Northrop Grumman Corporation

Operator: Good day, ladies and gentlemen, and welcome to Northrop Grumman Corporation's First Quarter 2026 Conference Call. Today's call is being recorded. My name is Josh, and I will be your operator today. At this time, all participants are in a listen-only mode. I would now like to turn the call over to your host, Todd Ernst, Vice President, Investor Relations. Mr. Ernst, please proceed. Todd Ernst: Good morning, and welcome to Northrop Grumman Corporation's First Quarter 2026 Conference Call. Before we start, matters discussed on today's call, including guidance and outlooks for 2026 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, including those 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. In addition, we will refer to a presentation that is posted to our Investor Relations website. On today's call are Kathy Warden, our Chair, CEO and President, and John Green, our CFO. At this time, I would like to turn the call over to Kathy. Kathy? Kathy Warden: Thanks, Todd. Good morning, everyone, and thanks for joining us today. The Northrop Grumman Corporation team is proud of the work we do in support of the world's most important national security imperatives. As we are seeing in recent military operations, many of our systems are playing a critical role in successfully executing the mission and returning our service members home safely. We contribute enduring assets like the B-2 stealth bomber and the E-2D that continue to demonstrate tremendous value decades after their first flight. Our ISR and C2 systems provide the needed intelligence to plan and conduct successful operations across all domains, and our munitions are instrumental to execute these missions. We share in the responsibility and urgency of our customers to provide our nation and allies with the best technologies in the world, and we are increasingly focused on the speed with which we deliver them. With this goal in mind, we have been investing in our business for several years to build capability and capacity and provide the solutions at the scale our customers need to compete in this environment. In fact, in the last two years, we have opened over 20 new facilities and added more than 2 million square feet of manufacturing space across the United States. Since the beginning of 2026, we have agreed with our customers on plans to accelerate the Sentinel program, increase the rate at which we build the B-21, become a second source supplier of solid rocket motors on several programs, and ramp our rate of production on another handful of programs. And we are just getting started. We are in discussions on numerous additional opportunities to help achieve the department's goal for speed and scale. Central to all these agreements is our partnership with our customers as we transform the way we work together. Our teams are aligned in unprecedented ways to deliver on our commitments and enable our armed forces to win. Earlier this morning, we released our first quarter results which reflect strong demand, solid operating performance, and progress we are making on key programs. First quarter organic sales were up 5%, a great start to the year and consistent with our full year expectations. Sales were largely driven by growth in our work on modernizing the triad, which is a top priority in the U.S. National Defense Strategy. We had another quarter of solid bookings, reinforcing the foundation for continued growth over the coming quarters and into next year. Our results and our confidence in our outlook are supported by a robust demand environment driven by rising global defense budgets. Countries around the world are recognizing a fundamental shift in the geopolitical environment, leading to global military spending rising approximately 40% over the past decade, and it is expected to continue to rise as Western nations modernize and grow their forces. In the Middle East particularly, there is a heightened sense of urgency for our solutions, such as IBCS, GATOR, and Counter-UAS solutions. In the U.S., $1 trillion has been appropriated for fiscal year 2026, and funding from this budget and reconciliation are starting to flow to industry. Earlier this month, the administration submitted a $1.5 trillion defense budget request for fiscal year 2027. The budget emphasizes modernization and represents a 44% increase over current funding levels. The budget proposal is made up of several components, with a base budget of $1.1 trillion. The base budget alone, compared with the FY 2026 base budget, represents nearly a 30% increase, and it sustains support for many of our key programs including B-21, Sentinel, IBCS, E-2D, and numerous restricted programs. If enacted, the 2027 budget would bring spending to about 5% of GDP, and while this represents an increase to the 3% we have seen in recent years, it is closer to the levels we saw during the Cold War. We are encouraged by the strong bipartisan support for strengthening U.S. defense budgets aligned to the global security challenges we are facing, and we look forward to working with policymakers as they consider this budget request. In response to these high levels of global demand for our solutions, the administration is working closely with industry to provide clear, long-term demand signals through structured production frameworks. So let me share details of some of the agreements I referenced earlier in the call. Our Defense Systems business growth is fueled by the growing demand for solid rocket motors, smart munitions, ammunition, and tactical missiles. We are a key SRM supplier of more than 15 systems including GMLRS, PrSM, Hellfire, and AIM-9X among others, and we are taking the necessary steps to qualify as a supplier on other high-demand systems such as PAC-3. To position the company for this growing market, we invested more than $1 billion over the past several years in SRM and munition technologies, and in modernizing our facilities. This proactive approach established a strong U.S. manufacturing base with capacity available today to support our customers' growing demand for critical munitions. Our tactical SRM production capacity has already doubled, and we have further expansion which will be completed by 2027. These modern production facilities provide us modular, adaptable production lines that can produce multiple products allowing us to flex with demand. Overall, our weapons business is nearing 10% of total company sales and is positioned to grow at a pace well above the company average. In addition to a focus on munitions, we and the Department of Defense remain committed to accelerating the triad modernization. For Sentinel, we are working closely with the Air Force and making significant progress advancing missile development, command and control systems, and maturing the design and construction approach. In March, we broke ground on a prototype of the Sentinel launch silo tube which will validate the structural design and construction approach, a key enabler to accelerate fielding. We expect to reach the Milestone B decision later this year, first flight in 2027, and initial operating capability in the early 2030s. We expect strong growth from Sentinel throughout the year as we ramp up on the new baseline, with the program already delivering double-digit growth in the first quarter. On the B-21 program, we are moving through testing at an aggressive pace, including aerial refueling trials beginning earlier this month. We are on a path through both testing and production for B-21 to arrive at Ellsworth Air Force Base in 2027. Consistent with this progress, we received a Lot 4 LRIP award in the first quarter, closely following the Lot 3 award received in Q4 last year. As previously announced, we finalized an agreement with the Air Force to increase the annual production rate of the B-21 by 25%. This agreement demonstrates the strong operational requirements for the platform and confidence in our team to accelerate the delivery of this generation capability for the warfighter. The production ramp up will be supported by customer funding included in last year's reconciliation package, alongside approximately $2.5 billion of company-funded investment primarily for new facilities. These investments will be phased in over multiple years. Importantly, this agreement accelerates production for our customer, enhances the program's long-term economics, and creates the potential for a larger program of record. We are pleased to have this agreement in place, and excited for this transformative technology to begin arriving on Air Force bases next year. In another area of our portfolio, widespread adoption of ballistic missiles and drones by potential adversaries is reinforcing the urgent need for air and missile defense capabilities. Demand in this area has been exceptionally strong, and today, our missile defense business accounts for nearly 10% of company sales. Northrop Grumman Corporation is well positioned to capitalize on opportunities such as Golden Dome, as well as other program areas. Our advanced interceptors, sensor systems, and command and control technologies remain critical to strengthening layered defense architectures. Shortly after the close of the quarter, we secured an award to accelerate development of the Glide Phase Interceptor, bringing the total contract value to $1.3 billion. GPI is designed to intercept hypersonic missiles that can evade traditional missile defense systems, a critical capability given the proliferation of hypersonic weapons. Before concluding, I would like to highlight our role in the historic Artemis II launch. It is a reflection of the diversity of our space business, which extends across a wide range of missions. Two Northrop Grumman-built solid rocket motors generated an astounding 7.2 million pounds of thrust—over 75% of the rocket's total thrust—to propel the SLS rocket and the astronauts on their journey around the moon. We are incredibly proud of our team, and I would like to congratulate NASA and the Artemis II crew on a successful mission. In summary, we continue to see an opportunity-rich environment. Our investments in our business, rigor in program execution, and the speed with which we are bringing innovative solutions to our customers give us confidence in our position today and into the next decade. When coupled with our strong backlog and unprecedented opportunity set, we are optimistic we can continue growing our business and creating value for all of our stakeholders. I will now turn the call over to John Green for the financial results. John? John Green: Thank you, Kathy, and good morning, everyone. I will start with our first quarter segment results on Slide 4. We continue to experience robust demand for our products and capabilities. Awards totaled $9.8 billion in Q1, and we ended the period with $96 billion in backlog. First quarter sales were $9.9 billion, up 4% year over year. Organic sales increased 5%. On the bottom line, segment operating income increased to over $1 billion and segment margins improved to 10.8%. First quarter results were driven by higher sales and improved performance in Aeronautics Systems. AS sales increased by 17%, driven by higher sales on B-21 and other restricted programs. TACAMO sales were also higher as the program continues to ramp. Higher sales on B-21 reflected the inclusion of the agreement with the Air Force to expand production capacity, which I will address in a moment. The sales increases were partially offset by lower volume on F/A-18. On the bottom line, first quarter AS operating margins improved to 9.3%. The increase was driven by the absence of the B-21 loss provision booked in 2025. As Kathy mentioned, we are pleased to have an agreement in place to increase the production rate on the B-21 program. To support the acceleration of aircraft deliveries, we agreed to sell an aircraft to the Air Force that was previously planned to be utilized as a company-owned test asset. The asset sale accelerated revenue into the quarter but does not change the total number of aircraft we expect to deliver in the LRIP phase of the program. Additionally, after reviewing our profitability estimates on the LRIP phase of the program, which now includes the agreement, there were no significant changes to the EAC. We had some increased production cost on earlier lots, which were offset by improved profitability on the remainder of the program. With the agreement in place, we are accelerating the program and have an opportunity to earn improved returns over a multiyear period. Moving to Defense Systems, Q1 sales increased 5% year over year. Organic sales increased 10%. This was driven by higher volume on Sentinel as the program continues to ramp. Sales were also higher due to increased volume on tactical solid rocket motors and integrated battle command programs. First quarter operating margins at DS were solid at 9.7%. Mission Systems first quarter sales increased by 2%, driven by increased volume on restricted airborne radar and marine programs. These increases were partially offset by lower volume on SABR and electronic warfare programs. MS operating income increased by 20%, driven by a higher level of net favorable earnings adjustments. This increased their first quarter OM rate to 15.1%. In the Space segment, first quarter sales and operating income were down compared to the prior year. This was driven by two factors. First, the NGI program recognized $98 million in first quarter sales last year as part of the contract closeout. This created a year-over-year headwind in Q1 this year. Secondly, we recognized an unfavorable earnings adjustment of $71 million on the GEM 63XL program. This adjustment lowered sales and operating income in the period. Performance elsewhere in the Space portfolio was strong, with growth on SDA programs and restricted space. Turning to earnings per share on Slide 5, first quarter diluted EPS was $6.14, up substantially compared to the prior year. This was driven by higher sales and segment operating income partially offset by lower net pension income. In terms of cash flow, the first quarter reflected a use of approximately $1.8 billion, in line with the prior year. Consistent with our historical patterns, we expect cash flows to ramp throughout the year with the most significant cash generation in Q4. We expect CapEx to follow the same pattern as we continue to invest to support the strong demand environment and our future growth. As I indicated on the fourth quarter call, we repaid $527 million of fixed-rate debt in Q1. We ended the quarter with over $2 billion of cash on the balance sheet. Turning to our 2026 guidance, we are reaffirming our outlook for sales, earnings, and cash. We ended the first quarter with positive momentum and continue to expect full year results within the existing guidance ranges. This includes full year sales between $43.5 billion and $44 billion. We continue to expect sales to accelerate throughout the year, similar to the cadence in 2025. For the second quarter, we expect high single-digit sequential sales growth, and for the full year, we continue to expect broad-based sales growth across the portfolio. Segment operating income guidance reflects continued strong performance and a low-to-mid 11% margin rate. Margins are expected to improve over the course of the year driven by strong performance, production timing, and mix. Our capital deployment strategy remains focused on driving growth, reinvesting in the business to scale capacity, and maximizing shareholder value. This includes an additional $200 million we expect to invest this year to support the increased production capacity on B-21. As a result, we now expect $1.85 billion in 2026 capital expenditures. However, we are maintaining the free cash flow guidance range of $3.1 billion to $3.5 billion. Given the increased capital investments, we are working to offset the free cash flow impacts. To summarize, we continue to generate strong financial results. I am confident that we are well positioned for continued profitable growth and value creation. Before we open the call for questions, I would like to take a moment to congratulate Todd on his retirement at the end of this month. We appreciate his contribution over the past seven years. Todd has been a highly valued team member and a trusted business partner. We wish him well as he embarks on the next chapter. We will now open the call for questions. Operator: Thank you. As a reminder, to ask a question, please press 11 on your telephone and wait for your name to be announced. Please limit yourself to one question and one follow-up. One moment for questions. Our first question comes from Robert Stallard with Vertical Research. You may proceed. Robert Stallard: Thanks so much. Good morning. First of all, thanks, Todd, for all your help over the years—much appreciated. And then, second, on the B-21, Kathy, you have this 25% production capacity situation sorted out now. Can you give us some idea of how the timeline progresses here in terms of Northrop Grumman Corporation spending on CapEx and how the production flows through? And also, if you have protections in here against a B-2-style curtailment? Thank you. Kathy Warden: Yes, Rob. We expect about $200 million of CapEx this year, and that is why we reflected that increase in our CapEx guidance for 2026. As we have said before, we expect the majority of the capital to happen in the 2027–2029 time frame and largely be completed this decade. The additional capacity that is coming online does give us a meaningful increase in throughput, which will generate revenue over the life of the program. But as I have stated, it takes a while for us to get that online, so you should expect the revenue profile to follow the production facility completion. Why it is not like the B-2? In terms of this contract, we have a committed quantity on the contract, and we know that the Air Force is considering increasing the program of record as we sit here today. That decision has not been taken, but we believe there is strong support by the administration for this capability that manifests itself in their commitment to the triad modernization in the U.S. National Defense Strategy, and we believe it reflects the view of multiple administrations on the need for this platform as an effective deterrent, as we have seen recently with the B-2 in conducting military operations. Operator: Thank you. Our next question comes from Gautam Khanna with TD Securities. You may proceed. Gautam Khanna: Yes. Good morning. I was wondering if you could elaborate on some of the Sentinel developments that you mentioned on IOC and how that program is progressing with respect to timing. And congrats to Todd as well. Thank you. Kathy Warden: For the Sentinel program, in partnership with the Air Force in the past quarter, we have agreed to an acceleration of the program that would have completion of Milestone B later this year and then would allow us to move forward with the program, as I said, to first flight in 2027 and an initial operating capability early in the 2030s. We are doing a series of things together with the Air Force to enable the schedule acceleration. One I mentioned that got started in the quarter is a prototype of the missile's launch silo, and that will help us further increase the fidelity of our design for the silo itself. That is just one example of numerous things that are happening across the program to mature the design and progress toward that first flight milestone in 2027. Operator: Thank you. Our next question comes from Peter Arment with Baird. You may proceed. Peter Arment: Yes, thanks. Good morning, Kathy and John. Congrats, Todd. Kathy, on the color on international—if we could click into that a little bit. You were up 20% in 2025. A lot has changed in the last few months. Can you talk about opportunities? Is there anything on international that can be pulled to the left? I know you are expecting a healthy book-to-bill of over one this year. Any dynamics there that can accelerate the timing? Kathy Warden: Peter, we see the opportunity to accelerate timing on international in areas where urgency has increased over the last couple of months. I specifically called out the Middle East, where clearly the conflict with Iran has created a heightened sense of urgency, and we are seeing those opportunities move to the left. With that said, we see high demand for products that we produce across the entire globe, including Europe, and our team is working in any way possible to accelerate demand and turn that demand into sales. International does tend to have a longer cycle than domestic; that has not changed, just in terms of the steps we must go through to get that demand signal translated into contract. We are working with the department on a number of things that help to accelerate export approval, and we are looking at aggregating international demand. Those are all positive steps forward in the way the process is working that could lead to acceleration, but I largely see those things impacting us beyond this year. Peter Arment: Got it. And as a follow-up, you mentioned missile defense is roughly 10% of your overall revenue mix today. Can you talk about opportunities in the counter-drone area? We have seen a lot of focus on lower-cost solutions. How do we think about Northrop Grumman Corporation’s position there? Thanks. Kathy Warden: We have opportunities in counter-drone, including low-cost solutions that are based on work we have been doing in that arena for a number of years. Programs like our FADC2 program and even IBCS are effective in connecting sensors and shooters in that counter-drone space. We have seen an increase in demand both from the U.S. and international, and we expect the international contribution to be greater than the domestic in counter-UAS solutions. We see that developing over the next couple of years. We are already seeing some revenue today in that space, and, as I noted, now nearly 10% of company sales is in missile defense, which is a significant increase from where we were just a few years ago. Operator: Our next question comes from Kristine Liwag with Morgan Stanley. You may proceed. Kristine Liwag: Great. Good morning, everyone. Good morning, Kathy, John, and Todd—congrats on your retirement. Maybe a high-level question. Kathy, when you look at the backlog of $96 billion—it is near record, providing sales coverage for over two years. Mid-single-digit growth seems reasonable in a more normal environment, but in the past few years you have called out urgency now in the geopolitical environment, and it seems like things continue to deteriorate. We are seeing the Pentagon seek out new players, and the White House has called out potentially firing up the Defense Production Act for the auto industry to increase capacity. Can you give more color about how you think about overall output for Northrop Grumman Corporation? Where are the areas of bottleneck, and what has to happen for the company to deliver on double-digit growth? Kathy Warden: We are seeing an opportunity-rich environment. It is only early 2026, and we are just starting to see reconciliation dollars flow into our contracts. Our performance this quarter was in line with our full-year guide of mid-single-digit growth. For higher sales growth, it would come from winning numerous new competitive opportunities—we would expect to continue to see a high competitive win rate on those opportunities. We would also need to see an accelerated ramp on the demand for our missile components—I talked about solid rocket motors earlier on the call. We have the capacity; we need to get that on contract and start producing. We need to convert our international pipeline to sales, as I referenced earlier. And our suppliers need to be able to scale with us. We are doing the work to remove those bottlenecks in our supply chain—first by identifying them, second by helping those suppliers to resource their own scaling and have the capacity that we need from them. We are working on all of these strategies to increase our growth rate beyond the mid-single digits. I have a lot of confidence in our longer-term outlook for sales based on the growing backlog and the opportunity to add to that backlog this year. The real question is timing—when do we reach that inflection point—and it is based on all of the factors I just shared. Kristine Liwag: Super helpful. And as a follow-up, the Chief of Naval Operations said yesterday that one of the two companies vying for the F/A-XX contract lacks the capacity to deliver the fighter on time. With the potential down-select in August for this program, can you discuss how you think about Northrop Grumman Corporation’s positioning? And if you are selected, how should we think about the potential upside to the 2026 outlook? Is the funding for this program clear to potentially provide upside for 2026? Kathy Warden: This is a good example of one of those competitive opportunities I just mentioned, and we do expect the department to make an award selection in the third quarter. We are confident in our ability to deliver our solution to the Navy. We and our suppliers are prepared to bring the workforce and infrastructure needed to execute the program, and our track record on B-21 demonstrates the ability to deliver a complex aircraft on schedule. Regarding the financials, we would expect upside to sales and earnings from our current guidance if we are selected to build F/A-XX, and it would be a top priority for our company. Operator: Thank you. Our next question comes from Sheila Kahyaoglu with Jefferies. You may proceed. Sheila Kahyaoglu: Thank you. Good morning, Kathy and John, and thank you, Todd, for everything over the years. Kathy, in your prepared remarks, you gave us lots of color on the growth drivers of missiles. You said missile defense is 10%, weapons at 10%. Can you size B-21 and Sentinel? How do we think about these four growth drivers from both the revenue and earnings perspective? Kathy Warden: Let me start with Sentinel. The program is about 6% to 7% of company revenue today, and we expect it to grow low double digits this year, which is in line with how it performed in the first quarter. We then expect it to continue to grow annually, growing toward 10% of revenue over time. Its real inflection point is when we start to have long lead for production, which we expect later this decade. For the B-21 program, it is nearing 10% of revenue, and with this accelerated production rate, we expect that over the next several years it will likely begin to exceed 10% of company revenue and sets the program up for enduring growth as well. For weapons, we expect that to continue to be one of, if not the, fastest-growing segments of our business. It includes opportunities where we are currently qualified to provide components like solid rocket motors, and also our prime position as a weapons integrator that we expect to grow over time as programs like AARGM-ER and Stand-in Attack Weapon mature into production. That part of the portfolio today in aggregate is also about 10%, but we expect it to be one of the fastest growers and proportionally become larger over the next several years. The growth rate will be dependent on how many new programs we add to the portfolio. On margins, the margin profile on Sentinel, B-21, and our weapons portfolio are all expected to increase as we move into production, because many of them are in various stages of development at the moment. John Green: Most of that work is in our Defense Systems business. You can see the guide we provided at the beginning of this year in terms of the growth we will see there—approaching 10%. And Sentinel, as Kathy said, is about 6% of total sales; it is about a third of the sales in the Defense Systems guide. That will help you triangulate what we think the drivers are there and support the acceleration of potential growth into the future. Operator: Thank you. Our next question comes from Seth Seifman with JPMorgan. You may proceed. Seth Seifman: Good morning. I wanted to ask on B-21 and the impact of the production agreement. I think you mentioned some pluses and minuses in terms of the estimate. You have noted before that the agreement could potentially lead to higher profitability on the LRIP units. Should we assume that higher profitability on the LRIP units and reversal of charges is still a possibility depending on company performance over the next several years, or should we be thinking about the increased profitability coming more on later units and beyond? John Green: The agreement we reached with the Air Force was a great outcome for both the company and the customer. As that agreement plays out, a good portion will be subject to our execution on the LRIP phase. Based on how it came together, there was no meaningful change in the overall EAC. There were some increased production costs that were offset with increased profitability in later phases of the program. Positive overall. As the program matures, manufacturing capability will continue to improve, production rates will improve, and it gives us an opportunity to expand margins and hopefully sales with the increased rate of production. Seth Seifman: Great. And as a follow-up, after this year there is probably $2 billion-plus of B-21 CapEx over 2027–2029. When we think about the 2028 cash flow target, you were able to offset the impact of incremental B-21 CapEx this year, but it is obviously in the future. How should we think about the ability to offset that? John Green: That is a substantial investment. We guided and held our 2026 cash flow guidance and intentionally did not give guidance on 2027 or 2028 for two reasons: large awards outstanding—one of which we hope to hear sometime in the third quarter—and the investment we are making, the $2.5 billion, with the lion’s share in 2027 and 2028. As we roll things forward, we will take a look at what free cash flow looks like. Not to be lost is the cash generation power of this business—it will continue to generate substantial free cash flows, and the investment will be subject to the opportunities we see. Operator: Our next question comes from Richard Safran with Seaport Research Partners. You may proceed. Richard Safran: Todd, congrats to you. This question could be for either Kathy or John. Could you talk generally about the contracting environment overall? Are you seeing a more favorable environment—specifically, revised contract language with award or incentive fees or other incentives for good execution—and what might that mean for margins and cash? Kathy Warden: We are seeing the department engage with industry in several positive ways. One is the sense of urgency to get work on contract. Two is the desire to give a long-term sustained demand signal and commitment around demand to both help us plan and drive down costs that come with change or production gaps if there is not certainty of demand. We are also seeing more use of OTAs and other nontraditional contracting mechanisms. All of these are positive for industry, and I do not see a desire by the department to push industry profitability down; quite the contrary. Helping reduce costs benefits both the customer and industry profitability, and placing incentives on contracts to drive early delivery is in everyone's best interest. I see real alignment and an opportunity to create better economics for industry and the government. Operator: Thank you. Our next question comes from Scott Mikus with Melius Research. You may proceed. Scott Mikus: Morning, Kathy. Backlogs for you and your peers are already elevated, and it seems like a lot of the reconciliation funding from the big supplemental is yet to be put on contract. We could also have a $1.5 trillion defense budget and another supplemental for Operation Epic Fury. The demand signals are great, but are we starting to see European customers become wary about ordering equipment from U.S. companies given uncertainty on delivery timing? Kathy Warden: There is definitely a desire for European countries to buy U.S. product, and we are still seeing robust demand there. There is sensitivity to buy local if possible where there is a comparable product that can meet requirements, and there is sensitivity around timelines for U.S. companies to deliver, particularly given increased demand from the U.S. For the Northrop Grumman Corporation portfolio specifically, we have been investing in capacity—I talked about the 20 facilities we have opened in the last 24 months and the over 2 million square feet of manufacturing space we have added. This gives us the capacity to do both. We are supplying demand for both the U.S. and Europe, and we foresee the ability to continue to do that. Scott Mikus: The administration has also talked about trying to increase significantly the number of space-related FMS approvals. Are you starting to see the administration speed up that process, and are you engaged with international customers about building a pipeline of opportunities for your Space Systems segment? Kathy Warden: We are engaged with international customers related to space, and we see that pipeline growing. We have seen some contract awards; in the quarter, we announced a relationship with a Hungarian company and are pursuing work there. We are starting to see the maturation of that demand signal turning into pipeline and even contract award. It is the business that has the least international pipeline of our four segments, but it is growing, and we expect five to ten years from now international to be a key contributor to our Space business just as it is in our other three segments. Operator: Thank you. Our next question comes from Scott Deuschle with Deutsche Bank. You may proceed. Scott Deuschle: Hey, good morning. John, is the customer providing any incremental cash advances or working capital support to help offset some of these increased capital investments in the B-21 program? John Green: We are making significant investments to support the program, and the customer is making significant investments to support the program. The cash flow timing related to the program loosely will align with the investment rate, but there are certainly components that will not. That is about as much detail as I can get into on the nature of the cash flows related to the program given the classified nature of the contract and the program itself. Kathy Warden: I will add that the deal improves the economics for the program for the government and Northrop Grumman Corporation. When we look at the return on invested capital over the life of this program, this deal has improved that outlook. For the government, we are able to produce and deliver capability faster. In our view and the Air Force's view, this is a win-win—both contributing and both benefiting. Scott Deuschle: For the life of the program, do you see the ROIC now meaningfully above your cost of capital? Kathy Warden: We do. Scott Deuschle: And there have been news reports stating that many F-35 aircraft are delivering without radars. Could you give us an update on that program and how performance has been tracking more recently on your F-35 radar production line? Kathy Warden: We are somewhat limited in what we can share given the classified nature of the program, so I will refer to comments the Joint Program Office has made. We are building an advanced radar and, in coordination with the JPO, taking on concurrent development and production. This was a known risk when we started down this path to ensure we could deliver the capability as quickly as possible. The JPO has stated plans to accelerate the production capacity to deliver the radars that meet the requirements, and we are working with them. We are continuing to work to complete development, which includes testing, and then quickly ramp production. One of the facilities I referenced earlier in the call is being built for the purpose of accelerating production on this program in particular. We have opened that facility, have the tooling, and are working to train the workforce, so we are ready to go as soon as we get through test milestones on the program and are already starting to produce. The important takeaway is we are moving as expeditiously as possible to get this radar delivered because we understand what a game changer it is for the capability. Operator: Thank you. Our next question comes from Analyst with BTIG. You may proceed. Analyst: Thanks. Good morning, Kathy and John, and congrats, Todd. In the past couple months, we saw you get tapped to support the C2 layer of whatever the Golden Dome initiative ends up looking like. What additional color can you give there, and how might that eventually materialize in the financials as we progress in the coming quarters and years? Kathy Warden: We were selected to be part of a broad set of companies developing the C2 layer, and we are looking forward to contributing to a very aggressive timeline for both developing and demonstrating that capability. It is one of General Guetlein’s top priorities, and we are optimistic that we bring a lot of legacy experience and knowledge, both in C2 and in understanding layered defense in the missile defense arena, to that team. Analyst: Got it. Maybe pivoting to the YFQ-48—there are a lot of CCA opportunities with the Navy, Air Force, Marine Corps. Where are you in bidding for those, and what are your expectations as we move forward? Kathy Warden: We are pursuing a number of opportunities with the Air Force and were given the YFQ-48 designation so that we can continue to test our offering as we progress toward Increment 2. We have also been awarded for the Marine Corps our MUX TAC Air offering, and have been announced as one of the participants in the Navy CCA program. There is a broad set of activities underway to take our unmanned experience—over 500,000 flight hours—and the investments we have made in Talon, both Talon Blue, the aircraft, and TalonIQ (formerly known as Beacon), to test and mature vehicle management systems and autonomy. We hit some key milestones on that effort in the quarter that we announced as well, and we are bringing all of that expertise forward to all three services pursuing CCAs and putting our best foot forward for their next competitions. Operator: Josh, we have time for one more question. Thank you. Our last question comes from Matt Akers with BNP. You may proceed. Matt Akers: Congrats, Todd, on the retirement. Kathy, could you touch on the classified/restricted portion of your business? It is a big chunk that is difficult for us to track. Based on what you are seeing and the budget request, do you think that grows faster or slower than the other parts of your business? Kathy Warden: We had seen it growing faster than the other part of our business, but with the strong demand in munitions and missile defense—which are not part of our restricted portfolio—on a go-forward basis I could envision that the restricted business will grow more in line with the rest of the portfolio. The key takeaway is we see growth in both, and that is a nice position to be in. Matt Akers: Great. Thanks. I will leave it at one. Thank you. Kathy Warden: Great. Thank you. I want to close the call by once again thanking our entire team for their contributions to national security and space exploration. Since the beginning of this year alone, we have boosted North American astronauts back to the proximity of the moon, and we have helped our military in several operations in multiple regions across the globe return home safely after completing their mission. I know our team has been working tirelessly to support these efforts, and I am very proud of them. I would also like to recognize Todd. As many of you have mentioned, he is completing his final earnings call with us today. It has been my pleasure to work with him over the last seven years, and we are glad that he chose Northrop Grumman Corporation as the place for the capstone for his career as he transitions into what is a well-deserved retirement. Congratulations, Todd. Thank you all for joining us today. We look forward to continuing to engage with you throughout the quarter. That concludes our call for today. John Green: Thank you. Operator: Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation.