Q1 2021 General Dynamics Corp Earnings Call
Yeah.
Thank you Howard good morning, everyone and thanks for being with Us.
You can discern from our press release, we reported earnings of $2 from 48 cents per diluted share on revenue of $9 4 billion operating earnings of $938 million and net income of $708 million.
C N or seven 3% against the first quarter last year operating earnings are up $4 million and net earnings are up $2 million.
To be a little more granular revenue on the defense side of the business is up against last year's first quarter by $444 million in aerospace is up $196 million.
The operating earnings on the defense side or on 45 million or six 4%, while operating earnings in the aerospace side are down $20 million, but still nicely above consensus.
I have more to say about this a bit later the entire company was 10%.
The basis points lower than the year ago quarter. This was driven by a 250 basis point lower margin rate at aerospace.
As was fully anticipated in our guidance to you combined with 21 million more in corporate operating expense.
From a slightly different perspective, we beat consensus by age.
Teen cents per share, we have roughly 500 million war on revenue than anticipated by the sell side analysts 50 more on operating earnings. So it's a pure operations speak I must confess that we were also beat our own expectations rather handsomely.
This is in almost all respects, a very solid quarter, it's hard to find something not to like about it.
It's a very good start to the year.
So let me move right into some color around the performance of the business segments have Jason at color around cash backlog taxes and deployment of cash and then we'll answer your questions.
First aerospace.
Aerospace enjoying revenue of $1 9 billion and operating earnings of $220 million with an 11, 7% operating margin.
Revenue is almost $200 million higher than anticipated by us on the sell side Rev.
Revenue was also a 196 million higher than the year ago quarter.
The difference is almost exclusively more G 500 in G 600 deliveries from the year ago quarter.
The 11, 7% operating margin is lower than the year ago quarter, but consistent with our guidance and sell side expectations.
Finally, we took some mark to market charges with respect to our G 500 test inventory without the charge from a pure operating perspective performance in the quarter was superb.
Aerospace also had a very strong quarter from an orders perspective with a book to bill of one three to one.
The upstream alone had a book to Bill of one three Florida. One in unit terms. This is the strongest order quarter for the last two years, excluding the fourth quarter of 2019, when we launched the <unk> 700.
The sales activity truly accelerated in the middle of February and continued on through the remainder of the quarter.
The momentum developed in the quarter appears to be rolling over into the second quarter as well, we are experiencing a high level of interest and activity.
It is constructive to see this accelerated activity level without the benefit of the removal of travel restrictions and quarantine requirements in many countries outside the U S.
Demand should improve even further when these restrictions are ultimately removed.
Gulfstream experienced a five 7% increase in service revenue on the other hand jet Aviation's F B o's and certain of its maintenance facilities are recovering more slowly jet.
Jet Aviation service revenues down around 31 million, coupled with a modest increase in services operating earnings day.
F. B is an MRO sites will do much better as business travel a salary.
The G 500, G 600 continued to perform well margins are improving on a consistent basis and quality is superb.
As of the end of last week, we have delivered a 104 of these aircraft to customers.
The G 700 has over 1400 test hours on the five test aircraft and the first fully outfitted G 700 is fine.
Its interior is absolutely beautiful we remain on track for entry into service in the fourth quarter of 2022.
Looking forward, we expect the second quarter to be our most challenging from a delivery perspective. However, we also expect rapid improvement in the third and fourth quarters as we had planned for an increase in production and more deliveries.
Combat systems.
Combat systems had revenue of $1 8 billion up six 6% over the year ago quarter, while all three companies within the group contributed to the growth. The primary source was increased sales of our API wheeled combat vehicles to Switzerland and Spain.
Sales of our six by six equal vehicles.
So all in all good growth.
It is also interesting to observe the combat systems revenue has grown in 16 of the last 18 quarters on a quarter over the year ago quarter basis.
Operating earnings of 244 million are up nine 4% on higher volume and a 30 basis point improvement in margin.
With an impressive performance by any reasonable measure.
You may recall that a notable development for this segment in the year ago quarter was the formal signing of the restructured contract on the Canadian International program, which settled all issues.
The parties continue to perform on that contract is contemplated.
This was helpful to free cash flow last year and continues to be so this year.
This risk item appears to be behind us.
Turning to marine systems.
You may recall that at this time, a year ago I was able to report that revenue on the first quarter 2020 was up nine 1% against the first quarter in 2019.
I am very pleased to report today that first quarter 'twenty 'twenty. One revenue of 2.48 billion is up 10, 6% against first quarter 2020.
The growth was led by block five Virginia class and Columbia class construction volume.
We also enjoyed nice increases in E S B and T E O construction volume at Nashville.
This is very impressive continued growth in fact revenue in this group because it's been up for the last 14 quarters on a quarter versus the year ago quarter basis.
Operating earnings are $200 million in the quarter up 16 million or eight 7% on an operating margin of eight 1%.
We will strive to improve our operating margin as we progress through the year.
On the order side I should observe that total backlog was down only $231 million sequentially, leaving a powerful $49 8 billion in total backlog.
There was obviously significant order activity in the quarter, including the award of the 10th Block five Virginia class submarines.
Finally technologies.
This segment had revenue of almost $3 2 billion in the quarter up $95 million from the year ago quarter or three 1%.
The revenue increase was supplied by information technology, mostly associated with the ramp up of new programs.
T alone grew 5% in the quarter on.
Operating earnings at 306 million are up 8 million or two 7% on a nine 6% operating margin.
This is about 40 basis points ahead of consensus.
EBITDA margin is an impressive 13, 3%, including state and local taxes, which are a 50 basis point drag on that result, most of our competitors carry state and local taxes below the line.
This is a best in class EBITDA margin.
Total backlog grew 359 million sequentially and total estimated contract value remained about the same.
There were also some notable items in G D Igt's first quarter worth mentioning.
On the bid and proposal from G. D. I T submitted the highest dollar value of proposals in any quarter since the acquisition of CSL, right, 90% of which represent new business opportunities.
They ended the quarter with over 30 billion in proposals awaiting customer decision most of which also represent new business opportunities versus re competition of existing work.
So good order activity in the quarter with a book to Bill at one one to one and good order prospects on the horizon.
That concludes my remarks with respect to a very good quarter as you know we never update guidance at this time of the year. We will however, give you a comprehensive update at the end of the second quarter as is our custom on.
Now I'll turn the call over to our CFO, Jason Aiken for further remarks, and then we'll take your questions.
Thank you Phebe and good morning all.
I'll start with our cash performance in the quarter.
From an operating cash flow perspective, we essentially broke even for the quarter.
Including capital expenditures, our free cash flow was negative $131 million.
For those of you who followed US for some time you know we've been a fairly significant user of cash from the first quarter for the past several years.
This quarter was a marked improvement from that pattern due in large part to the strong order activity at Gulfstream and ongoing progress payments on our large international combat systems program consistent with the contract Amendment Phebe referenced earlier.
So the quarter was nicely ahead of our expectations and reinforces our outlook for the year of free cash flow conversion in the 95 to 100 per cent range.
Looking at capital deployment, I mentioned capital expenditures, which were $134 million in the quarter or one 4% of sales.
That's down between 25, and 30% from the first quarter a year ago, but we're still expecting full year capex to be roughly 2.5% of sales. We also paid $315 million on dividends and increased the quarterly dividend by a little more than 8% to $1 19 per share.
And we spent nearly $750 million on the repurchase of four 6 million shares at an average price of just over $161 per share.
After all this we ended the first quarter with a cash balance of $1 $8 billion on a net debt position of $11 4 billion down $1 3 billion from this time last year.
Net interest expense in the quarter was $123 million up from $107 million in the first quarter of 2020.
Increase in 2021 is due to the incremental debt issued last year in conjunction with the refinancing of maturing notes.
We have 3 billion of outstanding debt maturing later this year and we plan to refinance a portion of those notes to achieve a more balanced deployment of capital, but this will still result in a declining debt balance this year and beyond.
During the quarter Congress passed the American Rescue Plan Act as you may be aware. It contains two provisions that affect our business first it extends the provision of the cares act that allows reimbursement of contractor payments to workers, who were prevented from working due to COVID-19 related facility closures.
This will continue to benefit our technologies business, although it does not provide for fee on those costs. So that will have an ongoing dilutive impact on the segment's margins.
So leafs by reducing the amount of required contribution to our pension plans this year.
But a couple of hundred million dollars.
However, this same provision reduces the amount of pension costs were reimbursed on our U S government contracts as a result, when coupled with the lower tax benefit from the reduced pension contributions the impact on our 2021 cash flow is immaterial.
We expect the cash benefit from the act to increase modestly over the next couple of years reinforcing our expectation that free cash flow can exceed 100% of net income over that period.
The tax rate in the quarter at 16, 2% is consistent with our full year expectation so no change to our outlook on that from.
Finally order activity and backlog were once again, a strong story on the first quarter with a one to one book to Bill for the company as a whole even as we grew by more than 7% in the quarter.
Phebe mentioned the order activity on the aerospace and technologies groups led the way with a one three times and one one times book to Bill respectively.
We finished the quarter with a total backlog of $89 6 billion. That's up four 5% over this time last year and total potential contract value, including options and idea on two contracts was $131 4 billion up 6% over the year ago quarter.
Howard that concludes my remarks, I'll turn it back over to you for the Q&A.
Thank you Jason.
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Yeah.
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Our first question today comes from Jon Raviv from Citi. Please go ahead with your question.
Oh, Hey, good morning, everyone. Thank some question on actually on <unk> on.
I think you guys had talked about that 7% growth. This year you did focus on the first quarter. So definitely a good start so any kind of milestones to look upon there and then just overall commentary on the environment referred to some delays and slowness in awards from other contractors have been highlighting.
Some are some disruptions on its impact the organic growth so any view as to how that's impacting your 'twenty, one and how that could flow out over 22 on somebody new.
Businesses.
New awards come through.
So as I noted.
We submitted a very large number of proposals on the quarter.
And we're waiting on that 30 billion in and in a customer decisions on contracts and COVID-19, obviously had some impact on zone.
That decision, making process, but we suspect that as well we expect that as the.
Government gets back to full operating cadence that we will begin to work through some of that backlog on on the order decisions and with respect to milestones.
Think about it this way.
Such a large business flow.
7000 contracts.
On any external milestones to necessarily look for but we were very pleased and not surprised with the growth of things, but then and now and frankly, the fact that many of their new program wins or many new program wins for Fox were the major factors behind the increase so on.
We've looked to be in pretty good stead.
And then there's the thank you Phebe and then just a brief follow up on again sticking to the technology and maybe also I T market. When you look at this huge backlog of things to be adjudicated you mentioned that a lot of it is new business would you consider a lot of this new business to beers or is this on the element of white space on those with the government, creating and doing more.
Things that are contractor on the addressable.
So I think it's a combination I think their share.
Number one number two the government is combining a number.
Free exist.
Sustained current workload and a larger contracts given that the scale and magnitude of the effort. That's required again. This is a good thing for us to bid on those on those large contracts.
And and then some of it is just pure program and.
So I think that's a.
Pretty much how we see that market unfolding.
Thank you very much.
Our next question comes from Seth <unk> from Jpmorgan. Please go ahead with your question.
Thanks, very much on good morning.
On that.
I was wondering if you could I think you mentioned some inventory write downs on a on G. 500, I was wondering if you could quantify that.
Just so we can have a cleaner look at the aerospace margin.
Yeah, so or not in the habit of giving detailed product by product margin. We did have a mark to market on some of our test airplanes on.
Test airplanes, which is pretty much to be expected with with test here is largely behind us.
Okay.
So I noted that.
Adjusted to give you all some color that absent that we would have seen an even better.
Operating performance.
Right I guess, maybe.
Without quantifying it is there is it possible to talk a little bit about the I guess the trajectory of margins at aerospace, we should expect through the year on sort of.
As we go into Q2.
So in fact as I noted in deliveries to be lower in Q2.
Oh margins to be compressed in Q nicely then quarter over quarter.
As we go through Q3 and into Q4, but recall, we have noted before that we see 2021 of our lowest margin.
Yeah.
No that's not the least of which is going to about 10 airplanes largely as it was in on our production last year largely as a result of the ended at $5 50 production and some mid cabin.
Demand begins to increase their increasingly picks up.
From.
Let's turn to what we had considered our normal production rates.
On the delivery rates, so that'll drive margin.
Okay.
When you think about margin, particularly going into next year, you can't discount interest.
Into service of the 700.
Yeah.
Our next question comes from Cai von <unk> from Cowen. Please go ahead with your question.
Yeah.
Thanks, so much good quarter phebe.
Can you give us some more color on.
On a more color on demand and Gulfstream.
Basically said, it's broadly based.
First you know what are we looking at in terms of.
Corporate demand, which for us is still weak and ultra high net worth which.
It was very strong.
And any color.
Click models like I think you said you had seven day orders for the G. 700 are those is that number moving up on a decent pace.
In inverse order, yes that number is moving up went on its back at it.
With respect to the balance and the harder armor.
It really was a fraud section across all buyers are beginning to see some of the big Fortune five hundreds reenter the market space as clarity around the U S economy increases.
And strong order a corner and accounted for more than half of this quarter's orders.
Look if you think about demand.
As we see the lifting of the international travel restrictions and removal of quarantine restrictions.
And the increased confidence of obviously the U S economy, but also global economies, we expect to see demand continue to.
Increase and shouldn't we see Gulfstream as being in very good stead.
So you mentioned you know demand getting better and we know that pre owned prices are continuing to come down and we have happening while international routes on not opening up.
Given the strength in demand if you wanted to or if the demand were there to sort of deliver more planes, how long would it take you to kind of uptick.
Production rates, so that we can see those deliveries moving up.
So on average.
It takes about six months lead time, but we're looking.
Looking at just a few more production airplanes.
As I noted in my remarks.
And we will continue to adjust.
And be sufficiently agile as we see them.
Yeah.
As we see demand continue to increase so I liked how we balance that sounds right now prudent yet.
Forward looking and are and we are pretty efficient on it comes back to ramping up.
But it does take a lead time of about.
Two quarters.
Thank you.
Yeah.
And our next question comes from David Charles from Barclays. Please go ahead with your question.
Thanks, Good morning morning, David.
You'd be wanted to wonderful on up on some of your earlier comments around the margin at Gulfstream. So overtime, we got used to this being a mid to high teens business.
Is that the right way to think about this business going forward, particularly when the 700 comes in and do you expect the <unk>.
700 to be margin margin accretive when it starts to deliver.
So that 700 will be margin accretive.
When we began deliveries.
When you think about death on gain on our portfolio and our place in the farmer Mac.
As a mid teen margin business for that.
Short term, but as you can imagine we will continue to work on margins.
And then we've talked about many times before on margins at Gulfstream on a whole host driven by a whole host of issues not the least of which is service mix.
Next on airplanes.
And when we were on a couple of years ago that was as you recall.
Acceleration on fixed 50 backlog on which on a solid start to affect a better aligning.
Demand.
With the with the backlog so there wasn't too much of a weight for people.
But also helping us transition to that period, when we were replacing the $4 50, $555 50 with 500 600.
That is largely behind us and me as I said expect to see some nice margin accretion as we go forward.
Great that's helpful and.
Jason could you can you comment a little bit on the moving pieces.
A little on what they expect their inventories.
Inventories come down a bit advances have been a bit of a headwind. So just how we should expect the different pieces within working capital to move from here. Thanks.
Sure.
Recall, the major moving pieces that we've talked about sort of outside the normal run rates for the business in general has been the elevated inventory level at Gulfstream as we've invested in the new models.
Between test airplanes, and the buildup for food production and entry into service.
That obviously has been a headwind for for several years now we saw that start to turn at the end of last year, a little bit better than we thought were going to happen a little earlier than we thought it was going to happen and so that helped us outperform our cash flow expectations for 2020.
You can think about that for Gulfstream continuing to normalize. This year you will start to see the 506 hundred.
Hit that inflection point and no longer be a headwind, but at the same time keep in mind, we're building up on the 700 is that.
Program moves toward entry into service, so that'll become a little more neutral this year and then eventually shifted.
Into a tailwind into 2022 period and beyond.
The other piece is obviously the large international.
Program at combat systems, which again was a <unk>.
The headwind for several years that turned with the.
Modification to that contracted Phebe discussed earlier last year, so that stabilized last year and becomes on a very modest tailwind. This year and then it becomes a more meaningful tailwind in 'twenty, two 'twenty, three and a little bit more than 24. So when you think about the way those two pieces are moving.
So that kind of gets us on a cash flow trajectory from if you go back to 2019, we were in the mid.
The 60 ish percent range moving toward an expectation of the 80% range last year, we outperformed that a little bit as Gulfstream did a little better.
And now we're in the high mid to high 90% range on the one piece there that's still sort of keeping us out of the 100 per cent range really the elevated invest capex at marine systems.
So once that normalizes.
Next year it gets back into the 2% of sales range, you should expect to see us the whole business large being in the 100 to 100 plus percent range.
Really with those those two working capital pieces at Gulfstream in combat systems, becoming material.
The wins that allow us to get even.
Been nicely above 100%, so that's kind of the trajectory for all those major moving pieces hopefully that gives you a sense of where we're going and the basis for our expectation for the improvement that we see ahead.
Yeah, absolutely thanks very much.
Question comes from Ron Epstein from Bank of America. Please go ahead with your question.
Yes.
Good morning morning around which them too.
How are you.
Switching over to the chip business.
Electric boat adjusted to both having the Virginia class and the Columbia class.
And everything that they've got to do in terms of work force supply chain.
It's going very.
Very well on both both ramping up.
Virginia, and equally importantly, and more significantly in Colombia.
There is something important.
Let me to remember when you think about.
Do you think about Colombia, we started work on that program.
14 years ago.
And in that 14 year period, we have worked assiduously with the navy to reduce all known potential risks that we put in in the ramp up of a very complex new program.
That included work force hiring and training facility readiness.
Okay.
Construction prototyping technology readiness retiring.
Potential risks and.
A new high end technologies.
Alrighty.
On that this boat entered into construction.
And with a 83% design completion.
Level and.
Great contrast, Virginia, which has been an exemplary program at 43%. So all of this prior planning and 14 years the detailed.
Talking in tackling every conceivable loan level hedge.
Mitigated an awful lot of risk and allowed us.
Two.
Preferably to hit the ground running.
On on Colombia, and are so far on to fill but I will note. It's a very complex program. So you can't declare victory on any shipbuilding program right out of the bat, but we have taken unprecedented and historically unprecedented measures to retire all of the known risks going forward. So that is really.
Allowed us to execute on.
Coming right out of the gates very strongly but they've done a very good job.
Got it got it got it.
It seems like the focus on the Pacific standard Chip business.
How has it been for Gulfstream.
When you think about U S China relations.
In fact on Gulfstream demand, but not that we can see.
So our demand in Asia has been.
And good bye.
A nice large installed base a lot of customer intimacy that.
So to date, we have not seen it.
A particular impact.
Got it got it thank you.
Our next question comes from Myles Walton from UBS. Please go ahead with your question.
Thanks, Good morning, good morning, Thank you Amy.
Heard your thoughts on M&A for a little bit. So I was hoping maybe we could go there obviously, you're getting to a point on your leverage which is going on.
Pretty attractive building up plenty of firepower.
What are you looking at we've done an acquisitive company.
As the as the average.
Tight growing there.
So we have been through a significant investment period across many of our large lines of business and our focus here is on execution.
And primary focus.
We will we always look for potential niche bolt ons here on there.
But we don't see anything on the horizon here of any significant.
<unk> that would impact, okay, and Jason whats the target.
Ratios that were.
Amy for I know, you said youll refinance some of it but maybe just a little color.
I think perhaps less of target ratios then we're going to continue to prioritize our mid day rating, that's always going to be sort of where we seek to land long term.
And so the key for US right now as we had as you are aware sort of an outsized level of.
Debt maturing this year versus if you look out over the next 10 to 20 years.
What our debt ladder maturity phasing.
Phasing looks like and so really what we're aiming to do is sort of bring that into more of a balanced.
Picture of capital deployment that allows us to step down the debt overtime.
And reasonable measures as well as have.
Considerable flexibility and firepower available for for other deployment opportunities.
Alright, thank you.
And our next question comes from Sheila <unk>.
Other Lu from Jefferies. Please go ahead with your question.
Good morning, everyone. Thank you.
Hey, Phebe, maybe a big picture question for you because I know Howard.
On the numbers on <unk>.
<unk> been at Gd CEO for almost a decade now and at the company for 20 years, how do you think about where Gd goes over the next decade, whether from a portfolio focus on customer focus is on budget flat lines are operating with leverage comes from that.
Yeah.
So from a strategic perspective.
We decided several years ago to invest and a number of our significant.
Lines of business, where we believed that we could.
Realize the best return on invested capital and really drive volume.
Been in that period.
Gulfstream.
G D I T primarily the Gulf.
<unk> in the Marine group. So the key now from my perspective is all about execution and execution has been the hallmark of everything that we do here and it is the undergirding of all financial performance and it requires a disciplined.
Across it requires discipline across a series of.
Element and that are factors in all operations, but really as I see the next several years, it's all about execution.
And why is deployment of capital to drive.
Nice value creation.
The long term value creation is based on good product a superb execution wise investments and smart capital deployment. So that's what I see us doing.
Yeah.
Yeah.
Our next question comes from Pete Kubicki from Alembic Global. Please go ahead with your question.
Good morning Phebe.
I was wondering on in combat I'm wondering if you could give us a sense of what international orders are out there for you maybe maybe both.
So sort of expectations as well as competitive opportunities.
So international consists of two items.
Primarily.
Sales outside the United States from entities from.
Our business units outside the United States.
As well as Fms sales emanating from the United States.
And unfortunately.
For the state of humankind, the world has become an increasingly dangerous place.
And so we see the reflection of that concern and many of U S allies with increased demand.
From many of our products.
In Europe Eastern Europe.
A.
A little bit in Asia, apart from the Middle East.
And in the farm on Commonwealth Nations, and the UK as well so weak.
We look for nice steady.
Demand signals.
From outside the United States.
Our business units that are.
And Fms.
On the United States has had a long history of providing allies, but that had mass opportunities.
And we have a number of those in our opportunities in our combat systems again, selling through the U S government to key U S allies.
Physicians and particularly dangerous spots.
So.
See that nice cadence.
<unk> and.
In terms of on August.
Okay.
Why do you expect programs that you're competing for this M M.
MTF and on a fee you think they survive any any budget.
Yeah.
So new.
New programs are always from all vulnerable.
The Oh my God.
First our omni contracted to develop I think they're on 12 prototypes, we delivered those last year, we liked our offering we think it is.
Funding arming on.
But we're very attuned to army demands and how they see their fine net for and intimacy with the Army health.
Significantly.
That plus.
And Oh on let me on that program got stretched considerably. So we are taking it seriously and participating but that's a long way to go on before that comes to fruition.
Call another element on a key element of army modernization is upgrading with key with important and innovative new technologies that are existing platforms and for us that means Stryker and Abrams and both are undergoing major.
Programs so.
So all in all we see the price.
Demand for our programs continuing to go strong and you know.
There is nothing like going back to the earlier comments about execution, there's nothing like performing on schedule and on budget to amplify and provide a bit of an antidote to any potential cuts that come on in the future.
Combat is the armies.
Yeah.
Major integrator of Hum.
On that we on system and and will remain as such so that that ensures that our place on the permanent remains pretty strong.
Right. Thank you very much.
And our next question comes from Peter Arment from Baird. Please go ahead with your question.
Yes, Thanks, good morning Phebe Jason.
Hey, Phebe a question on the on the budgets I guess just kind of following up on your comments. There just we got the skinny budget from the New administration in one but how are you thinking about just the.
The alignment with the New administration priorities when you think of it.
Tvs portfolio.
So.
Clearly is as I think practical as Ron mentioned they demand.
For products that meet the Pacific Theater.
Have has.
Increase that puts our shipbuilding business is dead and and you can.
Funding.
Supporting increased submarine production.
And we are at record and working with the Navy to CL.
Yep.
Additional submarines can be executed.
In a relatively short term.
Combat systems group, Jeanette Lee, but regrettably the case.
It's the hottest.
The hottest theater at the moment is Russia.
And.
But in reality what approach from her face and this administration has been.
Very quick to respond appropriately to the Russians and so you see.
We believe that combat system is highly on.
Reality right now.
Faced with in Europe.
So all in all we like our positioning with the New administration priority you know remember on particular administration and this precedent has been an advocate of strong national security threat is his long and distinguished career.
Hum.
U S National Security strategy is driven by the threat of the perception of threat that has not changed.
So we you'll see priority among systems, but in all instances, we see ourselves very well aligned.
Just as a quick follow up.
Something that doesn't get talked a lot about but you have a lot of science capabilities.
Maybe you could just give us a little color on on how you see the opportunity there. Thanks.
So if you mean from both sides.
Sure cyber is embedded in all of our business and as you get to it now, but I think you referred to as <unk>.
[laughter], one would be it would be the height of fall in to discuss any of that.
But let's just put it this way we have always been on the leading edge of innovation with respect to.
Cyber and.
And electronic.
Technologies that apply to the real world fight in a moment.
Appreciate all the color thanks, David.
Our next question comes from Richard Safran from Seaport Global. Please go ahead with your question.
Phebe, Jason Howard Good morning, how are you.
First question I had.
That is I was interested in and the announcement. So I think it was back in February.
I see you added on Amazon cloud services too.
So the mill cloud 2.0.
What I wanted to know is how much does the addition of the Amazon enhance your offering.
Is this something that just improve the cost on the program or is this something that maybe opens up new opportunities for expanding cloud service to the government. Just anything you can tell us regarding the size of the opportunity on what this does would be appreciated.
So.
Not surprisingly the U S Department of Defense is moving as all major institutions are increasingly to the cloud.
So our cloud offerings are and incrementally are important part of our offerings that we believe will ultimately drive increased adoption.
Across our existing.
Contract.
And adoption of the technology.
Suite that we offer.
And frankly on expansion of the market. So cloud presents a significant opportunity and we are well positioned to execute on it.
Okay.
Thanks for that and then second then.
Uh huh.
Kind of a broad strategic question for you.
In your comments about are all about execution.
Over the past year or so you've made a number of changes to adjust how you're wrong reasons. I was just wondering what are the more permanent changes in how you're operating and you know that are going to persist long after.
COVID-19 was just how you're thinking about that impacting.
And improving margins.
So let me let me on her a little bit from from the question you're asking.
We hear.
A lot of anecdotal evidence that there may be a systemic changes emanating from from COVID-19 that has to do with work at home.
And what that might mean for <unk>.
Commercial real estate footprint.
We still believe it is too soon to declare any change in structural we do expect to see some.
The extent to which remains to be seen but some work from home either in hybrid.
On a.
Capacities.
Or in some cases more completely.
Don't see that as something that is.
This positive and determinative.
Real performance and execution.
I think what you saw going back to execution through COVID-19 and frankly this company's performance across its business units. During COVID-19 was was really a manifestation of the discipline that we have in all of our operating on our operating performance and on.
Operating leverage.
On the more disciplined company, who is the better they were able to adapt to the.
The vagaries and some of the other really significant challenges that COVID-19.
Providing frankly get customers on the environment.
So I think that to me on.
Underscore and amplified our operating excellence.
And I suspect that that will continue and understanding of that we'll continue to permeate as we go forward and we will continue to build on that you know operating excellence is never static it has to get better and better and better that's what continuous improvement is all about.
And frankly, we have a long standing discipline around that so I don't think there'll be a somehow change on our operating performance, but it's simply.
Undercurrent.
The importance of.
That discipline, but sometimes.
On performance.
Terrific color. Thanks.
And Jamie.
Time for just one last question please.
And our final question from research. Please go ahead with your question.
Thanks, so much good morning, good morning.
Phebe just a couple of quick ones on the aerospace division can be a very.
A strong first quarter here, but I was wondering if you had seen any demand pull forward into the first quarter from the second quarter and then secondly.
You've talked on this before.
Yes.
The lead time for aircraft looking are we still looking at roughly 12 months between an order and delivery and also how is pricing spread in the first quarter. Thank you.
So think of that demand less about pull forward day.
Man comes when it comes and you execute it as it arrives on your doorstep.
So what we saw with respect to demand is starting as I noted in mid February we start and we saw a nice steady increase in demand.
Across a broad spectrum customer base and in the U S. We'll our initial.
Estimates show our indications are that that demand is carrying through into the second quarter.
Pricing is holding up very well on as you. All know we are very disciplined about our pricing. It is pasha from last year.
You get it back on.
I hope out of Harm's Hog zone type of thing has has done has done very well.
On.
And as I noted earlier, it's about six months to ramp up additional <unk> and I don't see that senior debt that interim significantly changing anytime soon given all of the elements that have to perform.
I hope that answers your question.
That's very helpful. Thank you.
Operator.
This now ends our call strength.
Thank you very much everybody for your time.
And I will be available to answer your questions I can be reached in my office. Thank you very much.
Okay.
Ladies and gentlemen, with that we'll conclude today's conference call. We do thank you for attending you may now disconnect your lines.