Q1 2021 Huntington Ingalls Industries Inc Earnings Call
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Yes.
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Ladies and gentlemen.
Thank you for standing by.
Welcome to the first quarter 2021, Huntington Ingalls Industries earnings Conference call.
At this time all participant lines are in listen only mode.
After the speaker's presentation, there will be an opportunity for you to ask questions.
There will be a question and answer session.
To ask the question during the session you May Press Star then one on your telephone keypad.
We withdraw your question. Please press Star then two.
Please be advised that today's conference is being reported.
I would now like to turn the call over to Dwayne Blake Vice President of Investor Relations. Mr. Blake you may now begin.
Thanks.
Good morning, and welcome to the Huntington Ingalls Industries first quarter 2021 earnings conference call.
The one and thanks for joining us on today's call a true.
The everyone is staying healthy and safe.
Now, let me share some highlights from the quarter starting on slide three of the presentation sales.
Sales of $2.3 billion for the quarter were slightly higher than 2020.
Diluted EPS was $3 68 for the quarter and pension adjusted EPS was $3 56.
Up from 243 and 2020.
New contract awards during the quarter, where approximately five $3 billion, resulting in a record backlog of approximately $49 billion of which approximately $25 billion has funded crew.
Chris will provide some color on a few of the key awards for the quarter during his remarks.
Shifting to activities in Washington, We were pleased that the recently released summary of the fiscal year 2022 presidents budget request of firm that maintaining U S. Naval power is critical to reassuring allies and signaling U S resolved the potential adversaries.
Of note. The budget summary cited continued recapitalization of the nation's strategic ballistic missile submarine fleet investment in remotely operated an autonomous systems and funding for the next generation attack submarine program and.
And we look forward to understanding budget details for these and other national security priorities when that information becomes available as well as funding levels requested for the department of energy and the department of Homeland Security.
We also look forward to working closely with the Congress of the FY twenty-two President's budget request is considered during the current legislative cycle.
Regarding portfolio shaping actions during the quarter, we completed the previously announced sale of our oil and gas business and also completed the contribution of the San Diego Shipyard to tighten acquisition holdings in exchange for a non controlling interest in this leading provider of ship repair and fleet Sustainment serve.
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Completion of these transactions sharpens, the focus of our technical solutions business in the areas, where we believe are unique capabilities and clothes customer relationships will drive strong organic revenue growth and marketing expansion.
On the DDG program. The team remains focused on preparations for launch of DDG 125, Jack H Lucas and C trials for DDG 121, Frank E. Peterson Junior both planned for the second half of this year.
And on the LCD program <unk> for the 28 Fort Lauderdale remains on track to complete Sea trials later this year and.
<unk> 29, Richard M accrual junior remains on schedule for a launch early next year.
The team at Ingalls is also working closely with the Navy to put <unk> 32, and 33, along with FHA nine under contract. This bundle. The acquisition approach is the most of the affordable methods by these shifts and when complete towards predictable savings for the Navy.
At Newport News the team was awarded a $3 billion contract for the refueling and complex overhaul of <unk> 74, USS John C. Stennis and also received a contract modification for construction of the 10th of Virginia Class Block five submarine these.
These key awards are additional building block for our record backlog, which now stands at nearly 49 billion.
Shifting the program status of <unk> 79, Kennedy is approximately 81% complete the.
The team is finalizing plans to support the single phase delivery requirements, while continuing to focused on compartment completion and key initial test of milestones.
The <unk> 73.
First George Washington is approximately 87% complete and continues to make progress with the crew recently beginning to move back aboard the shift.
This is another key milestones in support of Redelivered to the Navy planned for next year.
On the Vcs program SSN 794, Montana continuous test program activities in preparation for delivery to the Navy planned for later this year.
In addition, SSN 796, New Jersey remains on track to achieve the float of milestone as planned in the second half of this year.
Technical solutions the team booked several key awards during the quarter. This included a $175 million fleet Sustainment Recompete and a position on enable information warfare center of Pacific ISR, and cyber security IQ contract.
For any more than $6 five per cent decrease 305 basis points. These decreases were primarily driven by of less favorable operating fast cash adjustment, partially offset by the strongest segment operating results compared to the prior year.
The tax rate in the quarter was approximately 15% compared to approximately 20% of the first quarter of 2020, the declining tax rate is primarily due to the divestiture of our oil and gas business as well as the recognition of R&D tax credits for the current year and probably of periods.
Net earnings in the corner of $148 million compared to $172 million. The first quarter of 2020 diluted earnings per share in the corner, where $3.60 compared to $4 and 23 from the first quarter of 2020.
Excluding the impact of the pension diluted earnings per share in the quarter were $3 56, compared to $2 43, and the first quarter of 2020.
Turning to slide five of the presentation cash from operations was $43 million in the quarter and net capital expenditures were $59 million or two 6% of the revenues, resulting in free cash flow of negative 16 million.
Compares to cash from operations of $68 million in net capital expenditures of $66 million in free cash flow of $2 million from the first quarter of 2020.
Cash contributions to of pension and other postretirement benefit plans, where $72 million in the quarter of which $60 million discretionary contribution to our qualified pension plan.
During the first quarter, we pay dividends from $1 14 per share of $46 million.
As noted on our fourth quarter earnings call. We did reinitiate share repurchases earlier this year and continue to view the return of excess free cash flow via share repurchases, an integral part of our capital allocation strategy over the long term.
During the quarter, we repurchased approximately 292000 shares at a cost of approximately 50 million.
Moving on to pension with the passage of the American Rescue Plan Act, we have reviews of five year pension outlook that we provided on our last earnings call and continue to believe that remains of the most appropriate view.
Due to the limited nature of our projected contributions and the impact of lower cash sensitivity with safe Harbor implementation. The passage of the legislation does not have any meaningful impact on our outlook. We plan to provide an update to near term pension expectations on our queue three call consistent most of our predicating.
Moving on the slide text of the presentation Ingalls revenues of $649 million in the court of increased $20 million or three 2% from the same period last year, driven primarily by higher revenues on the DDG program.
Angled the operating income of $91 million and margin of 14% in the quarter will up from the first quarter of 2020, mainly due to higher risk retirement on the lahat, which was related to the 25% completion milestone the crisp mentioned earlier.
Turning to fly seven of the presentation Newport News revenues of $1.4 billion in the for the increased to 66 million of four 9% from the same period of last year to the higher revenue and both the aircraft carrier and submarine construction as well as fleet support services.
Newport News operating income of 93 million and margin of six 6% of the quarter with the down slightly of year over year, primarily due to the lower risk retirement of TVN 73 of our coh, partially offset by high risk of assignment on Bts slot for the.
Now the technical solutions on slide eight of the presentation technical solutions revenues of $259 million of the quarter decreased $18, 30% from the same period last year, mainly due to the divestitures of both of our oil and gas business in the San Diego Shipyard on February 1st of this year, partially offset by a full quarter of <unk>.
Well, it's from Hydroid, which was required at the end of the the first quarter of 2020.
Technical solutions operating income of 7 million in the quarter compared to the loss of 7 million in the first quarter of 2020. This was driven primarily by improved performance in defense in federal solutions and nuclear environmental services as well as the game related to the sale of of oil and gas business.
Turning to slide nine we continue to expect we will finish the year with shipbuilding operating margin in the 7% to 8% range with the significant remaining the risk retirement event weighted towards the end of the year. In addition, we expect shipbuilding margin for the first half of 2021 to be around the midpoint of of annual guidance range.
We continue to view the remainder of 2021 guidance as appropriate with the exception of the effective tax rate, which we now expect to the approximately 18%.
Now I'll turn the call back over to the Dwayne for Q&A.
Thanks, Tom as.
As a reminder to everyone on the call the limit yourself. The one initial questions and one followed up so we can get immediate equal to the queue as possible operating I'll turn it over to you to manage the Q&A.
Thank you.
We will now begin the question of nonprofessional.
Off of the questions.
One one of your telephone keypad.
[noise] to destroying the question.
No.
At the fine beautiful Washwoman.
The first question comes from.
Got the coupland from the research.
Please go ahead.
Hey, good morning, everybody.
Mike I wondered if you could expand I mean, it's it's been.
Quite a string of you.
Challenges thrown at you over the last several quarters, but the comment you made around the the operating rhythm and finding.
I guess more of of a better cadence there I wondered if you could expand on that specifically what sort of operating metrics.
Looking at the give you conviction.
That that that's that's the trend you're going to stay on.
Okay.
I'd say first of all of your right. We've had a lot of we've had a lot of stuff thrown at us in the last 12 months and.
We took we took up pretty good body flow back a year ago with attendance and a relic relative to the pandemic and and the impact that had on our ability to retire risk we recognize that in queue too.
But what came out of that was.
We've stabilized R. R employment levels, we've stabilized our scheduling we've actually.
Created the mechanisms in our risk register so that we know where we are and where we can go on and where we need to get.
It helps a lot that we have.
The backlog that we're working off of.
And.
Where we are now is the when you come through of crisis. Like this is the leadership team the connectivity the.
Tools that you've put in place the innovation that has happened you are taking advantage of all of that.
And and as you move forward you start to look at what are we actually accomplished while we started at the beginning of the pandemic thinking that we needed to preserve the 25000 people. We had just hired over the last five years and our workforce. We've done that we actually have hired between five and 6000 people since the pandemic.
Started that's pretty creative and innovative if you will.
And that's.
And we still have pretty robust hiring plans going forward our case range today.
Are lower than they have been since last summer that's the inside of our yard of and the quarantine volume today is lower than it's been really since this began.
We have actually administers.
Vaccines too we've we've we've administered vaccines to about a third of our workforce.
On top of where the or what they are widely available to the rest of the rest of the employees, who are getting them not to us.
And so we're seeing a pretty steady rhythm now of folks are are at work. They are engaged we understand what needs to be done and we're actually getting stuff done.
I think the change where we where we moved Chris over to be the Chief operating officer, and and really create more management bandwidth on how do we manage that risk going forward and how do we make sure that we're.
Doing what we said we were going to do.
Has really helped and so.
I don't know I guess I've been around it for a long time, but I feel really good about where we are right now in terms of doing what we said we're going to do.
Okay, and then just as a quick follow up is obviously.
A lot of talk macro wise about inflation inflationary impacts when you look at at least in terms of your fixed price work is there.
Is there any cost.
And of course exposure that you that you watch their to be aware of of work or is it not significant at this point, how should we think about that the.
Yeah, I could karma, let Tom take that one and let him talk to you about what we're seeing that morning.
Yes, so relative to inflation or contract the much longer term, we have the benefit here with long the contracts and the.
From of planning horizon, and the backlog that we have the plan all work out so we have a.
Site as far as the materials that we need. Additionally, what we put together a total of the contracts that would bring home. We generally want to see those P O as in place the backstopped by proposals and commitments. Shortly there after the awards. So what we're Shan I've talked to both yards. Just this week is manifest on that point, we're not seeing a tremendous amount of of inflation across.
The purchases that we have adequate not having a problem feeding yard from material of perspective, we do take going forward as of getting a quote that the.
And all of the day.
The validity of the closest short I think of contract.
Paying the light on our feet as far as what the committee too, but relative to our contracts on our performance, we don't see an impact right now.
Okay. Thank.
Thank you very much of it you bet.
The next question from the line of mine.
Yes.
I was hoping Chris you could clarify that L. P. D. Bundled contract you mentioned the size timing and if that is more to just generate efficiencies or could they are actually be increased levels of of work vs. Your medium term plan as well.
So that's all kind of contained in the the 3%.
Items.
That we talked about from of growth standpoint.
The benefits of the bundle are pretty clear.
When you when you can order of those three shifts together and sequence.
The work in an efficient manner, you're going to absolutely get saving so.
Something we support it's something we're working very closely with the Navy.
If we are not able to get that done we'll get those ships under contract incrementally Hs will not be as efficient.
What would be the size of the bundle of those three.
The.
Five 5 billion potentially.
And there's clarification for Tom the sequential margin.
In <unk> given the one eight expected to be at the midpoint of the range can you.
Can you point to maybe why is it the step-down is so so significant the six six days or so.
Sure.
Related in the in my comments opening comments, there, there's not a tremendous amount of milestones that we haven't <unk> three it's just the pacing year right now so we're watching the volume come through at the present booking rates that we have right now.
We thank the first half of the day will come in around the mid point of the guidance and then we have.
Milestones of the back half of the of it.
If retired from potential there, but obviously, we have some of the groundnut off of the year.
Six five.
Okay all right. Thank you.
The.
The next question is from the line of junk on it from.
Good morning, Thank you good morning.
Yeah, we've we've seen a whole lot of Navy.
Building plans.
The the 500 plus versions and and the piano appears to have gone back to kind of of the 355 ship call, but even that goal of spin not easy to get to in the mix appears very uncertain. So sort of like when you think about planning in this environment.
How do you do it how do you how do you think about long term investments.
And where you want to sit given all of the flux around the shipbuilding plans.
Thanks, Doug.
That's a great question is when we actually kind of kick around a lot is.
Are we thinking about this the right way and they get them at a macro kind of of the higher level of what we see is that.
The the shipbuilding execution plan is on a much longer rhythm then the ship building.
Theoretical plans like the 30 year plan comes out I don't know every couple of years.
But the contracts we have ships right now that are under contract to deliver.
Dorie Miller delivers of 2032, so what does that like 430 year plans between now and then.
So we look at those plans not so much as the.
Of the the.
The precision of of the plan, but more about what's the intent of the plant.
And what we're what we're seeing in the intent of the plan of youth you've acknowledged that they move around a little bit, but what we see in those movements is.
Navy wants to move to a navy that has many ships faster ships, maybe smaller ships cheaper ships.
So our investments are aimed in that direction now that doesn't mean, they're not going to build aircraft carriers of submarines because I think they are but they're going to want to build aircraft carriers more efficiently, they're gonna want to build submarines more efficiently.
They may want to build more submarines more efficiently.
When it comes to the non nuclear ships.
Amphibious destroyers.
Free gets.
Those those kinds of platforms go the either go through of course change or block changes in our challenges to be agile enough to respond to the customers requirements.
And do that as effectively and efficiently as we can so the investments we make in our facilities are designed to be able to do that they're multipurpose multi product kinds of investments.
Will do of capital investment it at Ingalls that will apply to four classes of ships will do capital investments of Newport News that you can use for carriers or submarines.
And so that's kind of of the way, we think about that as opposed to we need to go make a big investment for.
Pick your program that three years from now May evaporate, we don't do that so that's kind of the way we sized and thought about this generational investment we made over the past five years or so a couple of billion dollars on our ship yards, we think that positions us very very well for the direction that the that we think the navy's going to it.
Go out and we.
We will probably have lots of discussion about whether it's one more submarine or one less destroyer all of that sort of thing, but it means our investments were still the right thing to do.
And do you think when you when you look forward as you were saying more in the fastest ship smaller ships.
And some in the sense that it can open it up to other competitors rather.
Both of you in general dynamics, and we saw this with the frigate.
L. C. S. I mean do you do you will see of time, obviously, it's a ways away when the strikes the competitive structure of this industry could change because of the smaller faster different ships.
I mean, I don't know dog I guess, maybe.
I would say that I would I would caution anybody from thinking about that question is of binary question that it's either one of the other.
It's going to be it's going to be it.
Kind of of transformation, that's going to be product line specific.
The most of the shipyards in this country build a product.
Our shipyard still classes several classes, we build the four classes of ships that ingalls rebuild the carriers and submarines at Newport News and refueling and all of that sort of thing. So we do multiple classes of ships in our shipyard, we think that serves us pretty well for whatever direction. The future is going to be and if the environment is going to be more competitive.
So be it we're happy to compete.
Great. Thank you.
The next question comes from her honesty from Bank of America. Please go ahead.
Yeah, Hey.
Good morning, the guys morning of them give.
Can we talk a little bit maybe about the services business.
The the margins in the quarter what two.
2.7% and and the target margins are 3% to 5%.
What drives the upside there how are you thinking about that.
I'll take the Hey, Ralph it's found here so a couple of things.
We have got it from three 5% you're right. It is of $2 70 headquarter right now we saw a little bit of volume.
Full of as we're waiting for awards and the the sales to come along with those of awards for the year.
With the COVID-19 in in the announcements of where we are in some recompete, that's just a little bit the same.
Behind relative to the guidance of 3% to 5%, but the you are still in front of us.
We haven't changed our guidance.
We think the T S will be the at year's end.
Alright got it.
The rocket I can add to that.
There's.
Our equity accounting relative to the nuclear space the the timing of some of those.
Are are slated towards.
Second for a quarter so.
The generally see that happening in the in the first quarter. So it's it's a bit lumpy and we usually start light.
And then and then of course.
From Mike when you're looking out <unk>.
Medium term, let's call. It what are the biggest opportunities that you were trying to plan for now I mean this is the.
A follow on the dogs question is your positioning of the business, what's what's the big fish out there.
You want the tests say call at three or four of five years.
So in shipbuilding I think the we'll start with that I think that.
If there's an expansion of of product line say and there has been the.
Some discussion about what's the industries the ability to support expansion.
Expansion of say the submarine product line, we certainly want to be able to to take full advantage of that.
In the same way if if the navy wants to expand the in the frigate space, we want to we want to be able to assist that if if we need to be able to go and do that.
And then I think it's.
The engagement on the planning and design piece for so what happens in the to the future of amphibious.
Probably that's mid the long term.
Not not near the midterm.
And what happens with the carrier is.
Are they are going to be.
The Cvs 82 of going to have some design for affordability put to it and are we going to engage in that I mean, frankly Cvs of 82 as of ship that the <unk>.
Starts to show up here I mean, it's you go to contract.
And 27 or 28, so make.
Sure that that stays on track that's kind of of the way, we think about it and shipbuilding.
In the technical solutions space, we've made a big investment an unmanned and extent of expansion of the unmanned business I think of something that now that we've made that investment and we have the portfolio, it's up to us to make sure that we capture that expansion of.
Of all of the budget items that icy out there the.
Unmanned budget item is probably going to have the largest.
Percentage growth over the next five years in my view.
We've established our best Chris kind of alluded to a minute ago, we've established our position as the department of energy Prime and there's a lot of work over there that needs to be done and.
And we are pursuing all of that very aggressively we think that's a really great spot for us to be in takes advantage of capability that we have.
In our in our the shipbuilding business, but of gives it gives access to another customer and we've done very well with that and we look to continue to expand that.
And then the and then ISR of space, where we've we've really actually.
The unwell and we expect to do well going forward. So.
We kind of look at that it's kind of of Ah.
Capability of dependent based on what our customers Cape needs for capability of our but that's kind of how we think about it where where do we think our customers are going to one of the in three to five years and how do we make sure we get there and help them get there.
Great. Thank you.
You bet.
Thank you.
The next question comes from charge of fever from Sheffield of such a beautiful day.
[noise], yes, if you.
If you could provide the.
Six and is it fair that the pick up on the law J eight was probably $35 million or so.
Okay. So a little bit good morning, so it's a little bit color on that is 86 was the.
The Mister favorable 36 of the the net 50 of course the yards of about 90 tenant Ingalls only significant drive is on the upside the hour. The LH of eight usually don't care of guidance or information on a specific ship.
35 is kind of heavy day ingleside of good quarter on top of the law hitting the 25% vessel complete milestone with a reevaluate the risks restrike. The EAC. It didn't have a change proposal less infinitize had been focused on cost cost management as the overall is a good coat of angles. There was no the significant of ups.
Upside the downside I'd probably highlight here.
Thomas 35 is a little bit heavy I mean, just on the rough number he gave of would imply about $45 million of favorable.
Ingalls so.
Was there anything else you can specify of it's all spread across the board from the same or the $20 million with 30 was the.
Let's say a.
The the cute the.
Q has the information on Iha's of our site.
You'll see that you're about $10 million heavy day, but as I said of the other the other aspects of it changed management, we've definitize the changed out of that not only significant and then just the performance.
28th coming along and paying attention the cost.
14% high so I wouldn't expect that going forward, but are they cleaned up well and they didn't get bit for the corner. So that's where they landed.
And one quick one for Mike can you update us on the block five the submarines I mean that was the one that you had some problems with as to where we stand right now.
Actually the challenge we had in queue to is on block for George and we've got to we've got a rhythm and blood were establishing of rhythm of block four that's going to carry through and help us do really well on block five so.
I don't know, Chris if you want to add of I can add on block form of met some important milestones in the first quarter.
With Montana floating off in New Jersey of getting cash are all complete.
Two important milestones on the balance of the year, there for Dcs block for getting more casual over and getting.
New Jersey floated off so we're watching those milestones very closely good progress on Montana on getting getting ready for delivery.
So we're optimistic on the on top of the rhythm and the momentum on the blackboard contract right now.
Okay. Thanks very much.
The.
Hi.
The next question comes from the richest have restaurants.
Yeah.
Thank you good morning, everybody good morning, one.
So I've just been feeling waiting about the work I wanted to ask you about the Ford I've been reading about the work being done there based.
Based on that Ah Newport still doing work on on things like the weapons elevators and the other maintenance items et cetera.
Just wanted to know if he could discuss how the work on the force progressing relative to your expectations. When you expect completion and if there's been any commentary from the navy about the level of satisfaction with the reference so far.
Yes, this is Chris and all of that.
Ex aircraft care program manager, Mike talked about it after me, but yeah really positive interaction with the navy on the floor weekly.
Weekly interaction on the Florida, especially on the weapons elevators Scott.
Seven of those turned over four of them will be done this summer.
So so it really positive interaction that work will go on for awhile, but nothing.
Not really material.
Going forward, but yeah, it's been it's been positive.
The Newport News team is performing very well take the Navy is very pleased with the performance of that ship right now and I'll just add the the the Ford was that C. As much as probably more than any other ship in the fleet last year, it's the training carrier for.
For the East coast in the Navy would will say and they have said they can quote you. The number of traps the number of launches the number of the tons of ordnance that they've moved from the weapons elevators, how easy it is to operate how much how much power density changes from the Nimitz class I mean, it is the centerpiece.
Piece of the design of the centerpiece of the Navy strategy going forward and.
And the ship is coming together really well on the getting ready to go towards their shop trial. So all all systems are green and full speed ahead.
Okay and now.
I'd like to expand hopefully visit this comment you talked about your comments you were making about the future of the Navy fleet was one program I think that was omitted of maybe it was deliberate and the what's talk of a replacement for the Ticonderoga's.
Was kind of wondering if you could just comment on the status of that program.
If you think that'll ever materialize two of real opportunity.
For example, do you think it's slightly was five six is.
Is what you think there's going to replace the the the tyco's.
I'm not sure I know out of handicap that.
One of the first things I learned at the at the Academy 40 years ago was that there's countermeasures and then there's counter countermeasures and there's counter counter countermeasures and what happens is the technology races ahead.
Of per at a speed, that's a lot different than the build cycle of the ship and so the question is what kind of platform of you're going to need to two works. The technology. If you look at the type III destroyer and you look at what they are trying to do with it that ship is pretty full and so is there is it the.
She is going to require that kind of space and weight than it probably needs something different to take care of it for how we get there is an industry to design that.
And create the platform that has the.
The margin if you will for future technological upgrades.
I think the Navy is and the and the industry are having a pretty robust discussion about that right now and I.
I'm not sure I'm ready to handicap, how it's going to turn out.
Okay. Thanks, a lot you bet.
[noise].
The next question comes from now on both.
The ninth from Goldman Sachs. Please go ahead.
Hey, good morning, everyone more of.
I want to.
Just going back to the piece of margin through the year topic and the risk retirement from how they flow through the.
The the shipbuilding margin if I, if I take out the the net positive EAC and a lot of your history is in the zone of six and a half of.
And the different guidance comments, you've provided for the first half and full year sort of implies six and a half two Q3 queue and then the stepping up in the <unk>. So I.
I guess it implies essentially no risk retirement events 223, Q actually maybe even embedding something slightly negative I'm just want to make sure you know that's that's what you're looking for and I have that correct.
Yeah, I tell you that we are in his own <expletive> between six and 7% will be the norm of six five is a good estimate on your part I'll tell Ya net.
The Knicks moves around at both the ours as far as where the ships are so the chips get the either.
So the off of material are they take the step up and all of <unk> you have a new ship shifts that's part of the low booking right that Nick's changes I wouldn't read too much into that.
Where we need to be from a plant perspective and against our our guidance that we gave you. The air So yes, I think you got that right.
Makes sense and Tom when you look to the next year in 2022 do you have.
More risk retirement events or less of a similar amount.
So.
We told you 7% to 8% this year low eighth next year. It had mentioned that I can't go forward with Chris gave the guidance for Q4 in February of had mentioned that hate us the pacing year and then as we get it to 22 of 23 of we'll see more ship ship deliveries. So there was.
The potential end of the plant has of moving upward. The obviously as the quoted kind of click off of burn down net risks and will realize the.
Those marketing expense that we discussed.
Got it and then just a clarification on the ARPA into pension casual inputs.
Do the contribution in cash recovery numbers you provided previously.
Literally not change at all or it's just that those of who would come down enough. The the change is gonna be.
Small relative to your total cash flows.
Insignificant as part of the change ready to do the enacted the something that but we.
We really don't want to chase it on a quarterback quota basis since we strong over to safe Harbor, we really kind of of mitigated the cast variability and already a limited contributions over the projection of that Chris gave in February of again, the Max contribution was $89 half of the post from retirement benefits. So.
And then also obviously the protect the projections on pension is going to be equally a function of the <unk>.
Discount rate is that changes in in the plant performance sort of of between those those three three variables, we're not going to update a record of here. We will give you a look see of Q3 of us the normal cadence for the for the remainder of the year of 2022, and then as 21 close of that will give you a fresh luck and a five year projection next February.
Makes sense okay. Thank you.
Mike.
The next question comes from David <unk> from.
Go ahead.
Thanks, Good morning morning.
Mike you you touched on the unmanned portfolio and the potential growth there in a in a couple of of your comments can you can you size the revenue.
You on me and revenue now that sits within T. S.
What a what a reasonable kind of of target for that business could be over the next couple of years and when you would think about actually breaking it out. So we can see what's going on there.
Yeah, we haven't broken that out yet and.
And so we'll we'll just.
We'll let you know when we're ready to break it out.
Okay.
I guess.
In the first quarter you did.
You had 5% growth that Newport, three at Ingalls, you're forecasting shipbuilding relatively flat top of.
Little bit of this year, and then 3% from here, how how how should.
Should we think about the relative gross the rate of Newport versus versus Ingalls, both this year and the into the future.
Yeah.
Yes. This is Chris we don't break out the growth rate.
By the two <unk>.
Shipyards, we have historically said that Ingalls is more flattish moving forward and a lot of the growth is coming from Newport news, but we don't get specific growth.
Growth rates.
Okay see if I can hit on one here.
Yeah.
Randy R&D amortization.
Tom what what potential impact could you guys be looking at there if that the that holds yes.
So the.
Opinion of that we have on that it's not constructive to from from an investment standpoint, and R&D if that's the.
The good amortize of a five year or so.
Lots of see how that legislation flows out we have run.
Some models on that.
It's not a tremendous impact it doesn't obviously affect the.
The the cash on it I mean.
The model say it could be in the 50 ish range of $59 50 of $100 million range.
And we'll have to see how that.
Of that legislation on false.
Okay, 50 of $100 million, an annualized cash flow in Tonight.
Oh, you've got to advertise that you've got to advertise it over five years, the those credits and that's.
It's an evaluation, we do annually against the the portfolio of that we have so.
Okay. Thanks very much.
Thank you.
The next question comes from the Garden and.
From colon. Please go ahead.
Yes, thanks, guys.
Good morning.
Oh of course.
The question on.
The morning.
[noise] of of National Security Cutter program.
Any change in the by the administration of them.
The desire to keep buying the what should we be looking for.
22 of glass and what's under contract. The we can just refreshes one of them that.
We're pushing hard to get.
NFC 12.
Appropriated.
I think it's kind of like the Navy side, we're we're kind of living off of the work done on the FY twenty-two budget before this administration got here and I think the administration now is doing a kind of of top of the bottom of view of all of that stuff. That's why frankly for D. O D. You've just seen the top line number come out with not any details behind.
It.
Our view is that there's a lot of strong support for the National security counter at the Coast Guard has.
Is gainfully using that platform of around the world.
And and we're of proud we're proud to be able to partner within the get it done and we're we're we're going to continue to pursue it got.
While the market I could add we've delivered to nine as you're probably aware of 11 10 11 underproduction there at Ingalls.
Delivers out of the 24 timeframe, but as Mike indicated.
Very capable ship and we're working with the coast guard for potentially in the in the Congress to get 12 under contract.
Okay and at the end discussion of of conditional blocked by <unk>.
It was 12 sort of.
The end of the line of on that program.
I think we will see.
I think we're just.
A lot of new players are coming to the table the.
To have the discussion around it.
We're happy to provide whatever.
Whatever requirement the nation needs in that platform.
Okay, and I I may of best of the in your opening remarks, where are we in terms of.
The asking that the shipyards people showing up like the.
Level of absenteeism and or from.
From COVID-19 when they are aware of that yeah.
We're at the end of the normal levels. Yeah. We're at normal levels now I am aware of our lowest case rates since last summer.
We had the fewest number of people in quarantine since last summer.
A third of our workforce, we've actually back vaccinated, one third of the workforce.
And the workforce is getting vaccinations.
In other places as well.
And so what that's doing is that's just drive on our case rates down pretty dramatically.
We hired 6000 people during the pandemic are hiring plans continue.
And and so we're moving we're moving ahead, we expect that by the first of June.
Of the people in our shipyards that have that want to get the vaccine will have had access to get it and so we're moving we're moving ahead.
And the last one for me just curious is there any precedent for the bundled purchase that you were talking about in the woods.
Maybe L H a M L T D being.
Put together.
None of those the bundle across the different ship classes, but we had a complex issue of attractive we had of competition a few years ago, where the competition was around in L. H a in a T O.
And.
We won the lahat and our friends of Nasco won the Ta OS.
So.
We've been building ships in this country for over 200 years, I would say that there's probably precedent for just about everything that's out there.
That's a good point, thank you very much.
Okay.
The next question comes from college, the crap from standard to excuse the line.
Hey, good morning.
The.
Chris This one's for you and I wanted to ask in your new role I think one of one of the things that you're tackling is.
Just smoothing up the best practices from one yard to the other maybe across all three businesses.
And I was hoping you could expand on that a little bit talk about where the opportunities are within that yes.
Yeah, No that's a really good question.
I do I have had the opportunity to work at Ingalls as the CFO there and then.
Corporate CFO job reviewing all of the processes of Newport News and there are significant things that happened within each of the yards and even in technical solutions that can be shared one example, I could give us a supply chain the supply chain teams.
Worked very closely with each other.
The bundled procurements, they look of capacity across the spectrum.
They do have a very good job of that they're operating systems are a bit different but they learn from each other and we're being bring a best practices of in the operating systems as well so I could talk for days all of the things we're working on.
Of course shipbuilding Ablegate technical solutions to learn from each other.
Those are just a few of them.
I think I'm one of our visits one of the things we saw Newport News was the implementation of V. R.
It's sort of the replace physical blueprints as an example of where you know of.
Allergy can come in is there an update on on how well that's implemented and if you are actually using that yet or if there are other technologies, we're talking about yeah.
Yeah. So.
Another good question digital is absolutely being.
Being utilized within Newport news in billing of Cvs it'll.
It'll it's preparing.
For utilization on the Columbia class so.
It's absolutely an investment we're making its paying off the craft.
And the traits like.
Like the new product.
And we're hoping for a really great thanks to come from that.
Has anyone quantified the benefit have you seen.
At least in testing percentage of man hours reduced or anything like that but we have we have definitely seen of percent.
Increase in savings, we haven't published any think of that regard the shifts at the beginning stages on 80. So we don't Wanna get get ahead of ourselves, but we are cheating savings yes.
Okay. Thanks.
Sure.
Thank you.
The next question comes from.
Joseph the 19th from Stifles piece of land.
Good morning.
Good morning, just to clarify Carter's question, maybe more specifically when you think about an inflationary environment. What protections do you have and then where are the risk of I understand you're not seeing anything right now but.
The to the extent, we do see that where are you protected more of the risks excellent alright. Thanks us.
As I said early on the car.
Tracts are a little bit more of a long term than say across other industries. We do have the planning cycle long lead on our contracts. We usually are processes. We wanted to make sure that we have as much material understood and on the on the quote so when we go on award.
The risk of inflation, hitting our handshake values as low on that Additionally, his contract to run out there are some contract area with the carry the 666 to seven or eight years and.
And we bought the material much further way, it's tough to get that quote we still have.
Indices, and and price and bands with the customer that we share in both of the potential on the run of the overrun in that and then obviously these contracts fbis or there's some some sharing that but like more of immediate as we pulse right now for the execution of that of the contracts that the that we're working today, we don't see that right now I mean, the pockets here and there of.
A piece of material that may be late but on the whole material is being flown in the yard.
Expect the times and expectation of the costs that the contracts of senator out so.
Hope that hit the essence of the question.
Okay. Yeah. That's helpful and then Mike when you look at 80 81, and 82 can you talk about the degree of commonality, you're expecting from those ships does the block by ensure greater commonality. So that maybe you can benefit more from cereal production. When you think about the opportunity to improve margin.
The carrier construction, how important is maybe more of commonality or is it or is it something very different than that thank you yes.
881 or the.
The two ships under contract 82 is the ship that's out there.
Chris alluded to my ancient history of being a program manager is actually a program manager for the status and treatment, which was the last time, we built two ships at the same time I can tell you that the second ship.
Absolutely benefits from the first ship in the in the way that the teams move from one platform. The the next the learning curves are there it's kind of hard to think about learning curves on ships that the liver.
Four of five years, apart, but they actually it's real and.
As we as you get to the as you get to the second ship you you have well trained crews who have been through this who are working through it who of capturing the lessons and of carrying the lessons learned with them into that platform than the trick will be how do you take what we've learned at 81 and make sure that you do that with 82 and what that means is 82 has gotta be on time.
If you delay 82 and.
And I've seen this over my whole career you start spreading these things back out you start break in those learning curves. So so what 80 81 means is that you're going to get the great efficiency. There I think the navy advertise the.
$4 billion of efficiency across the enterprise, which.
That's pretty significant if you spread that out and you delay 82, and you push it out you're going to start to you're going to start the cut into that efficiency.
Pretty dramatically.
That's what happened after stennis and Truman of $74 75.
Really came together very nicely then we kind of push 76 out to the right a little bit and then we pushed 77 out of the right a little bit and then we push 78 out to the right a little bit and so all of that we're trying to trying to capture that back in the.
I would.
No surprise I would argue that the next <unk> next carrier contracts should also be of to ship by 82 and 83.
But that's just me.
That's helpful. Thank you very much.
Okay.
Thank you.
Any further questions at this time.
I'd like to have the cold cycle.
Or any closing remarks, well thanks, thanks for that and thanks for joining us today, and we certainly hope that you and your families are all staying.
Safe and a healthy in this environment as we as we kind of comes through.
The pandemic.
The one final thought for you all is I'd like to direct your attention to our Investor Relations page on our website and take a look at our corporate sustainability report.
We've been doing a lot of work over many years around.
These kinds of issues.
Related to the sustainability, but we've collected all of that and created a virtual report for you to take a look at and.
It's only been up there.
I don't know a couple of months and.
It's a pretty dynamic presentation.
But I'm very proud of what this company does relative to our communities relative for our employees for their families for.
For our customers.
I just I'm very proud of what we do and how we do it and this is a chance for us to kind of brag about a little bit so.
So if you get a chance to take a take a look at that.
And as always.
I appreciate your and we appreciate your interest in our company of your engagement with us in any feedback that you have and we look forward to seeing you again soon thanks.
Mike.
The conference has not contributed thank.
Thank you for attending to these presentations you may now disconnect.
[noise].