we described it in some detail a quarter ago. It's not a three-year outlook that we intend to modify on a quarterly basis unless there are material changes. The same drivers exist today. We do see an opportunity over the next few years for us to continue investing appropriately in the business, but to have CapEx come down slightly, especially in 2024, in comparison to 2022 and 2023. That's one of the drivers of free cash flow acceleration. We also have the end of the payroll tax deferral issue that benefited us in 2020 and is an outflow in the following two years, that will benefit 2023 and 2024. On the kind of working capital side. As we've noted, 2019, 2020 were very strong years of working capital efficiency. At this point, we'd put our working capital metrics up against any in the industry. We're very proud of the efficiency of our balance sheet. The next year that we see opportunities for continued enhancement there is largely 2024 due to the timing of some payment expectations in that year, incentive milestones and such. Again, no changes to the outlook there. Those are some of the key moving pieces, relatively stable on the working capital front in 2022 and 2023 before seeing those opportunities in 2024. As we've noted, we do see expansion in the core business, both at the top line and the bottom line, supporting that outlook over the next few years as well. That's great, color. Thanks so much. Thank you. Our next question is from the line of Ron Epstein with Bank of America. Your line is now open. Yeah. Hey, good morning. Kathy, what have you seen in international markets? I mean, since the events in the Ukraine started to play out, we've heard from several NATO members that they're gonna up their defense spending to, you know, 2% as a floor potentially, right? I mean, Germany kind of doubled their defense budget over a weekend. What have you seen on the international front in customer interest there? I have a follow on after that. Sure, Ron. Well, we've definitely seen interest pick up across Europe, and we've been engaging with customers there to understand their needs and timelines. Of course, we haven't seen a dramatic shift in immediate spending plans. Part of what I know each of the countries is thinking their way through is what the need is and then what their request will be and what their reliance on U.S. product will be. We expect that to be more of a 2023, 2024 timeframe to get clarity and start to see real award opportunities. In the meantime, we are providing a good deal of support to Ukraine just in the sense of our assets being used either by the U.S. or our NATO partners to provide surveillance, intelligence, and monitoring of the situation, and as well providing some additional capabilities into Poland. Got it. Then kind of the follow on there, more domestically focused. Do you expect you know, the nuclear posture review, I guess, isn't out yet and some changes in that and what that could mean for GBSD and some of the other programs you're on, in you know, in the wake of what's gone on in Eastern Europe? Well, even though the nuclear posture review hasn't been fully released, there has been an executive summary provided, and the president has supported all three legs of the triad in the nuclear posture review. As I was spending time on the Hill just this week, I still see very strong bipartisan support for all three legs of the triad. To your point, I think that support has even grown in the last two months as a result of Russia's invasion of Ukraine and a recognition of the importance of the triad to contain that conflict. We see that continuing to be a tailwind to the modernization programs that are underway. Great. Thank you very much. Thank you. The next one, we have the line of Mr. David Strauss with Barclays. Please go ahead. Thanks. Good morning. Good morning. Kathy, you talked about the upside in the fiscal 2022 enacted budget, the proposed 2023 budgets. Is there any way you can quantify what that might mean to your, you know, revenue growth trajectory in, you know, 2023 and 2024? I know it takes time to come through, but I guess relative to whatever you were thinking maybe 6 to 12 months ago, I mean, does this add 100 basis points, 200 basis point? Any sort of quantification you can give? Yeah, David, as I mentioned in my remarks, we do expect our revenue growth to accelerate into 2023. Right now, we see that in line with 2023 consensus. It's really early, even in this year, but we expect 2022 to be in low single-digit growth as we've outlined in our guide, and with the growth rate accelerating in the second half. We do expect that momentum that we see in the 2nd half of this year to carry into 2023. Of course, the 2023 President's budget is a good indication that demand for our products is holding up extremely well. The one thing I would note is we're really mindful of the supply side challenges that continue. Certainly we saw those most notably at the beginning of this year, and they have, in our case, really moderated as we looked at March and April performance. We're keeping a close eye on everything from the tight labor market to inflation and COVID-related headwinds that could slow down our growth rate, even though we have strong budget support for our program. You know, I'd sum all that up by saying there's reason for optimism, and we have optimism, but it's cautious optimism, and it's a bit early in the year for me to try to put a number on our 2023 growth rate given all of those puts and takes. We'll certainly keep you updated on each quarterly call on our outlook for next year. Okay. That's helpful color. As a follow-up, you know, you offered a little bit more detail on B-21, so I thought I would ask this. You know, it looks like in the budget, there's about a $2 billion funding increase in fiscal 2023 versus the rate that you know, the levels that we've seen over the last several years. I mean, is that the kind of revenue growth kind of increase we're looking at at B-21 looking out over the course of the next couple of years? Well, the government is looking at layering production on top of EMD. What you can see in the FYDP is a pretty stark jump in 2023 as production gets layered in. Of course, keep in mind all of those dollars won't be spent in calendar year 2023. There's not as pronounced a step up after that, but production funding still remains healthy as EMD starts to come down. That's the profile we would typically see on a program like this. It does project robust funding for B-21, through the decade. That is what we are anticipating as well. All right. Thanks very much. Thank you. The next one, we have the line of Seth Seifman with J.P. Morgan. Your line is open. Thanks very much. Good morning. Just starting off with a quick clarification earlier about the move to the 12% segment margin. When you talked about the mix change in space, Kathy, I assume that was getting more towards cost plus as when you work and GBSD grows? You know, if so, is that a headwind? If that's the case, what are the segments where you know you expect to see margin expansion? Yes. I should have been more clear, and thanks for pointing that out. We do expect more cost plus work in space over the next couple of years as GBSD continues to grow. We're also executing on Next Generation Interceptor, which is a big growth driver, and then some assorted classified efforts that are in the development phase and continuing to scale as well. In terms of other businesses that are moving in the opposite direction, so stronger margin rates, Aeronautics is one that we see having stronger margin rates. You already see that in our guide for this year being higher than last, and we anticipate that we'll continue to see strong and healthy margin rates there. Defense and Mission Systems already perform at very strong margin rates, so we expect that to continue. The real offset that we see is space and aero. I will also say that in space, we've seen the bulk of that pressure already because keep in mind, while GBSD will continue to grow in the EMD phase, not to the extent that we've seen, it went from $200 million a year to over $2 billion. Over this time period, the majority of that will already have happened through the 2022 period. Great. Thank you. Just a quick follow-up on rocket motors and launch. You know, first of all, it seems like there's some you know, friction in the supply chain for rocket motors based on some comments this past week. I assume that's not Northrop Grumman, but do you see any opportunity to take share as a result? Secondly, is there any supply chain or other friction for the Northrop space business as a result of disruption in the space supply chain from the war in Ukraine? Yeah. There's a lot to unpack there. Let me start with commentary around rocket motor providers. We are performing well across the board for our primes, and we do not believe that any comments that were made relate to Northrop Grumman performance. We continue to offer our capability to any who would like to have our rocket motors, and we're gonna continue to do that. We're investing in that business to make sure that we are a good and stable performer and provider. In terms of our exposure to Ukraine and Russian rocket motors, we do have some exposure on our CRS contracts. This is where through our Antares launch vehicle, we procure rocket motors from Russia and cores from Ukraine. We have what we need for the next two launches, and there isn't immediate disruption. We have a plan in place that we could use other sources if needed beyond those two launches. Of course, it's our preference to keep the relationship intact between Russia and the U.S. around the space station, and that's what these rocket motors are used for, to take cargo to the International Space Station. We are working closely with NASA to make sure we're following the U.S. government lead in that case. Great. Thank you very much. Thank you. The next one, we have the line of Kristine Liwag with Morgan Stanley. Thanks. Good morning, guys. Kathy, taking a 30,000-foot view, I mean, the outlook for defense in the U.S. and our allies is positive. You're on 2 legs of a nuclear triad, and there's clear bipartisan support for these programs. Free cash flow is stable. I mean, when you take a step back, the company's future is pretty visible here. With the FTC blocking the Lockheed Aerojet Rocketdyne deal, large M&A seems to be off the table for now. The company, so Northrop had bought back about half its shares outstanding in the past 15 years. If the priority is still buybacks, at some point in the distant future, there may not be any more stock to buy. How do you think about long-term uses of cash, especially as free cash flow remains positive and you've got so much visibility? Well, it's an excellent strategic question, Kristine, and one that we spend a good deal of time thinking about. I will say our first priority is investing in the business. You have seen us invest at an elevated level, both CapEx as well as our R&D as a percentage of sales over the last several years, and we are not backing away from that core part of our strategy. I noted when I laid out our strategic plan that technology leadership and innovation is core to how we have attained the position that we're in, and it, in my view, will be the most important factor to retaining that position of strength. We will continue to invest in our business. With that said, strong cash flows, and as you noted, a strong outlook for growth to fuel those cash flows, gives us a lot of optionality in our capital deployment strategy. We do believe that at some point, M&A may come back on the table, but for the immediate term, as you said, large needle-moving M&A is likely not to be a strategy that we can execute. We are looking at returning capital to our shareholders at this important time through a competitive dividend and share buyback. We do tend to prefer share repurchase in this environment just to give us a little more flexibility as environmental factors change. Share repurchase is still a core part of our strategy, but it's by no means the only method that we believe we create value for shareholders, and we stay focused on investing in our company. Great. Thank you very much. Thank you. The next one, we have the line of Cai von Rumohr with Cowen. Please go ahead. Yes, thanks so much. I recall on the Q4 call that you talked about book-to-bill being, I believe, 1 or a little below 1 this year. You started out strong, particularly in space. Could you tell us how has that changed? Is there any thought you could be above 1, and how should we think about all the areas? 'Cause space looks like it's on its way to being well above 1. Yes, Cai. We do not expect book-to-bill to be over 1 this year. It is off to a stronger start than we expected, and so I will be clear, it is likely to be higher than we anticipated coming into the year, but still don't see it crossing the 1.0 threshold. Space is a key driver, as you noted, of that strength. We see broad strength in bookings this year beyond what we had expected, some nice competitive wins in our defense systems business and our aero business also having strong awards, particularly as we look to book lot 15 aggregate demand on F-35 this year. What we look at, and I've mentioned this on prior calls, is a multiyear book-to-bill. Having a portfolio where we've brought in some very sizable long-term awards like B-21 and GBSD, we have a backward-looking book-to-bill over 1.2 aggregate for the last three years. We don't expect to have that kind of performance in book-to-bill every year, but we still expect our, you know, four-year average, once we take 2022 into consideration, to be well over 1.1. Sustaining the backlog growth that we need to fuel the business growth we anticipate. Very good. Sort of as a follow-up, we have a strong FY 2022 appropriation. We have a big 2023 request, which everyone expects to be plussed up by Congress. Any color as you think about going forward, you know, is that book-to-bill likely to be? Is your best guess that it goes up over the next couple of years? Any color you could provide would be great. You know, I would just say that we see an environment where we can keep that multiyear average well above one. Terrific. Thank you very much. Thank you. Thank you. The next one, we have the line of Myles Walton with UBS. Please go ahead. Thanks. Good morning. First one, just a clarification maybe for Dave. The 100% free cash flow return to investors in 2022, is that before the amortization tax impact, or how does that work? Thanks for the clarification, Myles. That is independent of the Section 174 determination. We intend to return at least 100% of free cash flow in either case, whether it is deferred or not. If it is deferred, would you return the guidance number that is not adjusted for the tax, so that is $2.5-$2.8, or would you just be signing up to 100%? That's correct. Okay. That's correct. We have, you know, roughly a billion-dollar run rate on the dividend side. We've committed to $1.5 billion of share repurchase. Great. Okay. Great. Okay. You can take from that that there would be incremental potential if Section 174 were deferred. Okay, thanks. Kathy, in terms of supply chain issues, everybody sees something. Are you seeing it within defense systems as it relates to some of the munitions? Is that sort of where you might be seeing it? Or it doesn't look like you're being terribly affected or you're forecasting it better than most. Maybe just give some color there. I wouldn't point to any one part of our business where we are seeing dramatic impacts. Aero, where we have high volume line in F-35, we saw it last year, and we talked about that quite clearly. As we got into the 1st quarter of this year and the plan that we laid in place, we are meeting that plan on F-35, but there was impact, and we still are working to address that impact on the F-35. Other than that, there's really no single program or area of the business that I point to, just a little bit of sluggish attendance coming into this year due to COVID cases, some light impacts on electronic supply, both to mission systems and defense systems, but nothing material enough to really call out individually. Okay. Thank you. Thank you. The next one, we have the line of Robert Spingarn with Melius Research. Good morning. You've given us really great incremental detail on B-21, but I just wanted to perhaps flesh this out a little bit further, if you can, and talk about the revenue cadence with EMD. You know, when EMD and LRIP overlap, are we gonna have a peak revenue year, or does the LRIP grow enough and the EMD is small enough that we should see growth through the rest of the decade? Well, I would point you to the FYDP. The budget does not show a peak revenue year through fiscal year 2027. I can't provide you much more than that because quantities and the like are classified. If you just look at what the administration submitted, now, of course, this has to go through appropriations, and it's always subject to annual revision as well. What was submitted this year for the five-year outlook does not show a peak year through 2027. Does that help? Okay. Just based on what you talked about with profitability and relative to EMD margins, would it be fair to assume that the profit cadence is not the same as the revenue cadence? In other words, the margin mix, the margins would drop at some point because of the switch in contract. Kathy, as a follow-up to that, do you think possibly going forward, we'll see less fixed price development on new contracts? Just not so much focused on B-21, but what we're seeing elsewhere in the industry, you know, across the industry on, you know, all the charges on a lot of these programs. I can't really comment on B-21 mix of EMD and production rate. Let me go straight to your broader strategic question, which is an important one on whether the government will likely shift away from fixed price development. I do believe that there will be a shift away, and I think we've already seen that to a large degree. Frankly, B-21, while we were asked to bid fixed price LRIP, we did not have a fixed price development phase of that program. There's a very important distinction in my mind between production, even early stages of production at fixed price and the development phase being at fixed price. Of course, GBSD is a cost plus development program. That's why I suggest that we are already seeing a shift on major weapons systems development to a cost plus development phase, which in my mind has always been the right approach for the government to contract for development. By definition, there is inherent technology development and risk associated with that phase, and you want to be able to apply resources to reduce that risk into production. If the government doesn't have that latitude because they are set at fixed price, then the contractor has to do that often out of their own profit, which is really tough decisions to make. I think it impacts the ability then for the program to be successful over the full life cycle. Of course, the majority of the government's costs are in the production and sustainment phases of the life cycle, not development. I think the government recognizes this, and it's why we've seen a shift away from fixed price development on these large weapon systems. Now, there still will be some fixed price development in the system, but I don't see it being a material driver. Thank you very much. Thank you. Our next question is from the line of George Shapiro with Shapiro Research. Yes, good morning. Dave, I wanted to ask, unbilled receivables were up, like, $600 million in the quarter. Now, does that reflect the F-35 work that you've done but you can't show as revenues yet until the lot 15-17 contract is signed? If so, then that $600 million hurt 1st quarter revenues and will help sometime later in the year. If you just comment on that. Thanks for the question, George. No is the short answer. The unbilled receivable growth is not directly related to F-35 or any one other program in the portfolio. Rather, I would point you to the common seasonality that we tend to see in the 1st quarter, given the timing of receipts in that case, and more broadly speaking about free cash flow seasonality, the timing of payments as well. We tend to have an outflow in the 1 st quarter of the year, and this year's is almost exactly in line with the average of the last four or five years. No significant single items there. On F-35, the P&L, you know, sales and other lines were not affected by the timing of Contract negotiations to your point, nor would they be anticipated to be in a meaningful way through the end of this year. Because I noticed, I mean, the unbilled receivables were up, like, about double what they were in last year's 1st quarter. That's part of the reason for the question. No, I appreciate the question. Last year's 1st quarter was actually the anomaly there, where we had a stronger free cash flow result and working capital change in the 1st quarter of the year than we had in any of the prior 5 or 6. This year is more in line with history. It's a very good point. Last year was the unusual one. Okay. Just one for you, Kathy. I mean, defense looks like it's gonna be the weaker business going forward. It's one of your smaller businesses. You consider divestiture of any pieces of that business? Well, George, as you know, we did look at the entirety of our portfolio and divested the IT services business that was in defense. We were very intentional and thoughtful about that. We looked at the rest of the portfolio and feel that it has nice synergy with our business, and we do see opportunity to grow that business. Just a little bit of reset here that business is experiencing. The weapons portfolio continues to grow and we have nice synergy between the aircraft sustainment and modernization and our aeronautics business. Our IBCS portfolio sits in there, and we absolutely, as that program now is maturing and we've won full rate production, see growth there. We're happy with the portfolio. A little bit of transition to growth that we're still working our way through here. No, nothing else that I would look to divest in that portfolio right now. Okay, thanks very much. Thank you. The next one, we have the line of Richard Safran with Seaport Research. Please go ahead. Kathy, Dave, Todd, good morning. A lot's been asked already, I have a general question regarding one of Dave's opening remarks. You know, with respect to major platforms and systems, you know, you've rapidly gained a lot of share, a number of programs in development. You've been talking about it all morning. Now, historically, you know, one problem that comes along with that is having to use the A team, then the B team, et cetera, and all the while maintaining execution. Which by the way, you know, just judging from the incentive fee on the B-21 is actually pretty darn good. Now, there are still opportunities out there, so my question is Northrop's plate full? Dave, you mentioned labor. Do both of you feel you have sufficient resources to support, you know, bringing on additional programs and still maintain the current level of execution? Thanks. Thanks for the questions. Certainly those are topics and priorities that are front of mind for us these days. You heard both Kathy and I comment in the opening remarks about the criticality of execution and labor. Our people, our resources, you know, the hearts and minds of this company are at the center of our execution capability. To your point, we've demonstrated ourselves well over the last few years of execution efficiency, of maintaining cost and schedule on many key programs. We devote a lot of resources to that. I wouldn't say that we're at a point where we're at capacity where we couldn't take on additional work. We're certainly devoting all potential resources to bringing additional capacity on board and have ramped significantly over the last few years, both in headcount and key supplier relationships. That's certainly a priority for us. Certainly, we're spending a lot of time in that area today. We're eager to continue to meet the key demands of our customers and feel that we're well aligned with those areas of demand in the budget outlook as we've described on the call. That's probably. Okay. A good place to leave it. I think we are blessed to have a lot of A teams. Thanks everybody for calling in today and listening to our call. As always, we wish you well and look forward to talking to you again in July. Take care. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation.