Kathy J. Warden
Chair, Chief Executive Officer and President at Northrop Grumman
Thanks, Todd. Good morning, everyone, and thank you again for joining us. I'd like to start today's call by highlighting the James Webb space telescope and the incredible images released just a few weeks ago. This extraordinary telescope represents countless Northrop Grumman engineers, technicians, scientists and cross-functional teams working in partnership with NASA for over two decades. In addition to leading the industry team, we designed and built the deployable Sun Shield, provided the spacecraft, develop the Observatory subsystems and integrated the total system. The advanced technology we've created and the images it captures will inspire the next generation of innovators and scientists and we believe will be one of Webb's many legacies. Webb exemplifies the defining characteristic of our business strategy to develop and produce innovative technology solutions to address our customers' toughest challenges. This strategy differentiates us and aligns our portfolio with our customers' priorities. And as a result, we strengthened our position in the market. As a reminder, the four core focus areas of our strategy are technology leadership, sustainably and profitably growing our business, keeping a laser focus on performance and deploying capital in value-creating ways. This strategy continues to yield results. In the second quarter, we saw strong demand across our businesses with a book-to-bill ratio of 1.48, driven by awards for F-35, GEM 63 and restricted programs.
All of our businesses had a book-to-bill ratio above one in the quarter, driving a 6% sequential increase in our backlog, which now totals $80 billion. Given this backlog growth and our continued alignment to customers' budgets and priorities, we are even more confident we can accelerate our revenue in 2023 from the low single digits we're guiding this year. In the quarter, we did experience certain challenges from the broader macroeconomic environment, including a tight labor market and supply chain delays, which impacted sales timing. However, we're pleased with the progress our team continues to make in addressing these challenges and hiring trends improved as we progressed through the second quarter, laying the foundation for sales growth in the second half of the year. As our business grows, we remain focused on performance and driving cost efficiencies across the business. This continued focus contributed to another quarter of solid margin performance. Our segment OM rate was a robust 12.2% in Q2 and stands at 12% year-to-date. Dave will cover further details of our quarterly results and guidance update momentarily, but first, I'd like to touch on some highlights from the quarter. The technology developed for James Webb is one example of Northrop Grumman's innovation. Another example is how we are using technology to produce innovative and affordable solutions for our customers. To that end, we're investing in digital design capabilities and advanced manufacturing facilities. In close partnership with our customers, we are digitally transforming how we design, test and manufacture the next generation of systems. And you've heard our customers acknowledge the results. particularly with some of the largest programs, including B-21 and GBSD.
We are marrying our world-class engineering talent with the latest digital tools, machine learning and agile principles. And as we announced this quarter, we are also investing in factories of the future, including our state-of-the-art manufacturing facility in West Virginia, which will incorporate the latest in digital manufacturing, automation and modular work sells. Once operational in 2024, this facility will support production of up to 600 strike missiles per year, optimizing quality and reducing cost and cycle time as well as bolstering tactical weapon supply chain capacity for our customers. For the last few years, we've taken an enterprise-wide approach in mission-focused areas that are aligned with our customers' priorities. These are areas where we see opportunity to leverage our technology know-how and our domain expertise and high capabilities from across our businesses. Today, I want to highlight a few of them and the related results we've seen so far this year. One example of this is in national security space. Our customers have made it clear that space underpins many missions vital to our national security. And we recognize that we need to think about space differently as a rapidly evolving contested domain. Given this, our focus is on providing space based offerings that include a mix of exquisite solutions in combination with proliferated constellations of low earth orbit satellites, also known as LEO, which together create a more resilient architecture.
We've recently seen the benefits of this approach. For example, after the close of the second quarter, we received a $617 million contract for the SDA tracking layer, which is a LEO constellation of 14 satellites designed to provide global warning, tracking and targeting of advanced missile threats, including hypersonic missiles. This builds on the SDA transport layer contract we were awarded in February, which is also a LEO constellation of 42 satellites, providing resilience, low latency, high volume data transport in support of U.S. military missions around the world. In addition to these, we booked another $700 million in Q2 in restricted space awards and now have $11.3 billion of restricted space backlog. We continue to see the national security space area as one of the strongest growth drivers for our company. Another focus area where we are pulling capability and expertise from across the portfolio is missile defense and Counter Hypersonics. In the second quarter, we were awarded a contract from the Missile Defense Agency to continue development of the glide phase interceptor program. GPI will play a central role in ensuring the United States maintains the most reliable and advanced missile defense systems capable of outpacing and defeating evolving missile threats. This complements our missile defense modernization work already underway on NGI, HBTSS and IBCS. We have also been supporting international customers to modernize their missile defense system.
For example, last week, we delivered the first of the six production IBCS engagement operation centers for Poland's medium-range air and missile defense system. Our capital deployment approach is also an important part of the strategy I just laid out for you. Our first priority is to invest in executing our business strategy. By investing in our factories, digital design tools and our people who are a key source of our technology leadership, we are creating long-term sustainable value. We also remain committed to returning at least 100% of free cash flow to shareholders this year. In the second quarter, we increased our dividend by 10%, marking our 19th consecutive annual increase. Our new quarterly dividend will be nearly double the level we paid in the beginning of 2017. We are also returning capital to shareholders through stock repurchases, and we continue to target at least $1.5 billion in repurchases this year. Before Dave shares more details about our financial results, I'd like to briefly talk about the defense demand environment. We've seen a fundamental shift in global commitment of resources for defense and national security, particularly in Europe. Just this year, we've seen Finland and Sweden progress their membership in NATO and many European countries increase or state their plans to increase their defense budget.
The geopolitical environment has highlighted an increased requirement for defense and deterrent. In the U.S., this has also resulted in strong bipartisan support for defense spending. Recently, the Congressional Arm Services Committee has marked up their version of the FY '23 defense bill with both providing bipartisan support for further increases in defense spending above the president budget. For Northrop Grumman, the U.S. FY '23 base defense budget request included strong support for key programs like T21, GBSD, NGI, IBCS, next-generation OPIR and Triton. And there is an opportunity for additional funding for GATOR, E-2D, F-35 and F-18 that we've seen in proposed plus ups from Congress. But I will note that as has become the norm in recent years, there is a high probability of starting the fiscal year on a CR, so we have anticipated this in our outlook for 2022. The budget is a strong reflection of the alignment of our company with our customers and reinforces my confidence that we are well positioned for this environment.
So with that, I'll turn the call over to Dave, and then I'll have a few closing remarks before we turn to Q&A. Dave?