Q3 2021 General Dynamics Corp Earnings Call
Available on the Investor Relations page of our website <unk>.
Investor Relations Dot Gd dot com with that completed its my pleasure to turn the call over to our chairman and Chief Executive Officer Phebe Novakovic.
Hi, good morning, everyone and thanks for being with Us.
Earlier. This morning, we reported earnings of $3.07 per diluted share on revenue of $9 6 billion operating earnings of 1.18 billion and net earnings of $860 million.
We beat consensus by <unk> <unk> per share on somewhat lower revenue than anticipated by the sell side. However, operating margin is up about 40 basis points more than anticipated. This led to the earnings beat.
Revenue was up one 5% against the third quarter last year operating earnings are up less than 1% net earnings are up three 1% and earnings per share are up five 9%.
This is all reasonably good but the real story for US is the sequential results.
Here, we beat last quarter revenue by three 8% operating earnings by 12, 6% net earnings by 16, 7% and EPS by 17, 6%.
On a year to date basis revenue is up $733 million or two 7% operating earnings are up 137 million or four 8% net earnings are up $140 million and earnings per share up 64 cents is strong eight 5%.
We had a powerful quarter from a cash perspective cash flow from operating activities was 1.47 billion that is 171% of net earnings free cash flow was $1.275 billion, 148% of net income.
This follows a very strong cash quarter performance in the second quarter in summary, we enjoyed a good quarter in almost all important respects.
So let me move right into some color around the performance of the business segments have Jason give you additional color around cash backlog taxes and deployment of cash and then answer your questions first aerospace.
At the outset, let me remind you that in April of last year, we announced that we were cutting production as a result of certain supply chain issues.
Shortly thereafter, it became clear that there was a reduction in demand related to COVID-19 that resulted in additional cuts to production.
Those production cuts for pre planned and implemented slowly over the ensuing months and reached a low point in the second quarter of this year.
We had anticipated renewed post COVID-19 demand in the second half of this year and planned increased production for the second half with 32 planned deliveries in the third quarter and 39 in the fourth quarter.
In fact demand accelerated in mid February a full four months earlier than we had anticipated.
This created opportunities, but also operations and supply chain challenges for us, particularly for 2022.
On balance it is a rich problem to have.
With that let me turn to the aerospace results in the quarter.
Aerospace had revenue of 2.07 billion and operating earnings of $262 million with a 12, 7% operating margin.
We manage delivery of 31 aircraft as opposed to 32 planned one slipped into the fourth quarter on customer preference.
Revenue was 91 million more than a year ago quarter up four 6% on one fewer aircraft delivered on the other hand operating earnings are down $21 million on 160 basis point degradation in margins.
This was the result of an additional 28 million and G&A expenses, driven by higher R&D expense and around a $20 million settlement of a supplier claim related to the allocation of warranties. After the end of G 550 production.
This was offset but only in part by improved gross margins on delivered aircraft and better margins in the Gulfstream service centers.
The real story here is the quarter over quarter sequential improvement sales earnings and margins are ramping up as planned I will not dwell on these numbers they're available in the charts attached to the press release.
From an order perspective, the quarter bordered on a spectacular and dollar terms aerospace had a book to bill of one six to one Gulfstream alone had a book to Bill of one seven to one the.
The second quarter was the strongest order quarter in the number of units that we had seen in quite some time this quarter was slightly better.
As previously discussed sales activity truly accelerated in the middle of February and continued on through the remainder of the first quarter.
The pipeline that developed in that quarter rolled over into the second quarter.
An increased demand continued through the third quarter.
We continue to experience a high level of interest activity and a solid pipeline.
As a result of the order activity Gulfstream backlog. This quarter is the highest in the last six years.
From a new product perspective, the G 500, G 600 continued to perform well margins are improving on a consistent basis and quality is excellent. We have delivered 131 of these aircraft to customers through the end of the quarter with 20 scheduled for delivery in the fourth quarter.
These are the metrics that a successful program building further momentum.
The G 700 has approximately 1800 test hours on the five test aircraft the new Rolls Royce engine is performing well, but much remains to be accomplished we remain on track for entry into service in the fourth quarter of 2022 with the G 800 to follow in six to nine months.
As I mentioned earlier, we had planned 32 deliveries in the third quarter and came up one short the slip was attributable to customer preference.
Plan for 39 in the fourth and last one that slipped into the quarter.
If everything goes as planned we will deliver 40 aircraft in the fourth quarter.
The story in combat systems quarter over quarter sequential and year to date is all about operating excellence and continued strong margin performance combat systems had revenue of 1.745 billion down three 1% from the year ago quarter. However earnings are up two 2% over the year.
The quarter on the strength of an 80 basis point improvement in operating margin yet. Another example of strong operating leverage from combat systems.
Further that came on a year to date basis combat system revenue was up $201 million or three 8% while operating earnings are up a significant seven 4% on a 50 basis point improvement in operating margin.
Demand for our combat vehicles remained stable in the U S. With the brigade of Abrams main battle tanks per year, and a half a brigade of strikers per year.
Domestic upside as possible from the M. P F program, where our vehicles are performing well.
In the near term, we are stable internationally, but opportunity rich in the intermediate period with order potential in Poland, The Czech Republic, Romania, Denmark and Switzerland.
You may have read in the press about some noise and vibration issues in Ajax that have emerged during the program's test phase.
We're working very closely with both the British Army in the Ministry of Defense and are confident that both technical issues can be resolved.
In summary, this quarter was an impressive operating performance once again by the combat systems group.
Turning to Marine systems revenue of 2.64 billion is up $232 million, a bold nine 6% over the year ago quarter.
The current quarter revenue growth was distributed fairly evenly across the three shipyards.
It is also up sequentially and year to date year to date revenue is up seven 5%.
This is very impressive continued growth in fact revenue in this group has been up for the last 16 quarters on a quarter over a year ago quarter basis.
Operating earnings are $229 million in the quarter up $6 million or two 7% on an operating margin of eight 7%.
On a sequential basis operating earnings are up $19 million on a 40 basis point improvement in margins.
Electric boats performance remained strong and while still early in the Columbia first ship construction contracts the program remains on cost and schedule.
We had a particularly strong quarter in our ship repair business continuing to support our navy customer.
Throughout the group, we have a solid backlog of new construction and repair work in our programs are well supported in the FY 'twenty two budget in summary revenue growth is clearly visible the real opportunity given this steady revenue visibility is margin improvement overtime.
Moving to technologies. This segment had revenue of $3.120 billion in the quarter down $130 million from the year ago quarter or 4%.
The revenue decrease was attributable to mission systems from timing on several programs in part driven by chip shortages on.
On the other hand information technology grew revenue against the year ago quarter at a rate of one 4%.
Operating earnings of 327 million are up 13 million or four 1% on a 10, 5% operating margin EBITDA.
<unk> margin is a truly impressive 14.4%, including state and local taxes, which are a 50 basis point drag on that resolved most of our competitors carry state and local taxes below the line.
This quarter revenues decrease will impact the year and we now expect revenue to be around $12 6 billion or 400 million less than our second quarter update earnings will however remain the same on better margin.
Total backlog remains relatively consistent overall comparator period.
So good order activity in the quarter with a book to Bill of one to one and good order prospects on the horizon, but book to Bill at G. D. I T was a little better than one to one and somewhat less efficient systems.
The pipeline remains active at both businesses.
From an opportunity perspective, cyber security is a top priority throughout the government and the budget calls for tens of billions of dollars an unqualified spending in both the defense and civil spaces.
This is a significant opportunity for which we are well positioned to support our customers' needs, particularly as more and more customers move toward a zero Trust model.
So that concludes my remarks with respect to a very good quarter and first nine months.
As we look toward the end of the year, we expect performance to be in line with the updated guidance that we gave you on the last call except as I referenced in my remarks about mission systems. However, EPS guidance remains unchanged and will now turn the call over to our CFO, Jason Aiken for further remarks.
Thank you Phebe and good morning.
I'll start with our cash performance in the quarter operating cash flow was $1.5 billion in the quarter. Once again on the strength of Gulfstream orders and from continued strong cash performance from our technology segment.
Including capital expenditures, our free cash flow was $1 $3 billion or a 148% net earnings conversion.
Through the first nine months, our conversion rate is 91% approaching our full year outlook for free cash flow conversion in the 95 to 100 per cent range.
For those of you who followed us for some time this performance through the first nine months of the year is better than we've seen in the past several years and gives US good line of sight to achieving the upper end of our targeted cash range for the year.
Looking at capital deployment capital expenditures were $196 million in the quarter or 2% of sales but.
That puts us a little under 2% of sales for the first nine months, so trending somewhat below our forecast for the year.
We're still projecting full year capex in the range of two 5% of sales so that obviously implies an uptick in spending in the fourth quarter.
We also paid $332 million in dividends and spent $117 million on the repurchase of 600000 shares in the quarter that brings year to date repurchases to eight 5 million shares at an average price of just under $174 per share.
We repaid $500 million of notes that matured in July and although there were no new issuances. We ended the quarter with $2 billion of commercial paper outstanding we expect to fully retire that balance before the end of the year.
So we ended the third quarter with a cash balance of just over $3 $1 billion and a net debt position of $10 5 billion down more than $800 million from last quarter and down $1 4 billion from this time last year.
With the scheduled C. P repayment in the fourth quarter, we expect to end the year with a net debt balance below $10 billion for the first time since 2018.
As a result net interest expense in the quarter was $99 million down from 118 million in the third quarter of 2020.
That brings the net interest expense for the first nine months of the year to $331 million down from $357 million for the same period in 2020.
The tax rate in the quarter was 15, 3%, bringing our rate to 15, 9% for the first nine months consistent with our full year outlook, which remains around 16%.
Order activity and backlog were once again, a strong story in the third quarter with a 0.9 times book to Bill for the company as a whole, bringing us to a one to one ratio for the first nine months and a one two times ratio for the trailing 12 months.
As Phebe mentioned the order activity in the Aerospace group led the way with a 1.6 times book to Bill in the quarter, while technologies recorded a book to Bill of one to one.
Foreign exchange rate fluctuation resulted in a $300 million reduction in backlog in the quarter with the majority of that impact in combat systems. We.
Finished the quarter with a total backlog of $88 $1 billion, that's up 8% over this time last year and total potential contract value, including options and <unk> contracts was $129 6 billion.
That concludes my remarks, and I'll turn it back over to Howard to start the Q&A.
Thank you Jason.
As a reminder, we ask participants to ask one question and one follow up so that everyone has a chance to participate.
Operator could you please remind participants how to enter the queue.
Thank you if you would like to ask a question that'll be staff when they buy one on your telephone keypad and if you do change your minds that'd be staff when they buy T.
Our first question today comes from.
Myles Walton of UBS mouse. Please go ahead.
Great. Thanks, maybe I wonder could you talk a bit about the transition a potential margin impact of the new generation of 408 hundred coming online. It seems like the 800 is a pretty oven you just move for the 657.
700 engines in.
They're usually would expect some level of reset of margins, but I'm curious if that reset will be materially lighter than we'd normally expect with new new entry into service.
So.
We get a fair number of questions on this so I think it's it's worthwhile.
Walking through each element here and first of all let's take a look at margins.
I'll make some comments that I'd like Jason to.
Maybe elucidate a couple of points and then we'll get into a little bit of earnings.
Hum.
So so when you think about our margins in the new product development at present, we have about three models in production seemed to be joined by the 708 hundreds of places to 650 and the 400 comes later in <unk>.
Partly we have all the modern plant property and equipment to do everything we need to do we need to add more.
Our capex to undergo the increase in lean production remember, we're doing all of her wings.
But here's the important part and it goes to the design for produce ability that we built into these airplanes and the implied productivity that's embedded in the in in that design for them to produce ability and remember too we are seeing margin improvement in every single one of our airplane.
And in services.
Now tells you and and again I think it shines a spotlight on the operating leverage of Gulfstream, but to.
Amplify all of that and really give it additional uplift remember all of these aircraft are related they all have the symmetry flight deck. The G 708 hundred of the same engine and wings and the same basic fuselage. The G 400, and 506 hundred at the same engines or Sim.
Miller engines from the same family from one supplier on the same basic fuselage. So so.
This commonality of line allowed us to design for produce ability, which is going to be an uplift to our margins.
Now if we if we unpack that a little bit we get an awful lot of questions about R&D and I'd like to Jason to talk a little bit more and perhaps not for all but for some a bit of a tutorial on R&D accounting.
Yeah. So the CBS point, we get a lot of questions around well this new product investment have any impact on the overall R&D spend and what does that do to margins over time.
And as a reminder, we have a long term steady commitment and demonstrated performance of investing in Gulfstream product development and.
New technologies over time, so I think if you look over a multiyear period, we've averaged company sponsored R&D in the call. It roughly 1% of sales range and we don't expect that to change largely the 800.
I wouldn't say is behind us, but it's been part and parcel to that spend over time R&D spend as a period expense over time.
Steve You mentioned the G 400, while our clean sheet airplanes as part of the 506 hundred development and so the commonality among those.
It helps keep that spend down and so both of those airplanes are right within that profile of R&D spend I think too.
The extent you see any lumpiness in R&D as we did this quarter and we'll expect to see a little bit next quarter that has more to do with supplier offsets that we receive you're probably familiar with those where suppliers contribute to the program development efforts and those come in lumps and chunks, so that tends to create the quarterly perturbations in an R&D spend but.
Overall.
Period expense for these programs, including the two that were announced this month.
Right inside that line of company sponsored R&D. So we don't expect that worthy frankly, the introduction once they come to have an overall impact in the margin improvement trajectory that we see for Gulfstream overtime. So what does all that mean, if you step back so margins. This year are at their low point in aerospace neck.
Sure margins will improve and 23 margins will improve earnings or better in 'twenty, one than they were last year, they're going to be better in 'twenty, two and 'twenty three and by the way when we give you guidance on the next call. We're going to give you some color and some insight into both of those years to help it.
Blaine and amplify again, what we're looking at at Gulfstream.
So I hope that helps answer your question Myles.
No that's great. Thanks, maybe I'll stick to one.
Thank you miles will now move onto our next question, which will be coming from David Strauss.
David Please go ahead.
Thanks, Good morning.
[noise] Phebe wanted to ask you you you highlighted that the.
The Gulfstream backlog is the highest it's been in about six years I think if I just take kind of the.
Aircraft revenue, you've got a you know something like two and a half years in backlog based on today. So how are you in the same time you also comment on supply chain challenges. So how do you balance all that as you think about where production rates go at Gulfstream.
So the increased.
Demand supports increased production will get into all that specificity on the next call, but as I noted after a week.
Reduced production last year in response to Covid.
Ply chain challenges.
That were in large part driven by Covid and Covid demand.
The supply chain needs to gear back up so that's a little bit of a headwind, but that's why I wanted to give you the color around the margin and earnings performance.
Okay, but all that being said, we should see higher production and in 'twenty, two and 'twenty three.
We're anticipating that to drive a higher revenue.
Alright, so as I said, Jeremy you know what I said in my remarks. This is the lids problem to have I wanted to be as transparent with you as possible to tell you Hey look we've got this nice strong backlog, we've got very good demand continuing demand.
But as we ramp up and we will be ramping up there are some some challenges.
We can manage those challenges and manage through them, but I thought it was important that you guys understand that.
Very helpful. Thank you.
Thank you David we're now going to me the Eva T Rowe, but it started a vast group of such.
Yeah.
Hey, Hey, well, but you're not in line is now open.
Thanks, so much good morning.
Money.
Phebe I wondered if you could elaborate on these challenges you'll see face some chip issues our emission systems. It seems you're also conscious of.
Some potential headwinds in the aerospace division as it ramps up and one of your peers also had talked about broader supply chain challenges in its defense businesses. I was wondering if you could comment on this topic generally and what you could be seeing in the future. Thank you.
Yeah.
So I've tried to give you some measure to look at the aerospace issues, but on supply chain.
Chip shortage impact impacted mission systems I would note how and we do expect that to go into next year somewhat I would note. However, even since the close of the quarter. They have begun to significantly mitigate some of those chip impacts.
But across the portfolio of our of our defense businesses, we are not seeing significant or even material supply chain challenges.
So we've been able to manage through that pretty well so for us and I can only speak for us that hasn't been a significant issue.
Other than it has impact at.
Technologies, and and driven by mission systems.
Yeah.
In aerospace the challenge there is that just a lead time issue was surprise or was it specific pumps, so youll finding particularly tight.
It's primarily a lead time.
Wow.
Hum.
The fact that we spool down lash last year.
It was a little bit of headwind to the E. Two the increase in production that we see on a going forward basis.
But I don't see any particular problems at the moment impacting that this is really just a timing issue and getting folks back up to speed.
Yeah that makes sense. Thank you very much.
Thank you Okay. We're now going to move over to Cai von <unk> of Cowen Cai I mean, the key.
Yes. Thank you so much so phebe could.
Could you give us.
Some color on demand at Gulfstream, specifically high net worth versus corporate versus fractional and most importantly are you seeing any opportunity for improved pricing in this sector.
Let me answer doesn't the inverse order we have seen some upward pressure on pricing and then let me unpack your your demand. So so look our.
View of our increased demand is a combination of factors one the very attractive product mix.
Long economy, the return of the Fortune 1000 increase high net worth individuals.
And in fact, Covid did create and in pockets.
Some off creation.
And the pent up demand that built up during the pandemic you know the demand is is and I think importantly is spread evenly or pretty much across our product line and theres nothing unusual to report on customer mix or geographic distribution other than the North America was.
Quite quite strong.
Yeah.
Excellent that's all I have thanks, so much.
Thank you Cai, we're now going to move to Ron Epstein of Bank of America run the line is yours.
Yeah, Good morning, Jamie.
Just a maybe changing gears a little bit.
Everybody's going to focus on Biz jets long enough, maybe not do that.
A while back Oh my gosh.
[laughter] I imagine that right.
There was some discussion.
There were some discussion in the press around the Polish defense Ministry purchasing some abrams tanks and M. One Abrams.
Maybe 250 of them, if I remember right, where they stand and if you can give some color on that and maybe some of the other international business going on in the land systems business.
Yeah.
Yeah. So.
We're working very closely with our customer as well as the department of defense to support.
A potential order of 250 tanks out of Poland.
If we end and frankly this is a powerful system for the poles to have given their geographic location, and and and and and their historical experience, particularly with our folks in Australia and west.
So what if we think through getting the Fms process and this is an Fms sale, we're looking at somewhere between maybe in the two year period.
But just to give you a little bit of additional color.
We see increased demand signals coming out of Czech Republic, Romania, Denmark, Switzerland.
Spain and of course, the middle East.
The world hasn't gotten any safer.
Great. Thank you.
Yeah.
I think he will now meet every time. The next question from Richard Safran of he puts the sex partners.
Yeah.
Phebe, Jason Howard Good morning.
Morning, Phebe, Jason Hello, Good morning, how are you.
Hum.
Well, that's good to hear with such great cash flow performance I wanted to get an update on how you're thinking about capital deployment.
Invest in the business dividends repurchases commercial paper.
Jason I heard your remarks about retired commercial paper, but as we look ahead are you thinking about maintaining your current strategy or are you considering any changes.
I think in the past you've stated you know you invest in the business, depending on need and that dividend should be repeatable, but just curious if there's any update here on how youre thinking about it.
So let me give you the strategic framework and then Jason can fill in any specifics, but essentially our capital deployment strategy.
Unchanged, we invest opportunistically in and.
All acquisitions or investments to grow the business and where we can get a good capital return turn on our capital our dividends.
Dividends.
And opportunistic share repurchase.
Ben our strategy from day, one and the advent of this management team Jason Yeah, I think the only thing I'd add to your point on the on the chip.
Commercial paper repayment.
Future priorities around that is that commercial paper will mature here in the fourth quarter, we've got more than sufficient cash on hand, So we'll just repay that in normal course as it comes due.
The next debt maturity is in late next year I think it's around $1 billion that will come due so no real imminent issues. There. So we can focus on the priorities Phebe mentioned and then as those.
Elements of the debt ladder due mature well, we'll pay those down in due course up to a point until we get to a comfortable place that we think long term continues to support our target mid a credit rating for the company.
Well, thanks very much.
Thank you Richard who now be taking our next question from Seth seismic of J P. Morgan.
Your line is now open.
Great. Thanks, very much and good morning, everyone.
Fas.
Hi.
When you think about the certification timeline for the 708 hundred I guess or is there anything you can point out to you as a.
A long pole in the tent and thinking specifically about the engine certification with which you mentioned today and then also the changes.
D a.
Do you think that line last week testifying before Congress.
Yeah. So our estimate at the moment still remains late next year for the 700 with the 800 to follow a six to nine months later for those of you who have followed engine certification a flight for years and decade.
Some of you you'll know that they're up they are always challenging. This engine is performing extremely well in terms of its capability in and either meeting or outperforming. Its design specification was that a lot of test. It goes on a going forward basis to get through.
So we don't see any particular issues at the moment, but we are mindful that these are always complex and challenge at Chow.
Challenging processes to work through.
And we've adapted to changes in the in our and our regulators and.
In the Fas.
Game book before end and are at the moment, we don't see any reason to adjust our estimates, but if we do well let you know.
Great. Thanks, and then maybe just as a follow up for Jason.
If you could update us on where you expect to be on working capital at the end of this year and then kind of.
Maybe without specific guidance just what the the opportunity buckets are in working capital for for 'twenty two.
Sure I think as you can see from the exhibits. This morning, working capital was a benefit call. It in a couple of 233 or $400 million in the quarter.
It is largely from the performance at Gulfstream the significant order activity.
We've seen throughout the year in the quarter.
As well as the continued sell.
The last of the test articles from the 506 hundred programs. So that really is the big benefit in the quarter.
Working capital is still a bit of a headwind year to date.
Just as the business grows and we worked through some.
Some of that but but I think as you look ahead, we would expect to see working capital to continue to be a benefit in the fourth quarter and beyond as we get back to that 100% conversion level. This year, we're approaching that level. This year and certainly expect to get above 100% conversion next year. So part of that is the continued demand cadence at Gulfstream.
Once we get through the 700 program, we would look to sell off those are those test articles as well.
And then of course, you've got the ongoing benefits of combat systems, you've seen us achieve a regular order on the large international program there.
In combat systems, and that will continue to be a tailwind really even more of a tailwind I think into 'twenty two as well as into 'twenty. Three so those are some of the major movers.
The other side of it of course is where we should be peaking this year in terms of the capital expenditure investment profile in marine systems. So that'll start to come down next year and returned more to the normal historical level.
We see by 2023, so those are really the big movers, there and should give you a sense of where we ought to see working capital moving over the next two or three years.
Great. Thanks, Thanks very much.
Thank you Sir our next question will be from.
Christine Legwork from Morgan Stanley Christine King.
Hey, good morning, Phebe, and Howard and joining.
How do you anticipate the vaccine executive order will.
Effect of Labor and production and also do you have a sense of the percentage of G. D employees that are currently vaccinated.
Yeah.
Yeah, so before I get into that the mandate I'd like to take the opportunity to read again reiterate again or acknowledgement of our work horse you know I think it's important to remember that we were declared a critical national infrastructure business early in the onset of the pandemic and.
As a result of that our workers stayed on the factory floor in the shipyards and in places where they were needed.
Frankly throughout the pandemic.
They stood their watch and and from my perspective, with courage and fortitude to produce the goods and services that are necessary for our national security I personally am fully cognizant of the sacrifices they made and I'm proud of the courage they showed.
Now, let me turn to the mandate is as you well know as a federal contractor. We are covered by the executive order on the mandates.
Corporate office mandate has been fully executed two of our largest businesses are in the process of executing the mandate and many others are set to implement accordingly.
And because of our customer operational and geographic diversity of many of our businesses. We are working with our customers. This contract modifications or receive that could trigger an implementation. So.
We keep a pretty run running tally where at we believe in some form of either full or partial vaccination in the 75% range yourself and <unk> and then yeah. So.
We understand the mandate.
Thanks, and then maybe if I could add one on supply chain in aerospace you know.
We're seeing that some of the suppliers also have to comply.
Comply with a mandate.
How are you mitigating potential supply chain issues in aerospace if youre not able to get parts and how do you think about that with regards to your production rate plans for Gulfstream.
Well frankly to the extent that there is an impact in the supply chain of of this mandate it it'll affect a lot of it and lines of business throughout the defense Aerospace World. So I don't see a particular challenge at Gulfstream or in the moment.
At any of our other.
Large lines of business, but we will certainly be mindful and b and N deal with any workflow perturbation you know should they emerge.
Yeah look we have a history of dealing with challenges methodically systematically.
And thoroughly so you'd expect us to approach that operating discipline and apply that operating discipline any emerging issues that may or may not arise.
Thank you very much B b.
Thank you Christine we'll now move to our next question from Pizza Amit of bed.
Pizza. Please proceed with your questions. Thanks.
Yes, good morning, Phebe and good morning, everyone.
If he would be maybe just ask on the technologies segment, just given the strong operating performance there.
Is there any just clarification is there any one timers in the 10, 5% that you.
You had this quarter and just and if not do you view.
This segment being able to sustain its kind of 10% or or a double digit margin going forward or just any data around the double digit margin going forward.
Yeah.
Yeah.
Okay.
Yes, no I just.
And are you seeing any any any changes there or your ability to kind of manage that in terms of no I know, it's a very price competitive environment.
No.
<unk>.
Not at the moment, we've been pretty consistent in our margin performance across this entity.
So I don't see any systemic change that should have impact that.
Great I'll leave it at one thanks.
Thank you. Peter next question comes from Matt Akers of Wells Fargo Mach E.
Hi, good morning.
If you could talk about for the G 400 800.
Just kind of early feedback and you know how much I guess of the demand youre seeing there sort of customers that.
Or sort of incremental that wouldn't above some of your other platform versus potentially kind of cannibalizing some of the other aircraft.
Liv.
Oh instances of cannibalization to date.
800 is ultimately a replacement for the 650 650 demand remains pretty steady.
And and the customer bases is.
Pretty much a our typical customer base there may be incremental adds here and there, but I would argue that.
We see that in and both the 708 hundred and frankly, the rest of that portfolio to the extent that there are incremental.
Here and there and this tends to be high net worth individuals or some new fortune 1000, or 500 company, but I think theres nothing particularly notable here.
And in terms of being exceptional outside the norm.
Other than there's a lot of good interest here.
And we've taken a good number of orders.
Great. Thanks, good evening.
Thank you Mike. Our next question comes from at Pizza Kubicki label Pizza heavy T.
Hey, good morning, everyone.
Phebe I was wondering if you could share your thoughts on that fiscal 'twenty two defense budget, there seems to be a lot of tailwind to the President's request and in Congress and I'm wondering if you could share with us if you see some of the support.
Incremental support according to J D programs.
And maybe.
Maybe you can weigh draws under budget can be signed into law by the end of this calendar year or not.
So I think you know as much as I do given a fulsome and in depth reporting on congressional budget processes about the likelihood of a signing so I'm not gonna go speculate on hypothetical the timing but.
But I think importantly, all of our major and frankly all of our programs were well supported and and some are beneficiaries of of increased spending on the part of the Congress.
So all in all we had no particular surprises by the way up or down. So we were quite comfortable in how this budget is being played out.
I'll leave it at that thank you.
Operator, we'll just take one more question. Thank you. Please.
Of course, our next question will be coming from.
No panic of Goldman Sachs.
T.
Thanks, Good morning, everybody.
None.
Phoebe the and in the business jet market at large you know the end market and investors keep debating.
Sustainability of this recent uptick in demand in some people.
I heard a lot of that.
Exactly well you've made I guess, the pragmatic decision to kind of not wait in there and I guess I was just wondering if you've had enough time or you can speak to somebody customers. If you've heard enough from real deal new customers to perhaps have more of a view on the sustainability of what we're saying.
Well it wouldnt be chicken little about this I think that and Nordea should anybody I think the demand that we're seeing as I tried to reiterate before.
Is across our existing customer base.
Fortunately 1000 is back enforced.
There are as I noted in new entrants into that market.
As some companies have increased their profitability over the last two years.
And there are additional high net worth individuals who have entered into the market.
So I think that the data and I can only speak for Gulfstream.
The data would suggest that given our attractive product mix the strong as I noted earlier, a strong economy and the <unk>.
Fact that our customers are back in and broad base demand I'm not worried at the moment about sustainability. These are.
Gulfstream isn't and business jet market is in a.
Is in a cyclical market driven in part in no small measure by the economy.
But we have been the most resilient in terms of demand.
Through M. Most economic cycles, so again.
Okay.
And we've got a good pipeline going forward.
That's helpful. Do you have a sense, even if directionally how many of your.
Customers in the last 18 months are truly brand now.
Oh, we're not going to parse it, but it's pretty well we've gotten a fair number of new folks, but also our regular irregular and historic customers are back in from new customers market share increases so.
So you know so far.
As far as I'm concerned, we had very very good demand and and and the pipeline remains robust.
Great. Okay. Thanks, a lot.
Thank you Noah as that was our final question I would like to hand back to Howard reboot for any closing remarks.
Thank you Melissa.
Thank you all for joining us on our call today as a reminder, please refer to the general dynamics website for the third quarter earnings release and highlights presentation. If you have any other questions I can be reached 700 38763117 that will now end our call.
This concludes the general dynamics.
Q2, 2021 earnings cool. Thank you for joining and have a great rest of your day.
Uh huh.
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