Q2 2021 General Dynamics Corp Earnings Call
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I would now like to turn the conference over to Howard Rubel, Vice President of Investor Relations. Please go ahead Sir.
Thank you operator, and good morning, everyone and welcome to the general dynamics second quarter 2021.
Conference call.
Any forward looking statements made today represent our estimates regarding the company's outlook. These estimates are subject to some risks and uncertainties additional information regarding these factors is contained and the company's 10-K, 10-Q and 8-K filings.
With that completed I would like to turn the call over to our chairman and Chief Executive Officer.
Novakovic.
Thank you Howard and good morning, everyone and thanks for being with Us.
And this morning, we reported earnings of $2.61 per diluted share on revenue of 9.
$9.2 billion.
Operating earnings of $959 million and net income of $737 million.
Revenue was essentially flat against the second quarter last year, but operating earnings are up $125 million and net earnings are up 112.
Earnings per share up 43.
Be a little more granular revenue on the defense side of the business is up against last year's second quarter by 308 million or <unk> 10 per.
Aerospace is down 352 million and pretty much as planned.
Operating.
And so on the defense side are up 98 million or 14, 3% and operating earnings and aerospace are up $36 million on a 390 basis point improvement and operating margin.
The operating margin for the entire company was 10, 4% a 140 basis.
Basic points better than the year ago quarter.
From a slightly different perspective, we beat consensus by <unk> <unk> per share on somewhat lower revenue than anticipated by the sell side. However, operating margin is 20 basis points lower than anticipated coupled with a somewhat lower share count. This led.
Led to the earnings day.
On a year to date basis revenue is up 596 million or 3.3% and operating earnings are up $129 million or 7.3%.
They're all margins are up 40 basis points.
The defense numbers are particularly good with revenue up.
$752 million or 5.2% and operating earnings up 143 million or 10, 3%.
On the aerospace side of the business revenue on a year to day basis is down 156 million or 4.3%, but earnings are up 16.
Million or 4% on and 90 basis point improvement and operating margin.
The quarter was also very strong from a cash perspective free cash flow of $943 million is 128% and net income.
Cash flow from operating activities was 151% and net income.
Income.
In summary, we enjoyed a very good growth and the defense businesses and the quarter and had a very solid quarter from an earnings perspective across the board.
The year to date results give us a solid start to the year and enabled us to raise our forecast for the full year, which I will share with you at the end of these remarks.
So let me move right into some color around the performance of the business segments have Jason add color around cash backlog taxes and deployment of cash and then I will provide updated guidance and answer your questions.
First aerospace.
Let me put the aerospace results and some recent historical context.
So as to put our performance into perspective, where it can be understood.
As you will recall that in April of last year. We told you we were cutting production as a result of certain supply chain issues.
Subsequently became clear that there was a reduction in demand related to COVID-19.
That resulted in additional cuts to production.
Those production cuts were implemented slowly over the ensuing months and reach their low point this quarter you.
You May also recall that I told you last quarter and that the second quarter would be the most challenging for Gulfstream because of these pre planned production cuts.
And the good news side of the story, we had anticipated renewed post COVID-19 demand and the second half of this year and plan increased production for the second half and short you'll see more deliveries revenue and operating earnings and the second half as a result.
With that let me turn to the aerospace.
The results from the quarter Aerospace had revenue of $1.6 billion and operating earnings of $195 million with a 12% operating margin.
Revenue was $352 million less than a year ago quarter or 17, 8% as a result of fewer planned aircraft deliveries.
On the other hand operating earnings are up $36 million or 22, 6% on a 390 basis point improvement and margins.
From a pure operating perspective, we did very well.
From an order perspective, the quarter BARDA and Lam is spectacular.
Space dollar terms aerospace had a book to bill of 2 to 1.
Gulfstream alone had a book to Bill of 2 <unk>, 1 to 1 even stronger if expressed in unit terms.
This is the strongest order quarter and number of units and quite some time.
It was all the more remarkable and that it did not.
Not include any fleet sales.
As previously discussed sales activity truly accelerated and the middle of February and continuing on through the remainder of the first quarter.
And finally develop in that quarter rolled over into the second quarter as is obvious from these results.
We continued to experience a high.
And of interest activity and a growing pipeline.
From a new product perspective, the G 506 hundred continue to perform well margins are improving on a consistent basis and quality is superb.
We have delivered 115 of these aircraft to customers as we speak.
High level. The G 700 has approximately 1600 test hours on the 5 test aircraft and we remain on track for entry into service and the fourth quarter 2022, but much remains to be accomplished particularly with respect to the certification of the new Rolls Royce engine.
Looking forward.
We have planned 32 deliveries and the third quarter and 39 and the fourth if all goes well we may be able to bring in a few more forward from the first quarter 2022 to meet current demand.
Turning to combat systems.
All of the comparisons combat systems quarter over.
And while there sequentially and year to date are quite favorable.
Combat systems has revenue of $1.9 billion up 8.3% over the year ago quarter, while Ordnance and tactical systems did well the primary source of growth was combat vehicles at both land systems and European land systems.
And so all in all very good growth.
It is also interesting to observe the combat systems revenue has grown and 17 of the last 19 quarters on a quarter over the year ago quarter basis.
For the first half of the year combat systems revenue of $3.7 billion is 200.
Third and 57 million or 7.4% over the first half of last year.
Operating earnings for the quarter and 266 million are up 11, 3% on higher volume and a 40 basis point improvement and margin.
And for the first half combat systems earnings of 500 and.
And are up $48 million or 10, 4% over last year's first half.
The quarter was also good for combat systems from an order perspective with a 1 to 1 book to Bill, leaving a modest increase in total backlog.
Demand for our products, particularly our combat vehicle.
Nicholas remained strong with Europe, leading the way.
Abrams main battle tank demand is also increasing and the Stryker remains the combat vehicle of choice for multiple U S Army missions and operations.
It was an impressive performance once again and by combat systems.
Marine systems.
Revenue of 2.54 billion is up 65 million over the year ago quarter. It is also up sequentially and year to date and the corner. The growth was led by the DDG 51, and T Ao volume.
Marine construction was stable with increases in Virginia block, 5 and Colombia offset.
I had decline and block 4 and engineering for.
For the first half revenue is up 302 million or 6.4%.
This is very impressive continued growth in fact revenue and his group has been up for the last 15 quarters on a quarter versus the year ago quarter basis.
<unk> operating earnings are $210 million in the quarter up $10 million or 5% on operating margins of 8.3%.
Recall that we experienced a strike at Bath last year.
And I'm pleased to report that our relationship with the Union is strong and we are both committed to improving bath performer.
<unk> Nasco is coming down the learning curve on the ESPN is nearing completion on the first of the new Oilers.
There was also strong.
Electric both performance remained strong and while early and the Columbia first ship construction contract and program remains on cost and schedule.
Finally technologies.
Thanks.
And when it has revenues of $3, 1.6 billion and the quarter up $98 million from year ago quarter or 3.2%.
The revenue and increased supplied by information technology, mostly associated.
Now standing at the ramp up of new programs was almost 10%.
And mission systems experienced a modest decline in revenue driven by the sale of our space and tenant business last year, and a shortage and chips for certain products, which we are working to remedy and the second half.
Operating earnings at 300 and.
And are up $61 million or 24, 7% on and 9.7% operating margin.
EBIT margin is an impressive 13, 7%, including state and local taxes, which are 50 basis.
Point drag on.
And that result.
Most of our competitors carry state and local taxes below the line.
Total backlog grew $95 million, so good order activity and the quarter with a book to Bill and 1 to 1 and good order prospects on the horizon. The book to Bill and I T was a little better than 1 to 1 and somewhat less emissions.
And our system.
This is particularly good performance in light of the continued delays by the customer and making contract awards and total G. D. I T has nearly 34 billion and some middles awaiting customer decision was most representing new work and.
In addition to these and Middles, our first half order book.
Book does not reflect approximately $4.6 billion of awards made and G. D. I T that are now and protest, including 2 sizable contracts challenged by a competitor.
These delays are pushing work, we anticipate and delivering in the second half of 2021 to 'twenty 'twenty 2.
While new.
New award activity has generally been slower new requests for proposals have remained robust.
<unk> have decent middle from the first half reflect significant customer demand from modernization and securing our it infrastructure and the wake of Covid.
The business has the opportunity to submit another nearly.
And $1 billion and proposals through the end of the year.
This concludes my remarks with respect to a very strong quarter and first half and I'll turn the call over to our CFO, Jason Aiken for further remarks, and then we'll provide you some guidance.
Thank you Phebe and good morning.
I'll start with our cash proceed.
Performance in the quarter from.
From an operating cash flow perspective, we generated over $1.1 billion on the strength of the Gulfstream order book and additional collections on our large international combat vehicle contract.
Including capital expenditures, our free cash flow as Phebe noted was $943 million or a 120.
8% net earnings conversion.
You may recall that for the past several years, our free cash flow has been heavily weighted to the back half of the year.
From a strong quarter day risks that profile somewhat and reinforces our outlook for the year of free cash flow conversion and the 95% to 100% range.
Looking at capital deployment.
I mentioned capital expenditures, which were 172 million and the quarter or 1.9% of sales that's down from last year, but our full year expectation remains in the range of 2.5 percentage of sales.
We also paid $336 million and dividends and spent approximately $600 million on the repurchase of $3.3 million.
And shares.
That brings year to date repurchases to $7.9 million shares at an average price of just under $173 per share.
We have $279.5 million shares outstanding at the end of the quarter.
We repaid $2.5 billion of notes that matured in May and part with proceeds from <unk>.
$1.5 billion and notes we issued in May.
We also issued $2 billion of commercial paper during the quarter to facilitate the repayment of those notes and for liquidity phasing purposes, but we expect to fully retire that CP before the end of the year.
After all this we ended the second quarter with a cash balance of just under $3 billion and our net debt per.
$11.4 billion consistent with the end of last quarter and down more than 900 million from this time last year.
And as a result, net interest expense and the quarter was $109 million down from 132 million and the second quarter of 2020.
That brings the interest expense for the first half of the year to 232 million.
Physician and down slightly from 239 million from the same period and 2020.
We repaid another $500 million of notes on July 15th as we continue to bring down our debt balance of this year and beyond at.
At this point, we expect our and interest expense for the year to be approximately $425 million.
The.
Right and the quarter and the first half at 16, 3% is consistent with our full year expectation. So no change to our outlook of 16% for the year.
Order activity and backlog were once again, a strong story and the second quarter with a 1 to 1 book to Bill for the company as a whole.
As Phebe mentioned order activity.
Attacking Aerospace group led the way with a 2 times book to Bill while combat and technologies. Each recorded a book to Bill of 1 to 1 on solid year over year revenue growth.
We finished the quarter with a total backlog of $89.2 billion.
That's up over 8% over this time last year and total potential contract value.
<unk>, including options and <unk> contracts was $130.3 billion.
Finally, a quick note on the operating results and the technologies group.
Youll recall and the second quarter of last year, we recognized a loss of approximately $40 million on and international contract that resulted from scheduled delays caused by COVID-19 related travel restrictions.
<unk> and <unk>, we formally closed out this matter with the customer this quarter and despite the fact that our activity on the contract has been dormant for over a year the accounting rules required us to reverse approximately $45 million of previously recognized revenue in the quarter.
Without this reversal the technologies group would have seen organic growth of 6.4% and the quarter.
Actions that concludes my remarks, and I'll turn it back over to Phebe to give you guidance for 2020, 1 and wrap up remarks.
Thank you, Jason and let me do my best to get here and updated forecast the figures and with that to give you all compared to our January forecast, which I will not repeat.
And aerospace we expect.
And additional 200 million net revenue with an operating margin of around 12, 4%, which is 10 basis points below previously forecast.
The result, and an additional $10 million of operating earnings.
It could be some upside here, if we can squeeze out a team of our planes and the.
Yeah.
With respect to the defense businesses combat systems should have another $100 million of revenue and.
And add another 10 basis points of operating margin. So total revenue of $7.4 billion and operating margin of around 14, 6%.
Marine systems has an additional 300.
And and 10 basis points of interest margin, so annual revenue and $10.6 billion with an operating margin around $8.4 per cent.
Technology revenue being down $200 million from our previous forecast that add 30 basis points of operating margin. So annual revenue at 13 billion.
Operating margin of around 9.8%.
So on a company wide basis, we see annual revenue of about $39.10 billion and and overall operating margin around 10, 6%.
This rolls up to EPS around $11.50.
45 to 50.
Better than our forecast going into the year.
That concludes my remarks, and it'll be a pleasure to take your questions.
Thanks Phebe.
As a reminder, we ask participants to ask 1 question and 1 follow up so that everyone has a chance to participate.
Operator could you please remind participants.
Just depends how to enter the queue.
Absolutely Sir.
Thanks, and I'll ask a question please for installs and 1.
Results from Q. Please press Star then 2.
Today's first question comes from Peter Arment with Baird. Please go ahead.
Yes, good morning Phebe Jason.
Results.
Maybe just to start with combat and my follow up would be related to that just maybe could you just talk about and I think the really strong performance that you're seeing but also we're seeing a lot of activity and the international market that for some of your key platforms. Just how you think about combat growing and what is that domestically.
Hey, flatter budget environment, but based on how youre doing in terms of a lot of your words.
So domestically.
Both of our large platform programs.
And Stryker and Abrams are continuing to grow particular.
And particularly strength.
As the army assigns and emissions and capabilities to that platform. There also and he will now a number of developmental programs that factor into our longer term thinking.
Externally outside the United States demand is increasing.
Missing primed.
Primarily driven by by.
By Europe, and again that is focused and centered on our combat vehicle.
Both are real vehicles. This fall as our track vehicles and more specifically the Abrams main battle tank.
And <unk>.
And as a follow up.
You talked about I guess some of that international activity have you do you expect that the discussions around.
Comments around and Poland would that would be closing this year potentially.
So Poland and a very dangerous.
Neighborhood, and I think there.
And no stronger and deterrent than than the Abrams main battle tank and Thank press reports have have suggested that they want 250 tanks. We're working very closely with the U S government to ensure we meet whatever ultimately.
Are you.
You know.
Good day, and states and Paul and determined that they want I think and our initial estimate.
<unk> is probably.
Oh, good solid year plant.
But again more to be Marta.
Come and then we will keep you informed.
Program.
Unfolds.
Appreciate it thanks for all the color.
Thanks very much question today comes from Seth Sigman with Jpmorgan. Please go ahead.
Thanks, very much and good morning.
Hi.
I wanted to follow up on something you view that.
And does.
And you had remarked phebe about what.
And what needs to be done.
The engine for the per.
The $2.700 and.
I Wonder if you could tell us specifically.
Specifically.
What milestones, we should be looking for and what risks that the engine.
And hoses to the schedule for the program.
So as I noted, we continue to make progress on both the airplane and engine development, but as I'm sure you know being a student of.
<unk> new engine development programs and they are always difficult.
To get through certification.
And while there is no particular issue at the time and you still have a ways to go.
With respect to that certification process, but at the moment and we don't have any particular issues that are and what.
And impact our overall estimation of timing.
Occasions, Okay, great. Thanks, very much and then just as a follow up there.
And a lot of discussion and the press about the <unk> program and so maybe if you could update us on.
How that's going and it doesn't really seem to be having too much of a negative impact on the segment's financial results, but.
The way that it's.
And to financial performance at combat.
So our U K customer is constructively and actively engaged and this program and we're working very closely with them on too.
Issues or identified during customer test run and noise and 1.
Play variation.
And given our long decade long history of.
Combat vehicles, and design and production and we're quite confident that both of those issues can be satisfactorily.
Resolved.
And interestingly enough this is a.
Hey, transformational vehicle for the.
UK Army and with many transformation transformational programs.
And testing issues emerge during the testing process.
We will then are dealing with both of those issues.
And quite closely with our UK government customer.
Okay, great. Thanks very much.
And our next question today comes from Kristine and along with Morgan Stanley. Please go.
Hi, Phebe.
And Jason Phebe can you might imagine.
Color on the top line.
Our profile.
While at Gulfstream are the demands from corporate and individuals U S versus international.
Sure.
And we see a reasonable balance across the book.
Rod Cross section of buyers.
<unk> had a particularly strong quarter generating over more than half of this.
So others.
Oh, sorry from new customers and a broadening of the market and importantly, our core fortune 500 customers have very engaged.
So and all the the market leader and looking at at the moment is robust.
Thanks, and my follow up is on price.
And since there doesn't seem to be too many used jets and inventory or you're getting more pricing power and for new orders.
Well, let's just say as a matter of course, we never talk about pricing so.
So I'm not about to break my discipline, but let me let me give you a little context.
Quarter.
Gulf stream has always been extremely disciplined about its about its pricing and and that long.
Long history of of disciplined control around pricing.
We will continue and prices precious.
And once.
Here once you land on your discipline around pricing and it's a long way back up the hill.
Yeah.
Great. Thank you phebe.
And the next person and somebody who comes from Robert Stallard with vertical research.
Thanks, so much good morning Marine.
Phebe, just a follow up on that topic and the strength of the demand environment and the order intake and aerospace.
And we do feel comfortable raising business jet production.
Well, we're increasing our business jet and.
Gulfstream production rate throughout the remainder.
And this year is that.
71, and deliveries to go and we will as you all know set production for next year and the fall of this year and then report fully to you on those production levels and our next year.
Okay, and just a follow up on the pricing issue are you seeing.
And if your competitors and doing anything what you might call maybe irrational on the new pricing from.
Well that's here, we're not mine.
Okay.
Hopefully not too first of all we don't compete on price most importantly, and.
And I never comment.
And on other People's behavior.
I find that.
And I wise and judicious.
GAAP to adhere to them.
Fair enough. Thanks, so much.
And our next question today comes from Sheila and I'll glue with Jefferies. Please go ahead hi.
Hi, good morning, and thank you for the time Phebe Jason.
And Howard.
And mission, if we could just talk about what's going on there for a second.
I appreciate the divestiture and the semiconductor chip issue, but it seems like it was flat year over year organically and then the book to Bill and slightly below 1 and maybe we can talk about what the drivers and that business are and what youre seeing.
Well.
Well I think you need to look at them as we as you well noted.
And our divestiture of our Satcom business.
And I believe absent that and given that that chip.
Issue that we and others have had and that we are working to Acidulous fleet.
And to address.
And we've seen some growth and we anticipate some additional growth going forward.
But it'll be best measured and.
I think to add on to that to see these point, assuming that business can overcome some of the supply chain issues that they've seen which at this point there are getting good signals that there'll be able to.
And have we ought to see some modest organic growth out of that business for the full year.
Okay, and then maybe just 1 on combat that was also a really good quarter there and the first half is up I think 7% it implies a deceleration into the second half to what what's may be falling off there.
Well I think cash.
And so I would say.
Only slightly and percentage terms I think we had originally guided to and increase in revenue of about $100 million and now we're looking at $200 million.
Fair amount of that came in and the first half, but we'll see a little bit of that and the second half and as I said the.
And in Aerie drivers of what moving.
Was the impetus behind growth and the first half.
M will repeat in the second half and that's largely again vehicle vehicle production and deliveries from both the United States and and outside the United States. Okay.
Okay. Thank you so much.
And on our toes and through comes from.
And George Shapiro with Shapiro research.
And you Phebe.
And comment on what on what services did and the quarter I imagine it was up and what you expect for the rest of day.
Year.
Amy and aerospace services and.
Yeah well.
Our services include both jet aviation services as well as Gulfstream.
So we saw nice order.
And nice recovery and the United.
Stakes, but.
Europe mid East and Asia are recovering a little more slowly. So I think we had anticipated about a half a billion dollar increase in revenue I think that the.
And a bridge too far.
In the moment and I think we're looking.
And are along the lines of Corp.
Call. It 375 ish million for the year at this point, so not not tremendously off our original estimate but.
But as I said.
It's the international recovery, that's been just to touch and slower than we anticipated.
And the U S has been very very strong Jason and Georgia are to that point I think it's driven and saw a nice rebound. This year I think to the tune of around 25% growth over last year and importantly, how do you think there's some people who are watching the levels. We've seen through the first half of this year are within call. It 95 ish percent of where we were at this time.
And in 2019, so I think that's a good initial indication of the strength of the recovery and that business here in 2020.1.
Okay I'll stick with my 1 thank you.
Thanks Jud.
And our next question today comes from Doug Harned with Bernstein. Please go ahead.
Good morning, Thank you.
Your line.
I wanted to go back to Gulfstream, because when you talk about the demand and the order is obviously very good.
You talked a little bit about where they're coming from.
Can you give us a sense of the psychology of your customers and by that I mean are you seeing these orders.
And really as kind of pent up demand.
It's been slowed recently or are you seeing people actually and.
And and.
Shift and thinking about fees and business aviation I think it would be way way too premature.
And to get real clarity about that if you can.
And are getting a question that we received a number of times and that goes to kind of is there a structural change.
As a result of this pandemic and in business aviation and and if you think critically.
About <unk> is that.
Yeah.
Structural change is.
There's almost never a parent.
It's always as a parent retrospectively and so I believed that it is premature to assume.
Any.
That.
About structural change.
And our customers are.
From the same kinds of customers that we've had.
Storage <unk> back in I think there was some slowing obviously there was some from slowing of demand last.
Last year, and and and number of our customers, particularly in the Fortune 500 are on their on their aircrafts.
<unk> cycle.
And that that.
That remains unchanged, we did see some new entrants into the line environment, creating opt.
<unk> for that.
For those companies.
But.
Good day.
And question.
And just a little bit related to that and he described the book the unit book to Bill is is higher than the revenue book to Bill.
Baird.
Smaller.
For aircraft and what drove it.
What do you see driving that difference and unit versus revenue book to Bill right now.
While we have not seen a movement, particularly into the smaller jets I think.
To Andy was maybe about.
Less than 20 per cent of the order book and.
And.
And.
Yeah.
500.600.
And 650 and of course, and 700 and so really it.
A strong.
Demand pull across all of our our airplanes.
And think there's anything in particular discerned from that and these are our regular customers back and back line and 2 and me.
Have oh.
And that they need and that.
And the airplanes that they buy then we each 1 of those missions.
So I think the way we think about it.
Okay very good thank you.
Please go ahead.
Yeah.
Thanks, Good morning, good morning.
Phebe on on Gulfstream production, just to kind of level set US you you talked about it.
Coming down and.
And she is.
Covid.
Are you, taking Gulfstream I guess, just looking at it holistically on the large cabin side.
Adjusting for the <unk> hundred 50 are you taking large cabin production back to where we were prior to all of them.
This or above that.
Follow up we are.
Increasing on a reasonable basis, our production of all of our existing.
And now airplanes and.
Not back at the 2019 production levels.
But to go basis, we're looking at second.
And second half orders of 71, and so that in and of itself suggests that we've got you know solid production and I will tell.
And that's it.
That production our plan contemplates increased production and each and every 1 of our in service large cabin and sleep.
Gulfstream order activity.
And even in advance as Youre seeing there could.
And closer to.
And 100 per cent or no.
And maybe even a little bit above that free cash flow conversion this year.
Yeah, you know I think David as I alluded to and the remarks.
I think the way to think about the strength of the first half and the strength of the activity at Gulfstream as it is.
It somewhat de risks.
Kind of a profile for the second half and getting to that 95% to 100% range, you'll recall over the past several years, we've had a pretty steep slope and the second half on our free cash flow generation with Frank.
And if not even and most in the fourth quarters.
So that's.
And that's not anything I would put together by design and I'm really encouraged by the shift and that slope that we've seen this year. So it does give us I think even reinforce confidence to getting to that 95 to 1.
The 100% range.
I think if you think about that range as a percentage of net.
<unk>.
And combine that with television guidance on increasing net income.
You can imply increasing free cash flow to support that number.
And frankly, if I'm going to lean a little forward I think it could possibly put us towards the top end of that range of the 95% to 100% range I don't know that I would want to get.
Income of a 100% this year I think we still look to next year and beyond to be nicely above 100%, but it but bottom line I think this reinforces improvement and overall free cash flow and maybe pushes us up towards the higher end of that 95% to 100% range.
Great. Thanks very much.
And our next question today comes from Myles.
And those won't UBS. Please go ahead.
Thanks, Good morning.
Phebe, you talked about the 12, 4% margins and aerospace and obviously and the first house.
And at slightly under that but.
The first quarter included a charge and the second quarter Im sure and production and efficiencies because of that.
And out above it and manufacturing being lowest point, so I'm just curious.
But it looks like Theres more upside and the second half barring some pick up and <unk> and R&D are or other expenses.
Is that <unk> and <unk>.
And that's conservatism that issue so.
And when we think about the second.
Margins, they will be better than our first half margins are first half margins for our low point.
But we will see some negative impact from 2 factors..1 is the absence of the 15 deliveries as that airplane is now out of service and higher R&D is weighted first availability.
And have response, particularly on the 500.600 at this point.
Shall we got out of the practice of doing that because they became a lot less meaningless with new airplane deliveries.
We're not gonna with new airplanes, so theyre not good and I think being standard.
And Sir.
And then go back to there, but I think it's.
If you think about the environment that we're looking at now and we think we've been very clear and consistent and about the starting really it was in mid February we saw an increase in demand and it was consistent and steady throughout that first quarter that led to the order.
Third quarter and you saw this quarter and second quarter and then as we look at the both the pipeline and the market at the moment it is robust so.
From new entrants and and.
And North America was quite strong so on and all.
I think so.
We're looking at a pretty good market.
Okay perfect.
And today comes from Matt Akers with Wells Fargo. Please go ahead.
Yeah.
A couple on the ITT.
And I think and particularly.
Thank you.
And the strength.
This quarter by either by customer or a product and then I guess I think you said you were seeing some delayed awards is that.
Sure Steve.
Statement about the market.
And I think you can elaborate on there yes.
Okay.
So.
Our growth and the quarter was shield across many.
Many of our 7000 contracts, but notably per.
Personally a bit more from new new contract awards.
Track towards.
So our new work and quicker.
It's significant.
We have seen a delay and the and contract awards and through to 2 fundamental factors..1 there has been an increase and elongation and me.
The customer decision cycle and 2 we've seen and increase propensity of many in this and the industry.
Industry to protest repeatedly.
Early and often seems to be the day.
Yeah.
The mantra so.
Both of those have increased.
Or XP.
Expectations for when that.
When we can see that growth coming but you know I think I've mentioned that we've got about $34 billion and.
Already with it and customer hands awaiting some sort of decision.
And we've got about $20 billion and in the pipeline and so all of that drives growth.
It's just given this elongated cycle and given this increased propensity to 2 protests and it's going to make the recognition of that revenue a little bit lumpier.
Got it okay. Thank you Keith.
And our next question today comes from Robert Spingarn from Credit Suisse. Please go ahead.
Hi, good morning morning.
Phebe, just maybe 1 on shipbuilding little bit strategic but 1 of your peers and shipbuilding stated that the future of the Navy is going to be platform.
<unk> plus.
Shipbuilding platforms will be tailored around capabilities and technologies that are key Differentiators would you agree with this or this.
And that's either organically.
Positioned yourself from those.
And.
And I can give you any real.
That's helpful color around that I won't tell you how we see.
Our ships.
Let's talk about the surface combatants first and <unk> and the D. D. G's that is an extraordinarily versatile ship.
That has over the years had multiple instantiation of of improvements and.
And remains a very very agile ship in terms of its ability to upgrade and so we're already on a block of flight 3 upgrades.
And which give it additional.
And that surety.
I suspect that that ship and and others like it can be that type of platform that evolves over time.
And Jack different kinds of admissions I think that that's pretty much regular order I don't know that that's systemic change and the way. The Navy has ever looked at it it's combat and fleet.
Kate.
With respect to our auxiliary ships I think that's those tend to be and those plant and nasco and I'm thinking the Oilers ESP those tend to be purpose built ships for a particular mission.
And then submarines.
[laughter] submarines remain a pivotal competitive advantage.
For the United States.
And what we have historically focused on and we will continue to focus on integrating any and any new technologies or capabilities that submarine.
And is very important when you're in a complex business like shipbuilding and particularly submarine design and construction.
Traction that you focus on.
Business.
Designing and building those ships and ensuring that you can successfully integrate any new capabilities that your customer wants and we have a long history of that and I suspect us.
Many of that for some time to come.
Rocco and thanks.
Well go after them.
And just take 1 more call. Please.
Yes, Sir and our final question will come from Carnival and rumor with Cowen. Please go ahead.
Yes, thanks, so much so gd.
When do you expect those 2 protests to be kind of communicated and secondly.
And now you have an above average exposure to fed civil.
Which where the funding is strong Q3 normally is the strongest bookings quarter for the for the fact that book to Bill quarter. So give us some color on what we should expect this quarter to do the expansion.
And he's got a glass and John.
Judge [laughter].
Very little and besides like none and.
To.
And the timing and protest resolution that really is up to the reviewing authority.
With respect us federal civilian and I think we have yeah, we've been with many of those customers.
And this for 30 years, and we have a lot of customer intimacy across several of many key federal civilian agencies and I would imagine that as they receive more funding and.
And and the ubiquitous Smith of infrastructure to all of.
Their mission I would see that as some additional upside and potential for us.
When that comes again will depend on a whole series of issues around timing, but you can rest assured that in that pipeline.
On a going forward basis that we're looking at Oh, we've.
We've got some good civil work and there.
Great and some follow up on the Ajax you mentioned, you're confident you can resolve all the issues, but I believe so I believe I said 2 issues.
All right.
And then.
And when you declare tuition from okay.
Tumor issues, good point, and but and I believe it's a fixed price contract and theres been colder, but basically you price for oil.
And she will expenses do you see that jeopardizing profitability on that contract.
We have been able to make any changes heretofore and.
Cost effective and and time efficient manner to meet the needs of our customer for the testing program, but I do not see at the moment any impact and Ah.
And on our on our he sees or.
Frankly, and our ability to produce this vehicle efficiently the kinds of changes are likely to see and that we could we anticipate.
Typically our cut into the production line. So I don't see a whole lot of perturbations from a cost and schedule impact from the changes that we can.
And vision.
Resulting from this from the resolution that we come to our customer with on these particular issues.
Terrific. Thanks, so much.
Thank you for joining our call today as a reminder.
Please refer to the general remember grub side for a second.
Quarter earnings release and of course the higher.
Slide presentation, which includes our revised guidance. If you have any additional questions and can be reached 700, 387, and 6311 and 7 thank you Rocco. Thank you everybody.
Yeah sure. Thank you as well we thank you all for attending.
And I mean and players presentation.
And now disconnect your lines and have a wonderful day.