Cai von Rumohr: Thank you very much.
Operator: Thank you. One moment for questions. Our next question comes from Robert Stallard with Vertical Research. You may proceed. Robert, your line is now open.
Robert Stallard: Sorry, I was on mute. Thanks so much, good morning. Kathy, I just wanted to follow up on your comments at the start of the call where you talked about the FY 2025 request and DoD spending leveling off. I was wondering who you think could be the bill payers in that budget scenario or whether there’s any vulnerability in the Northrop Grumman portfolio? Thank you.
Kathy Warden: We looked at the FY 2025 president’s budget is very much in line with our expectations. So no surprises and no concerns about our portfolio. Obviously, we talked about two things where budget was a factor in DH [ph] to down select early on MGI [ph] was largely due to budgetary constraints. And then, of course, the restricted space program that we mentioned, but those we have now digested and, of course, reflected not only in our outlook, but my comments about the FY 2025 budget. So nothing else that we see in there that is concerning. And as I noted, 2024 ended up being a strong year for the investment accounts with 6% growth over 2023. And we also have the supplemental on top of that. So it’s early in looking at 2025 and where the budget environment will actually end up in the U.S. But I also just keep pointing back to international demand, that’s the strongest that I’ve seen in a long time. And so we look at global demand, not just the U.S. marketplace.
Robert Stallard: Which is, I’ve got a quick follow-on on that actually because you did mention exports as well. And I was wondering if you could give us an update on what sort of scale as a percentage of revenues, exports are at the moment and what that could grow to in the future.
Kathy Warden: They’re about 14% right now. And while we don’t see that moving significantly in the near term because there’s opportunities I noted in the pipeline do take a while to prosecute and turn into sales. We do expect that will be a faster segment of growth than our domestic business over the next several years, just the richness of the pipeline.
Robert Stallard: Thank you very much.
Operator: Thank you. One moment for questions. Our next question comes from Pete Skibitski with Alembic Global. You may proceed.
Peter Skibitski: Hey good morning, thanks. Kathy, can you talk about Northrop’s roll in the shipbuilding supply chain, which I guess is the marine unit in MS just because the Navy has talked about some of the supply chain challenges in shipbuilding. Maybe you could just kind of swage any concerns maybe in terms of how that unit is performing and the growth outlook there? And just kind of how you guys are managing that unit to just so we have a good feel that smoke doesn’t turn into fire kind of scenarios?
Kathy Warden: Absolutely. It’s a critically important part of our portfolio. We’re very focused on delivering for our customers in that portfolio. And there have been challenges that we own. We’ve been working on a development program for nearly 10 years. It’s going to deliver an amazing function improvement in propulsion for the Columbia class submarines. And we are near delivering those first care of turbine generators. And that’s what the secretary of the Navy was referring to in his testimony on the Hill. We are working to address supply chain challenges, as you have heard across the entire shipbuilding enterprise, our experience is very consistent with that. These programs are long cycle. And so we only go through these development efforts once over a multi-decade period and there’s learning that happens.
But in this case I think we are largely through that learning and on a path for delivery, and we’re optimistic of the future ahead in being able to deliver this capability. From a financial perspective that you asked about, this is relatively small, so not something that you should think of as having a material financial impact, but that doesn’t mean we don’t take it very seriously.
Peter Skibitski: Okay, great. Appreciate the color.
Operator: Thank you. One moment for questions. Our next question comes from Scott Deuschle with Deutsche Bank. You may proceed.
Scott Deuschle: Hey good morning. Dave, just to clarify, what’s the message on space growth beyond this year? Does it reaccelerate off this 4% or so this year?
David Keffer: Yes, I appreciate the question. As you know, we’ll provide more specific guidance for all of our businesses and at the enterprise level later this year and provide some indications on the October call as is our traditional approach. I think the broader themes that we’ve talked about in space today are important. We’ve touched on the restricted program cancellation in the NGI down select news. But broadly speaking, the doubling of that business’s backlog over the last five years, the 17% CAGR in sales over that business in the last four years, both position us really well for continued success in that business. And there is margin rate and margin dollar expansion opportunity on top of that. So we’ll provide more specifics as we go about the combination of headwinds from the items we mentioned and tailwinds from the continued growth on other programs.
So more specific later in the year, but we continue to be confident in the long-term outlook of the Space business.
Scott Deuschle: Okay. Great. And then, Kathy, you flagged opportunities for increased demand for ammunition from U.S. allies, so I was wondering if you could talk a bit more about maybe the specific ammunition products that allies you’re looking to purchase from Northrop? And in which regions you’re seeing that demand percolate. So I understand that there’s at least one specific European supplier of ammunition to generate something like 25% operating margins off that revenue. So just curious to understand what that opportunity could mean for Northrop. Thank you.
Kathy Warden: Yes. Of course. So as we look at our weapons portfolio today, it’s about 6% to 7% of revenue growing double digit, and we expect that to continue. A good part of that growth will be supported both by the supplemental that I spoke about in my opening comments in response to Ron’s question, but also the European demand has strengthen. So we have a number of opportunities, countries across Europe looking to do the exact same thing the U.S. is doing in replenishing stockpiles for munitions. And those are basic and non-standard AMO contracts that we have, our business grew nicely last year. We expect that to continue this year. And we also have programs like AARGM, where there’s international demand, that’s a longer-term proposition as we look to provide those products to our European allies, particularly as they feel the F-35.
So a wide ranging set from ammunition all the way up to tactical missiles. And then, of course, our solid rocket motor facility expansion supports many of our peer programs like GMLRS, PAC-3, looking to be a second source to support us in six, all of those opportunities are in the mix for us.
Scott Deuschle: Thank you.
Operator: Thank you. One moment for questions. Our next question comes from Myles Walton with Wolfe Research. You may proceed.
Myles Walton: Thanks good morning. Kathy, you provided a ton of international color both in your opening remarks and also a follow-up to Rob’s question. But when I look at the sales disclosures, it’s been pretty locked in at $5 billion for five years of absolute dollar revenue. So is there a color you can give us on the backlog that shows that this international opportunity is at least working its way into backlog, if not sales in the coming year?
Kathy Warden: Yes. So in terms of backlog, what you would look to see as we signed the IBCS deals that I mentioned with additional countries as we sign the contracts for Triton that I highlighted in the call today. The IVEWS that are in the early stages that two countries progressing toward awards. These are all awards that would be in new franchises that we have not had in the past, while we continue to see just the standard growth in areas like F-35 international and the Triton portfolio with the Australians are already underway or E-2D franchise with France and Japan. So those are still in the backlog and then you’d add to that, the opportunities that I highlighted this morning that are new franchises for us.
Myles Walton: Okay. So the percent of the backlog that’s international has been expanding that, I think, is what you’re saying?
Kathy Warden: It has, although really what we see now is a whole set of opportunities for product lines that were not in our backlog over the last five years. So that’s the difference. Our portfolio has largely been high-end capabilities that aren’t exportable. And as you look at how the portfolio has evolved over time, these new franchises that I spoke about today or franchises like Triton now getting permissibility for exports to more countries is really opening up a whole new set of opportunities for our company.
Myles Walton: Okay, thank you.
Operator: Thank you. One moment for questions. Our next question comes from Gavin Parsons with UBS. You may proceed.
Gavin Parsons: Thanks, good morning. Kathy, you mentioned you’ve finalized negotiations with additional suppliers on the B-21. Were those all in line with your expectations? Can you share what percentage of suppliers are now locked in? And then when you expect that to be fully finalized?
