Q2 2021 Huntington Ingalls Industries Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the second quarter 2 pause on in 'twenty, 1 Huntington Ingalls Industries earnings Conference call.
At this time all participants are in the election on the amount of.
After the Speakers' presentation there'll be it the question and answer session to ask the question you May Press Star then 1 on the touched on the phone withdraw your question. Please press Star then 2.
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I would now like the hand, the call over the Dwayne Blake Vice President of Investor Relations. Mr. Blake you may begin.
Thanks, Good morning, and welcome to the Huntington Ingalls Industries second quarter 2021 earnings conference call with US today are Mike Petters, President and Chief Executive Officer, Chris Kastner, Executive Vice President and Chief operating Officer, and Tom <unk> Executive Vice President and Chief Financial Officer.
As a reminder, statements made on today's call that are not historical fact are considered forward looking statements and are made pursuant to the safe Harbor provisions of federal Securities laws actual results may differ.
Please refer to our SEC filings for a description of some of the factors that may cause actual results to vary materially from the anticipated results.
Also in the remarks of day, Mike, Chris and Tom will refer to certain non-GAAP measures reconciliations of these metrics for the comparable GAAP measures are included in the appendix of our earnings presentation, that's posted on our website.
We plan to address the posted presentation slides during the call to supplement our comments. Please access our website at Huntington Ingalls Dot com and click on the Investor Relations link to view the presentation as well as our earnings release with that I'll turn the call over to our President and CEO, Mike Petters Mike.
Thanks, Dwayne good morning, everyone and thanks for joining us on today's call. This morning, we released strong second quarter 2021 financial results driven by another quarter of solid operational performance.
So let me share some highlights from the quarter starting on slide 3 of the presentation.
Sales of $2.2 billion were up from 2.0 of $1 billion in the second quarter of 2020 does.
Diluted EPS of $3.20 was up significantly from $1.30 in the second quarter of last year and pension adjusted EPS for the quarter was $3.5 sets.
New contract awards during the quarter were approximately $1.2 billion.
Resulting in a backlog of approximately $48 billion of which approximately $24 billion is funded and Chris will provide some color on a few of the key awards for the quarter during his remarks.
Shifting to activities in Washington, We are pleased that the congressional markup process for fiscal year 'twenty 'twenty 2 has begun in earnest following release of the President's budget request and Max.
Of note the budget request continued recapitalization of the nation strategic bullets, the ballistic missile submarine fleet and supported funding for C. B and a D and C. B and 81 Ford class aircraft carriers, 2 Virginia class submarines, 1 DDG 51, Arleigh Burke class destroyer and LH a night.
We were also pleased that a second DDG 51 class destroyer was included as the number 1 priority on the Navy's unfunded requirements list for fiscal year 'twenty 'twenty, 2 and we look forward to working closely with the Congress during the FY 'twenty to Mark up process to our support for the second DDG and other critical priorities.
Including the efficient production of amphibious warships.
In closing slide 4 provides some key takeaways from the recently announced agreement to acquire ally on science and technology. The team is preparing for closing of the transaction and we are very excited about the addition of alliance of the HII family of.
The line is a perfect complement to our existing capabilities and the technology, driven defense and federal solutions space the.
The solutions and products. They provide are directly in line with the strategic focus that we have articulated for our technical solutions business and it enhances our technical capabilities and customer access and high growth National security markets, including C..5 ISR military training of stimulation and next generation technologies.
And solutions, we firmly believe that a lie on offer significant growth potential and represents an investment in capabilities that support the evolving D. O D National security requirements, which in turn are expected to generate significant long term sustainable value for our shareholders, our customers and our employee.
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Now I will turn the call over to Chris for some remarks on the operations Chris.
Thanks, Mike and good morning, everyone.
This was another solid operational quarter and I'm very pleased with the consistent progress being achieved across our shipbuilding and technical solutions programs.
With that let me share a few key contract awards and programmatic highlights from the business segments for the quarter.
At Ingalls the team received the contract modification from the U S Navy for 107 million.
But to provide additional long lead time material in advance of procurement activities for amphibious assault ship L O J 9.
Which increases current funding on the ship to approximately $490 million.
Regarding the potential bundled acquisition of L. O J 9 withheld for the 32 and 33 discussions are ongoing with the customer.
We believe that of bundled the acquisition continues to be the most cost effective method of.
Procurement of these critically important ships.
In addition, Ingalls was awarded a contract with the potential total value of 724 million over 7 years for planning yard services in support of a variety of in service amphibious class ships, including the LPT 17, San Antonio Class and L. A K 6 America class.
Shifting of program status L. E. K 8 Bougainville is making steady progress through the structural erection of initial outfitting phases of construction with cost and schedule performance in line with our expectations.
On the DDG program. The team successfully launched the first flight 3 Arleigh Burke class guided missile destroyer DDG 125, Jack H Lucas in June and DDG 121, Frankie Peterson Junior is expected to conduct sea trials later this year.
On the L. P. D program L. B day 28, Fort Lauderdale is on track to conduct sea trials during the fourth quarter and LPT twenty-nine Richard M of Cool Junior continues to achieve production milestones in support of the launch early next year.
At Newport News there were no significant contract awards to highlight for the quarter. So I will go right on the program status <unk> 79, Kennedy is approximately 83% complete and the team remains focused on compartment completion and key propulsion plant milestones.
C D and 73 of U S. S. George Washington is approximately 90% complete and the team remains focused on achieving key test program milestones to support redelivered to the Navy, which is planned for next year.
On the Vcs program. The team completed shipment of the final module of SSN 797 of Iowa during the quarter. In addition, SSN 790 for Montana remains on track for delivery to the Navy later this year and SSN 796, New Jersey remains on track to achieve the Florida milestone as planned in the.
The second half of this year.
And finally on the submarine fleet support program SSN 700, twenty-five Helena is on track for Redelivered to the Navy later this year.
At technical solutions contract awards of Ramius 300, unmanned underwater vehicles during the quarter to the U S Navy and Royal New Zealand Navy.
For them the flexibility and modularity of these units.
T. S was also recently awarded a $273 million cost plus fixed fee indefinite delivery indefinite quantity contract to support maintenance and planning for the overhaul and repair of equipment and systems associated with the Navy aircraft carriers and West Coast Navy surface ships.
In addition, T. S was awarded a contract with the 1 year base period and for 1 your options with a total potential value of 346 million to provide a variety of aircrafts on operational support services for U S. Africom included planning management maintenance logistics and airlift Airdropped services in them.
Urgency medical care.
Execution within technical solutions remains consistent with expectations, except for delays in awards in our unmanned business for critical new programs, which we expect to be resolved by the end of the year.
As I close note that we have included up upcoming key program milestones on slide 5.
There are no changes from what we had previously provided other than designated those milestones that have been completed with the checkmark.
Now I'll turn the call back over to Tom for his remarks on the financials Tom.
Thanks, Chris and good morning today I'll briefly review, our second quarter results for more detail on the segment results. Please refer to the earnings release issued this morning and posted to our website.
Beginning with our consolidated results on slide 6 of the presentation. Our second quarter revenues of 2.2 billion increased approximately 10% compared to the same period last year. This was primarily due to the growth of Newport News and Ingalls and was partially offset by a decline of technical solutions due to the portfolio shaping actions we have taken.
Segment operating income for the quarter of $169 million increased 174 million compared to the second quarter of 2020 and segment operating margin of 7.6% compares to a segment operating margin of negative 2% of the second quarter of 2020.
The prior year results were negatively impacted by the Virginia class submarine program performance as well as impacts related to COVID-19.
During the second quarter, we paid dividends of $1.14 per share or 46 million and repurchased approximately 95000 shares at a cost of $20 million.
Moving on to slide 8 of the presentation Ingalls revenues in the quarter of $670 million increased $48 million or 7.7% from the same period last year, driven primarily by higher revenues on the DDG program amphibious assault ships, partially offset by a low revenues on the NSC program.
Ingalls operating income of $80 million and margin of 11, 9% in the quarter were up from the second quarter of 2020, driven by the recognition of the capital investment related incentive for the DDG program that was recognized on DDG 125, as well as higher risk retirement for the LSA 8 L. P 28, and LP of 29 ships turning to.
Slide 9 of the presentation Newport News revenues of $1.4 billion in the quarter increased $241 million or 21.5 per cent from the same period last year due to higher revenues in both the submarine and aircraft carrier construction Newport News operating income of $76 million and margin of 5.6% in the quarter were up year over year.
Primarily due to the impacts related to the Virginia class performance and Covid in the prior year period now.
Now at the technical solutions on Slide 10 technical solutions revenues of 237 million in the quarter decreased 25, 9% from the same period last year, mainly due to the divestiture of the oil and gas business and the contribution of the San Diego shipyard to a joint venture in the first quarter of this year as well as low volumes in unmanned systems, partially offset.
Set by increases in volumes in the defense and federal solutions.
Technical solutions operating income of 13 million in the quarter compared to income of 9 million in the second quarter of 2020. This increase was primarily driven by higher equity income related to our ship repair partnership with Titan as well as improved performance of defense and federal solutions and nuclear environmental services, partially offset by low volumes in the unmanned.
Finally, our perspective on the outlook of for shipbuilding for the remaining part of the year, we continue to see limited opportunities for risk retirements in the third quarter with the remainder of the milestones of weighted towards the end of the year given the strong performance through the first half of the year. We now expect that the shipbuilding margin for the full year will be in the 7.5% to 8% range.
We continue to expect the Alliant acquisition will close in the coming weeks and that we will incur approximately 25 million of 1 time pre tax transaction and financing related expenses in 2021, we completed the syndication of the term loan component of the acquisition funding earlier this week and more details of the specifics are available on the 10-Q, we will provide a more calm.
Appreciate the update on our 2021 outlook for technical solutions on our third quarter call. Following the closing of the acquisition now I'll turn the call back over to Dwayne for Q&A.
Thanks, Tom as a reminder to everyone on the call. Please limit yourself to 1 initial question and 1 follow up so we can get as many people through the queue as possible.
Operator, I'll turn it over to you to manage the Q&A.
We will now begin the question and answer session to ask a question on Okay Star then 1.
On your question Sean.
The cash on cash.
The flow question for Keith.
At any time of your question has been addressed and you would like to withdraw your question. Please press Star then 2.
At this time of a pause momentarily to assemble the doctor.
Our first question comes from Doug Harned with Bernstein. Please go ahead.
Good morning, Thank you.
Good morning.
Uh huh.
Q2, you had a big increase in Newport News revenues and when you look at the back half of the of the year you've got.
Several of pretty important milestones so you've got a lot going on there.
Can you give us a sense of sort of what took the revenue is up so much.
In Q2, and how we should expect the workflow and revenues to kind of play out over these next few quarters.
Yes, sure. It's Tom here Good morning, Doug I appreciate the question.
Although the growth Europe year over year for Q2 looks large Catherine called the took the charge in Q2 last year for the Virginia class program. So that controls the on the margin side and the and the revenue side.
Has that.
21% increase looking larger than it is I'll tell you on the back half of the year.
With the with Covid understood right now for the Labor force of stable the contracts that we have on price right now the run rate that we see is going to play out.
Pretty consistent for the back half of the year probably of flat flat to consistent back half of this I wouldn't let it run away from you as you try and see the growth from a year over year perspective, I'd stick with the guidance that we gave you.
Back at the beginning of the year.
I still think that run on top of the.
Hey.
And then you got this.
$926 million Service award.
At Ingalls you are in the process of working through the Los Angeles class work as well and in services.
Can you give us a sense of how you expect services revenue to flow because.
You know I always think of this as something that we kind of know the trajectory for shipbuilding, but services is less certain and so how do you. How do you see that flowing and do you get a sense some of your navy and budget discussions debt.
You know the that there's going to be of pretty consistent.
The driver of revenue coming from the services side.
Yeah. So a.
Couple of other parts on that answer there on the Ingalls award on the long term.
Services type contract.
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As the claims in the years get funded in the out years, we will see that net revenue.
Sure down there.
Services contract they have the oversight.
The services aspect of of the MPD and <unk> programs. So.
That was anticipated as far as our revenue.
Actions that we had for me that it's not a large portion of the Ingalls portfolio as you can see it today there are potentials going forward, depending on how the landscape plays out both from a construction and future services in the MRO type work too.
On to play out we'll have to see how that goes forward from a Newport News perspective, Yeah. As you mentioned, we took on the overhaul right now so those were anticipated on all planned plans also that was an overflow right from where the Navy was I think medium to long term, we'd like to see ourselves get into a cadence of.
Getting an overhaul on the sub side going forward.
And as we work with on Navy partner on what that kind of looks like we'll provide additional guidance on that front.
Okay. Thank you.
Our next question comes from Myles Walton with UBS. Please go ahead.
Thanks, Mike I think in your remarks, you talked about stability or a more predictability in the empted on purchasing power of purchasing strategy I guess, you've got to quote quit handshake agreement with the Navy. The congressional committees are pushing that to be more formalized into a contract can you just give some color aside from.
You know the greater visibility of having the ships under contract what are the financial implications to that.
Ingalls I know there's savings for the customer I'm, just curious from a financial perspective to the company how would it change if they're part of it individually or in that block buy of agreement.
So all of this.
Just kind of talk in general anytime you are in a multiyear program youre able to the sequence.
Schedule of the.
For the platforms.
For them.
The way you've got the capital.
True.
When you get into it.
The workplace for cadence matters of lives.
The only.
Yes.
Case getting the Ltvs.
On the law on again, the cadence thats predictable over the next several years creates the foundation for all of the other programs at Ingalls.
Working for chasing we're trying to capture it so it's the.
A piece of predictability for Mike.
From a cost structure range structure perspective.
And.
Yes.
Our view of that as debt.
Get that locked in.
And create that kind of stability.
It's worth of savings to the customer a customer.
The price for it.
So work that's the loss from the standpoint of a predictability.
So.
That's kind of of the way, we think about it.
Add any more of that.
Yes, so myles as Chris It really solidifies the next 3 to 4 years at.
At Ingalls moving forward and maybe even more important that it solidifies the solidifies the supply base that we can.
Keep that Oh the ship.
Ship class.
Moving on the normal cadence.
To support Ingalls revenue over the next 3 to 5 years.
Sure Okay.
Let me just follow up on the back of that too as you know.
These bundles, whether it's a bundled like we're doing here on a multi year the provide flexibility.
The customers that at all part of that there so whether.
Whether they decide to take the bundle that's on the table now or buy them kind of separately the.
The financial impacts on that obviously as Mike said those rates those rates that come into play of the schedule of the shifts how we buy the material in a lot quantity or do we buy them individually. So all of that factors into it you know on affordability profitability piece of the the equation there but.
We've put that forced to be as flexible.
The customer as possible and we'll see how name for what the appropriate for the funds and award accordingly.
Okay, and I think you you increase the the 5 year of cash flow to the $3.2 billion have to rely on acquisition.
From 2020 of 24, as we look to 'twenty to 'twenty for I guess, it implies the $740 million or so is.
Is that remind us is that of linear profile is it a big.
Step up with a significantly higher back end can you just give any colors of that did you see it today.
Yeah, so as they come on line as you know the closed on the deal in August in Q3, you'll get a look see of the financials for the lion rolled in there, we'll give you a little bit more call. It on the Q3 call for the the specifics on how we see 2.
2021 of falling out and then give additional color on hold until Q for February timeframe of next year, when we give that guidance going forward I mean, there's only so many ways you can spread the $200.200 million, but I just hold the thought there until we come through through the <unk>.
Integration and we.
We finished out of this year.
Okay alright, thank you.
Yeah.
Our next question comes from Robert Spingarn with Credit Suisse. Please go ahead.
Hey, good morning.
Tom the margins at Newport News were a bit below where we were thinking of.
And also below the underlying margins we've seen over the past couple of quarters. So wanted to just ask what's going on there.
Driving the fluctuations in the underlying margins ex the seas, where was this.
Net.
Negative EAC is at work and while we're at it maybe you can just give us the the EAC splits between the segments. Thank you.
Okay, Great I appreciate the question sure. So now from the Newport News perspective, the kind of guided in Q1 of if there was not going on me.
Many opportunities for risk retirement milestones for Q2.
Great.
That was exasperated at Newport News I would tell you at a low of 506000 a bit low when you combine it with the first quarter of 6.1 for the first half year. So it's right on the run rate of 6.6% to 7 even if its on the low side.
It.
It was not impacted.
Any any major setbacks.
The favorable EAC increases for 62 million the unfavorable with 27 down for a net 35.
On the upside is a little bit slanted towards Ingalls and then on the unfavorable of it's just the.
Slightly slop from 50.50.
Newport News, but there wasn't anything specific to call out there on the favorable side you will find in the Q. There was a and then Mike comments up front that the DDG 125 took an incentive for the Capex and there was some solid performance in risk reduction of L. A L. P 28, 29, but on the downside there's nothing notable to kind of highlight here.
Okay.
Can you quantify the benefit of the capital investment incentive recognized on Jack Lucas.
Yeah, it's up $14 million.
Okay.
On the Q it's upfront.
Alright, Thank you very much.
Yeah.
Our next question comes from George Shapiro with Shapiro Research. Please go ahead.
Yes, good morning.
Hi.
It seems like when you raise the shipbuilding margin for the year that this benefit for all of this capital investment benefit was something that you weren't anticipating.
Or is it raised because you're expecting higher EAC ease in the second half of the year or it's just continued performance versus the first half.
Good morning, George It's Tom here.
I'll tell you that with half year on the box of kind of have a line of sight for the year is going to play out so factoring in the actuals of 2 quarters of what we see here.
Still.
Foreshadowing that Q3 is going to be light in terms of milestones and risk retirement and the back end of the year for additional opportunities and of the 6 months of run rate the burned out of breath. So I think we just felt comfortable and we wanted to help the street understand where we think we're going to land on 5 years out.
Okay, but specifically was that capital investment of benefit not unexpected thing for the year.
Uh huh.
So it's on 1 time event and.
It was expected, but it doesn't play out in the run rate.
For the.
Range debt that we're giving you at 7.5 to 8 per se.
Okay, and then 1 on the free cash flow was pretty weak in the first half of it looks like working capital was up the north of 200 million are the guide of $1.50 of $2.50 for the year still holds and what would have caused the second quarters of being as weak as it was.
Sure. So I'll tell you traditionally what we we used cash of front. So we pushed out you know a -16 in the first quarter 'twenty free up here for a net of plus 7% through the first half of the year not unexpected.
Then Q2 was on the working capital of 7.9%. So again in the range of 6 to 8 what we expect the back half of the usually does see some some favorability to the working capital and that will come on.
A little bit debt, we have to keep our eye on as we have the payback of the corporate practice payments at the end of 2021 that that negate some of the positive positiveness that you'd see in the working capital traditionally in the back half of the <unk>. So you know from where we stand here to get to the 150 to 50 is just the know of operational run of the <unk>.
Revenues in the payments flow through the books.
Okay. Thanks.
Okay.
Our next question comes from Scott Hoffman.
Please go ahead.
Hey, thanks, Thanks, very much on Doug good morning.
The question I guess about profitability and weather.
And I guess, you look at the margin side and you talked about the opportunities for risk retirement.
Later in the year and sort of the you know the.
The correlation between those 2 things I guess, the the new margin guide implies the down margin in the second half versus the first half, but you look at all of the opportunities to check off at Newport News and even at Ingalls, where margins have been very strong.
Still.
For risk retirements ahead than have been checked off so I guess the the first part is kind of given this list for the second half, but why wouldn't we expect a stronger shipbuilding margin than we saw in first half and then.
The second I guess, when we look at 2022, and we see sort of fewer of milestones for for Newport News.
How do we think about what.
What that means for profitability, there and then at Ingalls kind of coming off of a high base, but obviously it looks like there's a lot to do there.
So I guess you know looking at the correlation between these upcoming milestones and and the shipbuilding margins.
Sure, Yes, I can give you some color on both of those questions. So.
When you look at Q1 Q2, there's quite a few 1 time events.
Net the incentives we're talking about here on DDG 125 in Q2 Q1, there was a couple of incentives and the 2 that we've highlighted.
I've been asked.
Of those keep up the Sop at 14% of now of 11, 9 and I keep providing the guidance down that Oh, that's not a run rate that's the sustainable I think between the 1 time events and the incentives that we talked that we will see that come down so.
I Wouldnt really read that because we're giving you the 7 and a half to 8 that somehow.
The margins of dropping off from our performance for operational standpoint of Ingalls. It's just that we won't see those 1 time events in Q3 Q on Q4.
For the question on the the Newport News perspective right.
Right now if you look at it the have a lot of new ships and in their portfolio right. So.
80, 81 is coming online there is the C D and 70 for that just popped in here and.
The 73 is nearing the end from a revenue perspective, and they have less weight on the portfolio of there. So it's just it's the mix of of the.
Of the ships that are in Newport news, so when you're talking about 2022 timeframe those ships as they run through you know another 3 or 4 or 5 quarters, that'd be burning down risk and there'll be a potential there for increased booking rates.
Okay, great I'll stick to them on the spring thanks very much.
Yes.
Yeah.
The next question comes on the Ron Epstein with Bank of America, and its kind of hard.
Good morning, guys.
Mike.
Yeah, just quickly could you give us the update on how things are proceeding with the Virginia class because I know that's of a program that you ran into some challenges.
In the last 18 months.
All of the tracking now.
Yeah. Ron This is Chris I'll start with Mike wants to.
Add on here.
We will do that but.
Really really of team are performing well and the.
The partnership performing well on Montana is proceeding to delivery this year of new Jersey's preceding the launch and then delivery next year and then the shops are executed.
Executing on the modules to support our assembly for the subsequent both so.
The confident and comfortable with how the block for them in block 5 programs are executing right now.
Mike did you want us interest.
Hey.
This is moving it to moving to 2 per year in block for.
And then moving adding in the Virginia.
Virginia payload module.
5.
Successors of depend on rhythm.
What what we have established here on Chris's team and Jennifer is the shipyard of establishing the right now.
Establishing the rhythm of the program is going to make the successful.
We're working that when Covid hit us last year, and so we kind of had.
The step back a little bit of the reset button.
We're pretty excited right now about what's happening today, but also the rid of.
The the rhythm that we're setting up for for the.
Rest of this program and the rest of the next door so pretty excited.
Gotcha Gotcha and then.
Maybe just the another submarine question does the do.
Do you guys just the industrial base to have enough <unk>.
Man power Labor right now to do the Virginia, and the Columbia of at the projected rates were in a given year. If there's 2 virginia's delivered out of Colombia through the 3 subs.
Is there enough capacity in <unk>.
Terms of qualified on the pipe fitters to do that.
Well, Ron I guess.
If you if you took a if you decided that everything was static on the.
Had to do all of that with the people that you have in the plant today. The answer is no. We don't have enough people on the plant today to do that.
Is that we've had since Covid began last March we hired 6000 people and train them and.
I will be forever remembered for saying that we can build capacity in the industry faster than the government kind of appropriate funding for it. So if it's if the government wants to move ahead with a higher rate of submarine production in a sustained way.
Not just doing it once in a while but and there's some sort of sustained way they want to go to.
3 submarines, a year or 3 Virginia class of a year or 2 Virginia class set of out of Columbia here and there.
Moving to sustain that for a period of time, we can absolutely have the have the workforce and the and the.
Physical plant and the supply chain set up to go execute that if.
If you said that it's a light switch and starting.
In the FY 'twenty 2 budget, we're going to expand the buy from from 2 to 4 well, we'd probably have some startup range there, but we don't believe that's the way that's going to go we believe that this is going to be done in concert that's the history of it and so I think.
I guess my own experiences that when you hear budget people talking about lack of capacity what they really mean is that they don't have fun.
And that's that's kind of of the way the industry works out so.
So I think we can we can expand we can expand capacity if that's the plan.
The sustained demand.
Got it thank you.
The last question comes from Gautam Khanna with Cowen. Please go ahead.
Hey, guys I was wondering if you could talk a little bit about.
Integration of planning and sort of what the early milestones we should be thinking about on the alley on deal.
To make sure that it's tracking the plan. So could you the little could you outline what youre doing.
What are you planning in terms of integration and sort of what the.
What do you hope to have accomplished by the end of the year with that deal.
Couple of other got them, you've got to be careful here because this Chris we're not close yet obviously you don't want to get ahead of that I will say that we had a very detailed integration.
Plans are in place and been working very well with the lie on and putting that plan in place and I'd also like to say that that doesn't debt aligned leadership team is going to play a very prominent role.
And in the leadership team of the combined company when we do get close.
We will be able to report that.
On the status of the integration on the on the Q3 call, but I thought I don't want to get in front of closing on that and Mike I don't know if you want add anything.
I think we are all I would say is that we integrated hydroid last year.
We have on we have a blueprint.
Blueprint for how to go do that.
Effective and efficient way.
Obviously this is a severe 1 that Mike.
But the muscles of the same.
I'm pretty excited about I'm excited about the opportunity to go do the.
Yeah, I'll be a lot of hard work by a lot of folks, but it'll be the right kind of stuff. So and we're certainly going to keep you posted on the house.
Okay, and just as a follow up.
You know you talked about the $14 million.
Great.
For the capital and some of this quarter.
If I recall last quarter, you guys talked about Q2, and Q3, having fewer shipbuilding milestone, but I know this has been asked on the call but.
Just trying to get a sense for should we have thought about the potential for kiam catch ups, you know maybe last quarter as $35 million minus the 14, Mike when we say not of lot of Cuban catch up on opportunities as is 20 million sort of the the not of lot opportunity of should we think of it as like Ziv.
There isn't a lot of you know.
Risk retirement on opportunities because I guess, you know that that was sort of the upside that certainly relative to my expectations walking in today.
There was an opportunity for 1 of the favorable net of adjustments.
So yeah, I'll I'll hop in there.
Yeah.
But you know when we gave that guidance you talk about hey milestones hard milestones so the milestones.
If we if we hit the milestone when we take a step up as we check the EAC, we sell the ship off.
Defined milestones that will bring in additional margin. So I mean, that's true when we guided in Q1 and it's true it's true right now when I look at vs.
Huntington here in Q2 into Q3.
As I mentioned there was 62 of 27 net for net of 35 and the 62 is 14 of it right. So as you do the math of that I guess for asking Hey, zero of 20 of $40 million of lot of the catch up as I mentioned to you 60.40 Ingalls.
Verses of Newport News, there, but hey, just steady performance down at Ingalls.
L P D programs and.
And there wasn't a specific hard milestone, but as we come through our quarterly EAC processes.
We we.
Check the the the burn rate and the risk registers, and where we stand on the <unk>.
Programs are running smoothly right now so.
I don't think I'm out.
The ordinary performance, there and I think our guidance still holds true about Q3 is going to be light on milestones and there's opportunities over the last 6 months of retire additional risk.
Thanks, a lot.
Yeah.
Yeah.
The next question is from Noah <unk> with Goldman Sachs. Please go ahead.
Hi, good morning, everyone.
Tom did you say you also had capital investment related incentive in the first quarter.
I may have said that but now that you you bring it up again, we had the ECP that we closed out and.
I mistakenly said capital incentives. So we had of E. C. P. On the DTC program that cleaned up for us.
Okay, Yeah, I was going to say I was.
Looking for that I couldn't find it.
<unk>.
Is that is that something that the you know has the potential to occur.
Occur often and you know, it's usually small enough to not call out or is it or is that pretty unusual.
We do have a piece of that close out from time to time theyre not big adjustments that happened to be around the larger adjustment than we had and so that that kind of weighed into the Q1 time frame.
So on the same question on capital incentive.
It's fairly unusual to have of capital incentive that large.
Okay. So we work with we work ourselves through as we come through on the D. C piece that we provide for for proposals we go to the table and negotiate.
The balance of affordability and equity on these deals and as we work ourselves through sometimes they take time and then as we settle the deal.
Whether it's additional margin of capital incentive.
Well, let the street know when we close out.
Okay.
Got it.
Is there any other change to the previously provided a 2021guidance items outside of what you've mentioned on the shipbuilding margin.
No. We're gonna give additional guidance I said in Q3 as we close out.
So of that that not being in the release of the deck is mainly just a reiteration of as opposed to something else that's correct.
Yeah.
Okay. Thanks very much.
Yeah.
The next question comes from David Strauss with Barclays. Please go ahead.
Thanks, Thanks for taking my question on good morning.
Right.
So.
In terms of performance year to date does it change anything about how you're thinking about the ship building margin progression beyond 2021, I think you've talked about low low 8 per cent in 'twenty, 2 and then going up from there. So.
Anything about the performance of your day gives me more confidence maybe that could be a little bit better than that.
No I would say where we're at.
Where are we where we guided and where we expect it to be.
And our outlook right now on next year so low.
Okay, and Tom what has to happen from a working capital perspective over the next couple of years to.
Be able to hit the 3 billion or 3.2, I guess with Ali on include any bad debt free cash flow of target of what's that embed for for working capital on where we're the simply because of working capital upside come from.
Ah well I think what we used to always talked about is the working capital will be between 6 and 8%. So I think we'll continue to run the operations Accordingly, the early on.
On the portfolio of 85% cost type contracts.
Don't see it out of the range from a working capital perspective, and that gets integrated into the <unk> portfolio.
But the big drivers that we've kind of had highlighted how the 3 billion of now free to come about well more from a function of the 3 per cent CAGR from the revenue the margin rates popping up from shipbuilding.
The capital of getting back the 2 and a half for sure.
And then Oh.
When you run through the math of that the pension we've kind of cleaned up with the safe Harbor, so there's not going to be fluctuations on that front.
On a couple of calls we've worked worked that through for you how $700 million on a run rate was attainable price of the alliance.
Yes.
Okay, and the thinking on pension and so it's kind of a net neutral cash versus your contribution.
Yeah.
Alright, thanks for from Us.
As a reminder, if you had the question. Please press Star then 1.
Our next question comes from Burger King with Mike.
Thank you for home.
Okay. Thank you so much for taking the question.
So I was taking a look at the awards of $1.2 billion.
And if you take out.
The shipbuilding the I'm, sorry, the servicing contract and I think of another $100 million contract.
Net to about 3.
$360 million.
And you know 6 unmanned.
Ward I'm wondering is that a good way to think about the pricing point for you know you of user or am I not thinking about that right.
Yeah, So there's a number of.
A number of boards across the corporation.
And that value for awards, we don't give specific values for the price points of all of our U U vs.
So yeah, I wouldn't necessarily think about it that way.
Okay.
Okay.
Thank you I'm not sure that's part of the questions. At this time I would now like the hand, the call back over to Mr. Petters for any closing remarks.
Well I just want to thank everybody for joining us this morning.
We had a good strong quarter I'm pleased with where the leadership team is and where we're going.
I hope that you and your families are able to stay safe and that you were able to encourage everyone out there to go get your shops, that's what we need right now.
So.
Thank you all very much we look forward to seeing you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.