Northrop Grumman : Presentation Slides 779.4 KB

NORTHROP GRUMMAN

Fourth Quarter 2022 Conference Call

January 26, 2023

Kathy Warden

Dave Keffer

Chair, Chief Executive Officer	Corporate Vice President
and President	and Chief Financial Officer

Forward-Looking Statements

This presentation and the information we are incorporating by reference, and statements to be made on the earnings conference call, contain or may contain statements that constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as "will," "expect," "anticipate," "intend," "may," "could," "should," "plan," "project," "forecast," "believe," "estimate," "guidance," "outlook," "trends," "goals" and similar expressions generally identify these forward-looking statements.

Forward-looking statements include, among other things, statements relating to our future financial condition, results of operations and/or cash flows. Forward-looking statements are based upon assumptions, expectations, plans and projections that we believe to be reasonable when made, but which may change over time. These statements are not guarantees of future performance and inherently involve a wide range of risks and uncertainties that are difficult to predict. Specific risks that could cause actual results to differ materially from those expressed or implied in these forward-looking statements include, but are not limited to, those identified and discussed more fully in the section entitled "Risk Factors" in the Form 10- K for the year ended December 31, 2022,and from time to time in our other filings with the Securities and Exchange Commission (SEC). These risks and uncertainties are amplified by the global macroeconomic, health, security and political environments, including inflationary pressures, labor and supply chain challenges and the COVID-19 pandemic, which have caused and will continue to cause significant challenges, instability and uncertainty. They include:

Industry and Economic Risks

• our dependence on the U.S. government for a substantial portion of our business
• significant delays or reductions in appropriations and/or for our programs, and U.S. government funding and program support more broadly, including as a result of a prolonged continuing resolution and/or government shutdown, and/or related to hostilities and other global events
• significant delays or reductions in payments as a result of or related to a breach of the debt ceiling
• the use of estimates when accounting for our contracts and the effect of contract cost growth and our efforts to recover or offset such costs and/or changes in estimated contract costs and revenues, including as a result of inflationary pressures, labor shortages, supply chain challenges and/or other macroeconomic factors, and risks related to management's judgments and assumptions in estimating and/or projecting contract revenue and performance which may be inaccurate
• continued pressures from macroeconomic trends, including inflation, supply chain delays and disruptions, and labor challenges, including on costs, schedules, performance and ability to meet expectations
• increased competition within our markets and bid protests

Legal and Regulatory Risks

• investigations, claims, disputes, enforcement actions, litigation (including criminal, civil and administrative) and/or other legal proceedings
• the improper conduct of employees, agents, subcontractors, suppliers, business partners or joint ventures in which we participate, including the impact on our reputation and our ability to do business
• changes in procurement and other laws, SEC, DoD and other rules and regulations, contract terms and practices applicable to our industry, findings by the U.S. government as to our compliance with such requirements, more aggressive enforcement of such requirements and changes in our customers' business practices globally
• environmental matters, including unforeseen environmental costs and government and third party claims
• unanticipated changes in our tax provisions or exposure to additional tax liabilities

Business and Operational Risks

• impacts related to health epidemics, pandemics, including the COVID-19 pandemic, such as labor, supply chain or financial, schedule or cost impacts (without corresponding recovery), among other impacts
• cyber and other security threats or disruptions faced by us, our customers or our suppliers and other partners, and changes in related regulations
• our ability to attract and retain a qualified, talented and diverse workforce with the necessary security clearances to meet our performance obligations
• the performance and viability of our subcontractors and suppliers and the availability and pricing of raw materials and components, particularly with inflationary pressures, increased costs, shortages in labor and financial resources, supply chain disruptions, and extended material lead times
• environmental, social and governance matters, including especially climate change, their impacts on our company, our operations and our stakeholders (employees, suppliers, customers, shareholders and regulators), and changes in laws, regulations and priorities related to these issues
• our exposure to additional risks as a result of our international business, including risks related to global security, geopolitical and economic factors, misconduct, suppliers, laws and regulations
• our ability to meet performance obligations under our contracts, including obligations that require innovative design capabilities, are technologically complex, require certain manufacturing expertise or are dependent on factors not wholly within our control
• natural disasters
• products and services we provide related to hazardous and high risk operations, including the production and use of such products, which subject us to various environmental, regulatory, financial, reputational and other risks
• our ability appropriately to exploit and/or protect intellectual property rights
• our ability to develop new products and technologies, progress digital transformation, and maintain technologies, facilities, and equipment to win new competitions and meet the needs of our customers

General and Other Risk Factors

• the adequacy and availability of, and ability to obtain, insurance coverage, customer indemnifications or other liability protections
• the future investment performance of plan assets, gains or losses associated with changes in valuation of marketable securities related to our non-qualified benefit plans, changes in actuarial assumptions associated with our pension and other postretirement benefit plans and legislative or other regulatory actions impacting our pension and postretirement benefit obligations
• changes in business conditions that could impact business investments and/or recorded goodwill or the value of other long-lived assets, and other potential future liabilities

You are urged to consider the limitations on, and risks associated with, forward-looking statements and not unduly rely on the accuracy of forward-looking statements. These forward-looking statements speak only as of the date this presentation is first issued or, in the case of any document incorporated by reference, the date of that document. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.

This presentation also contains non-GAAP financial measures. A reconciliation to the nearest GAAP measure and a discussion of the company's use of these measures are included in this presentation.

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2022 Highlights

Enterprise Spotlight

• First images from James Webb Space Telescope released
• B-21unveiled
• Integrated Battle Command System (IBCS) successfully completed Operational Test & Evaluation
• Developing next generation AESA radar for the F-35

Financial Results

• Awards of $39.3 billion, book to bill of 1.07x
• Organic Sales* growth of ~3%, at high end of guidance range
• GAAP EPS of $31.47, Transaction-adjusted EPS* of $25.54, above high end of guidance range
• Generated over $2.9 billion in operating cash flow

Capital Deployment

• Invested over $2.6 billion in R&D and capital expenditures, over 7 percent of sales
• Increased our dividend by 10%, our 19th consecutive increase
• Returned over $1.5 billion to investors via share repurchases

* Non-GAAP financial measure. See Appendix.

$79B

Backlog

$36.6B

Sales

$25.54

Transaction-

adjusted EPS*

$2.9B

Operating Cash

Flow

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Q4 Sales

Sales

$9,083 $8,720

16%

$10,033

$8,639

Q4 2021

Q4 2022

	Three Months Ended December 31
($M)	2021	2022	▲%
Aeronautics Systems	$2,631	$2,757	5%
Defense Systems	1,378	1,657	20%
Mission Systems	2,521	2,927	16%
Space Systems	2,658	3,278	23%
Intersegment Eliminations	(549)	(586)
Total Sales	$8,639	$10,033	16%

Timing of material receipts and strong hiring generated outstanding Q4 sales growth

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Q4 Segment Operating Income* and Margin Rate*

Segment Operating

Income*

	17%				Three Months Ended December 31
			Segment Operating Income*	Segment Margin Rate*
			($M)	2021	2022	▲%	2021	2022	▲
			Aeronautics Systems	$220	$289	31%	8.4%	10.5%	210 bps
			Defense Systems	167	183	10%	12.1%	11.0%	(110) bps
	$1,136
$970		Mission Systems	402	452	12%	15.9%	15.4%	(50) bps
			Space Systems	256	297	16%	9.6%	9.1%	(50) bps
			Intersegment	(75)	(85)
			Eliminations
			Total	$970	$1,136	17%	11.2%	11.3%	10 bps
Q4 2021
Q4 2022

Q4 Segment Operating Income* reflects higher sales and continued strong execution

* Non-GAAP financial measure. See Appendix.	Fourth Quarter 2022 Conference Call	5