Good day, ladies and gentlemen, and welcome to Northrop Grumman’s Second Quarter 2020 Conference Call. Today’s call is being recorded. My name is Shelby, and I will be your operator today. At this time, all participants are in a listen-only mode. I would now like to turn the call over to your host today, Mr. Todd Ernst, Treasurer and Vice President of Investor Relations. Mr. Ernst, please proceed.

Thanks, Shelby. Good morning, everyone. Welcome to Northrop Grumman’s second quarter 2020 conference call. We will refer to a PowerPoint presentation that is posted to our IR webpage this morning. Before we start, matters discussed on today’s call, including 2020 guidance and beyond reflect the company’s judgment based on the information available at the time of this call. They constitute forward-looking statements pursuant to Safe Harbor provision of Federal Securities Laws. Forward-looking statements involve risks and uncertainties, which are noted in today’s press release and our SEC filings. These risks and uncertainties may cause actual company results to differ materially. Today’s call will also include non-GAAP financial measures that are reconciled to our GAAP results in our earnings release. On the call today are Kathy Warden, our Chairman, CEO and President; and Dave Keffer, our CFO. At this time, I would like to turn the call over to Kathy. Kathy?

Thank you, Todd. Good morning everyone and thank you for joining us today. We hope you and your families are safe and healthy. I want to start by thanking our employees and recognizing their resiliency and dedication in driving strong second quarter performance in the midst of the COVID pandemic. Along with our customers and suppliers, we quickly stood up new work processes and safeguards that allowed us to continue fulfilling customer commitments while strengthening our foundation for the future. And now, as we see new outbreaks of coronavirus in our communities, we continue to prioritize the safety and well-being of our team. This includes flexible work schedules, teleworking, child care assistance, and stringent operating protocols aligned with CDC guidelines to help protect our employees and their loved ones. We also continue to support our suppliers, health care providers, and communities through volunteer time, supplies, and financial resources. Turning to the results for the quarter, despite the challenges of the coronavirus, we delivered a very strong second quarter operationally and financially. Sales grew 5%, driven by 15% top line growth in space and continued growth at aeronautics and mission systems. Segment operating income grew 4% in line with sales growth, and we generated an 11.6% segment operating margin rate. Cash generation was particularly strong. Cash from operations increased 45% to 2.3 billion and free cash flow increased 53% to 2.1 billion after capital spending of 269 million. Our cash results reflect solid operational performance and benefited from actions taken by our customers to support the industrial base. We have the full supplier benefit of higher progress payments to our suppliers, and we have also instituted our own acceleration of payments to many of our most vulnerable suppliers totaling nearly $500 million year-to-date. In addition to those financial highlights in the quarter, we continued to execute our long-term growth strategy. Second quarter awards totaled $14.8 billion, a book to bill of 1.7 times sales. And our total backlog has increased 8% since year-end 2019 to more than 70 billion. The strength of our award demonstrates our portfolios alignment with the nation's most critical security priorities including space, nuclear deterrence, advanced weapons, and all domain commands and control. Our innovation and timely investments in these areas are enabling our customer’s vision for future operations. In space, rapidly evolving threats are driving an urgent need for advanced resilient capabilities and we are competing successfully in this domain. In the second quarter, new awards at space systems totaled $9.2 billion, which included 5.9 billion of restricted awards. In addition to restricted awards, we also booked 1.9 billion to develop two polar orbiting satellites for Next Gen OPIR and approximately 150 million for the preliminary design and development of HALO, the first crew module for NASA's moon orbiting space station as part of Artemis. And we were selected by commercial customers to build four satellites under two separate awards totaling more than 400 million. These awards support the Federal Communication Commission's order to make the lower portion of the C-band spectrum available to mobile network operators, enabling the rollout of critical 5G services. We are also supporting the modernization of the nation's strategic deterrence with GBSD. GBSD continues to be on track for a late summer award. We expect a booking of between 10 billion to 15 billion for the engineering, manufacturing, and development towards EMD phase of the program, with production to be negotiated at a later date. The successful completion of the preliminary design review in May validates that we are ready to enter the EMD phase. We look forward to delivering a secure, reliable, and effective nuclear deterring capability to our nation. Based on current backlog and future opportunities, we continue to expect space will be our fastest growing business. In advanced weapons, we are providing innovative solutions that address the need for higher speed, advanced sensors, and precision capabilities. Our broad portfolio of advanced weapons capabilities, including hypersonics, precision systems, directed energy, and advanced munitions continues to be a source of growth. After completing successful critical design review last quarter, AARGM-ER achieved another milestone in the second quarter. The Navy conducted the first AARGM-ER captive carry flight test on the FA-18 Super Hornet. And we've begun wind tunnel testing. This system provides opportunity to grow our share in the tactical missile market. Also in the quarter, we announced that we surpassed the production and delivery of 50,000 Precision Guidance kits for our 155 millimeter artillery projectiles. And year-to-date, we've booked 154 million in modifications to our big contract for PTK production with the U.S. Army and U.S. Marine Corps to produce additional kits. Our overall weapons systems, bookings within our defense system segment are up year-to-date with a 1.2 times book-to-bill. Through our successful integration of Orbital ATK into the Northrop Grumman portfolio we are realizing the strength of the combined team in our space and weapons business performance. We are also proud to be enabling the next generation of battle management. Our networking and computer technology is being incorporated into demonstrations and systems of records showing the value of our open systems, which are affordable and platform agnostic. Next generation programs like joint all domain commands and control, known as JADC2 are aimed at creating an information architecture across all domains. Our experience with the Army’s IBCS program and ABMS for the Air Force will help enable the Defense Department to extend the any sensor, any shooter capability across all services. And we are making considerable progress on the IBCS program. Together with the Army, we entered the final round of preparation and training for the system's multi-week limited user test that began shortly after the end of the second quarter. Successful completion of this EMD milestone will support IBCS production, deployment, and fielding to execute the Army's integrated air and missile defense modernization strategy. We are on track for the milestone fee decision later this year, which positions the program to enter production. For the current generation of mission systems and sensors, we continue to deliver advanced capabilities to address evolving threats. In the mission system sector, we delivered F-35 radars, DAS and C&I in quantities comparable to or better than the second quarter of 2019, despite the impacts of COVID. Our SABR radar upgrades also continue. During the quarter, the Air Force completed integration of our SABR radars on Air National Guard F-16 at its Joint Base Andrews in New Jersey Air National Guard bases. Seven additional bases are scheduled to receive SABR upgrades in the coming months. MS will also be supplying a radio frequency countermeasure systems for the C-130 operated by the Air Force Special Operations Command. Our RFCM system will help to improve the C-130 aircraft survivability and protect air crews from air and land based enemy radar and missile system. Looking ahead, we are competing for the next generation of electronic warfare capabilities, including Next Gen Jammer Low Band, which should be awarded later this year. Turning to aeronautics sector, through the end of the second quarter, we delivered 683 F-35 center fuselages and we continue to manufacture at a pace that supports customer deliveries. We adjusted our outlook for F-35 fuselage production volume for AS in the first quarter to account for the anticipated impact of COVID and this has not changed. In addition, during the quarter we also received State Department approval for the future sale of three E2D advanced Hawkeye's and related equipment to France, opening the door to a future award opportunity. And Australia committed to the purchase of three Triton air vehicles. But the B-21 as Air Force public statements indicate we continue to make good progress. And the Air Force currently expects B-21 to move into low rate production following key development milestones scheduled to complete in 2022. We are also pleased by the policy changes announced last week regarding the export of unmanned aerial systems. It is critical for our national security that our export policies continue to keep pace with the rapid evolution of technology and support collaboration with our allies. At the half point of the year, we're encouraged that despite the challenge of the pandemic, our team is delivering strong operational results. As we think about our full year guidance, we are assuming that our team's productivity as well as the operations of our customers and suppliers remains at or near current levels. Our update to guidance incorporates the strength of year-to-date results, our current assumptions regarding the continuing pandemic risks and their impact on us, and an expectation that demand for our defense products and services remain strong. Given that context, we are raising our 2020 sales, EPS, and free cash flow guidance. Based on our current assumptions, we now expect sales will increase to between 35.3 billion and 35.6 billion and EPS will range between 22 and 22.40. And we are increasing guidance for 2020 free cash flow to a range of 3.15 billion and 3.55 billion after capital spending of approximately 1.35 billion. We are maintaining our guidance for segment operating margin rates at 11.3% to 11.5%, and Dave will discuss each of these items in more detail. Turning to the U.S. budget environment, we expect to see continued strong bipartisan support for national security. Even under scenarios of flattening or slightly declining defense budgets, we believe our portfolio will remain well aligned to our customers' highest priority investments. Defense spending is largely threat driven and the threat environment warrants a strong defense. Despite fiscal pressures, emerging threats are intensifying and we believe both political parties are focused on effectively countering these emerging threats. We saw demonstrated bipartisan support for defense spending in the recent House vote to pass the NDAA. Before I close, I want to highlight that in 2020 Northrop Grumman was once again recognized as a top 50 company for diversity. We are committed to equality, diversity, and inclusion not only in Northrop Grumman but in our supply chain and communities. Our strong performance is enabled by the diversity of our team, which continues to expand. We have hired 8,000 new employees in the first half of the year and we expect to hire more than 12,000 by year-end. Through their second quarter performance, our team of dedicated men and women in partnership with their suppliers and customers demonstrated their commitment to national security and human advancement. While future impacts of the pandemic remain uncertain, we have a robust pipeline of opportunities and we are strengthening our foundation for growth. Despite the challenges that COVID-19 has presented for every business and individual, the Northrop Grumman team remains committed to the safety and well-being of our people, investing for the future, delivering value to our shareholders, and meeting our commitments to our customers and all of our stakeholders. So now I'll turn it over to Dave.

Thanks, Kathy and good morning everyone. I'd also like to thank our employees for their strong performance this quarter. My comments begin with second quarter highlights on Slide 3. We delivered excellent bookings, sales, operating income, EPS, and cash. And we're pleased to be increasing our sales, EPS and free cash flow guidance for the year. I'd also note that as of April 1st, certain unallowable compensation and other costs that we previously reflected in segment results are now in unallocated corporate expense. These are costs that are managed at the corporate level and we made this change as we began to operate within the new sector structure. The Q2 impact of the change was minimal, only increasing second quarter segment operating income by about $1 million. This change has been applied retrospectively and recast results are presented in schedule seven of our earnings release. Slide 4 provides a bridge between second quarter 2020 and second quarter 2019 earnings per share. EPS increased 19% to 6.01. Operational performance drove $0.26 of the increase. During the quarter we recovered $0.23 of the negative return on marketable securities that we incurred in the first quarter and year-over-year this translated to a $0.17 benefit. Pension also contributed $0.49 of the year-over-year improvement. I'll begin a review of sector results on Slide 5. Aeronautic sales were up 7% for the quarter and 4% year-to-date. Sales in autonomous systems and manned aircraft were higher in both periods. Higher volume on restricted programs and the E2D drove higher sales in both periods, along with higher Triton volume in the second quarter. Higher volume in these areas was partially offset by lower volume on the F-35 program due to COVID-19 impacts in both periods. At defense systems, sales decreased by 2% for the quarter and are up 2% year-to-date. Mission readiness programs had higher volume in both periods, principally due to higher restricted volume, partially offset by lower volume on the Hunter Sustainment Program as it nears completion. Battle management and missile systems had higher volume in both periods on programs like GMLRs and AARGM-ER, but these increases are being offset by programs nearing completion, including Lake City, as that begins to ramp down and an international weapons program that is also winding down. Mission System sales were up 2% in the second quarter and 4% year-to-date. Higher volume on airborne sensors and networks programs where we had higher volume on radar programs like MESA and SABR drove sales growth in both periods. These increases were partially offset in both periods by lower volume in SABR and intelligence mission solutions due to a program nearing completion. Space system sales rose 15% in the second quarter and 11% year-to-date due to higher volume in both business areas. Higher volume on restricted programs and other space programs like Next Generation OPIR and the Arctic Satellite Broadband Mission or ASBM program contributed to higher sales in both periods. Turning to segment operating income on Slide 6. Aeronautics operating income increased 4 percent and margin rate was 10.6 percent. year-to-date is margin rate is 9.9%. In both periods, the margin rate trend reflects lower net positive EAC adjustments in autonomous programs, as well as a changing contract mix in manned aircraft. These trends were partially offset by a $21 million benefit in the second quarter related to the resolution of a government accounting matter that we had expected might occur later this year. At defense systems, operating income increased by 2% in the quarter and was comparable year-to-date. Operating margin rate increased to 11.5% in the quarter due to improved performance in mission readiness programs. And their year-to-date margin rate of 11% is slightly lower, principally due to favorable adjustments on certain small caliber programs in the first quarter of 2019. Operating income at Mission Systems rose 3% in the quarter and 6% year-to-date. Operating margin rate increased to 14.2% in the quarter and to 14.6% year-to-date, reflecting improved performance in both periods. Space systems operating income rose 8% in the quarter and 7% year-to-date. Second quarter operating margin rate declined to 10.2% due to delays in production on certain commercial space components and year-to-date operating margin rate declined to 10.3%. Turning to Slide 7, based on better than expected aeronautics sales in the second quarter, we're increasing AS sales guidance to the low to mid $11 billion range. However, as we look beyond this year in AS, we expect to experience continued top-line pressure in our commercial aerospace business and budget tightness in certain of our HALE programs. We continue to expect a margin rate of approximately 10% for AS in 2020. Sales and operating margin rate guidance for our defense, mission, and space system sectors are unchanged. Moving to consolidated guidance on Slide 8, we're raising 2020 sales, adjusted EPS, and free cash flow guidance to reflect the strength of year-to-date results. Driven by the increase in AS we now expect 2020 sales will range between 35.3 billion and 35.6 billion, a 200 million to 300 million increase over prior guidance. Our higher EPS guidance reflects $0.20 of operational improvement that we experienced in the second quarter. No change to expected tax rate or year-end weighted average share count. Based on our second quarter results and current expectations for the remainder of the year, we expect mark-to-market adjusted EPS to be between 22 and 22.40. For free cash flow we're raising the top of our guidance of $100 million to 3.55 billion. Our Q2 cash flow reflected a combined benefit of approximately $300 million for the CARES Act, payroll tax deferrals, and an increase in certain progress payments from our customers. For the year we expect a combined benefit of $400 million to $500 million from these changes. We expect these benefits to working capital will be partially offset by accelerated payments to our suppliers and potential impacts of COVID on the timing of certain collections. But given our expectations for the overall effect of these changes and the strength of our Q2 cash flow results, we have increased the top-end of our free cash flow guidance range. Slide 9 provides a bridge between April's guidance and today's full-year EPS outlook. The increase in guidance reflects $0.20 of second quarter operational improvement. I would note that we're not increasing guidance for this quarter's positive returns on marketable securities as there's still a long way to go until year-end and asset returns may continue to be volatile. Regarding cash deployment, we continue to pursue a balanced capital deployment strategy that includes investing in the business, managing the balance sheet, and returning cash to shareholders through dividends and share repurchases. During the pandemic, we're also especially closely monitoring the health of our supply chain, and we're accelerating certain payments to help us continue to execute on commitments to our customers. Through the end of the second quarter, our year-to-date share repurchases totaled approximately $500 million and we've met our approximate share count target for 2020. Share repurchases remain an important part of our capital deployment strategy. We continue to be committed to paying a competitive dividend and in May we raised our dividend by approximately 10%. We're also focused on deleveraging the balance sheet and we expect to retire $1 billion in maturing debt this fall. Before closing one topic that I want to touch on is the potential upcoming R&D tax change. The Tax Cuts and Jobs Act currently requires a shift from expensing R&D costs for tax purposes to amortizing them over five years starting in 2022. As many of you know, this law would affect Northrop Grumman and many of our industry peers given the substantial R&D investments that we make each year. If the law is not changed before 2022, we would estimate a potential cash flow impact that could be approximately $1 billion that year. We would expect that impact would decline by about 20% each year for the following four years as the amortized costs approach a steady state closer to today's level of expense costs. In closing, we're very pleased with our second quarter and year-to-date results. While our COVID-19 impacts in Q2 were less significant than we originally expected, the future path of the pandemic and its various related impacts on us remain uncertain, and we continue to monitor the situation closely. Overall, our portfolio is well-aligned with evolving customer priorities, we continue to execute to deliver value for our shareholders, and we continue to invest in the future. With that Todd I think we're ready to open up the call for Q&A.

Your first question comes from Ron Epstein of Bank of America.

Good morning. Kathy, could you just give us a quick update if you can on where we stand with the GBSD and when you might expect that decision to come?

Yes Ron, thanks. We still expect that the Air Force will meet its schedule of making the award for the EMD phase of the program in late August of this year. And we are in the process of discussions with them to meet that objective.

Good morning everyone and thank you. Kathy, maybe for you. You talked about moving pieces within aeronautics margins, you had a settlement in the quarter but overall profitability was better. Can you talk about some of the puts and takes maybe risk around COVID versus the offsets and then I think you mentioned continued top line pressure in commercial aero which is obvious there and some budget tightening, so if you could elaborate on that?

Sure, I'm happy to kick that one off, Sheila. So a few of the points you mentioned, I think are worth talking about now. In AS we did have a very strong operational Q2 we talked on our last call about the COVID impacts on the business at the time of the call on a Q2 to date basis. Following that timeline, there was quicker than expected recovery from the business impacts of COVID on our AS business. And as the quarter progressed, we also had favorable timing on some materials that boosted results of the quarter. And the non-operational item that we talked about in our scripted comments and mentioned in our filings around the government accounting matter helped Q2 and we thought that may occur later in the year. So a very strong operational quarter combined with those other factors I mentioned. On an ongoing basis to your point, there are obviously continued pressures on the commercial portion of the business, but we're certainly pleased with the Q2 results of AS.

Good morning, Kathy and David, nice quarter. Kathy, can I ask a bigger picture question on the space segment, just kind of touching upon the kind of long-term trends on the margin front. I mean, you're getting all this growth. I assume you're going to have GBSD kind of work flowing through here in a significant way. And given that over 70% of the mix is cost plus, is this a segment that can hold the kind of a 10% margin or how should we think about it just given all the growth and success you've got here?

So Peter, as we think about the margins for space, you're hitting on the right point, the mix will be the biggest driver of margins. Great over time but we do expect to see significant growth in that segment. The margin dollar expansions we're expecting to be quite solid. But on the race itself, as you noted, as we see that mix already a heavy preponderance towards cost type contracts and then adding GBSD, which will also be a cost type program for the EMD. For quite a while, we will have a mix that lends itself to a lower margin rate than what we would experience if we had a higher volume of that business in production. But many of the programs in that business will move to production sooner than GBSD. So GBSD is one of the longest cycles of the programs in that portfolio; it will be in EMD through 2029. But with other programs that we are booking into space, as we've seen our bookings grow quite nicely, we'll transition to production in a shorter period of time. So we'll see that mix certainly evolve in the near term, but over the long term we will still have a considerable amount of cost-plus business in that portfolio.

Thank you very much and good morning. Dave, you mentioned the challenges the aerospace segment is facing next year. Can you provide more clarity on that? Should we anticipate growth in this segment next year, albeit at a more moderate pace due to those challenges, or do those challenges hinder growth in the segment entirely?

So as we think about aero on a go forward basis, I would point to our year-to-date growth of about 4% in that business, which is in line with what we had expected for the year and what we're guiding. And although we're not guiding into next year at this point, to tell you the longer-term trajectory for that business is that it won't be one of our fastest-growing segments. We've seen a good bit of that portfolio begin to shift also to cost type work that grew significantly. And now it's leveling out and production also on our key programs there is more in a steady state. So the fastest growing segments in our portfolio will certainly be space, but aero will be a nice contributor to the portfolio in terms of some stable and steady programs that are large contributors not only to growth, but solid margin rate performance.

Thanks so much. Good morning. You had a very good quarter for order intake in Q2. And I was wondering if any of these awards will result in an increase in self-funded R&D or CAPEX in terms of seed funding at the start?

Hey Rob it is Dave. So it was a really strong quarter, particularly for restricted awards and particularly for awards in our space sector. So we're really pleased with the backlog growth in those portions of the business. We haven't changed our CAPEX outlook for the year. Longer term we've said in the past that we expect a similar volume of CAPEX in 2021 before that begins to decline as a percentage of revenue thereafter. We think that CAPEX outlook remains our best information as of today and we'll continue to really focus those CAPEX investments on the portion of our business, the portions of our business with the strongest growth potential, key customers, key capabilities to drive differentiated capability in areas that are consistent with the national defense strategy.

Thank you and good morning. Kathy, just kind of going back to the big picture here, obviously a lot of conversation that you addressed also in terms of pressured budget environment. But what is your perspective on accelerating growth, not just sales but really EBIT dollar growth segment, EBIT dollar growth going forward, just as the budget slows down, I think that's a little sort of digression that that is not always appreciated that you guys can actually accelerate growth while the market might slow?

Thanks. As our backlog continues to grow, we believe it establishes a solid foundation for our growth. We are also optimistic about how our portfolio aligns with national defense priorities. This alignment goes beyond just the current defense strategy; it reflects our portfolio's response to the threats facing our nation and allies. We see space evolving as a crucial domain to counter advanced threats from other nations, providing enhanced warfighting capabilities. This is just one example; similar insights apply to the evolution of weapon systems and the importance of networking across these warfighting assets for advanced command and control. Our portfolio's alignment suggests that if threats continue to evolve as they are now, we can maintain our growth. Additionally, the innovation we are fostering within our company addresses some of the nation's critical threats and is reflected in our bookings. This innovation, as mentioned, stems from our targeted investments in R&D and CAPEX to showcase to our customers the readiness of our technology to tackle these evolving threats. I am proud of our team's efforts in this regard, which will increasingly influence the government's partner selection process moving forward. These three aspects of our execution give me confidence that our business can continue to prosper even in a flat or slightly declining budget environment, provided that the threat landscape remains consistent with what it is today, which we anticipate will be the case.

Good morning, thank you. I wanted to go to aeronautics and specifically on F-35. And if you think about F-35 as now basically new production, upgrades, sustainment, a lot of this would appear that you'll be topping out kind of a new production, but the upgrades and sustainment are going to be growth opportunities. How does Northrop Grumman play in those three and how do you see that collectively contributing to growth over the next few years?

Doug this is Kathy. The F-35 program will continue to be a really important part of our portfolio. We are involved in all three stages of the life cycle on the program and I would characterize those as production, modernization, and sustainment. And for production, as we've noted before we tend to run about 18 months ahead of Lockheed Martin in delivering a center fuselage and ahead also in the delivery of Mission Systems. So we will reach peak production sooner than Lockheed. But if you look at the quantities that they're projecting, we don't reach peak for a while on that program. Modernization is interesting and that for the mission systems, we actually will go back to retrofitting old platforms so the production volume there, once we get through the development stage of the upgrade program, will increase production once again in mission system. And then of course in sustainment, we're seeing that part of the portfolio grow as we get more aircraft fielded. And that's not just in the U.S., but as our global partners are also taking possession of the aircraft. So each of the stages of the program presents opportunity for us in the near-term. In the longer term, it's the modernization and sustainment spaces that will support growth.

Good morning, Kathy. I wanted to ask you about the reimbursement of COVID costs. I noticed that in the industry's letter regarding these reimbursements, Northrop did not participate. I was curious if your company experienced a lower COVID impact or has a better capacity to absorb those costs. I found this interesting and would appreciate any insight you can provide. Thank you.

So yes, it's true that I chose not to sign onto those letters. I want to make it clear though that we are supportive of a strong national defense and recognize that funds need to be appropriated to support that objective and we are directly engaged in supporting that cause. However, we did see that our impacts from COVID were less significant than we are seeing projected elsewhere. And therefore we have continued to focus on that very issue, making these impacts as small as possible so that we are not in a position where we have an additional bill for taxpayers to get capability delivered and will continue to be focused on that as our primary objective. And that includes everything from keeping our workplaces safe so that our employees can continue to come to work and feel that they can be productive. It is continuing to partner with our suppliers to ensure they have what they need to continue operating effectively and continuing to work with our customers to be innovative in how we continue to get work done even in light of constraints and how we would normally conduct operations. And I would say on all fronts, our team has been both innovative as well as strong partners to our teammates and customers to be able to navigate their way through. And that's allowed us to have this lesser impact than we anticipated as we sat here a quarter ago.

Thanks. Good morning. Hi, Kathy. It sounded like in the prepared remarks, you highlighted the headwinds that you're seeing as we look out the 2021 in aerospace systems. Anything else, Kathy as we think about modeling 2021, we should think about in terms of modeling headwinds, I think you might still have a bit of a headwind from Lake City and James Webb Space Telescope, just trying to think about that as we look out the 2021? Thanks.

So I'll start and then Dave can walk you through some of the details. As we look forward into 2021 there's nothing additional that we haven't already spoken about that presents significant headwinds that we know of as we sit here today. The three things that I would point you to and then Dave can walk you through them is Lake City. As you said, the James Webb Space Telescope will launch next year. And so we have expected the volume to continue to decline as we near completion on that satellite. You may have noticed that the dates of the launch moved slightly next year from March to October based on some COVID related impacts. That program is in final integration and test. And as a result, there are a number of observers from NASA and the testing was impacted slightly by people's inability to travel and work full shifts during COVID. So we did see a slight movement there in schedule, but we do still anticipate it to launch next year and as a result, that program will continue to decline in year-over-year sales. And then the third thing that I would point you to that we've spoken about on prior calls are some headwinds in the HALE portfolio with both Triton and Global Hawk. And as we work through this year’s budget, we'll get better clarification on what those headwinds might be. They don't present risk in 2020, but as we look forward into 2021 they could start to present some headwinds. So Dave anything you would like to add on any of those three or anything additional.

Sure, to provide more details on those topics, regarding Lake City, we estimate that the headwind for 2021 will be about 1% of revenue. This aligns with the range we've previously discussed. As for the James Webb program, as Kathy pointed out, we expect it to be more of a headwind in 2022 rather than 2021 due to timing. The annual revenue from this program is smaller compared to Lake City. Regarding the HALE portfolio, there are numerous factors and budget decisions yet to be made, so I won't attempt to quantify that challenge for next year or thereafter. Additionally, we should view all of this in the context of our space business, which is projected to be our fastest-growing sector this year and in the future, supported by significant new development programs that have strengthened its backlog this year and are expected to provide substantial revenue opportunities in 2021 and beyond.

Yeah, good morning. Kathy, can you just give us an update on the space logistics, the mission extension vehicle opportunity that you kind of acquired through Orbital maybe what some of the conversations are like there with the customers, I think that's kind of a unique capability for you all? And then could you be a little bit more specific on when peak is for F-35, you said it's a while, can you be any more specific? Thank you.

Sure. Let me start with our mission extension vehicle. As some of you may recall, we returned the customer satellite Intelsat 901 to service in April of this year. And it was the first docking of a life extension vehicle to an active satellite ever accomplished. And I'm very proud of the team for that. First of a kind, it's opening up a whole new set of opportunities and mission extension. And under the terms of that contract, we are going to be working with this through space logistics, four or five years to provide the services. At the same time, we have been working on our second mission extension vehicle and it has arrived at its launch site in French Guyana. And we actually expect that launch to occur in the next few days. And then in MEV 2 will dock with another Intelsat satellite to provide life extension services for it. That docking should occur in early 2021, and this just gives you a little color on what's happening on the program. But to the broader point, this is a market area that we are pioneering first in commercial and the application of it also into military-grade satellite as the future holds. And this is something that our Orbital ATK team had started, but as we have integrated into Northrop Grumman has continued and we're leveraging the expertise and experience of the whole team as we look at the future set of opportunity. You also asked about F-35. Really, I would not provide any additional color or guidance. As we do 2021 guidance we'll share some more insight into what we planned for the three components of the program that I spoke about: production, sustainment, and modernization. I would say that each of those three pieces of the program and in the two sectors, the two sectors that primarily support the program, and then that there are a number of moving parts on those assumptions due to COVID-19 impact. We're working very closely with Lockheed Martin to understand what those quantities are, and we'll be able to provide you more insight as we guide for 2021.

Thanks, good morning. First one is a clarification, Kathy on the 5.9 billion of classified awards in space, was that dominated by a single award and I'm not sure you've ever got one quite that size before? And then the other is, if you can just make a comment on the national security space launch contract outcome or competition outcome and what your intention is for Omega if it doesn't go your way? Thanks.

Sure, so the large award in restricted space is indeed driven by a single award and it is quite significant. I can't provide any color on what it is, but suffice it to say, this is a long-term program as a result of the size of the effort. And in answer to your second question on national security space launch, we are expecting that award to come later this quarter. And we have been progressing, as you know, to prepare our Omega rocket for the requirements of the award, which would be to launch next year in 2021. We are on track. We would be able to meet those requirements through our offering. And if we are not successful, we would continue to leverage that investment that we and the Air Force have made through the first two phases of the program into other propulsion activities in our GMD business. So this is an area that we like many selected to make this investment not only for the potential of a single contract award, but because it was a way to share our research and development investments across the product line that we can now utilize for other endeavors.

Hi, good morning. Kathy, I want to try to phrase this question in a way that you can hopefully answer but typically, when you go from EMD to production unmanned aircraft do you tend to see margins on those first few l-RIP plots below equal to or above the margins that you saw towards the end of EMD and is there any reason to think that that behavior would change in the future? Thank you.

So Robert it depends on the contract on any given manned aircraft as to whether those first production units are incorporated into what's already been negotiated or whether they are indeed part of a new contract. And so, if they were contracted as part of the initial award, you would not expect to see the booking rate change because their cost for development would already be incorporated into the booking rate of that effort.

Yes, thank you. Thank you very much. So Kathy started kind of highlighting all the news in space and you also mentioned the GBSD is still expected in August and I think on the first part of the call you said it might be about 200 million added to this year. Given holdings wins is there a decent chance that we will see space following in the second half and so instead of being a low $8 billion revenue number it could be closer to a mid-$8 billion number?

Well look I'm really comfortable with our guide which is approximately 8. And so if you take first half revenue you get to a number that is slightly below 8. So to your point there is some growth that needs to occur in the second half but as I said we are very comfortable with the guidance that growth is reasonable based on what we know today.

Good morning Kathy, Dave, and Todd, how are you doing? Listen, I would like to ask you to if you could expand on your comments on contract mixed with space. For the company overall given your knowledge of new programs could you discuss how you see the overall and long-term contract mix changing in terms of fixed price and cost plus, how that might impact margins? And in your answer could you also update us on the expected long-term growth of classified versus unclassified contracts?

Sure, it is Dave. I will be happy to provide that answer. Today as we talked about in the past we are around 50:50 in terms of fixed price versus cost plus in our mix. And that as you know is heavily determined by the phase of lifecycle programs that we happen to be in at any given time and the key drivers of that mix. On a going forward basis given some of the awards we've talked about to date and those that are expected in the second half of the year, in particular those large development efforts in the space business, we would anticipate that the cost plus mix would increase above the 50% level and that the fixed price would decline. These are our figures at the company level as opposed to any particular segment level. Of course cost plus business as well as perhaps more predictable and stable in margin rates in a typical scenario does tend to be at lower margin rates than their overall fixed price business. And so as that mix shifts certainly we are expected to lead to margin dollar growth and we will look to offset a portion of that impact on overall margins through really strong contract performance, program performance, careful management of our costs, etc. So that's the overall kind of trend that I think you should be expecting as we have these large new development programs entering the portfolio.

Hi everybody, good morning. Kathy can you talk about the potential long-term opportunity for NGAD. I realize this is not a new program concept but it feels like it is kind of coming into form with the Air Force's digital century series initiative, so can you help me frame how you're thinking about NGAD opportunity through that lens? Thank you.

So if we think about any new development program through a couple of lenses: one, do we have the capability that we can offer a value add to the government and two, should we prime the effort or should we partner with the effort. And with our business and the opportunity for us to do work both on the platform itself and to the Mission Systems we sometimes make those decisions together and sometimes make them separately. I would say for digital century series because of the way it is developing and it's meant to be incremental and rapid, we continue to look at each increment and make the determination of where we conduct that value. So both our Mission Systems and our aeronautics sector are engaged in meaningful dialogue with the Air Force on the program and have work associated with the effort. But these increments will each represent different opportunities based on the requirements and whether we would play as the prime at the platform level or as primarily a Mission Systems provider.

Yes, good morning. Kathy if you can I wanted some more color on the F-35, it was kind of surprising to me that your revenue was down and Lockheed showed double-digit gain. So is that reflecting the 18 months that you are ahead of them or this quarter was just unique to COVID or any additional color you could provide contrasting the two different numbers?

Sure, we won't go so far as to talk about anyone else's results but we'll give you a sense for ours in the quarter. There were some COVID impacts on the program in the quarter. We talked about the impacts on F-35 among other similar programs on our last call. And experienced those impacts in the quarter which did affect the year-over-year growth rate for the program in the quarter. As Kathy mentioned earlier, the timing of our business related to F-35 in both the aeronautics segment and the Mission Systems segment are different than the prime timing given the nature of the work and so I think you can expect slightly different kind of trends in those businesses over time as we've had in the past. I think COVID impacts were the primary Q2 items of note there.

Alright and we're at the end of the time here, so I would like to turn it over to Kathy for some closing comments.

Thanks Todd. I would like to conclude by thanking the Northrop Grumman team for their dedication and perseverance which enabled us to continue to operate so well during the global pandemic. It has taken innovation, partnership with our suppliers and customers, and just sheer determination and I am really proud of what they have accomplished this quarter and expect they will continue. I want to wish you and your families continued good health and thanks for joining us on the call today. I really look forward to engaging with you in the weeks and months ahead. Take care.

Ladies and gentlemen this concludes today’s conference call. Thank you for your participation.