Lockheed Martin Corporation (LMT) Earnings Call Transcript & Summary

Terrific. So thank you all for being with us. We're delighted to have with us Lockheed Martin. Lockheed's Chairman, President and CEO, Jim Taiclet; as well as Jay Malave, new CFO; and John. So before we start, let's go over the Safe Harbor act, if you guys will.

Yes. Thanks, guys. It's John Mollard, the Treasurer of Lockheed Martin. Good morning to everybody. We do have a Safe Harbor slide. I don't know if it's being displayed. But we're going to be making forward-looking statements through the course of the next 40 minute of discussion. Our actual results may vary from those projected results for a wide variety of reasons, many of which are listed here on our Safe Harbor Statement. For a full description of the risks associated with investing in Lockheed Martin, please refer to our SEC filings, most recently the 10-K that we filed with the SEC just recently. So with that, I'll turn the stage back over to you, Cai.

Terrific. Thank you very much. So Jim, thanks for joining us. Q4, solidly on track. '22 guide, in line with what you said on the Q3 call. So do you feel Lockheed's really worked through all the issues you saw last year and is on a good forward trajectory?

Yes, I absolutely do, Cai, and good morning to everybody on the call. We went through, John and I, at the time really thoroughly the prospects for the company, every business unit, all the programs, our customers' decisions and behavior to the extent we knew them at that point. And we finished the fourth quarter, as you said, very strong based on those assumptions and that reforecast. Well, I was really impressed by the company and the team was how they pulled together and delivered that $9.2 billion of cash from operations last year. Fourth quarter was really, really strong in that regard. And we used that cash to continue to implement our dynamic capital allocation policy that we put in place here. So just in the fourth quarter, we repurchased $2 billion worth of shares, over $4 billion for the year. And we're positioned to continue that capital application for the benefit of all your shareholders here into the 2022 time frame as well and beyond that. We gave the 2022 guidance, which John and I and Jay are solidly behind. We've got a real plan to get there. We've got also a long forecast that you've heard that goes through 2023 and 2024 with cash flow. And we even gave some 2023 expectations on the revenue re-ramping, and we expect that to come to fruition as well. So I want to just take a minute here and express my tremendous appreciation of John Mollard who stepped right up and became acting CFO for us for the balance of the time through 2021. And I'm excited, really excited to introduce Jay -- to reintroduce Jay to all of you. Jay's got the fantastic background. And I understand, closely a lot of his UTC experience as I was there back in the 1990s myself, both commercial and aerospace experience and of course, being part of L3Harris and being the CFO there, a great company in the space. So I'm really pleased to have Jay and John working together arm in arm with me as we go into 2022.

Yes, thanks for that first question...

Yes. Yes, I'd like to say I really appreciate it and enjoyed the past 6 months. I had a great time working with Jim. Look forward to working with Jay and get him up and running. That won't be hard at all. So I just want to make one tactical point about 2022. As you know, we've guided 2022 revenue to be roughly $1 billion below the actual results we had in 2021. From a modeling perspective, when you're thinking about the first quarter, one of the factors that I want to make sure you have in your expectations for the first quarter within -- we're going to have 2 event-driven headwinds, one of which is in Space. Because we no longer have revenue from the Atomic Weapons Establishment program within Space, that's going to give us about a $450 million headwind in the first quarter year-over-year within Space. The second, I'll call it, event-driven headwind that you're going to see in the first quarter is within RMS, where in the first quarter of 2021, we delivered a training system on a program called Air 5428. That was a onetime delivery of a system for $300 million. So between AWE not being there in the first quarter and between the absence of that one-off system delivery in RMS, that's $750 million of headwind on a year-over-year basis that we're projecting in the first quarter. There are some other factors like the drawdown of the U.S. forces in Afghanistan will be most notably felt in the first quarter. Just from a modeling perspective, don't be surprised if our first quarter on a year-over-year basis is down somewhere between $750 million and $1 billion. Almost all of the full year guide down will be represented in the first quarter with the balance of that being seen in the second quarter with AWE being down almost another $450 million in Space. So then third and fourth quarters will sequentially ramp. But I just wanted to make sure, as you're thinking about the year, don't panic when you see the first quarter results.

We'll still see the full year guide exactly as we portrayed it, John, right?

Yes, absolutely.

So I have one question about the guide, which is we don't have a fiscal '22 budget. And I guess it looks like we're going to get an extra $25 billion in addition to the FY '22 request. What are you assuming? Is your guide based on the FY '22 request? Or does it make some assumption that we'll get a little bit more money?

Yes. The guidance based on the President's budget, the $715 billion. And by the way, I'm sure everybody on the call's aware we're currently operating or the government's operating under a continuing resolution. It looks like there will be an extension of that. And what if the CR was extended for the full year, that would put some pressure on our guide. Other than that outcome, we're very comfortable with where the guide is. To your other point to the upside, if the additional $25 billion that was in the markups in the authorization language ended up flying its way into appropriation bills and got allocated to the services in time for them to get us under contract for us then to turn our supply chain on, there should be some level of opportunity to the upside. I wouldn't think it would be a needle mover, but the bias would be to the upside if the additional appropriation levels actually got enacted.

Terrific. That was exactly what I was asking for. So I think one of the ways you looked at growth going forward was you have these programs that should grow at a 9% CAGR through '26. Maybe walk us through some of those, like start with hypersonics, for example.

Yes. I mean I'd start teeing this up and maybe turn it over to John and Jay for a little more background in detail. But hypersonics is a priority for the country. It was public, so I can mention on this call. We had a meeting with a [indiscernible] some of us in industry and senior government officials on this very topic just a week ago, and it's a national priority. So the pole position that Lockheed Martin has achieved in hypersonics is really unique in the industry. And that pole position was achieved because Marillyn Hewson and Rod Makoske, the Chief Engineer, they saw this need coming. And we invested people and some R&D ahead of the government, really, awarding the contracts. And when those awards did come, we have 6 of them right now that we're executing on. One of them is called Conventional Prompt Strike. That's a shared program actually between the Army and Navy. The Army calls it long-range hypersonic weapon. The Navy calls it CPS. That program is a significant program of record for Lockheed Martin. We're through much of the development phase now. We're in testing. We've actually put in place as a CapEx investment in Courtland, Alabama, the plant to build these units. We'll be able to do 25 a year, and it's up and running already today. I just opened that officially last -- a few weeks ago with the governor and the congressmen they sent us down there. So we are well positioned to actually execute on this over the next couple of year period that we've referred to on our guidance. The second big program that I would point out is called ARRW. You've got acronym for everything in this industry as everybody here knows on this call. And that's the Air Force Rapid Response Weapon, it's air-launched. Again, it's in flight test, and it is and will be a program of record that we'll count on for some of our growth. There's 3 DARPA programs that will either lead into or are leading into programs of record. Again, there's too many acronyms for our own good here, but one is called HAWC [ TACT ] and second's Tactical Boost Glide and the third is called OpFires. So we have the pole position in hypersonics. We've actually invested the capital to get a head start with our government partners in doing this. And this is a real and growing program set that we think will double by 2026, as John has indicated in the earnings call. I feel great about the progress here. It's a national imperative. And Lockheed Martin has got the pole position. So there's a lot of confidence here. I'll stop there. And any specific follow-ups on, Cai, hypersonics, we can address those and go on to a couple of other areas of great interest to us.

No, no, no. That's -- go ahead, John. Do you want to add something?

Well, I was going to say Jim discussed the hypersonics at the $1.5 billion to $2 billion. I think you were asking also about the -- what we call the 4 pillars of growth, that $18.5 billion plus portfolio, which is really the 4 big categories. Hypersonics, we talked about. Classified program activity, which -- we kind of have some sensitivity, but the level of classified activity we do, you think of it as 10% to 15% of our portfolio. And it's grown at, I'll say, at a 5% rate or better over the next 5 years. And you can see -- if you're aware of the programs, there's a definite link between these programs, capabilities and the national security requirement. So that gives us a high level of confidence in that level of growth within that classified suite of programs. Then we've got 4 big programs of record that are growing at a good clip. The CH-53K heavy lift helicopter program in RMS; F-35 sustainment, which I think we've highlighted repeatedly. We have the next generation of the fleet ballistic missile program. That program has been in a maintenance phase for decades. It's time for the next generation of FBM activity to take place. And we're going to see a lot of growth associated with that. And then we've got the PAC-3 program, a missile program where we delivered right about 350 units in 2021. We're on a path to, over the next several years, ramp that up first to 500 units and then 550 units. So we've got strong growth in those 4 program of record. The final category is new business wins, where I would say our forecast, the long-term track that Jim had talked about, as a deeply discounted value associated with our winning FLRAA and FARA to the extent we are successful in those competitions, and we think we're very well positioned to do that. That would have a bias to the upside in our new business element of the forecast and then way out in actions that way out of time. Several years out in time, there's the tanker program we've announced we're teaming with Airbus. We think we've got a very, very competitive offering that when we prevail there, that would also provide an uptick. But the kind of neat calibration I have is that 4 categories of growth programs represent, it was $18.5 billion of revenue in 2021, and that's going to grow at a very high single-digit rate over the next 5 years.

Very helpful. So the classified, you mentioned we had Spirit here before, and they were talking about doubling their overall defense business. And lots of that is classified, and they talked of multiple programs. We've heard about NGAD. We've heard about lots of other things. Is 5% a conservative number? I mean I assume classified is multiple program opportunities. Obviously, other folks are chasing them, too. But what can you tell us just aggregate? Are there multiple programs? Is that 5% plus? Should we think more plus than 5%?

Yes. I mean it's multiple programs that we can't speak to any specificity, Cai. However, it's multi-service as well. It's multi-domain. So it's not just specific, bespoke satellites for the intelligence or something like that. Of course, that's part of it. But the Air Force, Navy and others have -- some of them you kind of referenced, they've got interest in classified programs as well. And again, with the Skunk Works is our kind of discriminator here, I think we're in really great shape along with our Space business, which is a leader in this area to garner a good portion of this. So I don't want to handicap the 5% quite yet specifically either. But I'm really confident in this company's ability to be continuing as the leader in classified Space and ARRW and other aspects of what we're doing.

Yes. It's broad-based. Three of our 4 business areas have substantial portfolios. So it's not -- we're not a one-trick phony.

Jay, with your current and prior experience, how do you see hypersonics and classified moving forward?

Well, same thing. Prior experience here too, Cai, just a lot of growth there as both Jim and John mentioned. And you know, it's quite exciting. I can't really speak about much, unfortunately. But it's there, it's real, and we're a big player in that.

Got it. And so on the defensive side, you've got some sunsetting programs, BLACK HAWK. I think you've mentioned C-130J, I mean, if we're thinking out the '26. Maybe give us some color there. And on FLRAA, I think consensus is the other team looks pretty strong. But you have some systems work on the V-280, so maybe give us some color on how big that could be?

Sure. I wouldn't call them sunsetting necessarily, Cai. They may be reducing in rate per year. But if you look at BLACK HAWK, I mean we're still marketing and selling BLACK HAWK around the world. We've got FIREHAWK, which is a derivative that is used for firefighting purposes. So BLACK HAWK has got a long life ahead of it. From a relative year-over-year revenue perspective, it's down about $300 million year-over-year, but it's going to have a long life into the future. And we're continuing to try to make that more robust as we go forward. But it is a bit of a headwind, so to speak, in 2022 vis-a-vis 2021. On CH-53K, it's going to be ramping up while BLACK HAWK kind of diminishes as we spoke about a little bit here year-over-year. It's an interesting factoid that one CH-53K has as much revenue as 5 BLACK HAWK units equivalent, so to speak. And we've got -- on C-130J, I was just down at Marietta myself last week. We just put one out on the tarmac from the factory for Germany. So we're still selling C-130Js. And we're going to be doing 20 to 25 deliveries a year going forward. But again, with the U.S. program of record moving into its latter stages so far, there will be some reduction, again, in rate potentially from the peak, but not necessarily in life cycle or lifetime value. And even as we speak, the Guard and Reserve [ are crowing ] for C-130Js to replace their old ages, and Congress tends to support that interest as well. So C-130 has got a long way to go, and it's going to be important for us for a long time. Any other thoughts there, John?

Just from a planning perspective, what's in our revenue guide as BLACK HAWK deliveries, we delivered just over 70 BLACK HAWKS this year in '21. You go out 2 or 3 years, it's like 35. We'll be under multiyear 10. So that's what we've got in there from a C-130J perspective. We'll deliver 24 or 25 for the next couple of years. But as we look out to '24, our -- the current guide assumes we're down to deliver down, we'll be delivering 18. Now there's interest, as people said, so to the extent that 18 ramp rate doesn't have to -- if we don't have to ramp down to 18, that would be upside. But the guidance has a ramp down to 18.

You also asked that the FARA. Sure. And so look, I'm an ex Air Force pilot. Most of my time was -- it dates me a little bit, F-4s, F-5s and C-141s. But as part of my C-141 period, we were initiating a low level of flying program. And so a colleague of mine and I who was a special officer Air Force helicopter pilot in the squadron. We went and flew with those helicopters. You need to maneuver these things. I mean those low-level missions, insertions, extractions, rescue, those kinds of things were -- in my experience, at least, from that particular episode, really require maneuverability. And so getting from point A to point B on a straight level flight at a higher speed isn't necessarily the mission. The mission is getting in and out safely and maneuvering that aircraft. So we think that our FLRAA offering with Boeing is the best answer for the War Fighter, if you will. And we expect an award in 2022. You haven't won until you've won. So we know that we've still got to make sure that this is the outcome that we hoped for. However, whenever that award is given and there's not necessarily RAIDER X that's selected, we still have some fair amount of cockpit work with the bill Textron's offering. So we'll be part of the program no matter what. But the content, of course, is much greater for the prime, right? So we'll play either way, but we think we have the best answer for the Army. And so we're going to carry forward.

So maybe let's turn to F-35. It's 27% of your revenues. You kind of went through the adjustment to the production plan. I think, John, at one point, you said maybe we could go back up to the $170 million. But it seems to me that there are a couple of offsetting forces. On the negative side, the Navy and Marines have talked considering pairing their buy targets a little bit. On the other side, you got foreign. And Germany, and it used to be a Boeing customer, kind of looking with some great interest in the F-35 now. So weigh those 2. What's the odds of that the rate you gave us is going to be going up? And what's the odds that maybe it's going down with respect to those items we discussed?

So the official position of the U.S. government and the services that the program of record on that F-35 is the program that is in place today. Again, I try not to predict the behavior of others, government officials, Congress or anyone, frankly. But we're going to do everything we can to make sure that, that aircraft is the most desirable product in the aerospace domain for all the services that fly it. Now part of that is to continue technology upgrades. And so our TR3 and Block 4 upgrade, we'll take that aircraft to get a higher level of performance and capability. But the other thing we're doing, and this is really the reasoning for shareholders around our 5G.MILs -- 5G.MIL strategy is that we want to make sure that not only does the F-35 maintain its position as the air -- the tactical aircraft with the largest data storage capacity, the largest data processing capability and the best connectivity back to the military cloud, we want to take that to the next level. So we're creating a standard where the F-35 will be the essentially not only the cornerstone of the fighter fleet, but the cornerstone of the future 5G.MIL-based architecture for linking together assets and all the domains from space all the way down to subsurface. And we've demonstrated how the F-35 can do that in exercises in INDOPACOM even as late as last year. So this is the strategy we have to what's called keep sold, we call keep sold to F-35. It's going to be so far ahead of any competitor, as we've seen in the international competitions that the program of record will stick in the U.S. And the international customers are going to be -- Switzerland did say what it is, it's the best capability and the best price and efficiency going forward. We'll earn our place, but we think the program of record is going to stick. Johnny?

Yes. So Cai, your question about bias upside or downside. So as Jim said, the U.S. program of records in excess of 2,400 aircraft. When we look at international demand, I think good over or under, somewhere at 900 aircraft, give or take. So just taking 2,400, 900, that's 3,300 aircraft. We've delivered 753 aircraft as of the end of 2021. So there is a long tail of demand out there. Whether that demand materializes in the lot 15 to 17 quantities that we're negotiating or whether they -- that demand shows up in 18 to 20, as Jim mentioned we won -- we prevailed in Switzerland. We prevailed in Finland. You've got Canada opportunity out there. There's lots of other interests, you mentioned kind of Germany. The question on, could you see ramping above 156 is going to hinge on how long a rate could you maintain above 156. The dumbest thing we could do from a unit recurring flyaway cost would be to ramp up and then ramp back down in that dreaded sawtooth pattern. What we and the JPO customer will both want to see is a path to a higher production quantity that could be sustained for multiple years. So when and if that happy set of events takes place, we would have the opportunity to ramp up. I see more bias to the upside of a ramp rate than I do a bias to the downside. I think we collectively believe 156 gives us a trajectory that we'll be able to maintain a stable production flow, which is the best.

So Jim, you mentioned 5G.MIL applications to the F-35. I mean I go back, I was -- when the F-4 was still a program. So I've seen all these programs, and there's never been a fighter program that as it matures doesn't have 1 or 2 upgrades that kind of give it a little bit of extra life. Walk us through where are we in terms of 5G.MIL? And how will it apply to the F-35? And where is the government in terms of kind of putting money aside so you can develop those capabilities?

So 5G.MIL is a concept of creating a standard set so that the Department of Defense can implement its Joint All Domain Operations vision, right? This JADO vision is put in place, what we have to do at scale. And scale is really important here is to have sensors from certain vehicles, aircraft, satellites, surface ships, et cetera, connect back to the, I'll call it, the DoD or military cloud, use AI against the sensor data to create options for commanders that will then deploy effectors or weapons from the same or a different platform than the sensor data came from, right? So the F-35 got it all, right? It's got the sensor suite. It's got the data processing. We can implement AI in the vehicle to start making and sifting through data to help make decisions. And it's ultimately got the effectors onboard to do the mission, but not every mission. So if we need a PrSM missile system that we're developing for the Army to hit a target in China and an F-35 is present because it's felt that can get close enough to the shoreline to see where the missile launchers are that are targeting our carriers, for example, that's what 5G.MILs is meant to enable. In other words, that F-35 sensors, he's a moving target with precision -- enough precision that you can aim that missile and hit that moving target. That's what 5G.MIL's all about. It's enabling Joint All Domain Operations. So what we're doing is creating a technology road map for 14 mission sets. One of them is counter air, for example. Another one is surface warfare where we're demonstrating at the SAP level, the very highest security clearance level to our senior customers how we can accelerate their mission capability by tying different sensors, different platforms, command and control systems together to increase their speed and effectiveness well beyond and much, much faster than, let's say, waiting for NGAD to do that 10 years from now. So that's what 5G.MIL is all about. It's putting Lockheed Martin, again, in the pole position for JADO and make our platforms, including FLRAA, which will have this capability as well, the prime platforms for all the domains across the services to implement their own strategy, which is called Joint All Domain Operations. The Secretary of Defense also adds another layer of value, I'll call it, integrated deterrents, meaning using nonlethal systems to augment your capabilities with your military or lethal system. So the 5G.MIL standards meant to accelerate commercially available technology and AI, 5G, obviously, distributed computing, et cetera, to make that vision a reality for the Department of Defense. And I don't think any other defense prime has this concept to drive it to fruition and actually do it at scale the way that Lockheed Martin is positioning ourselves to do that.

So that's really -- you've mentioned the 14 mission sets. And I assume basically implementing a mission set requires development and money. Where are you in the process of kind of selling this vision to DoD where you can say, "Gosh, we expect some dollars to start flow or this to be made an update program next year." Where are you in that process?

Yes. I'll give you the concept and let John and Jay speak to it. The concept is -- we don't expect a new program of record in a mid-sized growth defense budget. And so what we're doing is taking the programs of record we have and embedding this capability in there and getting co-paid for it that way. And so whether it's a technology upgrade that's already been scheduled now augmented or it's an ability -- and we've done this too, Cai. I'm kind of energized about this topic, that's why I keep going on to it. But we can tie together the THAAD system with Aegis Radar and PAC-3 to create a better, way more effective defensive bubble around an aircraft carrier, for example, right? So there'll be some technology work, some systems, some data storage and things like that, you may have to put on a ship, don't get that funded. There's a raider fund that's just called now in the Department of Defense to accelerate technology insertion into existing programs and platforms. And so we'll be utilizing some of those funds, too. But a lot of it is going to come through the programs that we have already and getting funding upgrades for those. John, anything else?

Yes. So the technical development of those capability road maps were funding under our IRAD programs today, so we're internal within our $1.5 billion of R&D. Rod Makoske, our Chief Engineer, and working with the team are developing out those capability road maps, taken them to the senior levels of customers and asking does this fit the profile and the capability you're looking for, generating interest. And then to Jim's point, the money is going to come. Let's take the F-35 development program budget. It's kind of a $2 billion a year line item. Now to the extent some of these mission capability road map ideas spark interest in the F-35 customer to say, "I want to move up this capability, this augmentation within that $2 billion." There will be money to make that happen. But there is not going to be a single discrete new program. To Jim's point, this is going to be a...

No, no, no, I've assumed this is just basically all updates to the F-35 to encompass any of these 14 mission sets that you've developed that they're really interested in having...

Cai, let me add one more thing. This is going to be open architecture. And we want to be a pathfinder for, ultimately, other OEMs' platforms to be part of this. It's the only way to really implement and execute JADO. But if we can get out in front of it, it's going to make our platforms more attractive earlier to the customer, and that's really the goal that we have.

Got it. Could we see any money for any of these potential updates in the '23 budget?

I mean you could, but you may not be able to actually parse them out. So again, whether it's CH-53K plus up because it's going to have that capability someday, it will be all over the place. You may not see its fingerprints, we hope. But I'm absolutely convinced to meet the missions that our customers have to face these days. And by the way, the other side is doing something very similar to this with their civil military fusion philosophy in China, for example. They are accelerating AI and advanced communication networks, et cetera. And using -- one of the most valuable things they're doing is taking the AI data sets that they develop in their commercial industry and using them as development data sets for military purposes, too, because they have so much data that they collect, whether it's on their population or their industry or transportation movements. You need modeling data to develop AI. And they can transition that value seamlessly back and forth over to their military. And it's a command and control system, which we don't want. But we do want to keep getting our commercial counterparts involved in, so we can actually pipeline through licensing joint ventures, partnerships, their technologies into the defense space. And that's in a whole other conversation. But we're very much engaged in that, too.

You brought up your IR&D and what you spend. So maybe remind us, you took your R&D amortization impact from $2 billion down to $500 million, like what happened?

Yes. So I'll take that, and maybe this was a subtle nuance when I came into the job in, I'll say, August. And one of the first set of reviews I have with the tax team on the sort of the whole question of what activity actually falls within the scope of activities that requires capitalization. And we had a lot of back and forth. And there was always an expectation that the U.S. government and our elected officials would come to the realization that the legislation that's on the books is absolutely contrary to the best interest of national policy. There was a firm belief that, that legislation will get deferred or repealed. So kind of in the October earnings release, this is where the subtlety came in. We framed it as up to $2 billion of impact because my initial -- in review with the -- with our in-house tax council experts as well as they brought in a number of external advisers to consult with had me personally convinced that the argument of what activity qualified as R&D for purposes of capitalization was a lot narrower than the definition that had been used in calculating a much larger number. And I'll say, I'm very comfortable that the framework we're using now and the single biggest change would be the framework we're using is very consistent with the framework we've historically used for calculating R&D activity that you can use and claim in your R&D tax credit. So it's...

We basically align those 2 concepts. And Jay, you have a perspective on this?

So it was one of the first questions I asked, Cai, too when I joined last week. And John and the tax team walked me through it. It's exactly right what John just said. Do you -- just you have the internal consistency between, say, the Section 174 R&D tax or R&D expenditures for purposes of a tax credit, is this is very consistent now with this whole defining that the R&D that's eligible for the capitalization. So we're just aligning that.

Yes. And just one final, I mean, there are still multiple paths for legislation to get enacted to fix this public policy issue. And we're hopeful that we'll get [indiscernible].

So maybe since we're getting to cash flow and your cash flow looks good. So one of the big issues is AJRD. I know you can't comment on a lot of things. But if the deal were not to go through, that's $4.4 billion in cash that doesn't get spent on that transaction. How would you access those capabilities? And where would that unused $4.4 billion go?

We'll still have access to the capabilities, Cai. I mean Aerojet Rocketdyne is a significant supplier to us in our Space business and others. The reason and the motivation beyond it being accretive financially, which it is in our calculation, is that we could actually deliver at Lockheed Martin much more quickly, much more effectively and much more efficiently, I'll call it, less cost. If Aerojet Rocketdyne's capabilities on propulsion could be integrated with our overall engineering of the entire system, say, for a hypersonics missile if you will, and that we could apply our engineering capabilities writ large at Lockheed Martin to that entire company to make it more -- again, more effective technically. And also, we would take out about $100 million of cost a year based on simple accounting fee-on-fee reduction of the government. So we thought there were really important mission and ultimately customer benefits to the transaction. The FTC is seeing it you know in a different way. But we'll still have access to all those capabilities, we would just be better off and more effective at Lockheed Martin if we were able to manage, incorporate and integrate their capabilities and with ours. If we can't, we'll keep doing business the way we recently have been and try to help them as a supplier be better as well. So there's no real, I would say, loss of capability, maybe less speed, a little more costly for the government at the end of the day and maybe less integration, so the quality takes a little bit longer to get where we would want it. From a capital allocation perspective, what we define as dynamic capital allocation, so we test the available investment options in an ongoing basis vis-a-vis the repurchase of our own stock. And whatever the higher ROI opportunity is, we'll allocate that capital to that opportunity. So if AJRD in theory doesn't come to fruition, we'll look at our available capital and we'll apply it to the next highest best use. And I don't foresee us adding a lot of CapEx this year internally. I don't necessarily foresee us increasing the IR&D budget much in 2022. There may or may not be inorganic growth opportunities in the immediate term, meaning mergers and acquisitions. And therefore, that takes you to allocation again towards share repurchase, which we've already accomplished an authorization from our board of $5 billion. If we have to increase that through the year in 2022 or beyond that, we'll step up and do that.

Yes. As you know, Cai, we've added the $4 billion of [indiscernible] this year, right? And to Jim's point on the dynamic capital allocation, the end goal is to generate sustainable growth and free cash flow per share. So the organic, I think we were investing with $2 billion of CapEx and $1.5 billion of IRA is much back into the business as it can absorb, right? One of the neat sort of strategic knock-on benefits of doing the mission capability road maps that Jim's talked about is you're mapping out your capabilities against your customers' requirements and identifying gaps. As part of that exercise, we may well identify gaps that we can't fill internally. But there may be an inorganic M&A acquisition if it comes to light as a result of...

So that raises the question, I mean, if AJRD doesn't go through and you see an inorganic opportunity, basically, we have a different FTC today. And so maybe you have to measure what that's worth based on how easy is it going to get done given the policy change. So I guess part of the question is, how do you come out on that if, for whatever reason, AJRD doesn't happen? I mean are you still willing to kind of go out and look for those inorganic opportunities?

We absolutely are, and we'll do the best thing for Lockheed Martin in the process. And if, again, we run into something, let's just say, smaller scale than AJRD, that gives us a specific capability that we can fill in the road map with and show our customer, we would go through with that or we would attempt to go through with it. We're trying to make the same argument and have with our customer on AJRD that may or may not carry the day. But we're not going to stop doing the right thing for national security and for the company and its shareholders based on the climate that may be involved currently.

Terrific. Well, listen, we're at the end of the hour. And I want to thank you, Jim, for doing this. Greatly appreciated. John, thank you for all your comments and help. And Jay, welcome. So thank you, guys, and hope your last session works out well. That was terrific.

Thanks, Cai.