Q3 2020 General Dynamics Corp Earnings Call
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I would now like to turn the conference over to Howard Rubel, Vice President of Investor Relations. Please go ahead, Sir thank.
Thank you Rocco and good morning, everyone welcome to the General dynamics third quarter 2020 conference call.
Any forward looking statements made today represent our estimates regarding the company's outlook. These estimates are subject to some risks and uncertainties additional information regarding these factors is contained in the company's 10-K, 10-Q and 8-K filings.
With that complete it's my pleasure to turn the call over to our chairman and Chief Executive Officer Phebe Novakovic.
Thanks, Hap and good morning, before I address the company quite good performance in the quarter. Let me briefly update you on coal that 19 continuing impact.
As we discussed last quarter, we are working hard to protect our people we adhere to CDC guidelines encourage telcel distancing and have a mandatory mass policy.
We continue to have lower infection rates in our surrounding communities.
Today of a 100000 employees please.
We've had about 1800 cases 1500 US home has fully recovered and are back to work while many of the others are working from home during their farm team.
In short the pandemic remains an issue, but we have dealt with the help of our workforce and effective way and continue to do so.
As we turn to our results in the quarter, all spend less time on quarter over a year ago quarter and year to date comparisons that are well stated in exhibit a and b to the press release and instead focus my remarks on operations, the significant sequential improvements and meaningful developments in the quarter.
Regarding the company's third quarter performance as you can discern from our press release, we reported earnings of $2.90 per diluted share on revenue of 9 billion 400.
30 million operating earnings of 1.08 billion and net income of $834 million, all very significant improvements over the second quarter.
As one would expect revenue was down $330 million or 3.4% against the third quarter last year operating earnings were down $132 million or 10.9% and net earnings were down 79 million.
For the defense businesses alone the year to date revenue is up $98 million and operating earnings are down only $51 million all up the defense business has been seriously impacted but is holding up and recovering well as you will see in the details.
As you all are aware most of the revenue and earnings shortfall. This year to date has occurred in our aerospace segment, which saw significant write offs last quarter associated with reductions in force at both Gulfstream and jet aviation. However.
However, there is mostly good news for both companies this quarter, which I'll get into shortly.
But before I get into the details at the operating level, particularly at aerospace in Gvhd, where we experienced significant improvement I want to spend a moment on the resilience and strength of the company's backlog.
Total backlog of 81.5 billion is down 1.1 billion against the end of last quarter funded backlog at $60.2 billion down only $950 million. However, total.
Total estimated contract value of $132 billion is down only $336 million against the end of the last quarter.
While these numbers are down slightly they represent a solid and enduring backlog.
We have a good news story at aerospace this quarter across the board Aerospace had revenue of 1.98 billion and operating earnings of $283 million with a 14.3% operating margin.
On a sequential basis.
This is an operating earnings improvement of 124 million driven by 620 basis point improvement in operating margins.
Last quarter in my remarks, I told you that we fully expected to be back on track at jet and Gulfstream and the third and fourth quarters, receiving the benefit of the cost reductions made and paid for in the second quarter.
Thats certainly turned out to be correct in the third quarter.
Gulfstream led the way with 32 deliveries 25, large and seven mid size the largest number of deliveries within that mix was the G 650 model.
From an order perspective sales activity in the quarter was a quantum leap better than the second quarter.
While we saw pipeline activity improve week by week during the quarter demand is still dampened by fears of can concerning the economy by an unsettled political climate and by a wide variety of travel restrictions. Nevertheless, we had at 0.9 to one book to Bill.
Once again led by orders for the G 650.
The Gfive hundred G 600 program is progressing quite nicely.
As of October 13, we had 78 customer deliveries in the program and anticipate another 14 for the rest of the quarter.
So by year end, we should have over 90 aircraft in this family in customers hands.
The G 700 development continues to proceed at pace with the first three flight test their planes accumulating 750 hours at the end of the quarter reaching.
Reaching its speed of Mach 0.99, and climbing to announce two to 54000 feet.
First flight for aircraft number four was the week of October Fest and number five flu last week.
Hi, I'm frequently asked about production and deliveries for next year, while I dislike, giving piecemeal guidance on our plan for next year is not final. It is fair to say that we contemplate fewer deliveries.
As you know the G 550 will go out of production next year. So there will be 13 fewer G 550 deliveries.
Pre pandemic, we had planned to make up that shortfall by delivering more of the other large cabin aircraft.
It now appears that the marketplace will not support such an increase.
So the other three large cabin aircraft will not experience much of a change in production rate or delivery.
There will also be a modest reduction in mid size aircraft. However, we will have the opportunity to revisit this in April of 2021, the sea of market demand at that point justifies turning up production.
We will give you greater specificity on all of this on the first fourth quarter call after our planning.
Yes.
Finally, we had previously forecast full year deliveries are 2020 of 125 to 130. It now appears that we will be right around 130.
Turning to combat systems, they had revenue of 1.8 billion up 3.5% over the year ago quarter.
Operating earnings of 270 million were up $6 million or 2.3% over the year ago quarter sequentially revenue was up $47 million or 2.7% and operating earnings are up $31 million or 13% on a 140 basis point improvement in operating margin.
The year to date figures show, a 4.5% growth in revenue and a 2.8% growth in earnings pretty impressive given the profit related problems, which were incurred earlier in the year, particularly in Spain.
Combat systems had nice order activity in the quarter with over $1.65 billion and funded orders funded backlog total backlog and total estimated contract value all grew nicely in the quarter.
The group had a book to Bill of 0.9 to one together with favorable exchange rates and the acquisition of medical.
The three taken together result in good growth in backlog.
Our European land systems business had a particularly strong order book in the quarter and TS has the largest total estimated contract value in their history.
Land systems estimated potential contract value also rose in the quarter.
Undergirding combat system strengths are several important facts that I am not sure well understood by investors first we are without question the premier integrator of land combat systems worldwide.
Second we are the U.S. Army's leading source of innovation through our rapid prototyping facility in Sterling Heights, Michigan.
Third we have a well earned reputation with the army for high quality on schedule and on budget performance that is unrivaled in the industry.
All of this underscores what we have been talking about for some time that combat systems will continue to grow into the foreseeable future.
As I indicated earlier.
Information technology, our defense business, most directly impacted by posted 19 had a very good third quarter.
They had revenue of over 2 billion in the quarter operating earnings of 146 million.
With an operating margin of 7.2%.
They are very nice sequential improvements in revenue.
Operating earnings and operating margin.
The year over year comparisons are reasonably favorable as well.
Gee I T continued its strong cash performance it produce free cash flow of 140% of imputed net income in the quarter at 149% year to date.
This is the best cash performance again chance of cross general dynamics, both in the quarter and year to date.
From an order perspective, CDIY Tees Lynn in wins in the quarter, a number of which are highlighted in our release demonstrate that GDP is gaining traction and expanding their footprint in key technology focus areas.
Such as cloud computing, cyber security artificial intelligence and digital modernization.
COVID-19 has accelerated trends and technologies that began before the pandemic include.
Including the speed with which technology is being developed and deployed to meet emergent mission requirement.
We saw strong momentum on the growth front at Gd IP with the largest award quarter this year and significant contract wins across all markets, including over 1.5 billion of awards in our federal civilian and Defense Division.
Through the first three quarters of 2020, we have one considerably more new prom competitive work than in all of 2019.
Over 50% of awards in the third quarter from competitive new business.
This improved award performance is encouraging and bodes well for the business as it submits a record number of proposals this year.
Third quarter was the largest dollar quarter. This year for submitted bids with over $9 billion of proposals submitted these.
These third quarter Submittals are additive to billions of dollars of prior proposal submissions awaiting customer decision.
We are beginning to harness the power of the broader corporation to drive wins, including working even more closely with our tax full communications business at mission systems.
With respect to mission systems revenue of 1.22 billion is essentially the same quarter over quarter, but up $40 million or 3.4% sequentially.
Similarly earnings of $168 million up 4 million or 2.4% sequentially.
Year to date revenue is down $137 million or 3.7% and earnings are down $15 million or 3% versus last year.
This is not bad considering the divestiture of our ground based satellite antenna business in the second quarter and the impact of posted 19.
We saw a lighter customer activity, which reduced expected sales of some products, but we expect that to remedy as customers returned more fully door.
From an order perspective mission systems had a book to Bill of 0.8 to one in the quarter.
We have done some portfolio shaping at mission systems. So we can concentrate on growing our nuclear triad lines of business.
Cyber defense, Intel and assured navigation and positioning all of which are critical of capabilities that support us defense strategy.
[noise] Marine systems is yet again, a good news story with quarter over a year ago quarter growth in both revenue and earnings.
This growth is attributable largely to our submarine programs at electric boat.
Over half of the 7.6% growth year to date as Colombia.
With considerably more coming.
We've been talking about Colombia for some time and you're beginning to see the significant growth of this program.
On a sequential basis revenue of $2.41 billion is down modestly but earnings are up $23 million on 120 basis point improvement in margin.
The 9.3% operating margin is handsome.
It is part of our continuing effort in the Marine group to improve operating margin to go with a very real growth in revenue over time. This is a work in process, but on balance I am confident that we are on a path to improved operating margins.
So introspective forecasting I think the guidance. We gave you last quarter is still our best view.
Let me turn the call over to our CFO, Jason Aiken for additional remarks, and then we'll turn to your questions.
Thank you Phebe and good morning.
I'll start with some comments on our cash performance in the quarter and our latest thinking on how the year is shaping up.
Cash from operations in the quarter was $1.1 billion and our free cash flow was $903 million, a 108% conversion rate.
We ended the quarter with $1.5 billion of cash on the balance sheet and a net debt position of $11.9 billion down almost 400 million from the second quarter.
As anticipated when we started the year the cash performance is stepped up markedly in each sequential quarter. This year.
Consistent with our original expectation, we have a big fourth quarter ahead of us.
That said our forecast for the quarter is right in line with what the fourth quarter has looked like in each of the past three years, so not an unusual task at this point.
So with that as backdrop.
We continue to target free cash flow for the year to be in the 80% to 85% of net income range, but.
The biggest variable in achieving that mark will be Gulfstream order activity and our ongoing efforts to support our supply chain as we settle on production and delivery rates for next year.
You heard freebies remarks on that subject, so assuming things continue to trend favorably as we've seen of late we've got a path to close on our cash target for the year.
On the defense side, our Pentagon customer continues to lean forward with accelerated contract payments to support the industrial base and we in turn continue to do the same for our supply chain.
Through the end of the third quarter, we received approximately $400 million of accelerated payments from our customers and advanced more than 1.7 billion to our suppliers.
To the extent, we eventually see additional relief from our US government customer in the form of incremental contract funds to offset the ongoing impact of Covance to our business will include the benefit of that relief in our results only when its authorized and funds are made available.
As I mentioned earlier, our net debt is down to just below $12 billion and our interest expense in the quarter was $118 million versus $114 million in the third quarter of 2019.
That brings the interest expense for the first nine months of the year to $357 million roughly unchanged from $350 million for the same period in 2019.
At this point, we expect interest expense for the year to be approximately $480 million.
On the capital deployment front capital expenditures were $216 million in the quarter or 2.3% of revenues.
We are still targeting capex to approach, 3% of revenues for the full year before declining over the next couple of years to our more typical 2% range.
In the quarter, we paid $350 million in dividends and we did not repurchase any shares of our stock.
Our effective tax rate for the quarter was 14.7%, bringing the rate for the first nine months to 15.2%.
Third quarter rate was as expected below our full year targets as a result of lower taxes on international income and increased research and development tax credits. So we're right on track to achieve our full year target in the mid 15% range just recall that implies a somewhat higher tax rate in the fourth quarter to get to that full year rate.
And lastly, a little color on the backlog story for the quarter.
As Phebe noted the backlog held up particularly well given the impacts of Covance. So far this year.
As of the end of the quarter, our funded backlog total backlog and total estimated contract value or all up significantly compared with this point a year ago no.
Notably this growth is broad based with year over year increases in four of our five segments. So a solid foundation for resuming growth as we emerge from the pandemic.
Howard that concludes my remarks, so I'll turn it back over to you for the QNX.
Thanks, Jason as a reminder, we ask participants to ask one question and one follow up so that everyone has a chance to participate Rocco would you. Please remind participants how to enter the queue.
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Today's first question comes from that will.
You bet.
Hey, good morning, good morning.
So I'm certainly will be a bunch of questions on Gulfstream. So I'll just start with the sense right now we have those for other firms.
In the in the Naval business there has been some discussion some whispers about us.
Third versus their Clos.
What are you going to that is that a possibility and what's that mean for you guys if that happens or not I have one follow up after that.
So.
Yes, so we have been talking to our our navy customer about the ability of essentially the supply chain.
And the facility is to ramp up production and as you can imagine we're developing plans to do that.
As well, but you'll note that in all of the.
Recent discussions about us national security strategy, and particularly the Navy's articulation of the criticality of the size of its fleet submarine figure.
Prominently in all of those conversations because they remain a national competitive advantage for the United States. So we will continue to work with our customer.
And we'll see where that takes us at the moment, we are not planning for that increase.
But if the nation needs that will accommodate it.
And then my follow up is kind of dovetails with your comments when you look at the there's been discussion I guess Secretary Ospar was talking about a 500. So just maybe a portion of that is unmanned.
Undersea vehicles.
What opportunities that present for general downturn.
Well, let's think about it in two parts in the first instance, it's the job of our ship yards to integrate those.
Capabilities into the existing platforms.
And we are and we are very good as you can imagine of that integrating mission payloads.
Into our into our ships and our submarine.
With respect to the individual lines of business within the unmanned world.
We have a mission systems has had a number of lines of business.
That had been very active for quite some time and the undersea domain.
Unmanned undersea domain, so I would imagine those continue to grow.
It's all going to be about performance and their performance throughout test test.
Testing has been outstanding.
So I think theres a lot more to come on that.
Okay. Thank you.
Further on this question today comes from Carbone rumor with Cowen. Please go ahead.
Yes, thanks, so much so phebe.
Hello So.
The aerospace impact $541 million of Kovats, what do you base that on is that deliveries you plan to do that you do and then you know given that it looks like the decremental margins on the revenue as you missed were 22%.
With the profitability of value assume that profitability would have been even better if you got those deliveries.
So.
Think about what we did.
Very quickly in response to cold.
We lowered our production.
We did it in two respects one better meet demand Buddy, but very importantly to allow the supply chain to catch up so that is really what has driven.
All of the all of the that's the overriding factor the serving all of the performance at Gulfstream.
All straight now within that within that we have also quite predictably.
And as we told you right size that business and we'll continue to do so so.
Lean.
Manage our margins.
And really push them to be as high as they can so I think Gulfstream has done a remarkable job.
In bringing down costs, both through restructuring and cost savings and productivity.
So with respect to the profitability of Gulfstream I think we've seen really.
Good discipline app.
Actions to size the business Accordingly, and then continue to.
Perform.
Superbly on the manufacturing line.
And then the last one Jason mentioned, you had 400 million it advances our cove it cares related and yet you advance to billion 70 or supplier. So thats.
A delta of about a billion three.
When do you expect to recover that when do you expect that to burn down to near zero.
So chi and keep in mind Thats, a cumulative number that's been building throughout the year.
And so that sort of pays in and then gets phased out and pay down and phased out over time that said you'll note. If you look at our cash flow statement in our exhibits our receivables and Unbilled receivables.
In the.
Quarter, as well as payables and and on the supply side continue to be a bit of an ODC headwind for us and that's really all attributable to a lot of that timing. So I think you'll see that phased out as this pandemic starts to abate and the customer sorts of moves its payment practices back to normal and and will.
In kind.
You sort of move back to a normal cadence from from our perspective in the meantime, our priority is to make sure that our.
Our supply chain, which is we're all in a symbiotic relationship here and what's good for one is good for the other we've got to continue to support the elements of that supply chain that needed, particularly on the smaller business side and so we're going to continue to do that as the as the impact of the pandemic continues.
Our next question today comes from Robert Stallard with vertical research. Please go ahead.
Thanks, So much good morning morning couple.
A couple of questions first to perhaps on GDP.
Quite a few comments there phebe about the demand environment. The bidding to this business has been doing have we finally turned the corner in this division and can we expect revenues to accelerate from here and to hold on to this operating margin.
Well they are.
The operating margin lets take that in inverse order was severe.
Severely detrimental last quarter by a loss that we had on and legacy GT T program as well as the impact.
Coal that.
And if you recall, we had a significant number of our work horse too.
We're covered ended the cares act and I don't know if you recall those numbers, but it was a lot of revenue that carry knowing about a $150 million in the quarter. So those are considerable headwinds GT T has from the very gecko.
Had superior industry, leading and not by a level that by allot EBITDA margins and I would expect that performance to continue.
Today is a padded kit that we finally turned the corner.
Yeah.
Ill.
We can we can quibble over the predicate, but let me just give you some some idea and EVP of what's gone on the order front at G. T. In the quarter. Our overall win rate is in excess of 75% and our recompete win rate was over 90% and I think it is.
Didn't really.
Really a dispositive factor that in the third quarter with our largest quarter over 50% of the awards coming from competitive new work and.
And so I think that that's an important indicator of of this business on a on a going forward basis, we have a number of nice enduring wins in the quarter.
Our performance has been very very strong.
On our existing contracts, so I very much like where this businesses and again they have continued to to have outstanding cash performance.
Okay, and then on the Aerospace Division I was wondering if you could give us any clarity on the order intake in terms of whether any differences by module by region that were notable in the third quarter.
Well I think I noted in my remarks at 650 led the order book that has been extraordinarily successful airplane and continues to endure.
And successfully Angela.
So internationally.
We saw more of a pickup I was pretty I think fulsome in my remarks about the demand environment, but we saw good order activity internationally.
That's great. Thank you very much.
And our next question today comes from quarter group, when we lose roost.
Hi, Carter.
Phebe.
Hello, Jason and Howard.
Phebe I wondered if you might talk a little bit about.
The performance city be.
Pretty intrigued by the margins given the covance cost that you've you've outlined year to date I mean, obviously those.
Those come through in the reimbursement of those the treatment there Justin.
Just implies you guys have found some performance efficiencies there I wondered if you could speak to that.
So electric boat has continued to find and we'll continue to find performance improvements.
As well as cost cutting this is a very efficient yard, that's getting better and better and better what they do so I expect their performance to continue and as I noted in my remarks, we.
We are.
With all of that topline growth, we are going to push for.
Our margin expansion. So you see will now we're going to see bottom line growth, but the more that we can accelerate that bottom line growth the better and that's all about productivity and efficiency at electric boat and they've done a superb job in the last four quarters, even within this environment.
Of driving productivity improvements and you know even if you think about and this is just not with respect to the shipyard but across.
Across all of our operating divisions.
No the coal that is amplified the under lying strength of the operations in this business to the extent that they are driven by disciplined continuous improvement.
That helps manage any crisis, including this pandemic sole yield we are continuing to see each and every one of our businesses improve their bottom line performance on the operating side, we've long talked about that and keep that strong operations with the key to financial support that in good contact.
I think so I think you'll continue to see this CNO march toward poetic tivity improvements in at electric boat is is leading the way.
So more to come.
Okay, great. Thank you for the color.
Another question today comes from Richard Safran with Seaport Global Please go ahead.
Okay.
Phebe, Jason Howard Good morning, how are you.
Thank you.
Thanks for taking my question.
Maybe just.
Just a quick you discuss portfolio shaping in your opening comments. So I wanted to get your thoughts on further portfolio shaping.
Are you considering any further divestitures or additions to the portfolio do you think that there are any holes in the portfolio right now that you need to fill just any color you can provide on just how you're thinking about it right now Richard I know how much it like half, but you know I think that.
Portfolio shaping his own layer of effectively discussed after the fact.
So overall.
We are always looking for opportunities.
To improve and focus our.
Our activities, but.
Really no comment at the moment and there's really nothing on horizon at the moment we're off.
Sticking to our operations doing.
Doing doing what we do best.
Okay and as a follow up then that mission.
You noted expansion into naval Air and electronic systems I want to know if you could elaborate on that a bit more was this share gains new contract wins with this expansion into new markets just any color you could provide there.
Really within our core.
Now that Weve had continuing.
[noise] contract wins and that is a business, where we have done a fair amount of portfolio shaping but post they've got some nice growth at looking at now in front of them.
And sorry, I talked about the cyber defense.
Tactical Communications, we have a decades long history and expertise in the nuclear triad.
That will continue to grow.
And missile and fire control as well as a short position navigation and timing you know in a world where it.
On the battlefield GPS reliability is questionable thats, a key and critical factor.
We have developed over quite some time and very strong expertise and so I think it's important when you see these really critical important franchises that you.
The divesture solve so of non core businesses Nextracker, what we've done.
Thanks very much.
Our next question today comes from Holyrood with Bernstein. Please go ahead.
Good morning, Hi, Jeff.
Phebe, you mentioned earlier about leveraging the breadth of the GDP of the corporation for opportunities and you had then there were some things that really fit right into that like unmanned unmanned undersea.
But when I think of general dynamics over the long history I've thought of the units is operating very independently driven by.
Number is within the unit.
Does this suggest that you're thinking differently about how you manage from the corporate center.
So look.
I believe in centers of excellence at the business units in which they felt they concentrate on the real value creation level levers at their disposal that said, we have a long history.
Our units working together and mission systems in particular.
They are heavily embedded in combat systems platform within the Marine group.
And with Gd IP so.
So we are moving increase.
Increasingly in response to the market I might add increasingly.
Working on joint activities between those two businesses and they work on them.
Well together they blend well together.
So there is no fundamental change in how we see our business.
Across our portfolio.
I really do think people etcetera, what may stick to what they know, but where we have opportunities to law.
To augment that value creation through.
Hartner ships across units we've done so we have done so for 20 years.
No one of the opportunities.
It could be in the area of Fiveg and you've won contracts, both the TD LTE and and at mission systems related to that.
Is this something that we should expect to see us a strong growth area and when might we see it if thats the case.
Well I think the department is still working through the offer how to operationalize Fiveg I think it is an enormous.
[noise] capability advantage for our war fighter.
And we have been a part of both planning and thinking it at our customer levels for some time.
And look we are.
The way we define in how we operate both in the moment and going forward is how to meet our customer needs so as as their need and the and the clarity around its use.
With respect to Fiveg in this instance.
Gets increasingly clear.
We'll be there to work with them.
Okay. Thank you.
Your next question comes from David Strauss from Barclays. Please go ahead.
Thanks, Good morning, Phebe I mean, David.
Thanks for the color on on Gulfstream as you look out to 2021 deliveries.
With regard to that I think you are forecasting <unk> 0.1, 3 billion and you did a 20 would you would you still expect.
Gulfstream EBIT growth in 2021, despite lower deliveries.
Well look let us continue to work fat five.
In addition to efficiency.
The number of airplanes delivered really drive.
EBIT.
So we've got a long way to go in determining what the final plan as I tried to be very specific in my remarks about how to think about the.
[music].
The.
Delivery plans that we have at least the net.
Current national level.
It's really the 550 has gone away and we're not able in this demand environment to replace it with new airplanes with our new airplane models that we had anticipated. So the production is going to be very similar on on our existing.
Fleet, all with a little bit of a detriment on the on the mid term or mid size.
Kevin So I think Thats, all we can say at the moment about any specificity around the future.
Okay and.
As a follow up.
Jason on free cash flow as we think about.
Next year, how much potentially could that conversion number bump up I mean is is 100% conversion next year out of the question at this point.
I don't want to say anything's out of the question David I think what we're focused on is growing free cash flow year over year and obviously the two major muscle movers, there that have really been all part of the operating working capital side of that story are on the one hand, the combat systems International program. We've told you I think.
A good bit about that throughout this year and that is on a trajectory of sort of set on a path with timing to essentially unwind that working capital over the next three years.
And then the other side, obviously, the Gulf stream with the with the inventory build it really is is largely associated with.
Three different aircraft models with test aircraft and.
The unwinding of that both those test aircraft as well as just the general inventory build into into new aircraft models is all going to be predicated on the macroeconomic recovery and when that production rate.
Gets back into full stride and start to unwind that so.
I don't want to put some of the caveats around it but I think the most important take away is we expect to see growing free cash flow year over year and will work out the details as to whether we get to two or or above 100%.
As we were projecting before the pandemic.
Okay. Thanks very much.
Your next question comes from Robert Screw with Credit Suisse. Please go ahead.
Hi, good morning.
Two quick ones CB for you I know you talked about Gulfstream demand, but I just wanted to ask from one other angle has the customer mix lately since co bid.
Change between the number of high net worth individuals versus corporate buyers. So that's the first question on Gulfstream.
Well, let me, let me address I talked about that in my remarks.
Got it and Theres a lot of uncertainty with.
With respect to the economy and political uncertainty and then.
We still have highly restrictive travel restrictions across the world. So that is.
And issue.
That's going to affect.
Corporate buyers, but as I also noted we are seeing international pickup is nice and high net worth individuals continue to be in the market. So.
As the economies recover.
With fee Dimunition infection rate.
We'll see a pickup and all of that.
But you see what I'm getting at is our is is the virus, causing people I guess the high net worth group to want to travel privately where they might not have before well.
Well I think ascribing motive to people is is very difficult, but the high net worth individuals have always been an important part of our portfolio name remain that they remain so.
Okay, and I had a quick one for Jason and that's just on mission systems implied margin in Q4, it sounds like the guidance holds in the mid 14, so just what's driving that fourth quarter.
I think what you're looking at there is mostly a mix issue for that business as phebe talked about as well with some some of that portfolio shaping some of that is to get out of noncore businesses and by association in many cases, some less than desired margin businesses. So that has an uplift effect as well so I think they're expecting.
To see a little bit of a rebound in some pent up demand that they've experienced over the past several months that will drive some of that product flow through which will bring some strong mix.
Mix based incremental margin in the quarter.
Thank you earnings portions of it comes from George Shapiro with Shapiro Research. Please go ahead.
Hi, how are you.
Couple of quick questions what's.
Was the book to Bill of the 650 in the quarter above one.
Well, let's not parse that out for you, but it was quite wholesome.
As I said, that's a spectacular airplane it continues to be in demand.
Okay, and then just one for you Jason can you clarify a little bit the impact on the free cash from the 400 million.
We received the and you gave out $1.8 billion I mean, if I look at the balance sheet in the Q3, it looks like between the working capital would have been.
$410 million worse, with receivables and unbilled receivables and et cetera, and so I'm just trying to reconcile what the actual impact on the cash in the quarter was from your earlier comment.
No just to clarify George I think the numbers you're quoting from the cash flow statement are pretty much on point as it relates to the impact of ODC in the quarter.
The numbers on the the payment advances and accelerations from our customers into our suppliers keep in mind, that's not a cumulative $1.3 billion of implied pent up cash on the balance sheet as of the in the quarter.
As we are accelerating this is what I was trying to get into on an earlier question. As we are accelerating cash to suppliers, we're helping keep them going on an ongoing basis for month to month and quarter to quarter. So if they've got implicit receivables that are due 60 days from now on we're accelerating that to paying immediately well 60 days late.
Her that payment was due and so that kind of comes off the balance sheet naturally, but cumulatively, we've been accelerating over time for call. It the past 656 months.
In excess of $1.7 billion to those suppliers so.
You got to kind of reconcile that with the in the quarter. What was the net build of our WSE, which speaks to the numbers you were speaking to coming off the cash flow statement. So thats kind of how you reconcile those two concepts.
Your next question comes from Joseph Denardi with Stifel. Please go ahead.
Thanks, Good morning.
Maybe it wasn't wasn't too long ago that you used to provide kind of backlog duration by platform at Gulfstream would you be willing to provide that now just given some of the changes in the build rates that you're seeing thank you now that was appropriate when we had all existing long term.
Airplanes that had been in the backlog for some time. This is all new fleet.
We're not going to start that until days have been.
In the in our production for for some time.
Okay I understand.
There is a material difference in the kinds of.
In the kinds of airplanes that we have these are all new models and frankly as you. All know we are the only airplane manufacturer with Glee all truly clean sheet.
Airplanes.
And now it's best to just focus on how well we're doing in selling those I think it is an important indicator that by the end of the fourth quarter. We now have 90 of these five hundreds and six hundreds in customers hands and let's not forget also we've got over 450 G 650.
Out in the fleet is pretty impressive yes me.
Okay understood and then just just on DTA D. I think the traditional metric that folks look at to kind of understand growth is book to Bill in book to Bill There for you all is okay.
Is that expected ongoing revenue I think it's.
Quite nice.
Okay. So thats, what you expect from that business going forward. There is not an expectation that book to bill improves materially there you're going to have some variances over the quarter, but look there is I wouldn't say that we don't expect to build.
To.
Stay the same in perpetuity.
It's all going to depend on on the win rate and in any given quarter and when the customers start deciding all of this enormous pent up backlog.
Also said got in front of them.
And as you can well imagine the velocity at which these contracting decisions are made on the part of the contractors.
Thats part of that customers can slow down by by Cozad. So we'll get through all of that and the key areas for us to win more than our fair share and businesses.
Is doing I think quite well in that regard.
Thank you.
Operator, we'll take one more question please.
So moving on some questions through homes and so she would you be Morgan. Please go ahead.
Okay, Thanks, very much and nice bearing everyone hi.
Phebe I Wonder if you could talk a little bit I know.
No you don't give multiyear guidance, but maybe in kind of a qualitative way.
Thinking about the growth and marine that's.
That's going to be driven by Columbia, just so we have.
Maybe some way to size the magnitude of that in the coming years and have some guardrails around it and.
Aware of the timing of any kind of occasion, we see pick up some growth as programs move from development to production and kind of when those happen and.
Any additional color around that.
So I think all the way to think about the future and while this will be somewhat lumpy on a going forward quarterly basis. The fact that 50% of our growth. This year has been in Colombia acne.
I think is a nice indicator of what this is going to mean to us in the future electric boat alone sizeable double in the next five to six years, it's already quite a large business.
It will continue to grow.
This is a.
As we've been talking about for some time and enormous program of critical national importance.
We have and we've geared up to two both facilitized to support it as well as prepared all of our manufacturing processes to support it I'll give you a wonderful note that to give you a sense of what's going to propel this growth.
We go into production on Colombia, with 80% of the of the.
Of the construction drawings done.
Paired to 43% on Virginia, and Virginia was one most successful programs in department has ever seen.
So that tells me that that all of the growth that's embedded in those.
Current budget numbers in future year budget numbers of in that department of the Navy.
Are going to be able to be capitalized by us a nice nice topline growth and then as I noted.
Continue to work on margin expansion. So we'll give you a sense of what next year looks like and over time as we really get into that in the fourth quarter call and over time as we really get into.
Full rate production on Colombia, you'll get an awful lot of clarity on what the future looks like.
Great. Okay. That's all for me thanks very much.
Thanks.
Okay.
No.
Thank you very much for joining our call today and as a reminder.
Please refer to the general dynamics website for the third quarter earnings release highlights presentation and outlook. If you have any additional questions I can be reached 700 38763117. Thank you very much.
Thank you Sir This concludes today's conference call.
You heard me today's presentation, you may notice merger loans have a wonderful day.
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