Q3 2020 Huntington Ingalls Industries Inc Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to the third quarter 2020, Huntington Ingalls Industries earnings Conference call. At this time all participants are in a listen only mode. After the speakers presentation. There will be a question and answer session to ask a question.
During the session. Please press Star then one on your telephone keypad to withdraw from the question queue. Please press Star then two.
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I would now like to hand, the call over to Dwayne Blake Vice President of Investor Relations Mr. Blake you may begin.
Thanks.
Good morning, and welcome to the Huntington Ingalls Industries' third quarter 2020 earnings Conference call.
These to adapt to changing circumstances.
And regarding Covid relief, we have highlighted to decision makers that the defense industrial base is at the Nexus of economics, Sustainment and National security and it is uniquely positioned to drive economic recovery in every state through thousands of suppliers, we remain hopeful that directly related COVID-19.
Labor costs like Quarantining and other paid time off will be reimbursed and we will work with the administration to provide the necessary documentation to support this effort.
We also continue to encourage the customer to provide funding for cross program delay and disruption impacts.
Now, let me share some highlights from the quarter starting on slide for the presentation sales were $2.3 billion and diluted EPS was $5 45 for the quarter.
New contract awards during the quarter, where approximately $1.6 billion.
Resulting in backlog of approximately $45 billion at the end of the quarter of which approximately $22 billion has funded.
Turning to capital deployment for a moment.
Here to in Mccool junior is well into production and the key laying ceremony for LPT LPT 30, Harrisburg is planned for later this year.
At Newport News Cvs 79, Kennedy is approximately 76% complete and the team is continuing to focus on compartment completion and key propulsion plant milestones and we recently reached agreement with the customer on an undefended ties contract action to begin execution of the single phase delivery work.
And we expect a definitive the contract changed next year.
Cvs 73 U S S. George Washington is continuing to progress through its final outfitting and test phase.
And is approximately 81% complete this.
The ship achieved two significant milestones during the quarter with commencement of shorts being testing and completion of the potable water systems a support the start of moving the crew back aboard the ship later this year.
Band or unmanned fleet in an affordable and timely manner.
As I prepare to close let me first thank each and every one of our over 42000 employees for their hard work commitment and dedication.
Their efforts allowed us to continue meeting key programmatic milestones during these challenging times.
I encourage each of our employees to take care of themselves take care of their families and for them to be safe.
I am very pleased with the progress we have made this year and the focus skill and creativity demonstrated by our entire team since the pandemic started.
Partially offset by lower segment operating income compared to the prior year.
Net earnings in the quarter were $222 million compared to $154 million in the third quarter of 2019.
The increase in net earnings was driven by lower income taxes due to higher research and development tax credits for prior years, a more favorable nonoperating retirement benefit compared to the prior year as well as higher operating income partially offset by higher interest expense.
From a segment standpoint, ingles revenues in the quarter were $675 million, an increase of 4.3% from the same period last year Red.
Revenue growth was due to higher volume for both the DDG and NSC programs.
Okay and the prior year.
The increases were primarily driven by improved performance in defense in Federal solutions. Following the successful integration of recent acquisitions and expected post acquisition cost synergies.
Turning to slide six of the presentation. We ended the quarter with a cash balance of 744 million and total liquidity of 2.5 billion. As we've noted before we plan to Delever later this month by calling $600 million of our senior notes do in 2025.
And the third quarter cash from operations was $222 million in net capital expenditures were 62 million or two 7% of revenues compared to cash from operations of $363 million and $113 million net capital expenditures in the third quarter of 2019.
In the quarter, we contributed $150 million to our pension and postretirement benefit plans of which $140 million consisted of discretionary contributions to a qualified plans.
During the third quarter, we paid dividends of $1 three per share or 42 million.
As Mike mentioned earlier, our board of Directors recently approved an 11% increase to our quarterly dividend to one dollar and 14 per share.
While we did not repurchased any shares during the quarter over the long term, we do share repurchases as an integral part of our capital allocation strategy, we plan to resume share repurchases. Once we see sustained normalization of activity related to the virus.
Turning to slide seven we've updated our 2000 22021 pension and postretirement benefits outlook.
For 2021 projected fast expenses increased by $50 million from our initial outlook to 111 million, primarily due to lower discount rates.
Consequently, the 2021 Vasquez adjustment has decreased from the prior outlook and is now projected to be negative $64 million for the year.
Please remember that pension related numbers are subject to year end performance measurement criteria, we will provide a multiyear update of our pension estimates on our fourth quarter earnings call in February.
Moving on to slide eight we have narrowed some of our expectations for 2020 results I want to provide additional context, and our long term free cash flow target.
Regarding capital expenditure, specifically a number of the capital projects. Initially planned for 2020 that experienced delayed starts or extended schedules due to COVID-19 and other factors.
While the overall size of our roughly 2 billion generational capital investment program has not changed some of those expenditures are being pushed into 2021.
Given this we now expect 2020 capital expenditures to be approximately 4.5% of sales and 2021 capital expenditures to be approximately 3.5% of sales with.
With capital expenditures declining to 2.5% of sales in 2022.
<unk> has really stabilized at this point, but back in back in the summer and then when this first started it was pretty high in fact, our highest level of active cases was was right around the time of the call and so trying to predict where we were going to go from there. We just felt like it was prudent for us to take a pause on that we.
We feel pretty good now that the protocols, we have are in place and.
Give us.
Pretty good.
Way to deal with what's going on.
Where where like everybody else, we're kind of watch them to see what the next few months are going to be like but we think we think we're well positioned for that.
Thank you and then just sort of follow up in terms of margin.
On me on this center of Excellence you guys mentioned in the quarter is that principally going to be set up as an i. rad focus facility or something different.
Well, it's I mean, it's.
Capital investment for an advanced manufacturing facility to support programs that we already know we have we're doing manufacturing to support the Navy's extra large you use the program.
And we do see this considerable manufacturing to support.
You know not just navy, but international U V programs that are smaller than that and you know that.
Navy's announced other programs and we would see that that's a that's a way for us to.
To prosecute those programs as well.
Yes, just kind of came out kind of what's the next step after the hydro acquisition too.
To really help the navy, it's really it positions us to be able to help the Navy's plan become a come to fruition. So we're really excited about it we think it's a we think it's a step change in where the undersea unmanned business is going to go for the nation and.
And certainly we're pretty proud of our position in that.
Great. Thanks, I'll I'll, let somebody else ask.
Correct.
The next question is from Doug Harned of Bernstein. Please go ahead.
Good morning, Thank you.
In the last quarter. When you took the charge for charge at Newport News related to Virginia class.
You talked about schedule changes and.
Is this related to the Montana that New Jersey, the Massachusetts, you mentioned schedule on the New Jersey earlier can you can you talk about now.
A quarter later.
How did things stand in terms of getting too.
Sort of new schedules on those three boats and how should we think about that trajectory in terms of.
When we could expect margin performance on those.
Well I'll talk about.
The schedule on the operations.
We took a pretty big dividend attendance in in April and May.
Where are we then since then we've been pretty steady in terms of what we can predict in terms of the number of people that are going to be there and who's going to be there and.
And how to allocate those resources and that's that's working very well for that for us and it's it's really consistent with this with the schedules that we reset.
At the end of Q2.
We're still seeing the.
I mean, we still have.
Less we probably have less than 200 active cases, but thats couple of hundred active cases.
In the business and it does move around in our workforce, but.
By and large we're able to predict the schedule recovery now once you get the schedule piece of it let me make clear we're tracking the schedules the new schedules.
The opportunity to really recover the device that we took out we haven't we haven't quite figured out how to go and accelerate back to where we were in terms of schedule.
But we're but we're working on that and but we're definitely supporting the new schedules that we have laid out now it's about Doug as you know it's about how efficient are you doing that.
The things that we put in place from a from a training and development piece for our for our young workforce. The the action teams and the and the engagement on critical operations.
We're seeing first time quality improvements, we're seeing we're seeing some efficiencies there is not enough there yet to become predictable, but we're seeing all the right trends.
And then just staying at Newport news, because one of the things you've talked about is that we have a lot I mean, there's a lot going on there.
Just got the award for the single Phase delivery on CVN 79, and when you look at that.
And how that will play out.
You've got some more content I think it pushes timing back a little bit, but how do you think of of that program now in terms of what that compared to potentially add as content benefits versus what some of the risks might be there being there.
Going to the single phase delivery.
Actually let me start I actually think it it de risks it a bit Doug because we're resetting.
The test program on that ship over the next couple of years.
So it's it's a chance to to reset your risk registers reset the sequencing.
So ultimately it here today I think it reduces the risk on that yet and let me add that.
It can it can be very easy to kind of look down the.
The size of a single program, but.
De risking the test program on 79 actually.
Actually allows for a more efficient and effective test program on the Arceo ages and the submarine repair business. Those are deployable assets. The Navy's operating tempo now is higher than it has been in many years.
And getting those ships moved and out is going to be really good for for the Navy and for US. So so there is a there is a cross program collateral effect that I think will be very beneficial to what we're doing with 79.
Okay. That's very helpful. Thank you.
Got it.
The next question is from Myles Walton of GBM. Please go ahead.
Thanks, Good morning good.
Morning, Chris Chris on the on the implied fourth quarter margins on stage, five and half to six and a half implies.
Implies a pretty big range for Fourq here, just curious can you give us some of the big swing factors to get from an implied fourq you it could be 7% or implied fourq, you that could be 11% shipbuilding margins or their deliveries that we should think about as big risk retirements in that fourth quarter.
Yes, sure delivery of NSC nine our planning in Q4, we need to make progress on a 73 test program, we need to float off Montana now those are the major milestones.
In the quarter I think centering in on the middle of that range, probably makes sense, but it is like it can be lumpy in ship building. So we want to keep abroad.
Okay, and not keep it to one and one follow up on the follow up Mike. The attendance levels. Maybe is that how you look at returning to normal post virus and it seems like that's one of the limiting factors work or gating factors to capital deployment. So maybe give us what normal is given none of us actually know what normal is setting.
House is doing some cost.
Yeah, I mean normal as a yeah I think in the eyes of beholder on it.
In a pre pandemic world on any given day, we would have a five.
5% to 10% of our workforce would be on vacation or would be out for some reason.
You know, it's a little bit higher than that now, but it's not anywhere near where it was in in April and May and the protocols that we put in place have allowed us to be more predictable in terms of who's going to be in and who is going to be out.
And the only the only unpredictable in there or the only thing that's not predictable is if someone actually becomes an active case or gets quarantine.
One of the protocols that we established in in August was that we were able to finally get enough testing to go and do testing in in the pool of folks that we're quarantining.
And because we were able to do that and effectively.
Test folks that we're quarantining, we were able to cut the number of people that were being quarantined by two thirds.
Because of testing that's a big deal for us and once we got that established and we feel confident that we have the testing to support us when we do that now we're at a place where we know where the workforce is we're able to predict what we're going to be able to get done. In addition to that we've been able to hire during this whole process we've hired.
At over 3000 people since the pandemic started and so even though we have employees, who have who are still dealing with school closures and things like that in in.
In their in their out.
Outside the business life.
We're able we're able to go and start building the workforce again so.
That gives us that gives us some confidence now that we have we have a pretty predictable path from from a workforce piece of this.
And and that's a that's kind of what we base this plan around.
Sorry, sorry, so does that mean you could be in a position to start repo by the end of the year or is it really into 21.
Yeah. We're just we're we're watching right now Myles.
We don't have a specific date, when we're going to restart it yet.
Thanks.
The next question is from George Shapiro with Shapiro Research. Please go ahead.
Yes.
Just a follow up.
To complete on fourth quarter and key asked the implication is that margin goes back to around 3.5% from where it is this quarter. So is there something unique in this quarter that doesn't sustain itself.
Yes, there were some onetime items in this quarter George.
George.
That improved performance at Ts, along with some cost synergies they got relative to the integration of the of the acquisitions, which is very positive, but that's correct. There were some onetime items that.
That are immaterial in nature that we took in the quarter.
Okay and am I on cash flow.
Chris you, but maybe 400 million next year, which is probably a little bit less than most people were thinking.
Can you go through some of the puts and takes I mean, obviously, you've got to pay real tax deferral, you got to pay some but that was kind of known in the second quarter size. Just wondering if you could go through some of the changes there sure George Yes, we like to look at 2020 2021 collectively so you got the first one which is up.
Payroll tax deferral Theres also capital that moved from 2020 to 2021, because the virus and then the customer payment clause changes that could potentially.
Turnaround next year when they go back to the normal a progress payment clause. So it. So it's really all of those items, which are causing a lot of comfort.
Edict ability between the two years, so we like to think about it collectively and then we'll start to ramp in in 2022.
Okay. Thanks, very much I'll stick to my chair sure.
The next question is from Ron Epstein of Bank of America. Please go ahead.
Hey.
Hey, Ron.
Just a question about maybe a possible opportunity there's been some news that.
Yes, I said deployments have been delayed due to maintenance backlogs in the in the government shipyards and before different shipyards.
Is that an opportunity for you guys to pick up some work.
Work.
From the Navy on helping them with their.
Deployment delays.
Sure I mean, we're in that now we actually have a three.
Three three repair jobs going on at Newport News, plus we have a tiger team supporting the Navy in their home ports as well.
We've been out of that business for a while or the classic way that thats been done as you kind of point out as most of that work from for many years was done in the Navy shipyard, so getting that getting back into that business and getting started back up in the you know the.
The protocol to go around operating a deployable asset and doing work in maintenance and support for our deployable asset are really.
A little bit different than construction, maybe a lot different than construction.
And so we're getting our team up to speed on that and.
We're working very closely with the Navy not just on the on the work that we have but trying to lay out a.
Sustainable.
Predictable plan for how the.
I mean, not just Newport news, but how does the private sector in general support.
The Navy's need to have more submarines and see.
And I think that's that's a big part of what we're talking about with the submarine repair business, but frankly, Ron I think Thats also a big part of what's happening on you know with the future force and the future the Virginia class and that you know on construction. So at the end of the day I think.
No matter, how many submarines the nation puts to see we're always going to wish we had more out there. So that's a good spot for us and we're and we're working very hard in that space.
And then maybe as a follow on to those comments.
When you look at the industrial base, given the industrial base can support a.
Potential sort or Virginia class on top of everything that's going on right now.
And because it seems like the reality of a of a surge in their classes, maybe getting closer I know, it's not like a sure thing, but it does seem like the drumbeat for that is getting louder yeah.
Yes, I do believe that it can do that.
I think that the shipyards will have to.
Build maybe invest in more capacity and more workforce.
I think that we're going to have to create some parallel capacity, maybe think a little bit more about buying pieces that we were doing organically before maybe structural units are spore fittings or foundations or something like that so.
So we expand the expand the capacity kind of in a parallel way.
You know as opposed to trying to do it all vertically inside the shipyards.
And then I think where you have to you really have to be focused if you're going to get it there as you got to get the supply chain up to speed our supply chain in support of.
All of shipbuilding budget, particularly our nuclear enterprise.
It's it's a.
Very capable, but it's also kind of thin and so so you really need to have the the.
Persistent consistent sustainable set of messaging to the industry that you're going to sustain this rate for significant time to to create or track the investment in that technique.
Technology capital and people that supply chain is going to need to go do I think the shipyards are ahead of that I mean, I know Newport News is ahead of that I My our friends at electric boat had been working this with we've been working with them they've been working with US we're all working it with the Navy.
And so I think that there is the there is the capacity to go do that.
But it Ain't a light switch and you don't turn it on overnight.
My rule of thumb, though is that if you're persistent on these signals.
From the from the government the.
The capacity in the industry can be built faster than the government can appropriate the funding to go do it and so because by the time. It takes so long to get to the appropriations process. There's a whole set of signals and long lead times and our fees and things like that in front of that that would let the industry know that you're really serious about doing it so so at that.
The path that we're we're engaged in right now is trying to sort all that out and yes, I'm pretty optimistic about it now I'll go back to it again no matter how many we believe we're going to want more.
Yes, yes, yes, yes, thanks for that.
You bet.
The next question is from Robert Spingarn of Credit Suisse. Please go ahead.
Hi, good morning.
Wanted wanted to switch to unmanned high level question for you, Mike and then a related one for Chris but.
What's your view of the long term profitability or profit structure. If you use the USPI business does the manufacture of the body in hall of these vehicles become a commodity with the value and high margin work coming through the payload and how do you position for that.
Going forward and then Chris I have a follow on for you on the same topic.
Yeah, I think it's a little early on this to kind of be specific about it I know that the intentions are to try to make all the different parts of this as open architecture as possible.
And certainly having an open architecture set of platforms like we do put.
Puts us in a really really good spot relative to where where the work is today.
You know going forward.
There's been a lot of programs out there that started out with the intention of being open architecture and then you end up in a proprietary situation, which is frustrating to everybody. So so our sense of it is that it's going to be it's.
It's going to be great to have the platform because that gives you a foundation to.
Lead into the the rest of the missions and the integrations and all of that that's going to be very important and I think that.
Without the platform youre going to need a partner with the platform you have a chance to partner or go organic or however, you. However, it needs to be done to support whatever emissions. There. So I think the structure will remain remains overall generic structure remains to be seen.
But we're pretty excited about what it can be.
Okay.
Oh go ahead.
Well go unfinished that part Chris and then I'll give you the follow on yes, some more it's a it's it's a.
A more traditional defense type market that can be used internationally as well.
Right, so higher erad higher investment within Hydralyte.
But also some international opportunities.
So thats something that we have not done traditionally.
So we see some opportunity there as well and hydro it has to hydro.
I've been doing right.
And then so the other question was if the Navy goes forward with a relatively large unmanned surface vehicle.
It is perhaps 200 250 feet could you leverage some of the existing depreciated pp any that you have for the NSC program or would this be a start from scratch kind of thing.
Yes, I think it's too early for that Ingo.
Angles is absolutely right.
Right in the middle of that with high ROIC hydro his involvement as well.
But yes, I think it's a bit too early for that.
Okay.
Thank you.
Sure.
The next question is from Joseph Denardi of Stifel. Please go ahead.
Thanks, Good morning.
Chris I'm wondering if you could just talk about the margin assumptions that are involved in the out year free cash flow outlook, and then whether kind of line of sight to getting back to kind of 10% improved relative to last quarter.
Yes so.
We I still think the Q.
Q2 top level outlook remains for 2021.
We're going to talk a lot more about return on sales on our year end call, but we will improve from there.
But again I'd like to push any.
Comments related to improvement on return on sales.
On to our year end call.
Okay, Okay and.
And then Mike I think.
At the Investor day, a lot of focus on.
M&A at the TS segment I'm wondering if that is still how you're viewing.
Kind of a priority for capital deployment or some of the challenges shipbuilding and cobalt has has changed on that thank you.
No. We're still on that we think you know we've talked already more this morning about unmanned than I think we've talked about unmanned and all the calls together before this we're excited about that business.
And we've continued to make some some investments in that space.
We're also very excited about our our energy business with the department of energy. There are there are.
Significant environmental and nuclear operating.
Opportunities in that space and we're we're very excited about that business, we're well positioned we've become in the last.
Three or four years, we've become a leading prime to the department of energy and the work that we're doing it at Savannah River and Los Alamos, and then Nevada test site.
And so we see great opportunity there as well.
The federal systems piece that we're working through we've gotten that weve really restructured that and frankly some of what you see in the results. This time come from some some.
Some leadership.
Changes around cost structure and adjustment to rate structure is suddenly which made us more competitive.
And we are and we're able to focus down a couple of really significant.
Lines of business like like.
Like Iops offerings for instance, and so we're I think we're starting to find our stride, there, which is going to inform our approach to making investments in that space. So no. We're not really backing away from where we were in.
The Investor's conference was in the universe before the one we're in but we're not backing away from that at all.
Yes. Thank you.
The next question is from Seth Seifman of Jpmorgan. Please go ahead.
Hi, Thanks, very much and good morning.
When.
You talk about.
The long term cash flow forecast I guess, when we think about the implied step up from 2021 to what's required for for the remaining years I guess, how should we think about that as a step function in 22 or should we think about it as something that build gradually and what's the role.
I guess that T. I guess, having a plan for the single phase acceptance.
The carrier plays in that cash flow trajectory.
Yes, I don't want to get into.
Too many specifics about that out your cash flow guidance of $3 billion over over five years. It will start to ramp in 2022. The CVN 79, absolutely plays a part in it because it pushes the delivery out a couple of years, but but we're pretty pretty confident that through sales growth earnings growth on the caf.
No reduction that that $3 billion will be achieved.
Okay, Great and then maybe Mike as a follow on we saw the new ship building back recently from maybe but it also looks like we're.
Likely looking at a change of administration here in January so to what extent would.
Give you that the specifics of that plan is pretty provisional and you.
For revision if there is a change in January.
Yes.
I'd start out with a couple of just the boiler plate facts.
National security tends to be pretty bi partisan.
And and that in the Pentagon tends to operate in a world where theyre looking external to the country trying to figure out how to do security.
This Pentagon has said that we need a bigger navy to be more secure.
And and they are working through that process right now.
If you if you have a change.
In the leadership and the administration.
The new folks are going to be looking at that at the same outside world that the folks that are there now are and they might then there might be changes on the.
On the edges of the is it. This many ships are that many shifts or anything like that what I take away from the from what has been said so far is that the future navy needs to be bigger it needs to be faster cheaper and probably a bit small and so in terms of sizes of ships, so a faster cheaper SMA.
Our set of platforms with a lot more of them.
We believe that's going to persist now whether it turns into the same numbers that you see in the tables today you know when you look at new tables that might come out next year.
I think thats less I think thats, a I think that will be interesting to talk about but but faster cheaper smaller more.
Concept I think will be true of whatever we look at in the future and we are working very hard and have been working very hard to position ourselves for that.
And I'll go back to the thing I said, a couple of times here I believe that no matter, how you shape all of this.
The undersea world and and in submarines and unmanned undersea are going to be critical components of whatever future national security requirements, we have they're going to be critical components for it so.
Great. Thanks, Thanks, very much guys.
That.
The next question is from Gautam Khanna of Cowen. Please go ahead.
Yes. Good morning, Thank you guys.
That had a few questions first.
For Chris if you could just talk about the size of the equitable adjustment that you're pursuing with the Navy just so if it does come come.
Come in we can size it.
Yeah, we're still there.
That's kind of an ongoing process right now gone and we don't have a specific size of that.
Is there any way to ballpark it based on what you guys reported revenue.
Hi owners or not.
I would rather not at this point.
Okay, and then stepping back you know the EPS say.
As discussed it but.
One of the questions we get a lot is.
New entrants coming into the unmanned.
Vessel market and you know.
Concern is.
They may have lower cost structures, and the like and I just im curious besides hydrocolloid.
Some of the technology acquisitions, we've done in the past I mean, there's a scenario where you're going to need to do more acquisitions to kind of.
Get the technology under the the cost base in line with what's likely to emerge in terms of what's required for that market or if.
You could talk a little bit about the M&A pipeline and if you expect to deploy more capital in.
In that category over the next.
A couple of years. Thank you.
Sure the I think the issue there.
First of all of US this talking about cost the cost structure piece of it is something that we're very focused on we're keeping that business away you know outside of the shipyards.
You know because anybody we're going to be competing out there.
Is going to be.
They're not going to have a dry dock to carry around with them in terms of their cost structure. So so we recognize that we've got to be pretty lean and mean, if we're going to be competitive there now our focus over the last five years and that space is lets go build capability.
Five six years ago, Huntington Ingalls was not in that space at all.
Now we're in now we're in a place where we have capacity and capability to build all of the different sized platforms that any of the government customers might mean that that starts with our act.
Acquisition of the Columbia group, many years ago, and their and their Proteus model into.
Introduced us to a whole new set of customers that are different than the ones. The navy customers as well as other customers that are different than the ones, we've been dealing with in ship building.
DAT acquisition led to our teaming with and partnering with Boeing on the X L. U V program to manufacture that large you V program.
And then the and that led to the acquisition of hydroxide, which gives us capability in every size range that the Navy is looking at today.
So thats from a from that standpoint, we think we're pretty well positioned now it's a place where it's going to be about innovation and technology and we whether its autonomy or artificial intelligence or you name. It it's going to be we're going to be trying to figure out what's the best solution for the next set of problems that the.
Our customers have and then how do we invest in the solutions for the problems. After next for the customers that that's kind of a rational marketplace and we're pretty excited to be playing in a market space like that so.
Are there going to be more investments I would bet that theres going to be more investments in that space.
Thank you.
Your next question in turn David Strauss of Barclays. Please go ahead.
Thanks, Good morning.
[music].
Back on the $3 billion cash flow a forecast 2020 through 2024.
I guess, what what got better during during that period, Chris to offset what looks like a.
Lower awards performance out of the core kind of shipbuilding business during that period, given where you marked things down to.
Last quarter I didnt attention, that's going to be less or just capex was going to be less than for the period. What is there to offset that you know the kind of core ship building performance.
Yes really.
Nothing significant other than we roll the plant up and.
The team looks at how they're going to perform on their programs now rolled it through.
All the things we need to do to generate a business plan.
We're still comfortable so obviously, you're going to have less cash on the Vcs program, but all in all across all our programs taking capital into consideration and working capital changes were still comfortable we're going to get there.
Okay.
And then what were the what was the level of the season the quarter, maybe split out between for news and Ingles.
Yes, so are you asking for cumulative adjustments yeah.
Yeah Yeah.
That was net favorable 4 million Ingles was positive 16 Ts was positive five.
And Newport News was negative 17, those Newport news negative adjustments were broadly across all their programs related to overhead issues, both cobot cost and resetting our base.
So none individually significant.
Okay, and nothing on Virginia class.
Just overhead impact.
Thanks sure.
The next question is from Noah Poponak of Goldman Sachs. Please go ahead.
Hi, good morning, everyone.
Good morning.
Chris you have the three cumulative 2020 to 2024 and.
Then you have the 920 and 21.
So.
Three minus the 900 actually kind of.
Nice in orderly.
2.1 billion, which divided by three to 700.
And you have the statement of getting to the run rate of 700 and.
And so.
The numbers kind of cut pretty I know you're.
Expressing some reluctance to get into the detail here, but the numbers.
Numbers cut pretty mean, where.
Basically either have to look like approximately 722 23 24.
Or you would have to be ramping in that period of time, which would mean you would be doing better than the 700, which was your prior run rate.
So should we be thinking about three years as approximately even.
Should we be thinking that you're now can you do better than the 700, which was your prior run rate or should we be thinking about the approximate.
In the 3 billion, meaning that something a little less than 3 billion is more probable now we're still comfortable with the 3 billion I'm not hedging on that at all cash.
Cash as you know can be lumpy.
Sales related to working capital and delivering movements across periods. So.
It's not a significant ramp either between 2022.
23, and 24, it's pretty pretty level loaded.
So.
Only that there are definitely not hedging on the 3 billion.
And I think you're thinking about it.
Approximately correctly relative.
To level loading.
So how does 2021 from.
Well it sounds like 400 million, maybe slightly less than 400 million.
To swing you know, maybe not quite to 700, but pretty close to it just a year later, yes.
Yes, there's working capital changes capital reductions.
It's all in the mix there.
Such that.
We will definitely improve in 2022 from a free cash standpoint.
Okay.
And then in terms of wanting in 21 with the far greater than 500 to 900.
I know you're.
Combining them now but.
You have the greater than 500.
For the year for 2020, and it sounds like multiple things have moved out of 2020.
Can you quantify what moved out of 20 and 21.
Sure I can help you a little bit with that no. It it's a $120 million the payroll tax moving and as you know it moves over into the next two years.
And then we have between 60 and $80 million of capital.
Moving from 20.
Into 21 as well so those are the two major items and then we have the.
The customer cause changes that extend.
Extend to the end of the year and could that could revert back in 2021. So those are the two major items.
If you started the year with greater than 500 guidance.
And you have capital moving out and then you had the favorable.
I'm surprised that no.
Just wasn't the year much better well, you're always subject to year end variations relative to receive and as you know our Q4.
As always is very large from a cash receipts standpoint.
So there is a little conservatism in there for sure.
Okay.
And then finally, what is your guidance for.
2021 shipbuilding.
Segment margin because some of the questions and comments.
I'm sorry, I was it was the top level as seven 8% return on sales will give a lot more color on that on the year end call, but what the prior comment was 70.
Seven day, yes, okay.
Okay. Thank you sure.
Thank you I'm not showing any further questions at this time I would now like to hand, the call back over to Mr. standards for closing remarks.
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