Morning, everyone. Welcome back to the Aerospace Defense Track at the 2024 J.P. Morgan Industrials Conference. I'm Seth Seifman, the U.S. Aerospace Defense Equity Analyst. We are very grateful now and been very happy to have Lockheed Martin with us now. We have Jay Malave, CFO, with Chris Fritz from Investor Relations. And, you know, we're gonna do a little Q&A here, a fireside chat. I'll ask some questions, and, we'll open it up to the audience as well. I think maybe Jay is gonna start us off with a little statement here.
Yeah, I'd say Safe Harbor statement here. The statements made today that are not historical fact are considered forward-looking statements, and are made pursuant to the Safe Harbor provisions of federal securities law. Actual results may differ materially from those projected in the forward-looking statements. Please see Lockheed Martin's SEC filings, including our 2023 Form 10-K, for a description of some of those factors that may cause actual results to differ materially from those in the forward-looking statements. All right, so we're good to go.
Excellent. Very good. And with that, maybe we'll, you know, we'll dive in. I'm sure, you know, no surprise to you as usual for, you know, for many years, you know, the early questions are about the F-35, company's biggest program. And so why don't you tell us a little bit about things where things stand and, particularly maybe starting off with TR-3.
TR-3, okay. So TR-3, it's really pretty much the same as what we mentioned about a month ago. And, so we are in lab testing as well as in flight testing. Flight testing, as capability, it includes anyway, the current flight testing is stability improvements, video capability, as well as weapon systems capability that were increased incrementally there. And so we're going through the flight testing there. All the findings and the discoveries are consistent with what we expect and the timeline that we've talked about, which would be, you know, targeting the restart of deliveries in either targeting June, the more likely case would be sometime in the Q3.
On the lab testing, that's where what I would refer to as our what we believe to be the deliverable software release, which would include things like additional video capability, radar capability, and more system stability improvements. And so we're in the lab testing now. We expect in some time that we'll start that flight testing program as well. And again, what we're seeing is pretty consistent with the timeline that we laid out before.
Okay. Yeah. So it seems like for, I guess, for a couple of months now since the earnings report, certainly that's been kind of a stable, stable type of outlook in terms of with your timeline.
Yeah. I mean, it's, it's been pretty stable, as I mentioned. You know, it, it's, you know, I'd love to tell you kinda give you a date certain and a specific milestone that we can refer to. What I can tell you is the findings are consistent, but what I can't tell you is what findings or discoveries I might have between now and that time period.
Sure.
So that's always an outstanding risk that we have to manage. But right, what I can tell you right now is what we're seeing is consistent with the timeline that we laid out.
Excellent. Okay. Very good. And then with regard to production, you know, we saw the request earlier this week, and, you know, the reduction in the request for fiscal 2025 versus fiscal 2024 and, you know, versus what had been previously planned. I guess, you know, I feel like we've seen this movie a little bit before, maybe about two years ago, and then we saw some F-35 show up on unfunded priorities lists.
Right.
You know, and then plus this budget, we, I think we all know, is not gonna be passed most likely until after the election. So it's a lot of stuff that could happen. But if we do take a step back and we think about the number of F-35s in the plan, and we think about the Lot sizes going through, I guess, 15, 16, 17, you know, those Lot sizes are below 156 aircraft. And we don't know yet the Lot sizes of Lots 18 and 19. That'll depend to some degree on an international number, which we don't have a lot of insight into on the outside. But it would seem like we, you know, we might be headed where we've got, you know, let's say four or five Lots in a row below 156.
So, you know, what's the outlook for maintaining production at that level?
Yeah. Let me just go back on it. I mean, Lot 15 through 17, while in the aggregate, they were lower. When you added that to the backlog, that supported the 156 over that multi-year period. So we felt very comfortable at maintaining 156 from 15 through 17. When you look forward, you say Lot 18 and 19, and you see these coming down a little bit lower, you know, given the international backlog, we feel reasonably, you know, confident that you can still support a 156, even if the U.S. DoD would come in lower. The sweet spot for the U.S. DoD at a 156 rate is starting with an 8. You know, the like, the, the FY24 number of 83 is where you'd like it to be every year to support a 156 rate.
Given the backlog and international, you can theoretically pull aircraft to fill in that gap. Now, again, that's a theoretical discussion because it requires really coordination with the customer. Our customer requires their coordination with the end customers. And it also requires an evaluation and a marrying up of what's of deliverable on these contracts versus what's already in the production cycle.
Right.
So, you know, as you know, Seth, you can't necessarily, once you're already committed to building a C model, you can't make that an A model.
Yeah.
And so, our team has to go through that work with the Joint Program Office and determine how they would make that work. But we see it, as you know, our view is that we can maintain a 156 level even at that 68, but some work would have to be done to confirm that.
Right. Right. So I guess the international, you know, if the US is starting with an 8, so the international, you know, even there, you know, the international number's gotta come up, from I guess it's been in the 50s. You know, maybe some years it's touched 60, but it's kinda been a number in the 50s.
And so that's you know, that international number needs to move higher.
Sure.
Just to kinda maintain that. But we, you know, we've seen those orders, and that's.
Right.
That's what gives you confidence.
That's right. Exactly.
Okay. Okay. Excellent. And then, maybe one more on F-35 is just the, you know, you guys have talked for a little while about a PBL contract. You know, is that something that's still possible? And to the extent it is, you know, how is that maybe different from what you were thinking about in the past, or how would it change what you're doing?
So, you know, we believe a PBL is the right answer for sustainment on the F-35. It kinda aligns interests and makes it a win-win situation where both highly incentivized to really drive us and the customer, and I say we both, to drive, better availability rates, more component and LRU system components, time on wing, all of that type of behavior, that's what a PBL incentivizes. Having said that, you know, ultimately, it's a customer decision in terms of how they want to contract. And the way they've approached it is they really paused the PBL approach. For the next few years anyway, we're looking at a transactional, kinda similar to what we have been doing.
Right.
So even a transactional, we could still align interests to try to make sure that we can improve availability rates, and service rates for the aircraft. And that's what we'll do, with our customer. We think there's still a lot of value to be had there. We still think that we can drive performance improvement and really, improve service rates for our end customers, working in partnership with the Joint Program Office. But right for the short term anyway, over the next few years, you're not gonna see it through a PBL. Unlikely.
Okay. So we'll continue to see. But with the fleet growing, you know, we'll continue to see growth in that maintenance portion of the F-35.
Sure. Yeah.
It'll be just in line with the, you know, the fleet and flight hours and, and those kinds of,
Right. I mean, recall in I think it was in 2021, we mentioned that we expect the sustainment to grow at a CAGR of 6%. We still expect that to be the case.
Yep. Okay. Excellent. Maybe, thinking about a different part of the aeronautics portfolio, you know, the classified piece, which, admittedly is difficult to talk about, but, that work has probably doubled or so over the past four years.
I don't know what you can tell us, but should we think about that being driven by, like, a small handful of programs? Should we think about that being driven by a very wide range of programs? What's kind of driven that massive growth in the Skunk Works?
You know, it's a function of both. They have a wide range, a high number of programs there. In terms of driving growth, there's probably a smaller population that is driving growth. And so in our outlook, it does assume that there would be some competitive wins in there. So it's not just kinda the run rate of what we're looking at and what we have. We do have to win some new business in there. But, you know, it's as you would expect, technology development. You've seen it at, you know, the customers talk about what they're looking for in prioritizing technology. And, you know, for us, you know, you think about what we are. We're the fifth-gen provider.
Okay.
You know, improving those technologies, be it stealth, be it new mission systems, things like that. We continue to drive advancements in those areas. You talk about data fusing and processing capability. You know, we're working that quite a bit. And so a lot of where you see the customer's technological priorities is exactly the type of work we're doing through our own internal investment but also through contracts with them.
Right. Okay. And then I guess when we think about the, you know, usually when we think about that part of the aeronautics segment, it's kind of a, you know, it's development work, and it has a return on sales that's consistent with that, you know, with that level of risk. How do we think about the potential for the development work that's been driving the growth to turn into production work over the next, you know, let's say, two, three, four years?
It'll take some time, Seth. Those programs, you're probably looking at a longer development cycle. So over the next 2-3 years, you would probably stay—I would call it—it probably in development phases. It will take a little bit longer than that to get into production. But as you've seen, I, you know, it's typical in the industry where you have development margins kind of maybe mid- to high-single-digit, and then you get into low-rate production, where you're probably in the same ballpark, which is low- to maybe high- or mid- to high. And then as you get into full-rate production, where you're starting you're getting to get learned out, you see the margins kinda creep up.
Right.
They go from there, and you just continue to take cost out. But that is a much longer cycle than 2-3 years. You're talking probably 5-7 in that ballpark.
Okay. Yep. Yep. Okay. And then within that category, I don't know if this is something you're able to talk about, but, you know, we know it's been reported in the press that Lockheed was among five companies that got a contract to develop a Collaborative Combat Aircraft . It's an area that's been a focus, you know, very much in terms of what the Air Force and Secretary Kendall are talking about. It's an area where, you know, you would think based on its capabilities and, you know, technological prowess that Lockheed would, you know, be able to make a real contribution but also not necessarily known historically as a, you know, major unmanned provider.
Is there anything you can tell us about, you know, your approach to that market, the extent to which you're doing it independently or with a partner, you know, how it fits into that kind of 5-7-year profile you talked about?
Yeah. You know, it's interesting because, you know, Lockheed Martin's been around for quite some time. And, you know, you probably wouldn't necessarily equate Lockheed Martin with being more than a hardware provider. But the reality is that we're a systems integrator. And a systems integrator requires a pretty sophisticated level of software capability as well. So we view ourselves as being having a broad range of capability, both hardware development and production as well as software systems development and production as well. And so we're pretty flexible. You know, we have an, I think, approach where we can go it alone. We have the full range of capability to provide solutions to a CCA type of program. But we're open to also any type of collaboration with others as well.
It could be where we provide hardware, and we collaborate on software, or someone else provides the hardware, and we just do the software.
Right.
So we're pretty open-minded on that. We provide some command and control type of capabilities, particularly in classified areas today, which requires a high level of software capability. And so, you know, our aperture is pretty open there.
Right. Okay. Okay. And, and I guess based on that, maybe you can draw the conclusion that, you know, where we are in the life cycle of that, there's, there's still a lot of work to do.
Sure.
You know, if, if what you're doing is not I you know, is that that level where there's still many options that, there's still ways to go before we're?
Yeah. I mean, I think what they've talked about is that they've you know, there's five potential suppliers, down-selecting anyway between two to three, I think, were the latest comments that we heard from the customer. And then from there, they would, you know, continue to do technology maturation, and we'll go from there. So that will give some time to really kind of, I think, mature solutions as well as mature types of approaches.
Yep. Yeah. I mean, that kinda gets into a bigger question that I wanted to ask you about. There's this, you know, we see a lot of studies out there about the Defense Department and, you know, how it needs to kind of reorient the industrial base for, you know, a different world where you've got competition with China, which has, you know, a lot of technology and a lot of scale. And to do that, the Defense Department's gonna access all the, you know, great technology that's being developed in the civil world. But, you know, and people keep, you know, looking to that kind of tech civil Silicon Valley world.
But, you know, should we be thinking a little bit more about some capabilities that are resident in the existing defense industrial base in companies like Lockheed Martin, whether we're talking about, you know, you mentioned software development or things like artificial intelligence, where, you know, where Lockheed and, you know, maybe some of its peers might have capabilities to bring to bear?
Yeah. I think the industry as a whole has pretty good in developing capability, to be honest, with things like AI. There's been excitement when I talk about or think about Lockheed Martin in general. We stood up what we refer to as our lab. We call it LAIC . It's a Lockheed Martin Artificial Intelligence Center. We stood that up in 2021. We've got over 2,000 engineers working on artificial intelligence projects, over 300 projects. And, you know, when you look particularly on new capabilities, even on modernization capabilities, these technologies are being embedded in. And so when I mentioned, you know, software capability that Lockheed Martin has, it includes AI capabilities as well. You know, on the other hand, I would say that these entrants is a good thing.
I mean, it fosters intense competition and fosters intense more innovation. So I think, and Jim Taiclet has been a strong proponent of really merging together commercial technologies and defense applications with defense players to bring the best possible solutions to the defense customers. So, it's something that we look forward to, and we kinda frankly kind of embrace it. And, we've had partnerships that we've, you know, talked about in the past, whether it be processing capabilities with companies like Intel, other capabilities with companies like Microsoft, networking capabilities with companies like Verizon and AT&T, where we're doing exactly what, you know, the customer's kinda guiding to.
Yep.
And so, what we have is the benefit of experience, the mission knowledge, as I told you, the broad range of capability. But to the extent that there are new technologies that are being matured, we can bring those in and help mature those in an accelerated fashion. So, you know, we're excited, frankly, about the potential to bring in commercial technologies into defense.
Excellent. Often I keep asking questions and forget to look out at the audience. But maybe we'll just take a brief pause here, see if there's any questions from the audience.
Okay.
Okay. Well, we'll also keep going. So, you know, we talked a little bit about the Aeronautics business. Another segment that I wanted to focus on was Missiles and Fire Control.
For, I guess, for two reasons. I, you know, first of all, you've told us a fair amount and I think really, you know, prepared people for some profitability headwinds that are coming from a classified missile program. And I guess, you know, is there any update that you can give us now in terms of, you know, when to expect the customer to exercise production Lots and the impact that might have?
Yeah. Well, I mean, the timing of losses is based on, not necessarily based on their exercise of the option. It's based on our assessment on whether it's probable. Once it becomes probable, we believe it's probable, then we'd have to recognize there's a loss in advance of the exercise actually happening. And so we go through that as a number of factors that we have to go through and based on just the facts and circumstances in each case. You know, it's becoming more and more likely that we'll probably see the loss on the first one being exercised or not being exercised but being recognized here in this quarter, in the Q1. So that would be the first one. We talked about maybe one in the first half, one in the second half. And so that's where we are.
We're coming pretty much on track to that, and we'll see. You know, it's also possible and I've talked about this in the past where we can see multiple Lots being exercised all at once, depending on our assessment on the probability of those being exercised.
Right.
So that can happen at any time. But right now, for the time being, what we had embedded in our guide was our assessment that at least two Lots would be probable and that we would exercise and we would. I recognize those losses this year.
Right. Okay. Okay. Is there, I guess, in terms of the , can you remind me? Is it about five Lots in total?
Yeah. In that ballpark. Yeah.
And so is there a point at which you say, "Okay. They've gone this far down. Now we say that all the Lots are probable," kind of like, I mean, the charge that Northrop took last quarter on B-21, and they said, "Look, all five Lots out through 2028 or so, we're, you know, we're assuming that those are probable.
Is it do you reach a tipping point?
Yeah. You know, it's again, it's a combination of factors. It's where we're progressing on the technology, our progress, the customer's assessment of our progress, our visibility or our view on the likelihood of funding being allocated over a number of years to that particular program. And as more and more of those kind of start to answer in the affirmative, then the more likely it becomes that they're gonna be exercised, and therefore, we'd have to recognize the losses quicker.
Right. Okay. Okay. And so, you know, that's kind of the challenge in missiles and fire control. But, you know, let's also talk about some of the opportunities.
Yeah. You know, you think about Missiles and Fire Control and what we've seen, and they've got their, call it their kind of legacy programs. They've got a significant runway of growth over the next few years. And they're really gonna be our growth engine. There you see this year you know, last year we ended the year at a little bit over $11.2 billion in sales. We're expecting them to be around $12 billion, so $750 million of sales. And I would expect that kind of level of growth for the next few years there.
And so they're certainly gonna be our growth engine, whether it's things like you know, you hear whether it's Javelin, things like GMLRS, HIMARS, PAC-3, JASSM and LRASM, all of those programs. In fact, you know, there was announcement of JASSM with the country of Poland yesterday. So there's significant both domestic and international demand for those systems. And so we see a pretty solid line of sight to growth there at MFC. We're pretty bullish on that.
Right. Yeah. No, that makes sense. I mean, we've seen the backlog growth. I guess when we think about the combination of, you know, classified profitability headwinds, top-line growth, and maybe I think what you just outlined was probably about a 7% type of top-line growth.
Range over the next few years. But with, you know, losses on the classified program, yeah, I guess there's still net, we're talking about profit growth?
Oh, absolutely. You'll see, you know, and I think starting next year, we'll see a growth profit growth, at least in line with sales growth.
Okay.
So, you know, the margin compression this year, that the losses will normalize starting in 2025 going forward, assuming that we recognize them on annual increments. If that's the case, under that scenario, their profit will grow at least in line with sales.
Right. Okay. Okay. Excellent. And then, you know, one of the challenges in ramping up in Missiles and Fire Control, we know the demand is there. There's been supply chain challenges there, specifically with solid rocket motors. You know, how is that situation evolving? You know, how confident are you in being able to get the solid rocket motors that you would need to underpin that level of growth?
Sure. That's a good question, Seth. So, you know, when you look at it program by program, there's, we've seen some programs move forward and progress being made and some programs where the progress hasn't been made. So we're tracking that incredibly very closely. And, you know, it's a reason why you've heard Jim Taiclet in the past talk about trying to expand our source of supply there. And it's really to just increase industry capacity as well as capability. But given where we are kind of in the short term, right now, we see us being able to keep up with this pace, and it's really more of a year-by-year thing because it keeps on stepping up. And as you know, I'll kinda I'll throw some numbers out.
You know, GMLRS, we're expecting to go from 10,000 to 14,000 over the next few years there. PAC-3, we're going up from about 400 a year to 550 starting next year and then ramping up to 650 in 2026. And so those are some key programs that are reliant on solid rocket motors that we need to keep pace. And what I can say is that we're on a path, but it's not, you know, it's not totally locked in yet.
Right. Okay. Maybe, I guess I'll when we look at last year, I think the company grew the workforce by something like I wrote down, actually, about 5% or so.
What do we think it is that kind of focused in that Missiles and Fire Control segment in preparation for this ramp that you're talking about?
Well, it varies. You know, it certainly missiles and fire control is, as I mentioned, being the growth engine. It is one area. The classified area in aeronautics is another. There's been some also at, say, RMS, particularly on these joint all-domain and command and control type systems where we're ramping up headcount there as well. And so, you know, we've seen it across our business areas where program growth is driving headcount requirements. And, you know, we grew headcount 5% last year. Our revenue was up 2% to a little bit almost 2.5%. And so there's a little bit of catch-up that we'll see this year. And that's why I think our headcount will probably be flattish this year.
because and we'd also see, you know, there are, you know, we're seeing headcount reduction in certain areas where program transitions are phasing down, and the skill set matches where we have growth. They're just not there.
Right.
And so you just have to do some, you know, some transitions.
Yep. That makes sense. Makes sense. Maybe turning to the RMS segment, you know, the news we've seen that this year was the Army's decision to cancel the FARA program , but also to repurpose some of that money toward Black Hawk.
which is another Sikorsky program. I guess when you think about that, how does that play out for Sikorsky? And maybe specifically, how do you think about kind of maintaining engineering and development capabilities within Sikorsky, kind of absent a large new program?
Yeah. If you think about maybe over the next 4-5 years, I mean, Sikorsky's top line outside of without FAR is probably flattish to maybe slightly up. And that's really on the back of, of significant growth in the ramp-up on the CH-53K program. We'll also see we've also seen over the next few years some, some growth in the, MH-60 Romeo program and some solid demand there, solid backlog we're working through. And then the Black, you know, the Black Hawk modernization will be helpful. You know, we're, we're having dialogues on potentially getting to another multi-year
and then also just modernizing the aircraft. So that will give us some support for engineering. It's not one-for-one in terms of modernization capabilities, in terms of what we are gonna see on FAR. And that's still a work in progress in terms of what we can expect for, you know, engineering development requirements over the next five years or so. And so it's still a work in progress. But I would say, you know, kinda, you know, their outlook. It's kinda maybe flat to slightly up. The Black Hawk modernization with a new multi-year, well, frankly, relative to Sikorsky with FAR, probably is marginally accretive because of just a legacy program there and being in a forward production type of environment for the Black Hawk program.
So, you know, I think the question here is more longer term, where does Sikorsky go from there? There are some international opportunities for X2 technology.
And so that would be a case for continuing to develop and mature that technology.
And so we just—it's a work in progress for us, though. But I think that, you know, I think the Army recognizes kind of a need to maintain some DIB capacity and capability. And we're seeing, you know, hopefully, we continue down the path of a Black Hawk modernization with another multi-year.
Yep. Okay. Excellent. And then, you know, when we think about our RMS outside of Sikorsky, it's very you know, think of it as kind of a very broad business.
Without, you know, very specific program drivers or bottom-up program drivers. So how do you think about the potential growth of that business, you know, maybe relative to the, the company overall, the mission systems portion of RMS?
Yeah. And so you think about, say, RMS in the aggregate, so Sikorsky, you talked about kind of maybe flat to slight growth.
Right.
Then overall, we saw, you know, I see probably more in the low single-digit growth for the entire portfolio of RMS. And that's really on the back of what we're seeing of a lot of these JADC2 programs that we've won, things like AIR6500 in Australia.
Which, again, is a Joint All-Domain Command and Control system, Defense of Guam system , that we also won. And so we see continued, you know, capability sustainment on the Aegis program. There, we won a program called SESI, which is kinda follow-on type of work on Aegis. And so a lot of these command and control systems, we're in a good position there, and that'll be a source of growth. The other one I'd say is on land radar systems. So we won a program in Norway last year, and we see a lot of opportunity of taking the program. We, you know, you'll see in our 10-K, the LRDR, long-range discriminating radar. That technology has spawned off other land-based systems that we're able to take and deploy.
And we see a lot of opportunity in that space area as well, both domestically and international. So those will be the three, the two kinda key drivers of growth. We've also kind of won some programs in our training logistics, systems business, a little bit smaller. So I'd say that kind of those three real elements would be Joint All-Domain Command and Control type of capabilities and programs, followed by radar systems and then some training systems.
Okay. Okay. And when we think about that interplay with the mission systems growing faster than Sikorsky, is that a mix accretive change?
I'd say pretty fairly neutral.
Neutral.
Yeah. I mean, yeah, I, I'd say fairly neutral.
Okay. And then, the space business—I mean, space has been a very dynamic area recently where the customer has, I think, really been looking to do some things differently. You know, how are you thinking about your space business in that context? And, you know, what are you doing in the space business to adapt to the changes in the landscape?
Yeah. You know, you think about the, the space industry, particularly kinda call it intelligence, ISR and defense space, well, over the last five years, you've seen a shift in, in architectures from these large, exquisite type of systems, you know, one or two bespoke type satellite vehicles with a with a high technological capability, but few and vulnerable, to these proliferated constellations that provide more resiliency in them. And you've seen, you know, programs like in the SDA, whether it's communication satellites or ISR type of capability for missile warning. And so, you know, I think that we've been pretty effective in terms of that transition towards going from, from GEO and even MEO type of capabilities, very exquisite type of capabilities, to these, smaller satellite capabilities, which are just many and numerous.
And so you're going from a bespoke type of thing to more of a production type of system. And so, you know, we've run three different programs on SDA Transport Layer . We just recently were announced we're selected on a Tracking Layer , which is missile warning. So that now combines our communications capability with our ISR capability there. And so I think that we've transitioned well there in developing that technology. And I think that's gonna be the way to come. That what you see there, it's gonna be more of a recurring revenue stream because these systems are not built like these exquisite systems where they're 15-, 20-year type of expected lives. Here, you've got five to seven years. So you'll see a more frequent recap cycle, which will allow itself for more recurring revenues.
Right. Do those recap cycles also then does that become an on-ramp for additional competition?
It does. I think that when you think about what, you know, these competitions have had today, even today in these, they're contracting for various tranches.
Right.
So they're contracting for, you know, maybe 40, 50 satellite vehicles at a time with different contractors for the same capability. They're keeping, I think, a wide supply base for that, which I think is smart. It does build resiliency but also maintains competitiveness there. You'll continue to see, I think, capable providers in a competitive environment. It'll, you know, the onus will be on us in the industry to make sure that we attain and maintain cost competitiveness.
So it's just really the exquisites. They'll still be exquisites. They're not going away completely, but really, the architecture has moved over to this proliferated constellations.
Right. Okay. Well, we spoke about most of the segments. And I wanted to ask a question kind of more at the corporate level about pension. And, you know, Lockheed still has a fair amount of CAS reimbursement.
You know, you've talked a lot about the profile for 2025, the upcoming required contribution. But I guess when I feel like one of the things investors wanna know when they're thinking about Lockheed's cash flow outlook, you know, in the second half of the decade is how to think about the role of pension in those cash flows, both the cash in from the government, the CAS, and the contributions. And so I don't know if there's anything, you know, you can tell us that's a little bit longer dated with regard to the pension outlook.
Yeah. You know, I think the cash contributions, there is a tail associated. So it goes beyond 2025. And we're going to approach a period where we're able to continue to recover your CAS costs. We're gonna have to continue to make contributions, cash contributions. But there's various ways of dealing with that. You know, I've talked about maintaining an expectation with the company where we'll continue to grow absolute free cash flow, at least at a low single-digit rate, and coupled with share repurchase deliver free cash flow per share at a mid-single-digit rate is our target. And so there's organic capabilities, opportunities we'd have to really reduce, continue to rework down our working capital asset base to free up that cash to really help fund that.
The other opportunity that we have is the fact that we have a strong balance sheet. So we may find ourselves in a situation where we, you know, issue, well, debt. So we trade one liability for another.
Right.
Take some of that off the table.
Free up to F-35, you know, our cash requirements there as well. And so we have optionality and flexibility. It's a decision we'll make over time here. But, you know, we're laser-focused on continuing to drive that mid-single-digit free cash flow per share.
Right.
So yes, there's a drag, but I think that we've got solutions that we're working on to deal with it, to not let it get in the way.
Right. Okay. And then do we think about that as, you know, the contributions that the company's gonna make in, you know, 2025 and beyond, those will eventually be reimbursed?
Yeah. I mean, right now, we still have a pre-pension, pre-pension payment credit.
Right.
You're right. What we're dealing with in 2025 is more actually required ERISA funding.
Right.
But then that enables CAS. It will increase our prepayment credits too.
Right.
But then, you know, it'll quickly run light. And so we'll have to continue to fund in order to get CAS recovery.
Okay.
As I mentioned, I think we have a path to be able to offset that.
Yep. Okay. Okay. No, another cash question. You know, working capital is something you've talked about as an opportunity, throughout the company.
Is there a, you know, if it's too simple to reduce it down to one number, but is there a way that you think about it in terms of maybe where working capital should be as a percentage of sales if, you know, if Lockheed's gonna be growing, let's say, at a pace that's, you know, consistent with the budget, and where working capital should be as a percentage of sales in that environment, or even just, you know, the opportunity that you see, you know, from here?
Yeah. I mean, you know, look at today, you know, we're around, say, 10%-ish.
Yeah.
Around that ballpark. You know, I, I think that it, it certainly can come down. And you think about, you know, that you're talking in the range of, of you know, you convert that to turns, about 10 turns per year, which is pretty good for a defense company. But having said that, you know, you look at you look specifically at our working capital, and, and we carry a fair amount of, of inventory that we probably need to be a little bit smarter about in terms of carrying that. Of course, you wanna protect protect protection, production programs and, and wanna make sure those don't go, you know, get disrupted in any way. But there are ways of dealing with that a little bit smarter than we have. And, and so we can reduce that and unlock cash there. The other element would be on our contract assets.
When you look at that, that asset alone, it's in excess of $12 billion.
Okay.
When you look at that, there is again being smarter in our contracting, making sure that we can line up milestone billings associated with when we spend cash, and then also making sure that our payment streams with our suppliers are aligned to the cash receipts that we're gonna get. So, there's just a lot of opportunity. Then once you've kinda reached that, those contracting, get the milestones, the cash milestones to where you think they should be, making sure you can execute to that. So, you know, that's where I see the opportunity for us operationally to make a big dent in that $12 billion balance.
Okay. Excellent. With that, I see that we are at time. And so we'll, we'll wrap it up here. But Jay, thank you very much for being here.
Thank you, Seth. Appreciate you having Lockheed Martin here.
Yeah. Of course. Thanks very much.
Thanks.
Thanks, everyone.