Good day, ladies and gentlemen. Welcome to the Northrop Grumman third quarter 2022 conference call. Today's call is being recorded. My name is Michelle, and I will be your operator today. At this time, all participants are in a listen-only mode. I would like to turn the call over to your host, Mr. Todd Ernst, Treasurer and Vice President, Investor Relations. Mr. Ernst, please proceed. Thanks, Michelle. Good morning, everyone, and welcome to Northrop Grumman's third quarter 2022 conference call. We'll refer to a PowerPoint presentation that is posted on our IR webpage this morning. Before we start, matters discussed on today's call, including guidance and outlooks for 2022 and beyond, 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. Thank you for joining us. The Northrop Grumman team delivered another quarter of solid performance. Our top line returned to growth with continued strong execution. Demand for our products remained robust, with a book-to-bill ratio of near one, including a number of key awards in our restricted and missile defense portfolios. We remain on track to deliver strong results for the year, with growth expected to accelerate as we look toward next year. Taking a step back for a moment from the quarter, I'd like to start with an update on the global security environment. Earlier this month, the Biden administration released its full version of the National Security Strategy, which is used as a guide for policy and budget decisions. The strategy spotlights the dynamic and challenging threat landscape around the world and stresses the importance of working with allies, maintaining a strong industrial base, and continuing to invest in advanced technology. It also reinforces the triad as a top priority. It's clear that Northrop Grumman's portfolio continues to be extremely well-aligned with the requirements outlined in the National Security Strategy. This is reflected in the administration's fiscal year 2023 budget request, which showed alignment with these priorities and strong support for many of our key programs. Throughout this summer, congressional committees marked up the administration's defense budget request, generally increasing the proposed level of funding with the intent of strengthening the country's defense posture and addressing the impacts of inflation. Based on these additions, we believe that the ultimate fiscal year 2023-based defense budget will be higher than the president's budget request. As you know, we started off this fiscal year in another continuing resolution, which currently extends to mid-December, and this is factored into our guidance. We are confident in our program funding positions and hopeful that the annual budget will be passed by year-end. Meanwhile, global commitments to invest in defense and national security capability continue. In Europe, we've seen increased demand for our integrated air and missile defense solutions and precision weapons and advanced ammunition. In the Asia-Pacific region, we've seen similar interest in air and missile defense, as well as maritime ISR, advanced radar, and other mission systems. All this points to a strong demand environment for Northrop Grumman, and we're doing our part by investing in solutions and capacity to address many of our customers' most pressing needs. This year, we expect to invest over $2.5 billion in CapEx and research and development. As a result, we're winning new business and bolstering our backlog for long-term growth. Our backlog has increased year to date in each of our four segments and is up nearly 5% overall. Given this, we now expect that our full-year 2022 book-to-bill ratio will be over one, a significant improvement from where we started the year. This increase is attributed not only to the robust defense budget environment, but also a strong competitive win rate. That said, we recognize that our industry and many others are experiencing macroeconomic volatility that we haven't seen in decades. Inflation remains at 40-year highs, lead times have been extended in certain areas of our supply chain, and the labor market shows signs of easing, but it remains tight for critical skills. Our team is tackling these challenges, keeping a focus on our people and performance and driving efficiencies across the business. In the labor market, we've driven improvements in hiring and retention over the past several months, which Dave will describe in more detail. This was instrumental in our return to growth in the third quarter, and it's worth noting that this favorable trend has continued into the fourth quarter as well. This supports our full year 2022 guidance and our outlook for accelerated sales in 2023. In the supply chain, we continue to experience disruptions in delayed deliveries in certain areas of our business, which they have been a headwind to growth. It's a risk that we're closely monitoring and we're working with our suppliers to mitigate. We do anticipate that supply chain challenges will continue in 2023, and this is now reflected into our 2023 outlook. Elevated inflation levels in both labor and supply chain have persisted more than expected as we came into this year. To address this, we are implementing operational efficiencies and working with many of our customers on program funding and other contract actions to support the health of the defense industrial base. We believe this balanced approach is the best solution to allow continued investment in the capabilities that support our customers' mission. With that said, we see these as temporal challenges and remain committed to driving our segment margin rates higher over time. Turning now to the execution of our long-term strategy. One of the key elements of our strategy is a relentless focus on performance. That's why I was particularly pleased to receive the 2022 Deming Cup for Operational Excellence on behalf of Northrop Grumman earlier this week. The award recognizes our achievements and leadership in creating a culture of operational excellence and continuous improvement across the company. Our customers recognize this commitment as well, and have entrusted us to deliver some of the most technologically advanced next-generation systems and solutions. The B-21 Raider is one such example, and we're excited to unveil the aircraft to the public on December second. The B-21's outstanding performance can be directly tied to our company's investment in digital tools and facilities, and the incredible U.S. Air Force and Northrop Grumman team who are developing this sixth-generation platform. The program continues to progress through testing in preparation for first flight in 2023. Last month, we announced a data-sharing agreement on B-21, enhancing data access and collaboration across the program, including the launch of a shared environment for the B-21 digital twin. This data sharing agreement enhances our partnership with the Air Force and further demonstrates our digital maturity on the program. Our mission system solutions are another area of our portfolio where innovation is critical to success, where the fast pace of threats and new technologies is driving the need for platforms and sensors to be able to connect with one another, share data, and be part of a broader family of systems. In this growing market, we're building on our strong position in sensors, secure communications, and networking to compete for and win new opportunities. For example, last month, we were selected to be a member of the Air Force's ABMS Digital Infrastructure Consortium. We're also seeing interest from global customers, including the Australian Defence Force, where we recently demonstrated a product solution with robust C2 functionality to link sensors and effectors across domains. Another significant area of focus for the U.S. and our allies is the modernization of missile defense solutions to address current and future missile threats. We continue to strengthen our position in this area with a $1.3 billion Ground-Based Midcourse Defense weapon system award in the third quarter. This award builds on our missile defense portfolio and helps our customers defend against intermediate and intercontinental missile attacks. Turning to our weapons business. I'm pleased to share that we've now delivered more than 100,000 precision guidance kits to the U.S. Army. These projectiles provide enhanced precision to artillery units and come embedded with built-in safety features. We've exceeded requirements on both accuracy and reliability with these upgrades. One last area that I'll highlight is hypersonics, where we continue to win new competitive business. Last month, the Air Force selected our Raytheon and Northrop Grumman team to develop the Hypersonic Attack Cruise Missile, also known as HACM. HACM builds on our scramjet propulsion technology and ushers in a new era of faster, more survivable weapons. This program is one of several hypersonic opportunities within our portfolio. We're approaching this market as both a prime and a sub, bringing our expertise in high-speed propulsion, survivable navigation and targeting capabilities, and systems integration to multiple solutions. These are just a few examples of markets where we continue to grow our business by delivering the products and solutions that our customers want and need, while also building long-term value for our shareholders. Now I'll turn it over to Dave, who'll provide more color on our Q3 results and touch on our expectations for 2023. Dave? Okay. Thanks, Kathy, and good morning, everyone. As you heard from Kathy, we delivered solid results across all key metrics in Q3. We're reaching an inflection point in our sales growth, driven by the strength in the demand environment, our new business performance, and our success in hiring and retaining employees. We had another strong quarter for bookings with roughly $8.7 billion in awards. This contributed to a year-to-date book-to-bill ratio of 1.14 and an increase in our full-year book-to-bill expectations. Our Q3 top-line results of roughly $9 billion were up sequentially from Q2 and up about 3% compared with the third quarter of 2021. This acceleration has been driven by our positive hiring trends. We added nearly 1,000 net new employees in Q2, and we added an additional 2,700+ people in Q3. With continued positive hiring and retention results, we've improved our labor-driven sales visibility, so the supply base is now the key to achieving our full-year sales outlook. We're seeing temporal challenges in the supply chain, as are most others, including longer lead times and higher costs in some areas. Our suppliers are a critical element of the defense industrial base. We're closely monitoring small businesses who are the most vulnerable to the challenges of this macroeconomic environment, particularly inflation. We're encouraged by recent comments from Congress on this topic, and we're actively working with our customers to help mitigate inflationary effects on our contracts, including those being felt by our suppliers. Our program execution remained solid in the quarter, with segment margins of 11.2%, reflecting lower net EAC adjustments, due in part to the inflationary pressures that we've noted. As costs have remained elevated, we've captured our latest estimates of inflation and opportunities to mitigate it in our EACs. This had a downward effect on our margins in Q3. Year-to-date, our segment margins are 11.7%, and we continue to expect the full year rate to be in the range of 11.7%-11.9%. Turning to earnings per share, our diluted EPS in the quarter were $5.89. The year-over-year earnings decline was driven by non-operational factors, including lower net pension income, unfavorable returns in our marketable securities, and an insurance settlement for $60 million that was recognized in the third quarter of 2021. Together, these items represented roughly $0.85 of year-over-year EPS headwinds, but as I've pointed out, our businesses continue to execute very well in a complex environment. In terms of cash, we generated outstanding operational cash flows in the third quarter of over $1.3 billion, and we expect Q4 to be even better. This is consistent with our historical pattern of collections and disbursements. In the quarter, we made our third cash tax payment associated with the R&D amortization law of approximately $220 million, and we continue to expect roughly $1 billion in cash tax payments related to R&D for the full year. Through the end of Q3, we completed over $1 billion in share repurchases, and we're on track for an additional $500 million in the fourth quarter. Now moving to 2022 guidance, we have not changed our sales, earnings, or cash outlooks. The foundation for our strong financial performance starts with the continued demand we're seeing for our products. We're increasing our expectation for book-to-bill again this quarter to greater than 1x, which is a significant improvement from our original expectation. Our team has done an outstanding job of serving as a trusted partner to our customers in winning new business. We're maintaining our original guidance for the top line, and based on year-to-date results, we continue to expect our full year sales to be around the low end of the range, consistent with the trends we described last quarter. Our full year outlook implies Q4 sales of roughly $9.6 billion, which represents excellent sequential and year-over-year growth. As we've noted throughout the year, we anticipate that Q4 will include a strong volume of material receipts across each of our four segments. We're also maintaining our guidance for the bottom line, including segment operating margin and earnings per share. Given that 2022 sales volume will be around the low end of the range, we expect EPS to be near the low end of its range also. Within our earnings outlook, we're accounting for continued year-to-date pressure on our marketable securities portfolio, offset by an anticipated federal tax rate benefit in Q4. Our marketable securities are down nearly $100 million in 2022, which represents about $0.50 of EPS pressure. On the income tax line, we've lowered our effective rate expectation from 17%- 15.5%, reflecting progress in resolving matters related to historical filings in one of our businesses. We currently expect those matters to be concluded in Q4, resulting in about $0.50 of EPS benefit that offsets the marketable securities pressure. It's also possible that the tax item could be resolved in Q1, which would shift the benefit from 2022 into 2023. Moving to cash flows. While we remain optimistic that Congress will repeal or defer the R&D amortization law, we have focused our free cash flow guidance this year on the current tax law scenario, which is unchanged from last quarter. If the law is deferred or repealed in Q4, we would expect a one-time spike in state taxes recognized in corporate unallocated expense, as well as a cash refund in 2023. Operationally, we're very pleased with the progress we made in cash flows in Q3, bolstering our confidence in the full year outlook. Next, I'd like to take a few moments to describe the outlook for our pension plans. Most importantly, our current funded status remains strong and roughly unchanged year-to-date, and the cash flow implications of CAS changes over the next several years provide a modest benefit. The GAAP income statement effects I'll describe today are non-cash in nature. Year to date, our plans have experienced double-digit negative returns, and discount rates have risen nearly 250 basis points. This combination of results will affect our GAAP earnings in future years, so I'd like to take a moment to discuss what our 2023 net pension income would look like under various scenarios. In January, we provided a sensitivity table in our earnings call deck related to changes in discount rates and asset returns on our non-service FAS pension income. Based on the high level of volatility that pension funds have experienced so far this year, I wanted to provide a grid of potential outcomes that also incorporates FAS service expense and CAS costs, which can be found on slide nine of our presentation today. To help calibrate you to this slide, we've highlighted the 2023 pension estimates provided in January, which were based on expected 2022 asset returns of 7.5% and a year-end discount rate of roughly 3%. Given the year-to-date asset returns and discount rates at the end of Q3, we would expect significantly lower net FAS pension income in 2023, currently in the range of over $900 million less than our previous projection. As I've described, this lower net FAS pension income is non-cash in nature. Over time, higher CAS recoveries would lead to modestly higher cash flow related to our pension. I also wanted to provide additional insights on our high-level financial outlook for 2023. Note that this is predicated on our current expectations regarding the macro environment. As Kathy said, we expect strong demand to continue into 2023. In terms of hiring and retention trends, as I've now shared a few times, we've seen improvements since the beginning of 2022, and we anticipate that this will remain consistent next year. In the supply chain, where the environment has remained challenging with various delays and disruptions, we project that those challenges will continue throughout 2023. With regard to inflation, which has been more persistent in 2022 than originally expected, our projections incorporate gradual easing based on the latest industry, labor, and material indices. As Kathy described, we continue to expect our sales growth to accelerate next year, building on the momentum we've driven in 2022. In total, we expect sales growth in the 4%-5% range. Based on our low $36 billion expectation for 2022, that would put us in a high $37 billion range for 2023. Within our segments, we continue to expect space to remain our fastest-growing business, with sales growing by another $1 billion over 2022. We expect strong sales growth in MS in the mid-single-digit range, and we anticipate sales at AS and DS to be flattish compared with their latest 2022 levels. We also expect to generate solid segment margin rates. As I've described, net EAC improvements are likely to be lighter than usual until inflation begins to normalize. We'd expect our segment operating margin, which would otherwise have been projected in the high 11% range next year, to be between the mid-11% and the high 11%. With regard to earnings, pension income will be a non-cash headwind, as quantified on slide nine. Excluding pension, we expect our earnings per share to grow faster than sales in 2023, driven by continued strong execution and a lower share count. We expect our tax rate to return to its more normal level of around 17% next year. We continue to generate excellent cash flows with our prior three-year cash outlook intact and another year of free cash flow growth expected in 2025. We anticipate modest increases to our prior CapEx projections based on the strength of this year's new business wins and backlog growth, offset by corresponding improvements in operating cash flows. We're very proud of the performance we've delivered this year in a continued challenging environment, and we're pleased with our projected growth acceleration in the second half of 2022 and in 2023. With our multiyear cash flow outlook intact, we're looking forward to continuing to create value for our customers and shareholders. With that, we're ready for your questions. Thank you. To ask a question, you will need to press star one one on your telephone. We ask that you please limit yourself to one question and one follow-up question. Please stand by while we compile the Q&A roster. Our first question comes from the line of Douglas Harned with Bernstein. Your line is open. Please go ahead. Good morning. Thank you. You know, you talked about supply chain here, and it's obviously an issue sort of across the board. Is it possible to look at the constraints you've had from the supply chain and give us a sense of what the quarter and the year might have looked like had you not had those constraints? You know, we're just trying to figure out what sort of normal would be and how much is being held back. Doug, good morning, and thanks for the question. Supply chain certainly is central to not only the remainder of this year, but next. Let me try to characterize, not particularly in numerical terms, but in more less quantitative terms, what we have been seeing. It is in particular areas of the supply chain, so it is not widespread, but it's in areas that are important as components to our development programs in particular, where we have seen delays that then result in impacts to those development efforts. It's a timing of sales, not necessarily a deferment of sales, if you will. This year, I would point to our 2022 original guidance, which was our expectations with either minimal or no supply chain disruption. Because when we put that plan together late last year, we were not anticipating the level of supply chain disruption nor the duration of supply chain disruption that we've experienced. So throughout the year, we've pointed you now to the low end of our sales guidance. I would say the best way to think quantitatively about the impact is we would have expected to be on the high end of that guidance had we not experienced these supply chain disruptions. Now, I do wanna point out, and we said it in the call, that we expect these challenges to persist into 2023. When I talk about timing, we do not expect all of what we experienced in 2022 to recover by the end of 2023. We expect these issues to be a bit sticky for the next year. We do expect them to resolve in the 18-24 month time frame. Well, and as you go into 2023, you said in the outlook that, you know, Space is expected to be up by about $1 billion, but flat at Aeronautics. Can you help us understand what the drivers are in those two units that lead to somewhat different results? Obviously, you have huge backlogs in Space, but just trying to understand those two trajectories. Sure, Doug, I'm happy to shed some light on that. You know, in both cases, those trends are consistent with what we've communicated previously, and the drivers are therefore consistent as well. Starting in AS, we project a stable 2023, given that there is anticipated growth in programs including B-21. Then offset by modest declines in programs like the legacy programs in the HALE portfolio, Joint STARS, et cetera. Modest decline in F/A-18 likely over the next couple of years. Again, continuations of trends we've been talking about for a while, and we continue to anticipate a growth recovery in 2024 for that business. In space, the expansion and the growth opportunity is broad-based across multiple orbits, across multiple mission areas, from missile tracking to ISR, growth in our supportive launch capabilities. It's really an outstanding segment of performance for us recently. On the growth side, you see a growing market, but growth also in our market share. Of course, GBSD is a contributor to that growth, but by no means the only one. Each of our divisions in that business is growing at a nice clip. We're really pleased to be able to continue that outlook in 2023. Great. Thank you. Thank you. One moment for our next question. Our next question comes from the line of Ronald Epstein with Bank of America. Your line is open. Please go ahead. Yeah, good morning. Maybe just a question on capital deployment. You're gonna be generating a lot of cash, right? You pointed that out. What's your plans to do with that into next year? Is it just share buybacks or is there some selected M&A or how are you thinking about that? Our plans for capital deployment are still aligned with what we've been saying all year, a balanced approach to capital deployment, still investing in supporting the growth of the business that we've experienced, which as we said, has been even more robust than we anticipated coming into this year, not just because demand is higher, but we have been quite successful in competitive wins. We'll continue to invest to be able to deliver that business successfully and generate the resulting earnings and cash flows from it. We also look at our dividends as a significant part of our capital deployment strategy. We have been consistently raising the dividends this year, another 10% increase, and we will think favorably into next year about the dividend as a mechanism for returning capital to shareholders. The remaining piece is share repurchase, which I know was the core part of your question. This year, we are on track for $1.5 billion of share repurchase. We plan to complete that. We do expect that to be slightly higher next year. As we look at our plans for capital deployment, we will share those with you in more specificity and what our guidance is for share count in January. Safe to say, we are still of the mindset of returning 100% of our free cash flow to shareholders. Three elements are the major ways in which we'll do that in 2023. Got it. One follow-on, if I can. On the supply chain stuff that's been impacting the whole industry, are you seeing DoD doing anything to help resolve it? Because some of the issues it seems like you're running into, everybody's running into. Is DoD doing anything to help the industry? Yes, they are. I applaud the work that DoD is doing. I think they, and we would agree that we need to continue to do more, particularly for medium and small businesses who find themselves lower in the supply chain, and even in circumstances where primes may have a cost-plus contract, they often have fixed prices that we need to adjust. The government working with the primes to address that impact on small businesses, I outlined in my comments earlier on this call, is going to be important for the health of the defense industrial base. We, as industry, are doing our part, certainly looking at those investments and managing some of our cash into the supply chain in ways that we have not historically done for the benefit of keeping those businesses healthy. We've been doing that now for the last several years, really since the pandemic began, and I expect we will continue to do that. There are impacts, though, to large business as well. We are all in this together, as you point out, and we have work ahead of us. I am encouraged by Congress's comments that they expect that the 2023 budget will start to address some of these challenges, and I'm hopeful that as the administration puts their 2024 budget together, they will continue on the path to identifying funding that would allow us to keep the defense industrial base healthy. Got it. Thank you. Thank you. One moment for our next question. Our next question is gonna come from the line of Myles Walton with Wolfe Research. Your line is open. Please go ahead. Thanks so much. Dave or Kathy, I'm not sure which. The fourth quarter recovery, I think you pointed out, was gonna come from receipt or timing of material receipts. I'm just curious, does that put you more at risk from supplier performance than your own internal performance as you go into the fourth quarter? Is that the way to think about it? Myles, it's Dave, I'm happy to address that one. I think the way we look at it is the really strong headcount growth that we've had over the last quarter in particular, but the last six months broadly, adding, you know, approximately 4% to our overall employee count or over 3,500 employees, really shores up the labor visibility for labor-driven sales for 2022 and sets us off on a good track for 2023. To your point, that means the supply base and its performance are key to the fourth quarter. With that said, we've had, you know, a year now of these more challenged supply chain conditions to become accustomed to where there are constraints and where there are not. You know, I give a lot of credit to our supply chain folks and our program teams who are managing and mitigating those challenges every day. We think we've got that captured in our outlook for Q4. The pressures to date have pushed us toward the low end of the sales range for the full year, and we think that's you know, appropriate caution as a result of the supply chain conditions, but feel that we've bounded it well in that range, as we think about Q4 and the full year now. Okay. Maybe just to follow up, within space, the negative EAC, is there any program-driven drivers to those negative EACs or is it purely cost and inflation dropping through across the portfolio? You know, there was not any one single program EAC that drove a material change this quarter in the Space business or any other across our portfolio. I think you're right to point to the broader market conditions. You know, costs are escalating at a level not expected a year or two ago. We're mitigating that very well across our business. It you know in fact our latest expectations are factored into the EACs on our programs, and that did have a dampening effect, particularly in Space's margins in Q3. Okay. Thank you. Thank you. One moment for our next question. Our next question comes from the line of Kristine Liwag with Morgan Stanley. Your line is open. Please go ahead. ey, good morning, Kathy, Dave. Hi, Kristine. Thanks. You know, one of your peers has recently announced significant new share repurchase authorizations using debt. Considering the multiyear visibility in the cash flow, the strength in the balance sheet, and the upward pressure on defense budgets, would you consider levering up and increase buyback similar to what the company did a decade ago? Well, Kristine, I wouldn't rule it out as we sit here today, but I'm also not announcing any plans. We currently are executing our strategy, which is, as I said a few minutes ago, for a balanced capital deployment strategy, and we think that is the right thing for our company. Our foundation and fundamentals are incredibly strong. With the growth in our backlog, the ability to grow the business top line, we want to ensure that we're investing appropriately in that. It's the best thing for our shareholders in the long term, we believe, as well as our customers who need this capability and capacity that we're delivering. That remains our top priority. We, as I have said, are committed to return 100% of our free cash flow this year and next to our shareholders, and we'll do that in a balance of, dividends and share repurchase. As you know, we have used ASRs in the past, and we have looked at share repurchase, and we'll continue to do that on a regular basis and keep you apprised of any change in our plan. Thanks, Kathy. If I could do a follow-up. You mentioned that you expect supply chain issues to persist into 2023. Can you provide more color on what's embedded in your 2023 revenue outlook of 4%-5%? Where are the risks and opportunities to that? Earlier in the call, we outlined three major elements that we are monitoring closely. The first is our own labor, and we have talked about that throughout this year as being a bit of a headwind for us in the first half of the year. We were not adding headcounts and retaining headcount at the level we needed to fuel our growth. That started to turn the corner in the summer, and you've seen in the third quarter really robust results in that headcount growth, as Dave outlined, with nearly 3,000 adds. We are expecting that this environment that we're experiencing currently, not necessarily nearly 3,000 adds in a quarter, but this hiring and retention environment is what persists into 2023. There could be some opportunity there. As you all know, certain firms are reducing their head counts or at least their hiring. As I noted, we're seeing that in certain areas, the labor market is starting to soften. We aren't counting on that being a significant tailwind to us next year. We're looking at it continuing about like we see it today. In supply chain, as we noted, we do expect the disruption that we now see in the supply chain to have lingering effects into 2023, and we've done our best to capture those in what we've now reflected as our updated guidance. If they were to get worse, we certainly would have some downside risk. I don't expect them to get significantly better. Unlike labor, I would say that one is more of a risk. Then in the third area of inflation, we are tying to the indices as we look forward. We certainly have now captured the inflationary pressures at some of what we indicated was the downside on segment operating margin rates that we saw in the third quarter of this year. You know, your guess is as good as mine as to when does inflation really start to modulate. We're using the indices as our best way to get our arms around that. I don't see that as a big opportunity or risk. I think that one we probably have pegged pretty well, but we're monitoring it, as I said. That was a lot of context, but I think it's important because we did put a 2023 outlook in front of you, even at this early stage, which we often do. I will say this is a more volatile time than we often experience, going into the following year. Great. Thank you for that context and the color. Thank you. We'll move on to our next question. Our next question comes from the line of Robert Stallard with Vertical Research Partners. Your line is open. Please go ahead. Thanks so much. Good morning. Good morning. Dave, I'm gonna start with you. On the 2023 margin guidance, are you expecting any major changes in the segments versus where they're likely to end up at the end of this year? Thanks for the question, Rob. We do not anticipate meaningful movements in the segments as we look at 2023. Let's talk in aggregate first, and then I'll give you some color on the segments. As you'll recall, our segment operating margin was in the 12% range in the first half of this year. We talked on the call today about the fact that that will fluctuate a bit from quarter to quarter. We worked through some of the, you know, temporal challenges that we and most other industries face these days around inflation and supply chain and such, and noted some of that in the Q3 result. Year to date, we're in that guidance range we've provided for the full year. As we talk about next year, we noted mid- to high-11%, or current expectation. Think of that as in the range of 20 basis points lower next year than we're seeing this year. At a business level, what I'd highlight is in a few of the areas where we had unique upside in the first half of the year, that's where we would expect that to normalize and create some of the lower margin profile next year. I'd note AS had a land sale in the second quarter, so you can think of that as, you know, 20-30 basis points of margin rate pressure on a year-over-year comp basis. In space, we think the volume of new development work they've continued to add and the pressure that's put on their margin this year is, again, a good reflector of what you'd be likely to see next year in space. Mission Systems and Defense continued to perform well on the margin rate side, and we don't anticipate meaningful movement there. MS did have some strong upside in the first half, so we'll look to see what they can continue to deliver in 2023. Again, no meaningful movements across the board. I'd just adjust for some of those comparability items in 2023 to get a segment level view. That's great. Very helpful. Just a quick follow-up for Kathy on the B-21. We're looking forward to the rollout in December. I was wondering how the numbers on the program are progressing. Clearly, practically, you're making good progress. Given it's a fixed price program with inflation, how are the margins on this program going? Yes, Rob. Thanks for the question. We are also very excited about the rollout on December second, but we are keeping our focus on the performance of the program. While it's important for us to celebrate milestones as they come, it's also a long-term program, as you suggest. We are working that program as we always do each quarter to reflect what we know about the current environment and our projections going forward. As we outlined earlier this year, we spent a good bit of time actually talking through the B-21 and how we were keeping our assumptions updated. That continues to hold true. There's nothing to report to you in any material change on our outlook for the profitability on that program. That's great. Thank you very much. Thank you. Thank you. One moment for our next question. Our next question comes from the line of Sheila Kahyaoglu with Jefferies. Your line is open. Please go ahead. Hi. Good morning, Kathy, Dave. Thank you. Good morning. You talked about flattish defense sales next year. You know, can you give us some of the puts and takes in the business with supply chain? Does that continue to linger? What's going on on the services side? Maybe incremental opportunities with programs such as IBCS and missiles and how you think about Europe playing into that as well. Mm-hmm. Thanks, Sheila. You know, certainly the disruption that we're talking about does hit short cycle businesses a little more than long cycle, and so there is a bit of that in defense. Really it's more about the portfolio shifts that we are making. One is the growth that we're seeing in munitions, and particularly that demand which we expect to grow even more with the conflicts in Ukraine. We also see IBCS as a centerpiece of that growth, both domestically and internationally. I noted in my comments that we have gotten significantly more increased interest and demand coming out of Europe on IBCS over the last several months. Those are growth drivers, but those are offset by retirements of legacy platforms that we sustain out of the Defense Systems sector. We've been talking about those as headwinds to AS for a while, but as those programs are retired, those platform sustainment impacts are being felt in DS. That would be programs like Joint STARS and Global Hawk. Great. Thank you. Thank you. One moment for our next question. Our next question comes from the line of George Shapiro with Shapiro Research. Your line is open. Please go ahead. Thank you. Dave, in terms of your margin guidance next year, how much lower are you expecting EACs to be? Because this year, they're running so far, like, $150 million lower than last year, and yet, you're getting help in AS, but the margin looks like it's gonna turn out to be similar to where it was last year. Sure. George, as you know, we don't have a specific dollar for dollar expectation of net EACs on any one program or in fact in aggregate going into a typical year. What we do get a sense for is kind of trends in aggregate volume. You know, in 2021, for example, we had a unique trend associated with the benefit in our rates from the pension benefit. In 2022, we've had a couple of upside items, as you mentioned, in AS, but broadly speaking, the pressures that we've noted from the macro environment this year. What I'd characterize 2023 as is more of a continuation of some of those macro pressures, as Kathy outlined nicely earlier in the supply chain and the inflationary environment. We'd anticipate what I'd characterize as a continuation of the lower net EAC trend in 2023 based on what we know today. I wouldn't put too fine of a point on the dollar amount today. We'll give you more insights on that as we get into the January guidance call. Yeah. Yeah. I'm just looking at the fact that this year's segment margin likely be similar to last year's, and yet, EACs are running already $150 million below where they were last year. Maybe they'll be down $200 million for the year. You know, you got to have a pretty sizable, maybe a bigger drop next year. I mean, otherwise, why wouldn't the margin be similar to the high 11% like you're seeing this year? Sure. That high 11% margin rate, you know, is predicated on a certain volume of both program performance and net EAC benefits. We're projecting a wider range currently in the mid-11% to the high 11% because it's tough to project, as Kathy noted earlier, with too much specificity given the macro environment we're in today. Our program performance continues to be exceptional, but we think today the appropriate outlook is about 20 basis points lower margin rate next year, with continuation of kind of the second half trends we're seeing this year in net EACs. I think that's about as specific as we can be at this point in the process, George. One quick one. How much contribution will GBSD and NGI be to the billion-dollar growth that you're talking about in space in 2023? We project GBSD to be a little less than half of that growth. NGI will also be a contributor, but then there are a number of other programs. The wins we've talked about this year at the Space Development Agency, continued growth in the GEM 63 portfolio with the Project Kuiper expansion there. There are a number of drivers of growth across our space portfolio, both national security, civilian and otherwise. Okay, thanks very much. Thank you. One moment for our next question. Our next question comes from the line of Seth Seifman with JP Morgan. Your line is open. Please go ahead. Hey, thanks very much. Good morning, everyone. Kathy and Dave, I know you were just in the early stages of 2023, so sorry to bring up 2024, but you guys have talked about cash flow target for that year and also a segment margin, I think in the 12% range. You're still on target for, you know, reaching those goals? Sure, I can touch on that. As we noted today, we've continued to reaffirm our multi-year cash flow outlook for 2023. That's intact for 2024 as well. As we noted on the call today, we expect another growth year in 2025. We'll be more specific in quantifying that on our January call when we'll do our typical update of the multi-year quantified free cash flow outlook. Continued strength in the expected returns from the business. We'll update the specific numbers there based on Section 174 legislation status in January. On the margin rate side, as we noted, we were operating at that 12% level in the first half of this year. Businesses continue to execute well and mitigate broader macroeconomic challenges. We're anticipating about that 20 basis points of decline based on what we currently see in 2023. We do anticipate longer-term recovery. It's tough at this stage of the game to project whether that recovery back to the high 11s and the 12% level occurs as soon as 2024 or whether it's subsequent to that. A lot of that will depend on the pace of recovery in these macroeconomic factors. But again, critically, the sales growth expansion we see next year, the acceleration of the 4%-5% range, multiyear free cash flow guidance remaining intact, I think is indicative of the kind of economic value we're delivering even in this environment. Great. Thanks, Dave. Just as a quick follow-up with the supply chain challenges, you know, lingering into 2023 and, you know, probably lessening through the year, should we expect a similar distribution of sales throughout the year in 2023 that we've seen in 2022 in terms of the, you know, percentage per quarter? You know, it's premature for me to give you a percentage by quarter at this phase. We're doing our best to give you our latest insights into the full year outlook. Some of that quarterly profile ends up being determined by the timing of material receipts on large programs and across the business base. Give us a few more months to give you a quarterly profile. We'll certainly do so. We'll give you more insights on that in January, as we typically do. Cool. Fair enough. Thank you. Thank you. One moment for our next question. Our next question comes from the line of Ken Herbert with RBC Capital Markets. Your line is open. Please go ahead. Yes. Good morning, Kathy and Dave. Good morning. Kathy, relative to or Dave, relative to the initial expectations in the year, you've seen stronger bookings that you've called out as we've gone through the year. I'm just wondering if you can parse that out a little bit. I know you called out share gains, but how much of that has been share gains versus, you know, maybe an acceleration or timing around contracts? How much should we sort of read through or think about maybe an expanded opportunity set for you heading into 2023 based on some of the stronger bookings this year? Thanks for the question. When we look at the portfolio, it has been broad-based in terms of the improvement that we've seen in our expectations for book-to-bill, all four segments now projecting over one. It has been most pronounced in space, where we've called out some specific opportunities that were competitive. To your point, taking share that we were able to secure, that we may not have anticipated winning as many of those as we started the year as we ultimately have. We feel that we are in a good position with backlog in each of the businesses going into 2023, supporting the accelerated growth that we've laid out in our outlook for next year. We don't expect that our book-to-bill next year will be as robust as it was this year because we do have quite a bit of backlog that we will be carrying into the year, and the opportunity set is not as strong in 2023. We do see then that picking up again in 2024 and 2025. I would tell you, we tend not to look at awards on a single year basis and calculate book-to-bill only on a single year. We look at it on a running basis, and our system is strong as an aggregate over the last three years. We expect that to continue well into the future. That's helpful. As you think about the comment you just made on strength into 2024, would that be more on the space side within Space or maybe more on the launch and missile side? Or any color on that would be helpful. For space, we've seen broad-based opportunities across both launch and missiles as well as our space segment, and we expect that to continue. There are multiple programs that will be selected for next phase and be awarded in that timeframe in both elements of our space business. Great. All right. Thank you very much. Thank you. Thank you. One moment for our next question. Our next question comes from the line of Scott Deuschle with Credit Suisse. Your line is open. Please go ahead. Hey, good morning. Thank you for taking my question. Good morning. Anything you can say about the equipment sale that impacted Q3 free cash flow? Is that similar in nature to the large equipment sale that AS booked a while back? It is actually cash flow associated with that equipment sale booked a while back. It is the timing of payments driving a particular cash receipt this quarter, but it is fully associated with the equipment sale you noted from the past. Okay. Got it. Kathy, just on NGI, you know, is it reasonable to think that you might be able to offer some cost savings to your customer there, you know, if there's product commonality between the interceptor and then the GBSD booster? And would you potentially design for commonality there in order to drive that cost benefit to the customer? Thank you. Well, it's an excellent question. Because we're in an active competition, I won't speak too much about our approach. What I would say is that we constantly look for ways to deliver more value to the customer based on a broad set of capabilities, both in the case of interceptors as well as our missile defense portfolio, which I've noted has been growing, and we expect it to continue to grow. Taking a full mission understanding of the threat environment as it evolves and bringing it back into our product development strategy is key across the entire portfolio. NGI will also benefit from that level of expertise that we have with the threat, the solution elements and the mission. Makes sense. Thank you. Thank you. Thank you. One moment for our next question. Our next question comes from the line of David Strauss with Barclays. Your line is open. Please go ahead. Thanks. Morning. Good morning. Kathy, you know, F-35 cuts across a number of your businesses. I think you've talked about it being 10% of sales in total. Can you give us an idea of what you've got baked in for F-35 in total in 2023? You know, I assume it's declining a bit, you know, with DAS rolling off and so on, but can you give us an idea of what's baked in for F-35 in 2023 and whether, you know, as you look beyond 2023, F-35 stabilizes or maybe even begins to grow again? Well, David, actually, when we look across the entirety of the company, F-35 is pretty flat going into 2023. We have a lot of moving parts, as you indicated. In aerospace, we have volume that is fairly consistent in our case because remember, we build a couple of years, about 18 months ahead of Lockheed Martin. We are maxing out at our limitations of capacity for building center fuselages. That projects out flattish into 2023, as Dave noted earlier. In our Mission Systems side of the business, while we have DAS, which is being replaced with new product insertion, we're also working on new product insertion in the other elements of the portfolio. We have some development work going on in Block IV that continues to grow. Production there, too, is fairly stable, as we look out over this time period. Sustainment is growing. When you take all of those elements across the entirety of our portfolio, F-35 is pretty flat going into 2023, and we expect to be relatively flat going into 2024, maybe a little bit of upside to that. All right. Perfect. That's very helpful. On the, you know, back on the margin guide for next year, you know, would you characterize the drop, I guess, you know, before I think we were all thinking kind of flattish next year and then, you know, maybe improving a bit in 2024. You know, would you characterize the lower guide? Is that more mix-related? You know, maybe your lower margin programs are accelerating faster than you would expect it, or is this inflation-related or some combination of both? Thanks. I would say it's a combination of all of those factors, but leaning more toward the macro factors. This is a unique environment that we're all operating in these days, and we're, you know, eyes wide open to the continuation of a lot of those pressures in 2023. And that's why we think, you know, it's not a huge impact, but call it 20 basis points compared to the high levels we've been operating at in 2022. I think importantly, as you get down to the earnings per share line, excluding the non-cash pension element of it, we anticipate EPS growth faster than even the 4%-5% accelerated sales growth. We're, you know, managing through these times, I think particularly well when you think about the pace of EPS acceleration as well. All right, we're gonna have to leave it there. All right, we'll leave it there. I'll turn it over to Kathy for closing remarks. Thanks, Todd. Look, before concluding today's call, I'd just like to take a moment to thank our entire team for another strong quarter in what we have appropriately characterized as challenging macroeconomic times. The business fundamentals for Northrop Grumman remain incredibly strong, and that's due to the work of this entire team. I wanna especially thank one of our team members, Mary Petryszyn, who will be retiring from Northrop Grumman in January. She has provided 10 years of outstanding service to our company, most recently as the Defense Systems president, and we wish her the very best. On October seventeenth, I'm sure you all noted that Roshan Roeder became our new President of Defense Systems. She is an experienced executive in our company. I'm very confident in her ability to take the business to the next level, and I look forward to introducing her to many of you. Thank you for joining our call today. I expect to see many of you in the coming months. For those I don't see, let me wish you a healthy and happy holiday season, and we look forward to talking to you in January. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. Have a great day.