Jim Taiclet
Chairman, President, and Chief Executive Officer at Lockheed Martin
Thanks. Maria. Good morning, everyone, and thank you for joining us on our first quarter 2023 earnings call. I'd like to begin today with a few highlights from the quarter as well as an overview of the presidential budget request and then Jay will discuss our financial results and full-year 2023 outlook in detail. We had a solid start to the year with first quarter sales of $15.1 billion, led by 16% year-over-year growth at space. Segment operating margin was 11.1%, led by MFC at 15.8%. Free cash flow grew 11% to $1.3 billion and combined with a lower share count contributed to a strong free cash flow per share growth year-over-year. We remain on track to meet our financial expectations for the full year and the return to growth in 2024 as we laid out in January.
In terms of capital deployment, we returned $1.3 billion or 101% of our free cash flow to shareholders in the quarter. We remain focused on our long-term strategy of growing free cash flow per share and continue to plan to deliver approximately 110% of our free cash flow to stockholders in 2023 through dividends and buybacks.
Turning to the budget, the administration released preliminary details of the FY'24 President's Budget Request or PBR in early March. This budget proposal reflects a heightened emphasis on defense and security cooperation with allies. The FY'24 DoD budget request is $842 billion, an increase of $25 billion or 3% over the FY'23 enacted funding. The near peer threats posed by China and the Russian invasion of Ukraine is driving the national defense strategy and it's created added demand for Lockheed Martin's advanced effective solutions. Key highlights include the procurement of 83 F35 aircraft, continued expansion in classified programs, and an increase in requested funding for ammunitions. The PBR also includes facilitation investment and advanced funding for long-lead time parts in support of multiyear procurement of JASSM and LRASM. We're also engaged with DoD on multiyear procurement proposals for PAC-3 MSE and Guided Multiple Launch Rocket Systems. These proposals are subject to congressional approval during the course of the FY'24 defense authorization and appropriations process.
The PBR also includes continued investments in key technology development efforts such as Conventional Prompt Strike, Long-Range Hypersonic Weapon. Next-Generation Interceptor, Hypersonic Defense, Long Defense System and other space programs. Furthermore, key technology areas aligned with Lockheed Martin investment priorities received increased funding to include microelectronics, 5G technologies and joint all-domain operations. We are encouraged by this initial request and look forward to its progression through the authorization and appropriations process. We also anticipate heightened emphasis on national security prioritization from Congress, supplemental spending requests including Ukraine and elevated demand from allies and partners.
Turning to the F-35 program, the 83 F-35 Lightning II Aircraft included in the PBR signals strong support from the services and the administration. Moreover, the Canadian government's January announcement that it will procure 88 F-35s marks another milestone and continued international demand for the aircraft. As the production deliveries of F35 engines which are government furnished equipment resumed in February, and then, flight operations and deliveries resumed in March. However, we do expect a fraction of total expected 2023 deliveries to be impacted later this year, due to both software maturation related to Technology Refresh 3 or TR3 and hardware delivery timing. However, we anticipate little to no revenue impact from any potential delivery delay, and therefore, no material adverse effect on our 2023 P&L. Jay will provide some more color on this in a moment.
Also at aeronautics, the first Greenville built F-16 Block 70 took flight and was delivered to Bahrain. In addition to the Bahrain customer, six countries have selected Block 70/72 aircraft and Jordan and Bulgaria have signed letters of agreement for additional jets. Further, related to the F-16 in the quarter, well, I was at the US India CEO Forum in March. I had the privilege to announce a memorandum of understanding with the Tata Lockheed Martin Aerostructures Limited joint venture to produce F-16 wing structures in India, demonstrating our commitment to India as an industry partner and customer while bolstering our supply chain.
Turning to hypersonics, it is encouraging to see the continued investment outlined in the PBR for the Conventional Prompt Strike Weapon System or CPS, as it begins integration and testing for Zumwalt-class ships, recognizing our advancements in this critical technology. In February, the U.S. Navy awarded Lockheed Martin an initial contract for CPS, the first sea-based hypersonics strike capability for the United States, enabling long-range missile flight at speeds greater than Mach 5. First delivery is expected by the mid-2020s.
Regarding our Air-Launched Rapid Response Weapon, also known as ARRW, we are continuing testing of the system at hypersonics speeds in order to advance technical maturation of the missile and the glide body, and to ensure the final product is safe, reliable and supportive of our customers' missions and future plans. In January, we also completed the second flight test of hypersonics air breathing weapons concept, also known as HAWC, in partnership with DARPA and the Air Force Research Lab. We accomplished all the test objectives during the second flight test including affordable rapid development and performance requirements. And in late March, the U.S. Navy announced its support of the hypersonic air launched offensive anti-surface strike weapon or HALO. Lockheed Martin was down selected and awarded a contract for the first step to fielding a critical capability over the next decade and begin the design and development of a carrier based air breathing hypersonic strike capability for the Navy's fleet.
As a company, we remain fully committed to developing hypersonic technology on accelerated timelines to meet this critical national security need and establish a solid deterrent posture in this area for the U.S. and its allies. But hypersonic solutions are just one element in our vision of 21st century security. We advanced several additional aspects of this strategy during the quarter, including announcing a memorandum of understanding with Juniper Networks to jointly develop integrated hybrid software-defined wide area network solutions and to demonstrate that with our customers in the future. This technology enables emission aware dynamic routing, a foundational capability for resilient joint all-domain operations. This emission aware dynamic routing shifts the movement of data and communications in real-time across a mix of military and commercial infrastructure according to evolving conditions. Our solutions give customers the flexibility to rapidly adapt to maintain the flow of crucial data and information as their assets operate in contested environments.
We also led simulations of technologies to the U.S. Army, Air Force and Navy to demonstrate the impacts of 5G communications and advanced analytics to significantly improve operations and maintenance performance for a variety of aircraft as well as for unmanned platforms in operationally challenging environments. And at the Mobile World Congress in Barcelona, I had the opportunity to deliver a keynote address and meet with CEOs across the digital technology, mobile and networking industries to encourage us working together to promote innovative solutions to protect our countries and advance our space exploration capabilities.
Another example of our leadership and accelerating advanced 21st Century technologies to improve national defense and deterrence to conflict is in the arena of directed energy. Recently, our RMS unit achieved success in our initial test of our DEIMOS, high-energy laser which verifies that the laser's optical performance meets the system's targeted design parameters. This 50 kilowatt class laser weapon system aligns with the Army's directed energy Short-Range Air Defense mission. In addition to delivering on absolutely cutting-edge technologies, demand for many of our well-known and long-time high-performing systems continues to be strong. For example, in January, the Australian government announced the purchase of 20 Lockheed Martin High Mobility Artillery Rocket Systems or the now familiar HIMARS providing the Australian Defense Force with a reliable well-proven capability. And we continue to grow our significant partnership with Australia beyond HIMARS. In February, an agreement was announced between the Australian and the United States governments for a foreign military sale of 40 UH-60M Black Hawks for the Australian army and deliveries are slated to begin early this year. The Black Hawk remains unmatched as an all-round multirole durable military helicopter for Australia and for the 34 other countries around the globe that use it. Further, we are excited to work with the ADF and Australian industry to develop their sovereign satellite communications component otherwise known there as Joint Project 9102. The Commonwealth of Australia announced in April that Lockheed Martin was selected as the preferred bidder for JP9102. This multi-billion dollar project will provide the ADF with a robust solution for military satellite communications and defined by its versatility and its resilience.
With that. I will turn the call over to Jay and join you later for questions.
