Lockheed Martin (LMT) Q4 2022 Earnings Call Transcript

Lockheed Martin (LMT 1.71%)
Q4 2022 Earnings Call
Jan 24, 2023, 11:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, everyone, and welcome to the Lockheed Martin fourth quarter and full year 2022 earnings results conference call. Today's call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Maria Ricciardone Lee, vice president of investor relations. Please go ahead.

Maria Lee -- Vice President, Investor Relations

Thank you, John, and good morning. I'd like to welcome everyone to our fourth quarter and full year 2022 earnings conference call. Joining me today on the call are Jim Taiclet, our chairman, president, and chief executive officer; and Jay Malave, our chief financial officer. Statements made in today's call that are not historical facts are considered forward-looking statements and are made pursuant to the safe harbor provisions of federal securities laws.

Actual results may differ materially from those projected in the forward-looking statements. Please see today's press release and our SEC filings for a description of some of the factors that may cause actual results to differ materially from those in the forward-looking statements. We have posted charts on our website today that we plan to address during the call to supplement our comments. These charts also include information regarding non-GAAP measures that may be used in today's call.

Please access our website at www.lockheedmartin.com, and click on the investor relations link to view and follow the charts. With that, I'd like to turn the call over to Jim.

Jim Taiclet -- Chairman, President, and Chief Executive Officer

Thanks, Maria, and good morning, everyone. Hope you've all had a good start to the new year. And I thank you for joining us on our fourth quarter 2022 earnings call as we review our results, key business area accomplishments, and our outlook for 2023. I'd like to begin with a few highlights from the quarter and from the year, and then Jay will review the financials in a more detailed manner.

Lockheed Martin had a strong close to 2022. All of our business areas met or exceeded our prior expectations, resulting in a 2022 full year sales of $66 billion, segment operating profit of $7.2 billion, and earnings per share of $21.66. Our free cash flow for the year of $6.1 billion also came in above our prior expectation, while backlog for the year increased to $150 billion, driven by all-time record orders for Lockheed Martin. Our financial results included more than $1.7 billion of independent research and development investments, or IRAD, a new high watermark for the company.

We also continued to modernize and streamline our operations to increase efficiencies and reduce costs. Significant capital projects include our ongoing investment in what we call One Lockheed Martin transformation, or 1LMX. This is our multi-year internal project to transform our business processes and systems from end to end by implementing new digital tools in our operations and expanding our use of model-based engineering to enhance our speed to market and our cost competitiveness. In 2022, we completed a majority of the detailed design for our new systems and business processes.

And for 2023, we expect to complete the detailed design and implementation roadmaps that go with it, and then we'll transition to the system, build, and configuration phase over the next couple of years. These IRAD and capital investments accelerate the capabilities our customers need and for our operations to efficiently and effectively meet those needs. From a capital return perspective, we delivered approximately $11 billion to shareholders in 2022 via share repurchases of $7.9 billion and dividends of $3 billion. During the fourth quarter, specifically, we entered into a $4 billion accelerated share repurchase program, and we have retired approximately 7 million shares under that agreement so far.

We expect to complete our remaining repurchase authorization of $10 billion over the next few years, consistent with our focus to deliver free cash flow per share growth to you, the investor. These operational and financial results created significant value for our shareholders, ending the year with a total shareholder return of 40%. I will touch briefly now on the Department of Defense, or DOD, budget. In late December, Congress signed that the FY '23 omnibus spending bill into law, appropriating $858 billion for national defense, including $817 billion for the DOD base budget.

This reflects approximately 10% growth year over year for both national defense and the DOD base budget. The law also represents a 6% or $45 billion increase from the president's budget request for DOD. These appropriations enabled us, along with the Joint Program Office, to finalize the contract for the production and delivery of up to 398 F-35s for $30 billion in lots 15 and 16, including the option for lot 17. Further, several other of Lockheed Martin's programs received the funding levels necessary to drive the growth outlook we've previously identified, including our combat rescue helicopter, the C-130J.

Black Hawk, CH-53K, and THAAD. We view this funding outcome as positive for the future, and our current expectation is that growth will materialize over the longer term starting in 2024. Let's now turn to the four growth pillars, programs of record, hypersonics, classified activities, and new awards. With regard to programs of record, there are several important developments in key signature programs in our fourth quarter.

On the F-35, the definitization of lots 15 through 17, as I mentioned a minute ago, included the first F-35 aircraft to be produced for Belgium, Finland, and Poland. We received authorization to procure long lead items for lot 18 F-35 aircraft for the U.S. Air Force, Marine Corps, Navy, and U.S. allies as well.

We also formally welcome Germany, the ninth foreign military sales country to the F-35 Lightning II program. And earlier in January, Canada officially became an F-35 operator, as the country selected the aircraft to replace its aging fighter fleet. We continue to expect deliveries of the F-35 to ramp to 156 by 2025 despite the temporary pause in flight operations and corresponding suspension of engine deliveries that began in December and resulted in the delivery of just 141 F-35s in 2022, seven shy of our expectation of 148 before the engine issue was discovered. Also, in the quarter, the U.S.

Navy authorized the CH-53K King Stallion heavy-lift helicopter to enter full-rate production and then its deployment phase. This important milestone allows the program to proceed beyond low-rate initial production. And this achievement attests to our long-standing partnership with the U.S. Marine Corps and instills confidence and stability in Sikorsky's diverse domestic supply chain.

In addition, at Sikorsky, international demand for the Black Hawk remains strong. Last week, the Australian army announced it will acquire 40 UH-60M Black Hawk helicopters to replace its current multi-role helicopter fleet. Deliveries are expected to begin for Australia this year. Further, the Lockheed Martin built Orion exploration class spacecraft launched on NASA's Artemis-I and completed a 25-day flight test, splashing down off the coast of California.

This successful mission takes us one step closer to the first woman and first person of color setting foot on the moon. On its journey, Orion traveled more than 1.4 million miles through deep space and surpassed records for total distance. It traveled 270,000 miles from home and the farthest distance from Earth by a spacecraft designed to carry humans. We look forward to the next stages of the program with seven additional missions under contract.

Turning to hypersonics. In December, Lockheed Martin Missiles and Fire Control and the U.S. Air Force successfully conducted a hypersonic-boosted flight test of the air-launched rapid response weapon. This was the first launch of a full prototype operational missile, meeting all its objectives for the test, including reaching speeds of greater than five times the speed of sound.

With regard to classified programs, we achieved successful milestones across multiple business areas in 2022 and grew 5% year over year. We continue to expect growth in classified that will outpace the rest of the portfolio over the next several years. And finally, at new awards, Lockheed Martin's next generation interceptor, or NGI, continues to make progress. In late October, we announced the delivery of the first NGI flight software package to the Missile Defense Agency, providing the framework of software development tools, process workflows, scripts, and environments.

The delivery was ahead of schedule and is a critical step on the path for flight testing and fielding. This program remains a focused competition for Lockheed Martin, with the first NGI forecast for delivery in 2027. With regard to the future long-range assault aircraft, or FLRAA, competition, we were disappointed in the U.S. Army's decision.

And upon review, we determined the formal protest by Sikorsky on behalf of Team DEFIANT to be the best course of action. We continue to believe that DEFIANT acts with its increased speed, range, maneuverability, and survivability is the transformational and most cost-effective aircraft that best meets the selection criteria for this competition. Sikorsky remains one of two competitors for the other component of the future vertical lift initiative. It's called the future attack reconnaissance aircraft, or FARA, which is currently expected to be awarded in 2025.

The first RAIDER X competitive prototype is over 90% complete and has more than 65% of its acceptance test procedures already done. Sikorsky is the only company with a representative FARA technology demonstrator aircraft, I saw it fly down at West Palm Beach a few months ago, it's amazing, the S-97 Raider, which has completed more than 110 flight hours. In November, Norway became the first international customer for our new TPY-4 radar. It's the first software-defined radar that outperforms in target detection, mission diversity, and transportability.

Norway is going to receive eight of Lockheed Martin's TPY-4 radars with options for three additional radars. Finally, backlog ended 2022 at $150 billion with book-to-bill up 1.2 times and increases in every business area across Lockheed Martin. This strong demand signal bodes well for future growth over the longer term for our company. So, these four pillars will guide us as we face a challenging geopolitical environment and apply a growth and integrating capabilities mindset to everything we do here.

As conflict continues in Ukraine, unfortunately, and projected global threats require coordinated efforts to protect the U.S. and our allied territories, ongoing progress in our 21st century security vision will enable the acceleration of advanced capabilities to deter these threats and drive effective joint all-domain operations for our military service customers. In the fourth quarter, we continue to announce and expand strategic agreements with America's leading commercial digital companies, such as IBM's Red Hat, to advance artificial intelligence innovation on Lockheed Martin military platforms, and for Microsoft, with whom we're going to help power classified cloud advanced technologies for the Department of Defense. Microsoft's latest secure framework will make Lockheed Martin the first non-government entity to independently operate inside the Microsoft Azure government secret cloud, ushering in a new era of cloud opportunities for the industry.

As we look ahead, demand for Lockheed Martin platforms and systems is strong in the United States and abroad. We continue to expect 2023 sales about the same levels we discussed back in October. We also continue to expect a return to sustained top-line growth in 2024 and beyond. As headwinds diminish in our program mix, the supply chain continues to recover, and our signature programs grow.

Free cash flow per share will remain a key focus as we maximize returns for you, our shareholders. 2022 is a year of great accomplishments for our company in the face of a lot of dynamic challenges. The outstanding achievements of our teams resulted from real deep commitments across our business areas and better cooperation among them, as well as our corporate functions to develop, produce, and to deliver world-class systems to our country and its allies. Our progress this year is a testament to the dedication of our 116,000 team members and the values we all share.

So, with that, let me hand it off to Jay to get more color on the financials, and we'll join you later to answer your questions. Jay?

Jay Malave -- Chief Financial Officer

Thanks, Jim, and good morning, everyone. Today, I will walk you through our consolidated results for 2022, additional business area detail, and offer a first full look at 2023 guidance. As I highlight our results, please follow along with the web chart we have posted with our earnings release today. Let's begin with Chart 3, an overview of our consolidated 2022 financials.

Lockheed Martin followed up a solid third quarter with a strong finish to 2022, highlighted by 7% year-over-year sales growth in the fourth quarter and effectively managed a turbulent year impacted by COVID and supply chain disruptions, as well as inflation levels not seen in decades. Besides sales, we also exceeded our expectations for segment operating profit, earnings per share, and free cash flow, all while being incremental headwinds tied to restructuring activities within RMS and mark-to-market losses in our investment portfolios. We also booked record orders in 2022, resulting in 11% growth to an ending backlog of $150 billion. In addition to our orders on F-35, we experienced a surge in new interest for our industry-leading security solutions, such as in classified programs in space and in missiles and fire control, where we booked approximately $1.5 billion in orders, reflecting increased demand to replenish U.S.

stocks and enhanced security positions globally. And we delivered on our commitment to boost shareholder returns by deploying nearly $11 billion to shareholders through share repurchases and dividends, while making significant investments in our businesses. Taken together, these results demonstrate the perseverance of our dedicated employees to perform in challenging environments and support our expectations for 2023 and beyond. Taking a closer look at full year results with consolidated sales and segment operating profit on Chart 4.

Sales came in higher than expected by nearly $750 million, limiting the decline to 2% year over year and essentially recovering to the sales guidance we had originally communicated last January. The stronger-than-expected performance was broad-based across all four business areas and reflects strong coordination with supplier partners to drive material throughput and program schedule performance, as well as some favorable award timing which drove additional revenue. Segment operating profit declined 2% year over year, but also finished higher than expected by almost $50 million, driven by the higher sales. Operating margins settled at 10.9%, slightly lower year over year and versus expectations, based on lower net favorable profit adjustments.

Moving to earnings per share on Chart 5, adjusted earnings per share grew 2% for the year, as the benefit from share repurchases overcame headwinds from lower segment profit and fast cash pension income. Moving to cash flow on Chart 6, we delivered $6.1 billion of free cash flow for the year, while investing almost $1.7 billion in capex at a ratio of 1.4 times depreciation. We also ended the year with nearly $1.5 billion of accelerated payments to our suppliers, maintaining our commitment to a resilient supply chain. As I noted earlier, 2022 represented a significant year of cash deployment.

In total, we returned 178% of free cash flow to shareholders in 2022, leveraging our performance and strong balance sheet, while still investing for our anticipated growth trajectory in 2024 and beyond. OK. Moving to segment results and starting with aeronautics on Chart 7. Full year sales grew 1% year over year, primarily driven by increases in our classified programs, partially offset by lower F-35 production volume.

Operating profit increased 2%, driven by higher net favorable profit adjustments, more than offsetting the impact of the lower volume. For the year, backlog at aeronautics grew 15%. As mentioned, aeronautics completed the F-35 lot 15 to 17 negotiation and secured production volumes, while providing the services with a value proposition that combines the highest performance at affordable cost. Looking at missiles and fire control on Page 8, sales decreased 3%, driven primarily by lower volume on our special ops sustainment program following the Afghan withdrawal, along with lower volume on sensors programs.

Segment operating profit was down 1%, with lower favorable profit adjustments primarily on PAC-3. For the year, backlog increased 6% on the back of tactical missile strength. Our rotary and mission systems on Page 9, sales decreased year over year by 4%, driven primarily by a nonrecurring revenue event in our training business in 2021, along with lower C6ISR and Black Hawk volume at Sikorsky. Operating profit decreased 7%, following Sikorsky and C6ISR volume and lower favorable profit adjustments on the Black Hawk program.

Backlog grew 4% in 2022, led by the defense of Guam award, where RMS will be the lead integrator of the multi-domain air and missile defense system, as well as stronger Sikorsky orders. Turning to Chart 10. In our space business area, sales decreased 2% due to the 2021 renationalization of the AWE program, partially offset by growth on our next generation interceptor program and national security space. Operating profit decreased 8%, with lower net profit adjustments partially offset by higher equity earnings from United Launch Alliance.

Backlog grew 16% based on strong classified program captures and Orion orders. So, all told, a strong finish to the year. So, let's now shift to 2023 on Page 11. Before introducing our expectations, I'd like to inform you of a reporting change in segment operating profit starting in 2023.

We will report purchased intangible asset amortization expense in unallocated corporate expense below segment operating profit. Previously, intangible amortization was included in segment operating profit. This change will not impact total earnings, and we believe the change provides a more accurate view of operating performance for each of our four business areas. The impact is approximately 40 basis points on our 2023 expectations, consistent with the impact in previous years.

Our 2023 financial outlook includes the impact of this change, and you can find supporting data for these adjustments in the appendices of our web charts, as well as in the earnings release. OK. Let's get into the outlook for 2023. We continue to expect sales to be in the range of $65 billion to $66 billion and the midpoint slightly below 2022.

Speaking to the timing of sales this year, we expect the first quarter to be our lowest quarter of the year, ramping up quarter over quarter as we did in 2022. Segment operating profit for 2023, normalized for intangible asset amortization, has improved from what we thought in October. And we now estimate only 10 basis points of headwind from 2022 with segment operating margins at 11.1% under our new reporting. We currently expect $2.1 billion of FAS/CAS income in 2023.

It's estimated to be roughly $100 million lower than '22, excluding the impact from our pension transfer transaction. Earnings per share is expected to be between $26.60 and $26.90 for '23, with the year-over-year reduction to adjusted EPS, primarily driven by lower segment operating profit and FAS/CAS income, partially offset by the benefit from a lower share count. Our free cash flow estimate for 2023 is greater to or equal than $6.2 billion and assumes continued enactment of the R&D tax capitalization. This increase of $100 million to cash generation, along with our share repurchase guide of another $4 billion, highlights our continued focus on increasing free cash flow per share for our shareholders.

This projected combination of higher free cash flow and a lower share count lead to a mid single-digit growth expectation of free cash flow per share in 2023. OK, on Chart 12, let's sum it all up. We close out 2022 with a strong finish with operating momentum and a robust backlog, which have us well-positioned to resume growth in 2024 and beyond. We also placed a premium on leveraging our strong cash generation and balance sheet to increase cash returns to our shareholders with a significant increase to share repurchases.

Across all four business areas, our breadth of development, production, and sustainment programs continue to drive a foundation of growth and sustained high performance. And we will work actively with our customers to meet their increasing demands and mission requirements, looking ahead to the future. Our investments for growth, value, and efficiency are aligned with our strategy for technology and advancement and improved synergies across Lockheed Martin. So, in closing, we believe the business the business is well-positioned for long-term growth and value creation for our shareholders.

With that, John, let's open up the call for Q&A.

Questions & Answers:

Operator

And first, from the line of David Strauss with Barclays, please go ahead.

David Strauss -- Barclays -- Analyst

Good morning, everyone. Thanks for taking the question.

Jim Taiclet -- Chairman, President, and Chief Executive Officer

Good morning, David.

David Strauss -- Barclays -- Analyst

Jim, I wanted to ask you about -- you know, you highlighted the headwinds that you have in terms of your program mix in '23 as reason, you know, for flattish sales. Could you quantify what that number is in terms of the headwind and what programs specifically you're looking at? And then, as a quick follow-up, you know, FY '23 budget came in, I think, a fair amount better than you were anticipating plus ups on F-35 and C-130. How might that change, you know, what you've previously said with regard to the reacceleration and growth in 2024? Is it better than low single digit now? Thanks.

Jay Malave -- Chief Financial Officer

So, David, let me take the first one and then go over the second part of your question to Jim. And just really talking the context of '23 and what's going to be different in 2024. In 2023, when you look at it, we've got continued growth in our four pillars, really, the programs of record that Jim had mentioned. But we do have some specific unique items to 2023.

And I'll give you an example. For example, in ARRW, on the F-35, we continue to expect mid single-digit growth in sustainment on the program. But we are expecting also a mid single-digit decline in production as deliveries catch up to the material that we had purchased in prior years. Similarly, on the F-16, we're going to see continued growth in production, you know, to roll out our backlog.

But we are seeing a reduction in modernization and sustainment programs on the F-16. So, as both of those normalize in 2023 to going into 2024, they will no longer be headwinds, which will continue to allow for growth in aeronautics, particularly in the F-35 sustainment and in F-16 production. Similarly, like MFC, you know, what we saw in 2022, and it carries over a little bit to 2023, is some of the areas where we see higher demand from a production level, particularly in programs of record, things like PAC-3, it's taking us a little bit longer than we originally expected to ramp up. And so, we're going to see gradual improvement supply chain, as well as on our internal operations in '23, with stronger growth in 2024.

In RMS, CH-53 will double deliveries in '24 versus '23. And '23 versus '22 is pretty much flat deliveries. We also see probably some Black Hawk growth in '24 as well. And what we're going through right now is a transition from multiyear nine to multiyear 10 in RMS and Sikorsky specifically.

So, those are all things that we think will lift from '24 relative to '23. And those are headwinds that are really unique to 2023.

Jim Taiclet -- Chairman, President, and Chief Executive Officer

Yeah. And as far as where the defense budget came out, David, it really aligns with our view in our company about the nature of the geopolitical threat, the need to modernize, you know, U.S. and allied forces to continue to hopefully deter armed conflict beyond the sad and unfortunate situation in Ukraine that's already happened and the fact that there's bipartisan support in Congress to do just that. So, we've been expecting all along in our kind of long-range plan that, you know, the U.S.

government and Congress would step up to meet, you know, the reality of the global geopolitical situation. And that's exactly what played out in the budget process for FY '23. We also expect that same reality to continue to sadly exist again in the next budget cycle, which is happening even now in 2024. So, we don't see the circumstances that the fundamental is changing.

Therefore, we also believe that, you know, the continued robustness of the defense budget is going to be a reality as well.

Operator

Next, we'll go -- oh, please go ahead.

Jay Malave -- Chief Financial Officer

Yeah. Just let me follow up on your last question, David, whether or not there's upside. You know, where we see potential increases to where we were baselined before really is in MFC. Over the next five years, we've got revenue potential.

It's around $6 billion. And that would more than offset lost revenue associated with FLRAA should that decision hold. And so net-net, we see that there could be some upside over the next five years.

Operator

And next, we go to Myles Walton with Wolfe Research. Please go ahead.

Myles Walton -- Wolfe Research -- Analyst

Thanks. Good morning. Jim, maybe two, one quick one and one sort of allow you to expand a little bit. When is your expected restart of deliveries in F-35 as a quick one.

And then, obviously, there's more of a debate going on in D.C. around fiscal restraints that's been in place in the last several years. And so, I'm just curious where you think this ends up as one thing. But more importantly, what, if anything, do you do operationally to prepare yourself for whatever the outcomes are in terms of, you know, balance sheet holding back on repo or leaning forward, looking for areas where, you know, 2023 budget -- excuse me, 2024 budget might be in a continuing resolution for a full year? Anything on that perspective from an operational perspective?

Jim Taiclet -- Chairman, President, and Chief Executive Officer

Sure, Myles. So, as far as timing of resumption of deliveries on F-35, I think it's really important to differentiate between delivery and production, right? So, we are continuing production in the final assembly factories at Fort Worth, in Italy, and in Japan at the same pace we expected to before the mishap occurred. We're also continuing to order and receive parts and materials from our supply chain as well. And so, once an aircraft rolls out of the factory, our pilots and the DOD pilots conduct a handful of acceptance flights.

That's what's kind of on hold right now. It's just that, that portion of the process. So, the vast majority of our revenue, much greater than 90% is earned when the aircraft rolls out from the plant door. So, Jay can add more color on the financial perspective, if you like, a little bit later.

But that's really what happens. And so, as far as the timing of resumption of deliveries, we'll be notified of that when the U.S. government and the propulsion supplier conclude their ongoing mishap investigation. Jay, do you want to add anything to that?

Jay Malave -- Chief Financial Officer

No, I think you got it. That's it.

Jim Taiclet -- Chairman, President, and Chief Executive Officer

OK. And then, secondly, you know, we really can't predict the political dynamic in Congress within and with the administration. So, we're going to keep our head down, stay on our plan, do our job, and expect that the right thing will occur out the other end of the 2024 budget process, which is fully funding and making available that funding to the Department of Defense so we can deter conflict with them and that they can acquire what they need to do that. So, that's our expectation.

It's really difficult for us to lay out what we think the budget process will be, given, you know, the nature of the House, Senate, and the administration right now. But we expect that they are going to come together and do what's needed to defend the country and get the budget done.

Operator

And next, we'll go to Noah Poponak with Goldman Sachs. Please go ahead.

Noah Poponak -- Goldman Sachs -- Analyst

Hi. Good morning.

Jim Taiclet -- Chairman, President, and Chief Executive Officer

Good morning.

Noah Poponak -- Goldman Sachs -- Analyst

Jay, we've talked about this dynamic where the outlays are trailing the authorization and the possibility that supply chain is intertwined in that. And that was kind of tough in the first half of the year, look to be getting better in the third quarter, but then, you know, exited the year declining. Do you have any insight into incremental insight and what's going on there when that gets better? And to the extent that supply chain is related, your comments that you expect that to improve through '23, is that underway, you already see that happening? Or is that still just a logical, you know, anticipation of timing?

Jay Malave -- Chief Financial Officer

Sure. Good question. Let me follow up. And, you know, we looked at this and try to triangulate performance in number of different ways.

We looked at just straight piece part, on-time delivery during the fourth quarter relative to what we saw in the second and the third. We also looked at program performance, so earn value type metrics. And we really didn't see a meaningful change on the on-time delivery or schedule performance relative to our earned value systems. But what I will say is the fourth quarter had a significant step-up in requirements.

And if you adjust for the number of weeks in the fourth quarter relative to the balance of the year, and you also adjust for some of these benefits that we saw in terms of award timing, our requirements in the fourth quarter stepped up sequentially by about 5%. And I would say the entire value chain, whether it's our internal operations and supply chain, was able to meet that increase level of requirements. So, that to me bodes well to the future, as well as expecting gradual improvement in 2023. And I think that just provides a reasonable assumption and reasonable basis for that assumption.

Operator

And we'll go to George Shapiro with Shapiro Research. Please go ahead.

George Shapiro -- Shapiro Research -- Analyst

Yes. Good morning.

Jim Taiclet -- Chairman, President, and Chief Executive Officer

Hey, George.

George Shapiro -- Shapiro Research -- Analyst

If you look at the F-35 program, like the incremental profit you recorded, it was about a 16.4% rate. So, I assume you stepped up the margin on the F-35. And going forward then, the slight decline that you're forecasting in the margin probably reflects sustainment growing versus production. And a quick follow-up.

The $20 million charge that you took in a classified program in ARRW, was that the same program that you took large charges a couple of years ago? Thanks.

Jim Taiclet -- Chairman, President, and Chief Executive Officer

OK. So, George, I can probably answer your questions with one yes, but maybe I'll provide a little bit of color here. And I'll take the -- you're correct. On the charge we took, that was related to the program.

We continue to have some learnings there. But our team, I think, in Skunk Works is doing a great job managing that program. And, you know, this is a development program where you see and you continue to have learnings. But in the grand scheme of things, I think we've managed that quite well, and it really did not impact our results.

As far as the F-35 program, we did see some benefits there. And you're right, in the quarter, you know, we were -- the results there were augmented not only by the volume, but as well as the net profit adjustments at aeronautics. And it was across the board. I think, next year, as we think about, you know, the margin, yeah, there's a little bit of a headwind there.

I think mix does play a part in it, as well as, right now, we're planning a little bit lower favorable profit adjustments. But for the year, in the grand scheme of Lockheed Martin, this year, we did about 25% of profit in net profit adjustments. And we expect that to be somewhat similar for the entire company for '23. Thanks for the question, George.

Operator

And next, we go to Rob Spingarn with Melius Research. Please go ahead.

Rob Spingarn -- Melius Research -- Analyst

Good morning.

Jim Taiclet -- Chairman, President, and Chief Executive Officer

Good morning, Rob.

Rob Spingarn -- Melius Research -- Analyst

Jim, you know, I think everyone would agree that Lockheed's got the pole position in offensive hypersonics, a strong program portfolio there, and some recent successes. What I think people might be interested in are your efforts as well in counter-hypersonics as we might expect that to be a growing portion of the budget. Can you talk about that a little bit?

Jim Taiclet -- Chairman, President, and Chief Executive Officer

Sure. And it's largely classified, Rob, but what I can say is many of the elements of counter-hypersonics, we also have a pole position in, right? So, we've got existing products that we can take the lessons learned from and a lot of the engineering and apply them to just a faster incoming target, right? So, you know, we're working on NGI, as you already heard, which is a ballistic missile that travels at similar speeds. We have the THAAD system, which is, you know, a sort of a high-altitude interceptor as well. And then, we have PAC-3, which is, you know, very accurate, you know, lower-level, you know, farther in, if you will, defensive system.

So, we've got the engineering talent, we've got the intellectual property, and we're developing these 21st century security concepts, like applying artificial intelligence to network systems together and process data much more quickly, which, of course, you need that to process the information coming in on a Mach 5 missile, right? So, I think we have a lot of the elements that will go into the eventual counter-hypersonic solutions, and we are working on many of them right now and integrating what we have and developing what we need.

Operator

Our next question is from Rich Safran with Seaport Research Partners. Please go ahead.

Rich Safran -- Seaport Research Partners -- Analyst

Jim and Jay and Maria, good morning. How are you?

Jim Taiclet -- Chairman, President, and Chief Executive Officer

Good morning. Well, thanks.

Rich Safran -- Seaport Research Partners -- Analyst

So, I wanted to ask you about the F-16 and maybe expand on the remarks you've made just a few moments ago. I thought you might comment on things like U.S. and international opportunity set ahead. Maybe update on the first delivery expected production rates.

And if it's at all possible, maybe touch on, you know, like what margins you're expecting on the program right now. I'm just thinking that they should be pretty decent, given the move that Greenville was done to improve the cost structure on the program.

Jim Taiclet -- Chairman, President, and Chief Executive Officer

Hey, Rich. It's Jim. I'll start off quickly and hand it over to Jay for some of the background and data associated with the program. But the really great news is Block 70, which is the production article out of Greenville, the first Greenville Block 70 test flight this morning was successful.

Really great milestone for the company and for that organization in South Carolina. But there is significant demand for this aircraft. A lot of it's coming organically, I guess I'll call it, from allies around the world. Also, we're out actively marketing this jet to those countries that may not be authorized yet or maybe not have the infrastructure for F-35 at this moment but may in the future.

India is one of those. You know, I just co-chaired the U.S.-India CEO Forum with Secretary Raimondo. We're going to be going over there in a month or so with a team of CEOs from across our industry and meet with theirs and try to get collaboration going. And one of the, you know, I would say primary opportunities in that endeavor is the F-21, which is an F-16 variant specifically designed for India, for example.

So, we haven't made that sale yet. But I can tell you all the way up to my level, we are out marketing F-16, and we have a lot of organic demand coming in from either existing order customers or new ones. Jay, anything you want to add?

Jay Malave -- Chief Financial Officer

Sure, just maybe a little bit more color. You know, just on top of the first flight that we had today, the successful first flight, congratulations to our aeronautics team there, we have over 20 aircraft that are currently in process in the production phase. We will deliver anywhere between, say, seven or eight aircraft this year. And then, that will step up significantly in 2024.

And so, we're on a good path that we recognize the opportunities are in front of us. There are few countries that have been announced that we're eagerly awaiting contract finalization hopefully this year with Jordan and Bulgaria. That's about -- combined, about 20 aircraft. And so, the demand is, as Jim mentioned, is pretty significant.

And we're ramping up as we speak to be able to deliver the customer requirements.

Operator

Next, we go to Seth Seifman with JPMorgan. Please go ahead.

Seth Seifman -- JPMorgan Chase and Company -- Analyst

Hey. Thanks very much. Good morning, everyone.

Jim Taiclet -- Chairman, President, and Chief Executive Officer

Good morning.

Jay Malave -- Chief Financial Officer

Good morning.

Seth Seifman -- JPMorgan Chase and Company -- Analyst

Jay, I'm sorry to waste a question on pension, but, you know, if we look at the CAS recovery, it was about 30% of this year's cash flow. And I know there's, you know, discount rates and returns and all that stuff, but CAS tends to be, you know, much more visible than FAS on the income statement. So, you know, can you give us a multiyear outlook for the CAS recoveries over the next few years and where the balance stood at year-end?

Jay Malave -- Chief Financial Officer

Yeah, I mean -- so, for cash this year, as we mentioned, that will decline this year. I say about 100. Specifically, the CAS element will decline by about -- the recoveries by about $75 million. We'll see that decline a little bit more over the next few years as well.

And so, it'll come down in the range, I think, around $1.5 billion, $1.6 billion over the next few years. And so, that's the best outlook we have today. As you know, these things are -- they do fluctuate, you know, little volatile. So, we'll update that accordingly as we go and think about next year and what that means for 2025, Seth.

Operator

And next question is from Peter Arment with Baird. Please go ahead.

Peter Arment -- Robert W. Baird and Company -- Analyst

Yeah. Thanks. Good morning, Jim, Jay. Hey, Jay, I wanted to just focus on missiles and fire control.

Just kind of, obviously, a little transition in growth this year, but profitability kind of going to be down and also looks like close to 90 basis points. Just maybe walk us through a little bit, kind of some of the puts and takes there and just thoughts about, you know, kind of margin recovery as we think about the next couple of years when you've got all this growth. Thanks.

Jay Malave -- Chief Financial Officer

Yeah, no, good question. This is something we talked a little bit on the third quarter call. We've got some new program awards, particularly in classified, that are going to put some margin pressure, not just next year, but a few years beyond that as well. And it's really just on the early phase of this program as we head into production.

It's just low margin, and it'll take time to have those restore to margins that we've seen in the past. What I will say is that we do have the benefit of some offsetting mix with the upside that we're seeing in this business. I mentioned before, you know, a potential $6 billion over the next five years. Those will come with more solid margins, will help mitigate the reduction that we're seeing on these new programs.

But there will be some pressure there that we have to deal with. And, you know, look, the MFC team has a good track record, driving up cost, driving margins. I'm confident we'll be able to do that in the future as well, but it will take a few years to get there.

Operator

Next, we'll go to Kristine Liwag with Morgan Stanley. Please go ahead.

Kristine Liwag -- Morgan Stanley -- Analyst

Hey. Good morning, everyone.

Jim Taiclet -- Chairman, President, and Chief Executive Officer

Good morning.

Kristine Liwag -- Morgan Stanley -- Analyst

Well, maybe switching gears to a different topic. With tighter costs of capital, we've seen valuations come down on high-growth investments. Is this a better time for a corporate VC to enter into deals in attractive terms? I mean, just looking at the limitations of M&A from the FTC stance that we saw with Aerojet Rocketdyne, I mean, how should we think about the importance of Lockheed Martin Ventures to access these new technologies? And could we see ventures double from here?

Jim Taiclet -- Chairman, President, and Chief Executive Officer

Yeah. Hey, Kristine, this is Jim. One of the first things I did when I came from the board to active management was to double, as you said, to double the venture fund, right? So, it was 200 million. Now it's 400 million.

And we're actively -- actually very actively looking to invest, you know, that additional funding. In the great scheme of the company, though, it's really designed to, you know, discover emerging technology that might be applicable to our strategy and to our products and systems and help, you know, kind of develop that technology in a way that it can have utilization earlier than, perhaps, otherwise for our industry. So, we get the most benefit out of our venture fund in actual operations, production, and development of platforms and systems. We have had a nice upturn in the valuations of those investments as well, but they're not necessarily driving, you know, the ultimate results or the ultimate growth prospects of the company.

But they're indirectly doing just that.

Jay Malave -- Chief Financial Officer

And I'll just add, Kristine, I mean, it's a great point. And we've got a pretty tight alignment on the targets that we pursue to our technology roadmaps. And these are examples like joint all-domain operations, interoperability, autonomy, artificial intelligence, and other areas that will help us drive and accelerate our internal organic capability with these new emerging technologies. And so, it's a great point.

There's certainly opportunity there. As Jim mentioned, we've increased our availability funding for that, and we're excited about those opportunities.

Operator

And next, we'll go to Scott Deuschle with Credit Suisse. Please go ahead.

Scott Deuschle -- Credit Suisse -- Analyst

Hey, good morning.

Jim Taiclet -- Chairman, President, and Chief Executive Officer

Good morning.

Scott Deuschle -- Credit Suisse -- Analyst

Jay, you guys have taken a bit of a different approach on this R&D tax issue than some of your peers. And I know the subject's been beaten to death already. But I'm just curious if you've had any recent conversations with the government on whether they're going to agree with the approach you've taken. And then, I guess, just stepping back more broadly, you know, you have this uncertain tax position disclosed in the 10-Q.

Just kind of give us a sense for when you think that might get resolved. Thank you so much.

Jay Malave -- Chief Financial Officer

Sure. Good question. You know, we remain confident in the position that we've taken. We've had really no dialogue.

We are waiting on guidance from the IRS on what contract specifically would be covered. You're right that different players have taken different positions. We've remained confident in our position. We believe that that risk is a factor.

And when you are under particularly cost-type contracts, there is no risk taken by the provider of those services. Secondly, we believe the benefit is marginal because the owner or the contract of the work is really the one that takes over that technology and could transfer it to others at any point in time. And so, we think that those are sound bases and sound arguments supported by a legal team that we have in a position that we've taken. But again, it's uncertain.

In our certain tax position reflects that uncertainty. So, you know, I can't give you specific, you know, one way or the other, in terms of IRS positions because we just don't know as of yet. But I can tell you, we spent a lot of time researching this, a lot of time discussing it, deliberating it internally. And we think the position that we've come out is the right position.

Operator

And next, we go to Rob Stallard with Vertical Research. Please go ahead.

Rob Stallard -- Vertical Research Partners -- Analyst

Thanks so much. Good morning.

Jim Taiclet -- Chairman, President, and Chief Executive Officer

Good morning, Rob.

Rob Stallard -- Vertical Research Partners -- Analyst

Jay, a boring inflation question for you. Are you seeing any signs that inflation is starting to ease as it works itself through your system? Or was there any mitigation for this cost inflation that is going to be flowing through from the final FY '23 budget resolution?

Jay Malave -- Chief Financial Officer

Yeah, You know, Rob, inflation is something that we evaluate all the time. In many of our existing contracts, we have not really seen a significant impact only because, I mean, our fixed price contracts -- our suppliers are under fixed price contracts with us. Where we have seen is really on new proposals, is where we've seen some impacts, where you've got suppliers unwilling to provide longer-term price commitments, requesting what we refer to in the industry as economic price adjustments, which are escalation clauses, inflation clauses. And those are ongoing dialogues that we have with our customers as well.

And so, it's still an ongoing issue. To be honest with you, on the proposal side, we really haven't seen any type of reduction there in the pressure. It's something that we review quite often on these new proposals, and it's something that we grapple with because either you have to price in some type of inflation assumption into your proposal or you have to have some type of back-to-back agreement where you're going to have an inflation clause. And, you know, where we're getting squeezed with our customer as well is with our suppliers, and we're trying to make sure that we can accommodate, you know, both requirements here.

Operator

Our next question is from Ken Herbert with RBC Capital Markets. Please go ahead.

Ken Herbert -- RBC Capital Markets -- Analyst

Yeah. Hi. Good morning, Jim and Jay. Just wanted to ask a question here on the new award outlook.

Putting FARA aside, if you look at NGI, you know, maybe NGAD and other opportunities, what's the current expectations for timing around some awards, specifically around NGI? Are there other programs out there on the new awards side that could significantly move the needle as we think about sort of the potential impact into '24?

Jay Malave -- Chief Financial Officer

You know, if you think about a few of these, it's something that we have -- you know, I mean, you know, F-35, so we've got, you know, waiting for the -- we're expecting the production order on lot 17 in 2023. We do have a large air and missile defense program, international program. This is an important program for us this year. And so, it's probably back-half-of-the-year type of a decision.

That is included in our four pillars of growth, and we talk about new awards. There are other programs here that are classified, really can't get into the detail of those, but we expect some of those awards to be made either at the tail end of this year or into next year as well. And then NGI, we would expect to down-select around 2025. And so, there's a fair amount of markers out there in some of these programs that I just spoke between now and really in 2025 that certainly are important to us.

Jim mentioned FARA. That's probably a 2025 decision as well.

Operator

Next, we'll go to Sheila Kahyaoglu with Jefferies. Please go ahead.

Sheila Kahyaoglu -- Jefferies -- Analyst

Good morning, and thank you for the time, Jim and Jay. And, Jay, I think your margins came in a little bit better for 2023 than anticipated. Your guidance of about 10 bps higher. You know, when we think about your profitability going forward, is this sort of the expected range we should expect? And of your segments, which do you think is the biggest variable? You talked about MSC and some of the challenges there.

So, maybe if you could talk about that.

Jay Malave -- Chief Financial Officer

Yeah. Let me, you know, maybe talk about in the kind of longer-term outlook. If you look at the history of Lockheed Martin over the last probably five to 10 years, and we've reached margins in the range of 12%, I do believe we have the potential to get back to those, but that will take time. And in the short term, really, I would say, over the next three years or so, our objective will be just to hold the margins where they are because of some of these pressures that we see on these new programs, particularly at MSC.

You know, when you've got a 90 basis-point reduction in one year -- in one BA, that's a lot to really overcome. You know, we work things internally as far as both product cost reductions, overhead cost reductions to really try to drive and maintain our margin profile. But that's where we're really going to be over the next few years, really trying to maintain where we are as we recrank the growth cycle. And I think that's the key message that we have had internally.

Let's recrank the growth cycle, get ourselves -- 2024 on track to deliver the growth. As we get that flywheel turning, then we'll be able to focus and turn back around on margins and start improving margins.

Operator

Next question is from Doug Harned with Bernstein. Please go ahead.

Doug Harned -- AllianceBernstein -- Analyst

Good morning. Thank you.

Jim Taiclet -- Chairman, President, and Chief Executive Officer

Good morning, Doug.

Doug Harned -- AllianceBernstein -- Analyst

On F-35, so when you get ready to restart here, you've also, though, now flown the F-35 with Tech Refresh upgrade, Tech Refresh 3 upgrade. Can you talk about how that's progressing, how Tech Refresh 3 is progressing? And how does the progress there play into your delivery plans for lots 15 through 17? And, perhaps, you might also comment on when you get the restart, you've got these airplanes that have already been produced. Should we see those as really add-ons to 2023 deliveries?

Jim Taiclet -- Chairman, President, and Chief Executive Officer

So, Doug, let me take the first portion of your question, it's Jim, and then turn it Jay for the second piece on delivery numbers, etc. So, Tech Refresh 3 is really important in a couple of dimensions. And you're accurate in mentioning, and thank you. So, the first flight, with the TR-3 upgraded hardware and software, was literally just a few weeks ago.

We've got more software releases to go. We're going to add capability over the next couple of months. But we expect production of TR-3-capable aircraft, you know, hopefully, in this year -- during the course of this year. That's our expectation.

Now, what that does for the customer and for us in our strategy is really kind of two major dimensions. One is for the capability of the aircraft itself, it will be able to handle more weapons. It will be able to upgrade like electronic warfare capabilities. It will be able to accomplish more missions.

So, the basic functionality of the aircraft alone by itself is going to be elevated significantly by the insertion of this technology. And what is this technology? It's a updated core processor. So, basically, the server for the airplane that it carries with it is going to the next-generation upgrade. The data storage is going to be vastly improved.

And then, the display is going to be, you know, modernized for the pilot, so what they see, how they interact with the jet and with other aircraft and systems around it. So, those three things, right? Data processing capability and speed, data storage capacity, and the ability to interconnect with a, you know, basically, you know, modernized interface for the pilot, along with the better capabilities they're going to have to interact with other aircraft and other systems because of TR-3 are all of the characteristics that you need for an edge compute node in a modern 5G Internet of Things system in architecture, right? The three things are data storage; multi-cloud connection; and processing, power, and speed. So, we've actually killed two birds with one stone with TR-3 here. On one hand, the aircraft is going to be much more capable in kind of its traditional role.

On the second hand, it's going to be way more capable and, perhaps, uniquely capable in sort of the networked, you know, Internet of Things or joint all-domain operation of the future, right? That's what our customer calls that. So, we have now the computing power, the capacity to serve as a sort of the central aerial component of our 21st century security open architecture concept. And that's really the two pieces of F-35 TR-3 that are super important. One is the airplane itself; and, second, its ability to network with other systems and aircraft in an IoT-based architecture, open architecture.

Jay, you wanted to speak to that?

Jay Malave -- Chief Financial Officer

Sure. To answer the question on add-ons, that is -- will be -- that will occur but not necessarily in 2023. If you think about it right now, we're going to be introducing and cutting in new production hardware and software on a full-rate production program, which is a pretty aggressive schedule. And so, what I would expect, and this is included in our sustainment revenue growth projections, we'll see the retrofits on the existing fleet over time.

And that will probably start beginning maybe sometime in 2024 and beyond. And it's part of our mid single-digit sustainment growth on the F-35.

Operator

Next, we'll go to Matt Akers with Wells Fargo. Please go ahead.

Matt Akers -- Wells Fargo Securities -- Analyst

Yeah. Hey, good morning. Thanks for squeezing me in.

Jim Taiclet -- Chairman, President, and Chief Executive Officer

Good morning.

Matt Akers -- Wells Fargo Securities -- Analyst

I wanted to ask, I think you mentioned some of the restocking, you know, stuff because of Ukraine, and you got some orders there. You know, how big is that for Lockheed Martin? And how should we think about sort of the timing? And how accretive might be the growth maybe in '24 and beyond?

Jay Malave -- Chief Financial Officer

Yeah. So, you know, as I mentioned in my prepared remarks, we've got about -- we had orders of $1.5 billion. We'll start delivering on some of that in 2023, and it'll carry over into 2024. We've got a line of sight to significantly more orders beyond that that we'll see again in the outer years.

And so, that's still to be determined. But what I can say is that we have had contract funding and internally funded projects to make sure we can meet higher ramp rates. Whether it's HIMARS, GMLRS, PAC-3, all of those are all opportunities from where we are today and part of the investment that our customers are making, that we are making to drive the higher ramp rates.

Jim Taiclet -- Chairman, President, and Chief Executive Officer

Yeah. And, Matt, it's Jim. You know, one of the issues that this situation is illuminated with is that when you need to accelerate production in the defense enterprise, you know, for national defense. We would have liked to have been able to, a, ramp up the production faster; and b, you know, bring in the revenue sooner.

So, it just highlights the need, I think, and it's an urgent one, to work together with government and industry to quickly evolve the relationship between the two so that we can maintain an effective deterrent to the conflict, as we've talked about. So, what I'm discussing with some of our senior government officials who are receptive, there are some real thought leaders in government on this now, is apply the concept of anti-fragility to the relationship between government and industry, meaning things like ensure that we have multiple reliable sources of key materials and components, right? So, we have a lot of single-source components that we have to go back down into our supply chain and find out who and if they can double or triple their production of the components, so we can double or triple the output of the system. Another piece of this anti-fragility concept is to have the government invest in production capacity with us, call it, two standard deviations above the mean peace time production rates. So, if you need to accelerate, you can quickly and start up the line or speed up the line much faster.

Another one is significant expansion of the use of long-term and multiyear contracts so that we don't have to have a fluctuation in demand year to year, which sets our supply base back, again, less willing to invest because they can't predict the future. And then, finally, especially for those small and medium businesses, we're suggesting that government really take a broad overview of the oversight and compliance burdens that are on companies that participate in the defense industrial base, you know, from an audit and compliance and certified cost perspective, Truth in Negotiations Act, things like that. While we at Lockheed Martin and other major defense funds would like to see that burden ease, it's a burden that can really prohibit other medium and small companies from working with us or working with the government to provide what it needs. So, there's a great dialogue beginning.

I'm sure other companies are raising these issues, too. But this issue of restocking raised an important industry issue that we're going to try to work with government to solve.

Maria Lee -- Vice President, Investor Relations

Great. John, this is Maria. I think we've come to the top of the hour here, so I'll turn it back to Jim for any last thoughts.

Jim Taiclet -- Chairman, President, and Chief Executive Officer

Great. Thanks, Maria. I'd like to conclude our call today by thanking the entire Lockheed Martin community for everything they've done in 2022 and they'll do this year and beyond. Together, we positioned our company to continue to push the edge of the technology and advance scientific discovery to ensure our customers remain what we call ahead of ready and keep people safe around the globe.

So, thanks again for joining us on the call today. We look forward to speaking with you on our next call in April. John, that concludes the call. Thanks, everybody.

Have a great day.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

Maria Lee -- Vice President, Investor Relations

Jim Taiclet -- Chairman, President, and Chief Executive Officer

Jay Malave -- Chief Financial Officer

David Strauss -- Barclays -- Analyst

Myles Walton -- Wolfe Research -- Analyst

Noah Poponak -- Goldman Sachs -- Analyst

George Shapiro -- Shapiro Research -- Analyst

Rob Spingarn -- Melius Research -- Analyst

Rich Safran -- Seaport Research Partners -- Analyst

Seth Seifman -- JPMorgan Chase and Company -- Analyst

Peter Arment -- Robert W. Baird and Company -- Analyst

Kristine Liwag -- Morgan Stanley -- Analyst

Scott Deuschle -- Credit Suisse -- Analyst

Rob Stallard -- Vertical Research Partners -- Analyst

Ken Herbert -- RBC Capital Markets -- Analyst

Sheila Kahyaoglu -- Jefferies -- Analyst

Doug Harned -- AllianceBernstein -- Analyst

Matt Akers -- Wells Fargo Securities -- Analyst

More LMT analysis

All earnings call transcripts