Q4 2021 Huntington Ingalls Industries Inc Earnings Call

Speaker 1: conference call. With us today are Mike Petters, President and Chief Executive Officer, Chris Kastner, Executive Vice President and Chief Operating Officer, and Tom Seeley, Executive Vice President and Chief Financial Officer. As a reminder, statements made in today's call that are not historical facts are considered forward-looking statements and are made pursuant to the State Harbor provisions of federal securities law. Actual results may differ.

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 in today's call that are not historical facts are considered forward looking statements and are made pursuant to the safe Harbor provisions of Federal Securities Law actual results may differ.

Speaker 1: Please refer to our SEC filings for a description of some of the factors that may cause actual results to vary materially from anticipated results.

Please refer to our SEC filings for a description of some of the factors that may cause actual results to vary materially from anticipated results.

Speaker 1: Also in their remarks today, Mike, Chris, and Tom will refer to certain non-GAAP measures. Reconciliations of these metrics to the comparable GAAP measures are included in the appendix of our earnings presentation that is posted on our website.

Also in their remarks today, Mike, Chris and Tom we will refer to certain non-GAAP measures reconciliations of these metrics to the comparable GAAP measures are included in the appendix of our earnings presentation that is posted on our website.

Speaker 1: We plan to address the posted presentation slides during the call to supplement our comments. Please access our website at HuntingtonEngels.com and click on the Investor Relations link to view the presentation as well as our earnings release.

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.

Speaker 2: With that, I will turn the call over to our president and CEO Mike Putters. Mike? Thanks, Christy. Good morning, everyone, and thanks for joining us on today's call. Before getting into the results for the quarter and the full year, I want to personally thank each of our 44,000 employees for continuing to execute their daily activities with an unwavering commitment to our operational pillars of safety, quality, cost, and schedule.

With that I will turn the call over to our President and CEO , Mike Petters Mike.

Thanks, <unk> good morning, everyone and thanks for joining us on today's call before getting into the results for the quarter and the full year I want to personally. Thank each of our 44000 employees for continuing to execute their daily activities with an unwavering commitment to our operational pillars of safety quality cost and schedule.

2021 was a year of solid performance and resiliency during the Covid pandemic.

Speaker 2: 2021 was a year of solid performance and resiliency during the COVID pandemic. At HII, we are committed to promoting and protecting the health and safety of our employees, their families and their communities, and continuing to serve our customers in the vital national security interests of our country without disruption as an essential contributor to the nation's critical infrastructure.

We are committed to promoting and protecting the health and safety of our employees their families and their communities and continuing to serve our customers and a vital national security interest of our country without disruption as an essential contributor to our nation's critical infrastructure.

Speaker 2: Most recently faced with uncertainty around the Omicron variant, our employees remain focused on execution while driving continuous improvement, innovation, and creativity. While HII has not become subject to a vaccine mandate through any of our shipbuilding contracts at this time, we continue to be committed to promoting the benefits of a vaccinated workforce.

Most recently faced with uncertainty around the <unk> variance our employees remain focused on execution, while driving continuous improvement innovation and creativity.

While HII has not become subject to a vaccine mandated through any of our shipbuilding contracts. At this time, we continue to be committed to promoting the benefits of a vaccinated workforce.

Speaker 2: Our technical solutions division does have the vaccine requirement in a number of contracts and currently we estimate that approximately 81 percent of our HII full-time employees are fully vaccinated.

Our technical solutions Division does have the vaccine requirement in a number of contracts and currently we estimate that approximately 81% of our HII fulltime employees are fully vaccinated.

Earlier. This morning, we released our 2021 results, which we believe reflect consistent shipbuilding program execution with year over year margin expansion and a transformational year for our technical solutions Division during.

Speaker 2: Earlier this morning, we released our 2021 results, which we believe reflect consistent shipbuilding program execution with year-over-year margin expansion and a transformational year for our Technical Solutions Division.

During the year, we captured major contract awards, resulting in maintaining record backlog levels and we expanded our portfolio by acquiring alliance in our technical solutions Division.

Speaker 2: During the year, we captured major contract awards, resulting in maintaining record backlog levels, and we expanded our portfolio by acquiring a lion in our technical solutions division. With these actions, HII persevered to diligently pursue the business outcomes of driving growth, managing risk, and generating strong returns.

With these actions.

Persevere to diligently pursue the business outcomes of driving growth managing risk and generating strong returns.

Some highlights from the quarter start on slide three of the presentation.

Speaker 2: Some highlights from the quarter start on slide three of the presentation. Sales of $2.7 billion for the fourth quarter are down 3% from the fourth quarter of 2020, and sales of $9.5 billion for the full year are up 2% from the full year of 2020.

Sales of $2 7 billion for the fourth quarter or down 3% from the fourth quarter of 2020 and sales of $9 $5 billion for the full year are up 2% for the full year of 2020.

Speaker 2: Given the numerous challenges in 2021, we were pleased to finish the year with shipbuilding revenues at the low end of our guidance, and we remained confident in the 3 percent shipbuilding average growth rate over time. We also saw strong growth, as anticipated, in our technical solutions division.

Given the numerous challenges in 2021, we were pleased to finish the year with shipbuilding revenues at the low end of our guidance and we remain confident in the 3% shipbuilding average growth rate over time.

We also saw strong growth as anticipated in our technical solutions Division.

Speaker 2: Diluted EPS was $2.99 for the quarter and $13.50 for the full year, down from $6.15 in the fourth quarter of 2020 and $17.14 for the full year in 2020.

Diluted EPS was $2 99 for the quarter and $13 50 for the full year down from $6 15 in the fourth quarter of 2020 and $17 14 for the full year in 2020.

Full year segment operating income of $683 million.

Speaker 2: Four-year segment operating income of $683 million is an increase of $128 million, or 23% over 2020. These returns, in line with our expectations, are the result of continued performance improvement in shipbuilding margins and strong performance in our technical solutions division.

Is an increase of $128 million or 23% over 2020.

These returns in line with our expectations as a result of continued performance improvement in shipbuilding margins and strong performance in our technical solutions Division.

Speaker 2: New contract awards during the quarter were approximately $1 billion, resulting in our backlog of approximately $48 billion at the end of the quarter, of which approximately $23 billion is currently funded.

New contract awards during the quarter were approximately $1 billion, resulting in our backlog of approximately $48 billion at the end of the quarter of which approximately $23 billion is currently funded.

Speaker 2: Now, entering 2022, our shipbuilding program's backlog provides, we believe, unmatched stability and visibility, and we are laser-focused on methodically executing our contracts, while the technical solutions business is positioned to capture growth opportunities. We remain extremely pleased with the technology, capability, talent, and solutions that Alliant has brought to the HII family.

Now entering 2022, our shipbuilding programs backlog provides we believe unmatched stability and visibility and we are laser focused on methodically executing our contracts while technical solutions business is positioned to capture growth opportunities. We remain extremely pleased with the technology capability <unk>.

<unk> and solutions that align has brought to the HII family.

Speaker 2: Now shifting to activities in Washington for a moment, we are pleased with the passage and enactment of the fiscal year 2022 defense authorization bill and its strong support for shipbuilding.

Now shifting to activities in Washington for a moment.

We are pleased with the passage and enactment of the fiscal year 2022 defense authorization, Bill and a strong support for shipbuilding.

Sure.

Speaker 2: However, more than one quarter into the fiscal year, congressional appropriations have yet to be finalized, and the federal government continues to operate under a continuing resolution through February 18th. It remains uncertain at this point when annual funding measures will be finalized, and we continue to urge Congress to proceed expeditiously. We do remain optimistic that the appropriations process will be completed in the weeks ahead.

However.

More than one quarter into the fiscal year congressional appropriations have yet to be finalized in the federal government continues to operate under a continuing resolution through February 18th.

It remains uncertain at this point when annual funding measures will be finalized and we continue to urge Congress to proceed expeditiously.

We do remain optimistic that the appropriations process will be completed in the weeks ahead.

Speaker 2: Now, before I close, let me take a moment to address the recent announcement that, at my recommendation, our Board of Directors elected Chris Kastner to the role of President and CEO , effective March 1.

Now before I close let me take a moment to address the recent announcement that at my recommendation our board of directors elected Chris Kastner to the role of President and CEO effective March one.

This is consistent with the company's succession plan and I fully endorse this transition.

Speaker 2: This is consistent with the company's succession plan, and I fully endorse this transition. I truly believe this is a fantastic development for HII. As the Executive Vice Chairman of the Board, I will remain an HII employee through the rest of the year, and will be able to support Chris and the Board.

I truly believe this is a fantastic development for HII.

As the executive Vice Chairman of the Board I will remain an HII employee through the rest of the year and we'll be able to support Chris and the board.

Speaker 2: As the first CEO of this great company, I can tell you confidently that there is no better choice than Chris to lead HII into this bright new chapter.

As the first CEO of this great company I can tell you confidently that there is no better choice than Chris to lead HII into this bright new chapter.

Speaker 2: Well, I believe we are positioned better than ever before to successfully leverage our substantial backlog to generate strong, free cash flow, demonstrate growth in our technical solutions division and create long term sustainable value for our shareholders, our customers and our employees.

Where I believe we are positioned better than ever before to successfully leverage our substantial backlog to generate strong free cash flow demonstrate growth in our technical solutions division and create long term sustainable value for our shareholders, our customers and our employees.

Speaker 2: And now I will turn the call over to Chris for his remarks on the operations. Chris, thanks, Mike, and good morning, everyone. Let me first congratulate Mike on his transition to executive vice chairman of the board.

And now I will turn the call over to Chris for his remarks on the operations.

Chris.

Thanks, Mike and good morning, everyone.

Let me first congratulate Mike on his transition to executive Vice Chairman of the board.

Speaker 2: and thank him on behalf of myself and our 44,000 employees.

And thank him on behalf of myself and our 44000 employees.

Speaker 2: course, extraordinary leadership. I also want to thank the Board of Directors for electing me to succeed Mike as HI's next CEO .

For his extraordinary leadership.

Also want to thank the board of directors for electing me to succeed Mike as <unk> next CEO .

Speaker 2: Thanks to Mike's vision, HII is positioned well today, and the value creation opportunity in front of us is as strong as ever. I'm honored to lead HII in this next chapter.

Thanks to Mike Vision, HII is positioned well today and the value creation opportunity in front of us is as strong as ever.

I'm honored to lead HII in this next chapter.

Now shifting to our results I'm very pleased to report another solid operational quarter let.

Speaker 2: Now shifting to our results, I'm very pleased to report another solid operational quarter. Let me share a few highlights.

Let me share a few highlights.

Speaker 2: At Ingalls, the Navy continues to fund advanced procurement for amphibious assault ship LHA-9 and LHA-8 Bougainville if achieving cost and schedule performance in line with our expectations.

At Ingalls. The Navy continues to fund advanced procurement for <unk>. It is a full shift.

Nine and LSA eight Bougainville is achieving cost and schedule performance in line with our expectations.

Speaker 2: On the DDG program, the team delivered guided missile destroyer DDG-121, Frank E. Peterson, Jr. to the Navy and began fabrication of DDG-131 George M. Neal.

On the DDG program. The team delivered guided missile destroyer DDG 121, Frank E. Peterson Junior to the Navy and began fabrication of DDG 131, George and Neil.

This serial production line continued the positive momentum in 2022 with planned delivery of DDG 123, Lena H Sutcliffe Higbee.

Speaker 2: This serial production line continues the positive momentum in 2022 with planned delivery of DDG 123 Lena H Sutcliffe Higbee.

Speaker 2: On the LPD program, LPD 28 Fort Lauderdale has completed T trials and is on track for delivery to the Navy in the first quarter of this year.

On the LCD program Elpida 28, Fort Lauderdale has completed sea trials and is on track for delivery to the Navy in the first quarter of this year.

Speaker 2: In addition, LPD-29 Richard M. McCool Jr. was launched in early January .

In addition, <unk> 29, Richard M accrual Junior was launched in early January .

We continue to watch the upcoming budget release for advanced procurement funding for LCD 32 to maintain the benefits of the serial production on Ltvs.

Speaker 2: We continue to watch the upcoming budget release for advanced procurement funding for LPD32 to maintain the benefits of its serial production on LPDs.

Speaker 2: At Newport News, the Ford-class aircraft carriers are progressing well.

At Newport News, the Ford class aircraft carriers are progressing well.

Speaker 2: CDN-79 Kennedy is approximately 83% complete, and the team is focused on compartment completion and key propulsion plant milestones.

The <unk> 79, Kennedy is approximately 83% complete.

And the team is focused on compartment completion and key propulsion plant milestones.

Speaker 2: Later this year, Kennedy will begin testing of EMALS, the electromagnetic launch system. CBN 80 Enterprise and CBN 81 Doris Miller continue material procurement and early unit construction, and CBN 80 plans to lay keel this year.

Later this year Kennedy will began testing of emails, but electromagnetic launch system.

CVR <unk> enterprise in CV, and 81 doors Miller continued material procurement and early unit construction and TV 80 planned for late this year.

On the <unk> program <unk> 73, USS George Washington reached 94% complete and is focused on propulsion plant testing and is planned for delivery later this year.

Speaker 2: On the RCOH program, CBN 73 USS George Washington reached 94% complete and is focused on propulsion plant testing and is planned for redelivery later this year.

Speaker 2: Regarding CVN 78 USS Gerald R. Ford, the planned incremental availability is on track to complete this year to support the Navy's first deployment of this critical asset.

Regarding Cvs 78, USS Gerald R. Ford the planned incremental availability is on track to complete this year to support the Navy's first deployment of this critical asset.

Speaker 2: On the VCS program, SSN 794 Montana completed work as planned in Q4 2021 and will complete C trials and deliver in Q1 2022.

On the Vcs program SSN 794, Montana completed work as planned in Q4, 2021, and will complete sea trials and deliver in Q1 2022.

Speaker 2: SSN 796 New Jersey was christened last year and is expected to achieve its blow-off milestone early this year.

At <unk> 796, New Jersey was Chris in last year and is expected to achieve its Florida milestone early this year.

Speaker 2: While we did not achieve our projected end-of-year milestones, the VCS program continues to improve its progress toward a consistent two-per-year cadence.

While we did not achieve our projected to end of year milestones. The Vcs program continues to improve its progress towards a consistent two per year cadence.

Speaker 2: And finally, on a submarine fleet support program, SSN 725 Helena recently completed sea trials and was redelivered to the Navy last month.

And finally on a submarine support program SSN 795, Helena recently completed sea trials and was redelivered to the Navy last month.

Speaker 2: This Los Angeles-class submarine maintenance completion marks the first re-delivery from Newport News of a submarine following a major availability since 2009 and demonstrates the successful reconstitution of our submarine maintenance capability in support of the Navy.

This Los Angeles class submarine maintenance completion marks the first re delivery from Newport news of the submarine following a major availability since 2009 and demonstrates the successful reconstitution of our submarine maintenance capability in support of the Navy.

At technical solutions, the align integration is progressing on plan and our organizations are already operating as a consolidated business.

Speaker 2: At Technical Solutions, the Align integration is progressing on plan and our organizations are already operating as a consolidated business. Backoffice systems integration is in full swing and should be largely complete by the end of the year.

Back office systems integration is in full swing and should be largely complete by the end of the year.

Speaker 2: Booked a bill for 2021 with healthy at 1.1 and a new business qualified pipeline is very robust at over 20 billion a level strong enough to support our growth expectations for this business.

Book to Bill for 2021 was healthy at one one and our new business qualified pipeline is very robust at over 20 billion a level strong enough to support our growth expectations for this business.

Speaker 2: Moreover, the velocity of the pipeline has already increased significantly entering 2022, with nearly $5 billion currently in evaluation or in proposal development. This includes multiple opportunities over $1 billion in total contract value that are expected to award this year.

Moreover, the velocity of the pipeline has already increased significantly entering 2022 with nearly $5 billion currently and evaluation are in proposal development.

This includes multiple opportunities over $1 billion in total contract value of that are expected to move to award this year.

Before I close I want to provide some remarks regarding our labor and material availability we.

Speaker 2: Before I close, I want to provide some remarks regarding our labor and material availability. We continue to keep COVID-19 impacts as watch items and are focused on ensuring our supply chain and labor supply will be able to continue to support our performance.

We continue to keep COVID-19 impacts as watch items and are focused on ensuring our supply chain and labor supply will be able to continue to support our performance.

Speaker 2: Given the nation's overall labor pressures, we have increased attention with regard to hiring and attrition rates.

Given the nation's overall labor pressures with increased attention with regard to hiring and attrition rates.

Speaker 2: and we have detailed plans in place to accelerate hiring for 2022.

And we have detailed plans in place to accelerate hiring for 2022.

Speaker 2: We are leveraging targeted hiring events and actively utilizing our world-class apprentice schools, as well as relationships with community colleges and high schools to increase the pace of talent acquisition and development.

We are leveraging targeted hiring events and actively utilizing our world class apprentice schools as well as relationships with community colleges and high schools to increase the pace of talent acquisition and development.

Speaker 2: Now I'll turn the call over to Tom for some remarks on the financials. Tom? Thanks, Chris, and good morning. Today I'll briefly review our fourth quarter and full year results and also provide our outlook for 2022. For more detail on the segment results, please refer to the earnings release issued this morning and posted to our website.

Now I'll turn the call over to Tom for some remarks on the financials Tom.

Thanks, Chris and good morning today, I'll briefly review, our fourth quarter and full year results and also provide our outlook for 2022 for more detail on our segment results. Please refer to the earnings release issued this morning and posted to our web site.

Speaker 2: Beginning with our consolidated fourth quarter results on slide five of the presentation, our fourth quarter revenues of $2.7 billion decreased approximately 3% compared to the same period last year. This was due to a decline at Newport News and Ingalls Shipbuilding, which was largely driven by a very high level of material volume in the fourth quarter of 2020, partially offset by the growth at Technical Solutions from the acquisition of the line in the third quarter of this year.

Beginning with our consolidated fourth quarter results on slide five of the presentation, our fourth quarter revenues of $2 7 billion decreased approximately 3% compared to the same period last year. This was due to a decline at Newport News and Ingalls Shipbuilding, which was largely driven by a very high level of material volume in the fourth quarter of 2020, partially offset by the <unk>.

Growth at technical solutions from the acquisition of a line in the third quarter of this year.

Speaker 2: operating income for the quarter of $120 million decreased by $185 million from the fourth quarter of 2020 and operating margin of 4.5% decreased 658 basis points. These decreases were largely due to a less favorable operating fast cap adjustment compared to the prior year as well as lower segment operating income driven by lower risk retirement on the DEG and NSE programs at Ingalls as well as lower risk retirement on submarine fleet support at Newport News.

Operating income for the quarter of $120 million decreased by $185 million from the fourth quarter of 2020 and operating margin of four 5% decreased 658 basis points.

These decreases were largely due to a less favorable operating fast Cas adjustment compared to the prior year as well as lower segment operating income driven by lower risk retirement on the DDG and NSC programs at Ingalls as well as lower risk retirement on submarine fleet support at Newport News.

Speaker 2: Moving to our consolidated results for the full year on Slide 6.

Moving to our consolidated results for the full year on slide six.

Speaker 2: revenues were $9.5 billion for the year, an increase of 1.7% from 2020.

Revenues were $9 5 billion for the year, an increase of one 7% from 2020. The increase was primarily driven by the acquisition of a line in the third quarter as well as growth at Newport News Shipbuilding in the Virginia class and Columbia Class submarine program and carrier construction and overhaul. This was partially offset by decline in revenue at <unk>.

Speaker 2: The increase was primarily driven by the acquisition of a line in the third quarter, as well as growth at Newport News Shipbuilding in the Virginia-class and Columbia-class submarine programs in carrier construction and overhaul. This was partially offset by decline in revenue at Ingalls due to lower volumes on NSC and amphibious assault ship programs, as well as the divestiture of our oil and gas business and the contribution of the San Diego shipyard to a joint venture early in 2021.

Ingalls due to lower volumes on the NSC and amphibious assault ships programs as well as the divestiture of our oil and gas business and the contribution of the San Diego shipyard through joint venture early in 2021.

Speaker 2: On an organic basis, revenue for technical solutions was essentially flat year over year.

On an organic basis revenue for technical solutions was essentially flat year over year.

Operating income for the year was $513 million and operating margin was five 4%. This compares to operating income of $799 million and operating margin of eight 5% in 2022.

Speaker 2: Operating income for the year was $513 million and operating margin was 5.4 percent. This compares to operating income of $799 million and operating margin of 8.5 percent in 2020. The decreases were due to a less favorable operating fast cash adjustment compared to 2020, partially offset by stronger segment operating results.

The decreases were due to a less favorable operating SaaS cast adjustment compared to 2020, partially offset by stronger segment operating results.

Speaker 2: Segment Operating Income for the year was $683 million and Segment Operating Margin was 7.2%. This compares to Segment Operating Income of $555 million and Segment Operating Margin of 5.9% in 2020.

Segment operating income for the year with $683 million and segment operating margin was seven 2%.

This compares to segment operating income of $555 million and segment operating margin of five 9% in 2020.

Speaker 2: Our effective income tax rate was 18.4% for the quarter and 12.5% for the full year. This compares to 17.8% and 14.1% for the fourth quarter and full year 2020, respectively. The decrease in the annual tax rate was primarily due to additional research and development tax credits for tax years 2016 through 2020, recorded in the third quarter of 2021.

Our effective income tax rate was 18, 4% for the quarter and 12, 5% for the full year. This compares to 17, 8% and 14, 1% for the fourth quarter and full year 2020, respectively. The decrease in the annual tax rate was primarily due to additional research and development tax credits for tax year 2000.

16 through 2020 recorded in the third quarter of 2021.

Speaker 2: net earnings in 2021 were $544 million, compared to $696 million in 2020.

Net earnings in 2021 were $544 million compared to $696 million in 2020.

Speaker 2: Diluted earnings per share in 2021 was $13.50 compared to $17.14 in the prior year. Pension-adjusted diluted earnings per share in 2021 were $13.03, an increase of 30% from 2020 results due to stronger segment operating performance.

Diluted earnings per share in 2021 was $13 50.

Compared to $17 14 in the prior year.

Pension adjusted diluted earnings per share in 2021 were $13 three in.

An increase of 30% from 2020 results due to strongest segment operating performance.

Speaker 2: 2021 results included approximately $20 million of pre-tax transaction and financing expenses related to the acquisition of Allianz. Additionally, 2021 results include amortization of purchased intangible assets, totaling approximately $86 million, of which approximately $33 million was related to Allianz.

2021 results included approximately $20 million of pre tax transaction and financing expenses related to the acquisition of Alliance. Additionally, 2021 results include amortization of purchased intangible assets totaling approximately $86 million of which approximately $33 million was related to align.

Speaker 2: Turning to cash flow on slide 7 of the presentation, we ended 2021 with a cash balance of $627 million, up from $512 million at the end of 2020.

Turning to cash flow on slide seven of the presentation. We ended 2021 with a cash balance of $627 million up from $512 million at the end of 2020.

Speaker 2: Cash from operations was $271 million in the fourth quarter, and free cash flow was $165 million. For the full year, cash from operations was $760 million, and free cash flow was $449 million. Net capital expenditures in 2021 were $311 million, or 3.3% of revenues.

Cash from operations was $271 million in the fourth quarter and free cash flow was $165 million for the full year cash from operations was $760 million and free cash flow was $449 million net capital expenditures in 2021 with $311 million or three 3% of revenues.

Speaker 2: Cash contributions to our pension and other post-retirement benefit plans totaled $106 million in 2021.

Cash contributions to our pension and other postretirement benefit plan totaled $106 million in 2021.

Speaker 2: During the fourth quarter, we paid dividends of $1.18 per share, or $48 million, bringing total dividends paid for the year to $186 million.

During the fourth quarter, we paid dividends of $1 18 per share or $48 million, bringing total dividends paid for the year to $186 million.

We also repurchased approximately 75000 shares during the quarter at an aggregate cost of approximately $14 million.

Speaker 2: We also repurchased approximately 75,000 shares during the quarter at an aggregate cost of approximately $14 million. In 2021, we repurchased approximately 544,000 shares at an aggregate cost of approximately $101 million.

In 2021, we repurchased approximately 544000 shares at an aggregate cost of approximately $101 million.

Speaker 2: On slide eight, we have provided our updated five-year pension outlook. The notable change from our prior outlook is the increase in the FAFSA benefit. This was largely driven by asset returns in 2021 of 12.7%, and to a lesser extent, a modest change in the discount rate.

On slide eight we have provided our updated five year pension outlook a notable change from our prior outlook is the increase in the fast benefit. This was largely driven by asset returns in 2021, or 12, 7% and to a lesser extent the modest change in the discount rate.

Speaker 2: Moving on to slide nine, we have provided details on our outlook for 2022.

Moving on to slide nine we have provided details on our outlook for 2022.

Speaker 2: While we continue to expect shipbuilding growth of approximately 3% over time, our 2022 outlook range of $8.2 billion to $8.5 billion acknowledges uncertainties around the current environment.

While we continue to expect shipbuilding growth of approximately 3% over time, our 2022 outlook range of $8 2 billion to $8 5 billion acknowledges uncertainties around the current environment.

Speaker 2: We finished 2021 with shipbuilding operating margins at 7.7%, the high end of our initial guidance range, and at the midpoint of our revised guidance range. This was a marked improvement from the shipbuilding margin of 6.2% in 2020.

We finished 2021 with shipbuilding operating margin at seven 7% the high end of our initial guidance range and at the midpoint of our revised guidance range. This was a market improvement from the shipbuilding margin of six 2% in 2020.

We expect shipbuilding operating margin to be between eight and eight 1% for 2022, and we expect 2023 shipbuilding operating margin will continue to improve beyond 2022 results.

Speaker 2: We expect shipbuilding operating margin to be between 8 and 8.1 percent for 2022. And we expect 2023 shipbuilding operating margin will continue to improve beyond 2022 results.

For technical solutions, we expect revenue of approximately $2 6 billion in 2022 operating margins of approximately two 5% and EBITDA margin between 8% to eight 5%. These are all consistent with our guidance and messaging at the time of the line announcement and current run rates in 2021 results firmly support our.

Speaker 2: For technical solutions, we expect revenue of approximately $2.6 billion in 2022, operating margins of approximately 2.5 percent, and EBITDA margin between 8 and 8.5 percent. These are all consistent with our guidance and messaging at the time of the Alliant announcement, and current run rates and 2021 results firmly support our expectations.

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Speaker 2: In 2022, amortization of purchased intangible assets is expected to total approximately $142 million, of which $121 million is attributable to technical solutions.

In 2022 amortization of purchased intangible assets is expected to total approximately $142 million of which $121 million is attributable to technical solutions.

Speaker 2: Given the timing of the shipbuilding program milestones and the normal seasonality for technical solutions, we expect the first quarter segment operating results to be the weakest of the year, with shipbuilding operating margin near 7% and technical solutions operating margin near 1%.

Given the timing of the shipbuilding program milestones and a normal seasonality for technical solutions. We expect the first quarter segment operating results to be the weakest of the year with shipbuilding operating margin near 7% and technical solutions operating margin near 1%.

Speaker 2: Additionally we expect that the first quarter 2022 shipbuilding revenue will be the lightest of the year given Omicron and the challenging labor market driving to a slow start of the year.

Additionally, we expect that the first quarter 2022 shipbuilding revenue will be the lightest of the year, given omicron and the challenging labor market driving to a slow start of the year. Our expectation is for shipbuilding revenue to be approximately $100 million lower than results in the first quarter of 2021.

Speaker 2: Our expectation is for shipbuilding revenue to be approximately $100 million lower than results in the first quarter of 2021, with that equally split between the

With that equally split between the shipyards.

Speaker 2: Moving on, we expect 2022 capital expenditures to be between two and a half and three percent of sales. This guidance does include modest incremental capital expenditures above our prior guidance related to investments in infrastructure and tooling to support the submarine industrial base. We are working with our Navy partner regarding the shared investment and capital incentive structure and believe these critical investments will have minimal impact on our overall free cash flow generation.

Moving on we expect 2022 capital expenditures to be between two five and 3% of sales. This guidance does include modest incremental capital expenditures above our prior guidance related to investments in infrastructure and tooling to support the submarine industrial base.

We are working with our Navy partner regarding the shared investment in capital incentive structure and believe these critical investments will have minimal impact on our overall free cash flow generation.

Speaker 2: We expect 2022 free cash flow to be between $300 million and $350 million, which includes a number of non-recurring items. First, as we noted on the third quarter call, we now expect the repayment of the advanced progress payments we received in 2020 to occur in 2022, which totals approximately $160 million.

We expect 2022 free cash flow to be between 300 $350 million, which includes a number of nonrecurring items first as we noted on the third quarter call. We now expect the repayment of the advanced progress payments. We received in 2020 to occur in 2022, which totals approximately $160 million.

Speaker 2: Additionally, we have a repayment of approximately $70 million in 2022 due to the 2020 payroll tax holiday. Our 2021 free cash flow results were also about $125 million better than the midpoint of our latest guidance simply due to timing of collections and distributions.

Additionally, we have a repayment of approximately $70 million in 2022 due to the 2020 payroll tax holiday.

Our 2021 free cash flow results were also about $125 million better than the midpoint of our latest guidance simply due to timing of collections and distributions.

Speaker 2: The outlook we are providing today is based on the best information we have now and assumes no further degradation in our supply chain. It also assumes that we're able to continue to hire employees at a pace that supports our staffing and that we continue to see limited impacts from inflation given the nature of our contracts and the long-term arrangements that we have in place with our labor unions and suppliers.

The outlook, we are providing today is based on the best information, we have now and assumes no further degradation in our supply chain.

It also assumes that we're able to continue to high employees at a pace that supports our staffing and that we continue to see limited impact from inflation, given the nature of our contracts and the long term arrangements that we have in place with our labor unions and suppliers.

Speaker 2: Additionally, on slide 9, we provided our updated outlook for a number of other discrete items to assist you with your modeling.

Additionally, on slide nine we provided our updated outlook for a number of other discrete items to assist you with your modeling.

Regarding our longer term targets, we remain confident in our free cash flow target of $3 2 billion from 2020 through 2024. This outlook does assume the continued expensing of research and development costs for tax purposes for context, we now believe the impact to 2022 free cash flow would be approximately $100 million if the current R&D amortization treated.

Speaker 2: Regarding our longer-term targets, we remain confident in our pre-cash flow target of $3.2 billion from 2020 through 2024. This outlook does assume the continued expensing of research and development costs for tax purposes. For context, we now believe the impact of 2022 free cash flow would be approximately $100 million if the current R&D amortization treatment remains in place.

<unk> remains in place.

Speaker 2: On slide 10, we have provided a walk-up from our 2022 to 2024 free cash flow outlook. First, 2023 free cash flow is enhanced by the lack of discreet headwinds I just mentioned for 2022 to advance the progress in payroll tax holiday repayment.

On slide 10, we have provided a walk from our 2022 to 2020 for free cash flow outlook first 2023 free cash flow is enhanced by the lack of discrete headwinds I just mentioned for 2022, the advance the progress and payroll tax holiday repayments.

Speaker 2: Secondly, we do expect a working capital tailwind in 2023 that, along with continued top-line growth in shipbuilding, is expected to drive approximately $200 million of incremental cash flow. Finally, the growth and margin expansion of technical solutions is expected to contribute meaningful incremental free cash flow in 2023 and beyond.

Secondly, we do expect a working capital tailwind in 2023 that along with continued top line growth in shipbuilding is expected to drive approximately $200 million of incremental cash flow. Finally, the growth in margin expansion of technical solutions is expected to contribute meaningful incremental free cash flow in 2023 and beyond as a reminder.

Speaker 2: As a reminder, working capital can be quite lumpy, as we saw at the end of 2021, so we have provided ranges to help account for that variability.

<unk> capital can be quite lumpy as we saw at the end of 2021. So we have provided ranges to help account for that variability for.

Speaker 2: For 2023, we are expecting free cash flow to be between $750 and $800 million, and between $800 and $900 million for 2024, which is all consistent with the target of $3.2 billion between 2020 and 2024. In closing, given the persistent challenges presented in 2021, we are pleased that we were able to complete the year with the results generally consistent with our guidance, including shipbuilding margin at the high end of our initial range and free cash flow well above our guidance.

For 2023, we are expecting free cash flow to be between 750 and $800 million and between $809 million for 2024, which is all consistent with the target of $3 2 billion between 2020 in 2024.

In closing given the persistent challenges presented in 2021, we are pleased that we were able to complete the year with the results generally consistent with our guidance, including shipbuilding margin at the high end of our initial range and free cash flow well above our guidance notwithstanding the current environment. We remain enthusiastic regarding our long term outlook as we begin 2000.

'twenty two with nearly $50 billion in backlog in technical solutions business that we believe is poised with very strong growth. We are laser focused on consistent execution and generating sustainable long term value now I'll turn the call back over to Christy for Q&A.

Speaker 1: Now I'll turn the call back over to Christy for Q&A. Thanks, Tom. As a reminder to everyone on the call, please limit yourself to one initial question and one follow-up so we can get as many people through the queue as possible. Operator, I will turn it over to you to manage the Q&A.

Thanks, Tom as a reminder to everyone on the call. Please limit yourself to one initial question and one follow up so we can get as many people through the queue as possible operator, I will turn it over teams manage the Q&A.

Thank you at this time, we will begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.

Speaker 2: Thank you. At this time, we will begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our

Your speaker phone please pickup your handset before pressing the keys to withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.

And the first question will be from Myles Walton with UBS. Please go ahead.

Speaker 2: And the first question will be from Miles Walton with UBS. Please go ahead.

Hey, good morning.

Speaker 2: I was wondering if we could focus on cashflow for just a second and beyond 23-24, just the algorithm and the conversion ratios that you think about as being sustainable, obviously, in 23-24.

Sure.

We can focus on cash flow for just a second and beyond.

Beyond 'twenty three 'twenty four.

The algorithm.

And the conversion ratios that you think about as being sustainable obviously in 'twenty three 'twenty four.

Speaker 3: You're converting well above, I think, what's implied after you adjust for pension, non-cash pension income. You're converting well above 100 percent. So maybe just tell us about what the conversion structure or equation should be after.

You are converting well above I think what's implied.

Non.

Just for pension noncash pension income the converting well above 100% so maybe just.

Tell us about what the conversion structure or equation should be after 2012.

Speaker 2: So, thanks, Milo. I'll take that to Tom here, sure. So, you know, as we've been kind of guiding, and as we get into the out-years here, the portfolio is maturing. The ships are getting deeper into their build cycles. We're getting deeper into progressing, and we're getting more ships, as we've highlighted in the past, in deliveries in the 22, 23, 24 timeframe from where we've come from. So, we're seeing additional progressing and improvement in working capital in the out-years and then a higher conversion rate as we release retention.

Sure. Thanks, Michael I'll take that yeah sure.

As we've been kind of guiding and as we get into the out years, yes portfolios charting ships are getting deeper into that.

Cycle, while we're getting deeper into promising.

And we're getting more shifts as we highlighted in the past.

And deliveries in the 'twenty two 'twenty three 'twenty four time frame from where we've come from so we are seeing additional progress and improvement in working capital in the out years and then the highest conversion rate as we've released protections.

Speaker 2: run through the delivery for those ships. So I'm with you that there's a couple of years that we're playing catch-up, actually. You know, and the bridge I've given here in the PowerPoint on page 10 actually kind of shows that. There's some headwinds that we have and some working capital exiting 21, going into 21.

So digitalization of our ships.

I'm with you that there is a couple of years that were playing catch up actually.

The bridge I've given here.

On page 10.

Kind of showed that there's some headwinds that we have in some working capital.

Exiting 'twenty, one going into 2002.

Speaker 2: working capital actually gets a little bit worse. And on the top end of our range, almost eight percent in the high sevens, then as we get into 23 and out, we actually see that turn back and become favorable for cash, cash contribution as we work off the progress of the shifts and we deliver.

The working capital actually gets a little bit worse on the top end of our range almost 8%.

Hi, Kevin.

Alright.

And as we get into 'twenty three.

You can see that churn back and become.

Okay.

Kevin Congratulations as you work off.

The progress of the shifts.

And we delivered a shift there.

Speaker 2: But we shouldn't assume any substantive drop-off post-24 from any working capital materials in the opposite direction. No, I think what we've highlighted, you know, long-term, I mean, as we work the ships off, have the collections, and then deliver, you know, the margin of free capital will gravitate to a 1-0. You'll see years where there's some pressure on that as the maturity of the enterprise as a whole is on the front end of the cycle.

But we shouldn't assume any substantive drop off post 'twenty four from a working capital materials in the opposite direction I think what we highlighted.

Long term I mean as we.

Sure.

The collections and then deliver on the margin and free cash flow will gravitate to one <unk>.

See years, where there's pressure on that.

Enterprise as a whole.

On the front end of the cycle and then as we kind of move a little bit more on the back of that.

Speaker 2: And then as we kind of move a little bit more on the back end of the cycle, you know, we've accumulated this backlog of $48 million. And now that we're kind of heavy in the ramp up of pushing that work through the snake here, hiring up, and then achieving the progress. You'll see that swing backwards to favorability both in 2023 and in 2024.

We've accumulated this backlog of $48 million.

And now that we're kind of heavy and the ramp up of pushing network through the snake here at hiring and then achieving the progress you'll see that swing backwards favorability, both in 2023 and 2024.

Speaker 4: Miles, Chris, I think you're getting into a new normal from a free cash flow generation standpoint up at those elevated levels, so it just naturally gets there.

Myles Great, Chris I think youre getting into a new normal from a free cash flow generation standpoint.

As those elevated levels. So just naturally gets there.

Speaker 3: Okay. And congratulations, Chris and Mike. Thank you.

And congratulations Chris and Mike Thanks for your thanks, Bob Thanks miles.

Speaker 5: And the next question will be from Doug Hard with Bernstein. Please go ahead.

The next question will be from Doug Harned with Bernstein. Please go ahead.

Speaker 3: Good morning. Thank you. Good morning. And first, Mike, I just want to wish you all the best in this transition. It's been great working with you, even from before there was an HII. So it's been a pretty exciting road, I think.

Good morning, Thank you good morning.

And first Mike I, just wanted to wish you all the best in this transition its been great working with you even.

From before there was an HII. So it's been a pretty exciting road I think.

But.

Speaker 3: The question I've got is, you know, you all have talked a lot about a, you know, 3% top line growth rate, which is pretty consistent when we model out where the, you know, shift by shift things should go. But if I look at the 2022 guidance...

The question I've got is.

You all have talked a lot about.

3% topline growth rate, which is pretty consistent when we model out where the ship by ship things should go but if I look at the 2022 guidance.

Speaker 3: there's really negligible growth versus your shipbuilding revenues in 2020. And so is this consistent with your expectations? And can you break it down between Ingalls, Newport News, and also the impact of services? Sure. I'll take that. I appreciate that.

It was really negligible growth versus your shipbuilding revenues in 2020.

And so is this consistent with your expectations and can you break it down between <unk>.

Ingalls Newport News and also the impact of services.

Sure I'll.

I'll take that I appreciate it thanks, Doug so yes.

Speaker 2: We gave some color on how 2020 finished out against 2019.

We gave some color on how 2020.

Finished out against 2019.

Speaker 2: And when you look at each year, specifically depending on how that material and labor hits at the quarter close of each year, it can sway how the trend line looks, you know. If you think about about...

And when you look at each year, specifically, depending on how that material and labor.

The quarter closed in each year.

Way, how the trend line looks.

Think about a.

Speaker 2: The shipbuilding we finished off 2019 just under $7.8 billion.

The shipbuilding we finished off 2019, just seven 8 billion. We had thought in 2020 would be about $8 billion, but we had a strong strong fourth quarter in 2020, we actually closed out and shipbuilding.

Speaker 2: We had thought 2020 would be about $8 billion, but we had a strong, strong fourth quarter in 2020. We actually closed out in shipbuilding at $8.25 billion in that. So that was almost a 6% year increase on that. So that material kind of slid in a little bit earlier than we thought it was going to be in 21-20. So the trend line that we have here is a 7-8, an 8-2. And then last year, although we said, you know, we highlighted a 3% median for long-term,

50.

$5 billion.

And that was almost a 6% year increase on that so that material kind of slid in.

A little bit earlier than we thought it was going to be in 'twenty, one to 'twenty. So the trend line that would be happier.

882, and then last year, although we.

Let me highlight 3% medium to long term.

Speaker 2: kind of accelerating into the 2020 timeframe. That extracts a couple of hundred.

Moving just kind of accelerating into the 2020 timeframe that extract it a couple of hundred million dollars out of 2021, we did see pressure just because because of both delta and <unk> at the end of 2021, which kind of pushed out we.

Speaker 2: million out of 2021. We did see pressures because because of both Delta and Omicron at the end of 2021, which kind of pushed down. We saw although Newport News was a slight growth up with about 50 million dollars in their sales, Ingalls was about 150 million dollars under. And that was primarily driven either from a planning perspective that things were accelerated and materialized.

We saw although Newport news with a slight growth up about.

$50 million in air sales Ingalls was about 150.

On the.

Primarily driven from a planning perspective, thanks for accelerated materials side and some pressures on the labor on the backend.

Speaker 2: pressures on the labor on the back end. So, you know, it is true that if you look at, you know, 2020 and 2021, you're, you're looking at 8250 and then at 8191, we actually backed up $50 million in shipbuilding itself for 2021. Now, relative to the range in your question of 8285,

It is true that if you look at.

'twenty 'twenty and 2021.

Looking at a $2 50, and an 80 191, we actually backed up.

$50 million in shipbuilding itself for 2021, now relative to the range and your question of 808 five.

Speaker 2: We're seeing right now, uh, problems with the virus and I'm a.

Yes, we're seeing right now.

Problems with.

The virus.

Jim.

Speaker 2: lightning right now. The case rates are going down at a quick pace at the beginning of this year. And if that sustains itself and we have a normal run rate here in the 2020 and then 21 were both impacted with the virus.

Lightning right now the case rates are going down at a quick pace.

This year and if that sustains itself and we have a normal run rate year 2020, and then 'twenty one were both impacted with the virus.

Speaker 2: And in case rates, but if we see a normal year right here, we still think that 8.5 and 8.5 billion for shipbuilding, which is a clean over over three and a half percent clean. 3% on the actual would be about 8436. so that's why we've given you a range of 8285. I think 85 is a clean year. And for some reason, Kobe.

In case rates, but if we see a normal year right here, we still think that.

Eight five.

5 billion shipbuilding, which had a clean.

Over three 5% clean breaks out on the actual should be about.

80, 436, so that's why we've given you a range of 808 five I think 85 is a clean year.

For some reason.

Colby.

Speaker 2: run through the entire year or there's another variant, we could still see another flat year. The pressure would manifest itself on the labor side, right? So we did see some disruption at the end of 2021 and the beginning of 2022. On the labor side, we have hiring plans. We know how to go do that. Our human capital is the most important resource that we have.

Runs through the entire year or there is done the variant we could still see.

Another flat, yes, the pressure would manifest itself on the labor side right. So.

So.

Disruption.

The end of 2021 and the beginning of 2022 on the labor side, we had higher plant. We know how to go do that our human capital is the most important resource that we have so we've been successful over the years and being able to establish a labor plans hire train and retain and we just got to put our head down and it could happen. This year I do believe that the pressures that we see.

Speaker 2: So we've been successful over the years in being able to establish a labor plan, hire, train, retain, and we've just got to put our head down and make it happen this year. I do believe that the pressures that we see, and in my opening notes in Q1,

And in my opening notes in Q1.

Speaker 2: that we see at the beginning of the first quarter. Q1 was going to be a low quarter anyway, and then a little bit light because of the labor, are recoverable this year as long as we don't see continued impacts for the remaining part of the year. I would tell you from a growth perspective, if you're concerned about that, you know, if you strike a line, and we always say,

We say at the beginning of the first quarter Q1 was going to be a low quarter anyway, and then a little bit light because of the labor are recoverable. This year as long as we don't see continued impact.

I would tell you from a growth perspective, if you're concerned about the strike in line and we always say, it's lumpy, whether it's cash or leave it on the revenue side. So you can kind of look at it from quarter to quarter and EBIT from one year to another year stuff, but if you look at from 2017 using that as the base.

Speaker 2: lumpy, whether it's cash or even on the revenue side, you can kind of look at it from quarter to quarter, even from one year to another year stuff. But if you look at from 2017 using that as the...

Speaker 2: of shipbuilding at 6.6 billion, the CAGR on that over, over, over, uh...

Of shipbuilding, it's six 6 billion the CAGR on that over and over.

Speaker 2: four years is 5.5 percent. If you use 2018 as the base, the CAGR on that is 3.7 percent. And even using these two years where we had an acceleration in 2020 and then a little flatness in 2021 because of COVID, it's a 2.4 percent CAGR. So, I mean, we're being transparent in the notes that although we believe that shipbuilding is still 3 percent, and as I said over the last four years it's 5.5, the last three years it's 3.7, although we believe it's sustainable that we can get 3 percent long term.

For years is five 5% a year 2018. This debate the CAGR on that is three 7% and EBIT using these two years, where we had an acceleration in 2020, and then a little flatness in 2021 because of Covid is a two 4% CAGR. So we're being transparent in the notes that although we believe that shipbuilding is still 3%.

Last four years five five last three years, it's three seven but we believe it's sustainable that we can get 3% Walter it moderated just slightly.

Speaker 2: slightly as did guides to a range of 8 to 8.5.

Got it to a range of eight to date thought.

Speaker 3: And just related to this on timing, so, you know, you talk about 2021 and one of the things that helped you, you reported helping you in margins at Newport News was performance on Virginia class. Now, you're going through this Block 4 to Block 5 transition. General Dynamics reported that they were seeing delays in modules and some supply chain issues right now.

And just related to this on.

Timing so.

You've talked about 2021, and one of the one of the things that helped you reported helping you with margins at Newport News was performance on Virginia class.

Youre going through this block.

<unk> for the block five transition.

General dynamics reported that they were seeing delays in modules and some supply chain issues right now.

Speaker 3: I mean, when you're looking at 2022, are you seeing any issues there in terms of this overall program and how you do the transition from Block 4 to Block 5?

I mean, when you're looking at 2022 are you seeing any issues. There in terms of this overall program and how you do the transition from block for the block five yes.

Speaker 4: Yeah, no, uh, Doug, this is Chris. Actually, it's pretty encouraging from a module standpoint in Newport News last year, they met met their commitment on module. So so they're getting some stability in the manufacturing organization in Newport News.

Yes no.

Doug This is Chris actually that's pretty encouraging from a module standpoint of Newport News last year they met their commitment.

On module so.

Getting some stability.

Manufacturing organization in Newport News, so it's pretty stable.

Speaker 4: So it's pretty stable. Missed the milestones at the end of the year related to Montana.

Mr milestones at the end of the year related to Montana.

Speaker 4: and New Jersey, but those will happen here momentarily, but they're pressing towards getting back to a two-peer cadence. The team's very focused on it.

In New Jersey.

It'll happen here momentarily, but theyre pushing towards.

Getting back to the two P or cadence the team is very focused on it.

Okay. Okay, great. Thank you sure.

And the next question will be from Ron Epstein with Bank of America. Please go ahead.

Speaker 5: And the next question will be from Ron Epstein with Bank of America. Please go ahead.

Speaker 4: Yeah, good morning. Good morning, Ross. Thanks for the time. If you could, can you walk through the growth in technical services? Because it looks like if you look at the guide that you guys are implying, it implies

Hey, good morning, guys.

Morning, Ross. Thank you for your time.

If you could could you walk through the growth in technical services.

It looks like if you look at.

Guide that you guys are implying.

It implies.

Speaker 4: organic growth in the core, you know, if you think about a lion is actually pretty darn good. And it seems like, you know, organic growth, it might have been mid teens or higher in the business without a lion. And how do we think about that? And what are the growth drivers for that business as we go into the 22?

Organic growth in <unk>.

Core.

He puts out.

Orion.

That's pretty darn good and it seems like.

The organic growth that might've been mid teens or higher.

Business without alignment how do we think about that and what are the growth drivers for that business as we go into.

'twenty two.

Speaker 2: So, Ron, it's Tom here, and consistent with the notes I gave you, actually, if you pull a line out, the organic growth in your radio is flat. So, we can walk you through that on the side if for some reason you see something that's driving you.

So rod it's Tom here.

Consistent with the notes I gave you actually if you pull a line out the organic growth was flat.

We can walk you through that on the side.

That's driving you a different way on that.

Speaker 2: You know, we did have some pressures on man, although we feel positive about that business and we've highlighted that we think that's going to although the budget is small right now, we think that's going to be high growth area on the Navy side of the budget.

We did have some pressures on that although we feel positive about that business and we highlighted that we think thats good.

The budget is small right now, we think thats going to be high growth area on the Navy side of the budget.

Speaker 2: fast-growing as any account that they have there, we did see that the appropriations and the awards were delayed and we've been foreshadowing that that's going to be pushed out to the summer into the fall time frame of 2022. So, that actually stymies the organic side of TSD. From a line perspective, though, and you can work yourself through it on the K through the performance information that we gave you, they actually had a stellar year last year from a growth perspective. They were up 23% from 2020 to 2021.

Fast growing.

Any account that they have there we did see that.

Appropriations and the awards were delayed and.

Unfortunately, that's going to be pushed out to the summer into the fall timeframe 2022, so that actually stymie that organic side of TSA from align perspective, and you can work itself through.

On the indication.

Performance information that we gave it actually had a stellar year last year from a growth perspective, they were up 23% from 2000 22021 and consistent with what we've highlighted 18 1920 and the teams from a growth perspective, we've incorporated that into our DSD business.

Speaker 2: And consistent with what we've highlighted that, you know, 18, 19, 20, they were in the teens from a growth perspective. We've incorporated that into our CSD billion dollar business. And within the two six

And within the two six that we feel comfortable about the growth rates that we've been highlighting that for 79% for at least 2024.

Speaker 2: we feel comfortable about the growth rates that we've been highlighting there from seven to nine percent for at least twenty twenty four so uh... uh... also as i noted in my opening comments whether it was in Q3 for the first nine weeks or through Q4 and Q3 Q4 the run rates have been consistent uh... they've been slightly kind of

Also as I noted in my opening comments, what it was in Q3 for the first nine weeks or through Q4, and Q3 Q4 run rates have been consistent.

Slightly tenant.

Speaker 2: moving out there where we thought they would be to date. And as I've highlighted, with axles at 507, with that run rate itself, it needs about 11% growth to kind of make the 1.6 billion of the 2.6 that we're highlighting for the TSD division for 2022. So very comfortable with Alliant to date, although they're always good at your next bid and win, so they have to go do that.

Moving out there, where we thought they would be to date and.

Highlighted with actuals that final seven with that run rate itself it needs about 11% growth to kind of make the $1 6 billion of the two six that we're highlighting that the KFC division for 2022, so very comfortable with aligned to date. Although you always go to share. Your next bid wins sort of have to go do that.

Speaker 2: And then from the other side, Andy Green has restructured.

And then from a from the other side Andy Green has restructured this business.

Speaker 2: business over there. He's got his leaders aligned. He's getting some some some synergy of combining the leadership and resources with the

Over there he's got his latest aligned.

Just getting.

So some synergies.

The leadership and resources.

Yes.

Okay.

Speaker 2: TSD, and we're watching closely how unmanned unfolds to see the growth in that area.

Okay.

And we're watching closely how unmanned unfolds to see the growth in that area.

Speaker 4: Hey, Ron, from a market standpoint, I mentioned some significant opportunities that we have bid on and will bid on in the first part of the year. I don't want to comment on the specific items because they're competitive, but it's broadly across ISR advanced training.

Ron from Us from a market standpoint, I mentioned, some significant opportunities that we have bid on and we will bid on in the first part of the year I don't want to comment on specific.

Items, because our competitive but it's broadly across.

ISR advanced training cyber Intel and then we have unmanned opportunities that were delayed from last year that'll that'll.

Speaker 6: cyber Intel and then we have unmanned opportunities that were delayed from last year that'll that'll come out this year. So it's pretty broad within growth markets that that align and the legacy TSV are engaged in.

That will come out this year so.

Pretty broad within growth markets fit that align in the legacy <unk> are engaged in.

Speaker 4: You got it, got it, got it. And then maybe just as a follow on, can you speak a little bit to the CapEx investment you're making? You know, is that prepped for maybe more Virginia class? Or I mean, how do we think about that?

Got it got it got it.

The bottom line.

Can you speak a little bit to the Capex.

So does that does that prep for maybe more Virginia class.

How do we think about that.

Speaker 2: So, from the previous quotas, we were kind of highlighting that that was a possibility there. As much as we've seen the CapEx come down from 3.6% in 2020 and last year it finished up at 3.3%, we got into that 2.5%. More recently, because of our taking a look at

Yes.

From the previous quarters from kind of highlighting that that was a possibility.

<unk> seen the Capex come down from.

From.

336% in 2020 and last year at $3 three guidance about two 5% or recently because of our taking a look at.

We are evaluating both the current <unk>.

Speaker 2: submarine requirements as well as future anticipated awards that are coming in Block 6, Block 5, Block 6.

Submarine requirement as well as future anticipated awards that are coming in block six.

Bought six.

Speaker 2: the Columbia class follow-on, we're in discussions with our Navy custom on these requirements.

The Columbia class follow on.

We're in discussions with our Navy customer on these requirements and there is a need for additional investments for the submarine industrial base, specifically infrastructure and some tooling.

Speaker 2: And there is a need for additional investments for the submarine industry, specifically infrastructure.

Speaker 2: We would partner with the Navy on that investment, and with capital incentives, we would...

We would partner with the Navy on that investment and with capital incentives we would.

Speaker 2: we would be moderately increasing our cap back to now the forecasted range of 2.5 to

Moderately increasing our capex to now the forecasted range of two 5% to 3%.

Speaker 2: three percent. And that would run out over the next several years. Again, we would only go forward with the customer assistance. And to be clear, you know, we'd only move forward if the investment made sense and had an appropriate return against it. This is a minor change that we've incorporated into the business plan, but it is considered in the forecast of a $3.2 billion free cash flow for Generation 3 to 2024.

Run out over the next several years again, we would only go forward with the customer assistance and to be clear.

We'd only.

Move forward if the investment made sense. It was it had an appropriate return against it. This is a minor change that we incorporate into the business plan, but it is considered in the forecast of a $3 2 billion free cash flow generation.

2024 that is confirmed.

Speaker 6: It's also consistent with the two per year plus the next phase of the Columbia Clash. If it were to accelerate to three, then there'd be initial investment that would be required.

Yes, Brian .

Also consistent with the two per year plus.

The next phase of the Columbia class, if it were to accelerate too.

Three eight and then would there be initial investment that would be required.

Speaker 4: Got it. Got it. Got it. All right. Thank you. And Mike, congratulations on the transition. Per Doug's remarks, it's been nice working with you over the years. Thanks, Ron. I've enjoyed it.

Got it got it alright, thank you and congratulations.

On the transition.

Per doug's remarks.

Nice working with their vendors.

Thanks, Ron.

Got it.

Speaker 5: Thank you. And the next question will come from Robert Spingarn with Nellius Research. Please go ahead. Hi. Good morning.

Thank you and the next question will come from Robert Spingarn with <unk> Research. Please go ahead.

Hi, good morning, good morning.

Yes, Mike and Chris Congrats.

Speaker 5: It has been an excellent run working with you, Mike.

There has been an excellent work.

With you Mike.

Okay.

Speaker 5: I wanted to ask, Chris, if you could talk a little bit about labor, what you expect net headcount to be or growth to be in 22 and the pieces of that. So departures, additions, and how we think about cost within that and how the new collective bargaining agreement might affect that.

Chris If you could talk a little bit about labor.

What you expect net headcount to be to be in 'twenty two pieces of that so.

<unk> additions.

And how we think about cost.

And how the new collective bargaining agreement.

<unk>.

Speaker 6: Yeah, it's a good question. There's some really some positive indicators related to Omicron. We're cautiously optimistic. We only had 20 outs in Newport News or 20.

Yeah. That's a good question there is some.

I'm really some positive indicators.

Related to <unk>, where we're cautiously.

Really optimistic we only had 20 outs.

Newport News 20 folks that.

Speaker 6: uh... that have the virus earlier uh... earlier this week in attendance is improving and that's half the battle so getting the attendance back to stability uh... we have a predictable labor force to execute on the program is really

That had the virus earlier.

Earlier this week in attendance is improving and that's half the battle, so getting attendance back to stability.

We have a predictable labor force to execute on the programs is really.

Speaker 6: You know, Nirvana for a shipbuilder, so that's half the battle. The other half is we need to hire a north of 5,000 people, so I don't want to get into attrition and splitting it by the shipyards, but we're pretty good at building a workforce.

Nirvana for a shipbuilder.

Have a battle while the other half is we need to hire north of 5000 people. So I don't want to get into attrition and splitting it by the shipyards, but we're pretty good at building a workforce.

Speaker 6: our relationships with our apprentice schools, community college, high schools, we think we can meet that commitment. It's going to be a challenge.

Our relationships with our private schools community College high schools, we think we can meet that that commitment it's going to be a challenge, but we think we can fill that workforce in order to achieve our sales guidance.

Speaker 6: But we think we can build that workforce in order to achieve our sales guidance.

Speaker 5: Okay, and then just a quick one for Tom, if you could run through the details on the EAC's report.

Okay, and then just a quick one for Tom if you could run through the details on the EAC support.

Speaker 2: Sure, so for Q4 we saw a net $10 million favorability, 45 favorable and 35 unfavorable, and the net there of the 10 was basically attributable to a split between Ingleton and TSD.

Sure. So for Q4, we saw a net.

10 million favorability 45 favorable 35 unfavorable and the net debt of 10 was basically attributable to split between Ingalls TSB.

Okay. Thank you.

Speaker 5: And the next question will come from Mike McGarry with Wolf Research. Please go ahead.

And the next question will come from Mike Mcgeary with Wolfe Research. Please go ahead.

Speaker 3: Hey, good morning. Thank you guys. And Mike and Chris, congratulations to both of you.

Hey, good morning, Thank you guys and Mike and Chris Congratulations to both of them.

Speaker 5: Yeah. Chris, following on Doug's question, can you add a little bit more color around the transition between Virginia class block four and block five? As you close up your risk items, you're keeping an eye on what happened in block four, what you're sort of expecting for block five, and whether it could be upside there.

Yes.

Yes.

Paul on those questions can you add a little bit more color around the transition between Virginia class block four on block five.

As you close out the year risk items, you are keeping an eye on that happened in block four.

What youre sort of expecting for block five.

And whether it could be upside there.

Speaker 6: Yeah, so remember, we did take a charge on block four, so there could potentially be some upside in block five. The team's team is very focused.

Yes, so remember we did take a charge on block four so there could potentially be some upside in block five the teams team is very focused.

Speaker 6: on uh... early module uh... fabrication we met our commitment uh... this year in that regard and and the best thing about uh... you know kind of the rhythm we're getting there on the bcs program is your you're training a team

Early module fabrication, we met our commitments.

This year in that regard and the best thing about.

Kind of the rhythm we're getting there on the Vcs program as you're training a team.

Speaker 6: Right. And you're training a team to deliver one a float off one every year. That team is going to roll right on to right on the block five. So if we can get predictable performance that's that's really the place you want to be in in shipbuilding with in serial production. So we just need to keep the positive momentum going.

Right and you're training a team to deliver on our float off one every year that team is going to roll right onto right on the block five so if we can get predictable performance.

That's really the place you want to be and in shipbuilding and shale production. So we just need to keep the positive momentum going.

Speaker 5: Got it. And then related follow-up, how does the mix between Block 4 and Block 5 trend over the next three, four years, three years probably?

Got it and then.

A related follow up how does the mix between block four in block five trend over the next.

Three four years three years probably.

Speaker 6: We don't have that specific information for you. We don't really provide guidance at that level, but the deliveries on Block 4 happen one a year for the next three years after we get through Montana, and then we'll transition. So it'll slowly evolve into more Block 5 revenue.

So we don't have that we don't have that specific information for you, we don't really provide guidance at that level, but.

Deliveries on block four happened one year for the next three years after we get through a Montana and then we'll transition.

So it will slowly evolve into more more block five revenue.

Got it thank you sure.

Speaker 3: The next question will come from Seth Seifman with JP Morgan, please go ahead.

The next question will come from Seth <unk> with Jpmorgan. Please go ahead.

Speaker 2: Hey, thanks very much and good morning and congratulations to Mike and Chris.

Hey, thanks, very much and good morning.

And congratulations.

Mike and Chris.

Just wanted to start off asking.

Speaker 5: I just wanted to start off asking a little bit about the cash flow bridge and just kind of understanding the piece that's in 23, I think, the $200 million of shipbuilding growth and working capital, just when we think about shipbuilding growth and we think about, you know, a 3% top line with a shipbuilding margin type drop through after tax.

A little bit about the cash flow a branch and just kind of understanding.

<unk> that's in 'twenty three I think.

The $200 million.

Shipbuilding growth at in working capital.

Just when we think about shipbuilding growth when we think about 3% top line with a shipbuilding margin type drop through after tax.

Speaker 5: you know, that would imply that the vast, vast majority of that 200 million.

That would imply that the vast vast majority of that $200 million.

Speaker 5: is working capital. So, you know, a just want to confirm that that's kind of the right way to think about it. And then when we think about what drives the growth.

<unk> is working capital. So just wanted to confirm that that's kind of the right way to think about it and then when we think about what drives the growth.

Speaker 5: uh from 23 to 24 is it is it a similar dynamic where there's that level of you know underlying

From 'twenty three to 'twenty four.

Is it a similar dynamic where there is that level of.

Underlying EBITDA growth.

Speaker 5: EBITDA grows from the shipyards on that kind of 3%, and then anything else is kind of working capital as you go to 24.

From the shipyards on that kind of 3% and then.

Anything else is kind of working capital.

As you get into 'twenty four.

Speaker 2: Oh, yeah, thanks. I appreciate the question. It's Tom here. So, yeah, from the working capital perspective, you are right. You know, the bar there shows $200 million, so there is a lift there, both in the volume and then the expected returns from the 7-7 ROC that we gave you for shipbuilding to now the range that we have here. So you can do the quick math of that, and, you know, that's about a quarter of that, a little fifth of that. The rest is in working capital, which is the preponderance of it. And there is a piece, even though the Cap Act...

Sure Yes. Thanks I appreciate the question, it's Tom here. So yes from the working capital perspective, you are right. The bar there shows 200 $200 million. So there is a lift there both in the volume and then the expected returns from the from 77% drop that we gave you for shipbuilding to now the range that would be happier. So you can do the quick math on that.

That's about that's about a quarter of that.

So for that the rest is in working capital, which is the preponderance of it and there is a piece even though the capex is not at the two and a half at two 5% to 3% on the low end of the range or is it a little bit of a question that we did put it on the chart kind of going forward.

Speaker 2: is not at the two and a half, but at two and a half to 3% on the low end of the range. There is a little bit of a push there. We did put it on the chart, kind of going forward.

Speaker 2: The CapEx could be $10 to $20 million on a run rate, cheaper going forward on that. The working capital itself, the way I kind of look at that, as I mentioned, is we see a drag from the working capital leaving $21 going into $22, about $100 million additional working capital, and then that reverses itself.

The capex could be $10 million to $20 million on a run rate and cheaper.

Forward on that but working capital itself the way I kind of look at that as I mentioned as we see a drag.

From the working capital, leaving 21 going into 'twenty, two by about $100 million.

Additional working capital and then that revert reverses itself to over $300 million I mean, its both the bar there as well as what's kind of sitting in the advanced progress.

Speaker 2: uh... over three hundred million dollars i mean it's both of the bar there as well as uh... what kind of sitting in the event progress and uh... and if i could repayment that uh...

Repayments.

Speaker 2: give back there too. And that comes about through both the contract work.

Get back to and that comes about through both the contract are working.

Speaker 2: the working capital that we have, as well as the trade working capital. So you can work yourself through that. It does improve, as I say, significantly from 22 to 23. And we find ourselves going from the top end of the range in 22, about 6% to 8%, to actually with cap and incentives, actually kind of gets us even below the bottom end of that 6% range in 23, with a slight improvement going forward in 24.

King.

Capital on behalf as well.

The trade working capital. So you can work yourself through that it does improve as I say significantly from 'twenty two to 'twenty, three and we find ourselves going from the top end of the range.

<unk> two <unk>.

Percent to 8% actually with Kevin incentives actually kind of gets us below the bottom end of that 6% range in 'twenty three with a slight improvement going forward in 'twenty four.

Speaker 5: Okay. Okay. Thanks. And then just wanted to follow up quickly on the hiring. The 5,000 people, how does that compare to other years recently in terms of, you know, I guess that's the number of gross ads? Because just looking at it as a percentage of the shipbuilding workforce, it seems like it's, you know, it's pretty high. It's probably about 14% of the shipbuilding workforce.

Okay. Okay. Thanks, and then just wanted to follow up quickly on the hiring.

The 5000 people.

How does that compare.

To other years recently.

In terms of I guess thats the number of gross adds and then just looking at it as a percentage of the shipbuilding workforce. It seems like its pretty high it's probably about 14% of the shipbuilding workforce.

Speaker 6: Yeah, Seth, we're pretty good at hiring people. We hired that almost that much last year. Well, we'll actually hire north of that this year. So yeah, we're pretty good at this. My boss considers it a core competency, and so do I. Great.

Seth.

Pretty good at hiring people, we hired that almost that much.

Last year, well actually higher north of that.

This year so yes.

Yes.

Good at this it's we.

My my boss considers it a core competency and so do I.

Great. Okay. Thanks, very much guys sure.

Speaker 3: The next question will come from David Strauss with Barclays. Please go ahead.

The next question will come from David Strauss with Barclays. Please go ahead.

Speaker 6: Great, thanks and let me echo my congratulations to you both as well.

Great. Thanks, and let me Echo my congratulations.

Two both as well.

Thanks, David.

Speaker 6: Just wanted to ask you about the shipbuilding margin profile. So, you know, you're calling for, you know, a couple of, I guess, 40 bits of, 40, 50 bits of improvement. Can you talk or give some color how that might break out amongst the shipyards? I mean, we've been on a trend here where, you know, Newport News has been coming up, Ingalls has been trending down. So, how does that look, you know, I guess, in 22, and then, you know, for the additional progress you're expecting beyond 22?

Just wanted to ask you about the shipbuilding margin profile. So you are calling for a couple of I guess 40 bps 40, 50 bps of improvement can you talk or give some color how that might break out amongst the shipyards I mean, we've been on a trend here, where Newport news has been coming off.

<unk> has been trending down so how does that look.

I guess in 'twenty, two and then.

For the additional progress you're expecting beyond 'twenty two.

Yes so.

Speaker 2: Yes, so, you know, to date, we give our outlook against the enterprise there, so we don't kind of break that up between both Angles or Newport News.

To date he gave.

Our outlook <unk>.

So we don't kind of break that up between both angles or Newport news.

Speaker 2: As I kind of mentioned earlier a little bit, it is the shifts that we have in the contract working them through the, you know, EAC processes, the risk registers, burning down risk as we get deeper into the build cycle, the additional progress, payment clause allows us to have more collections, and with the burn down of risk, we'll have higher booking rates as we get into more deliveries in the outcome.

As I kind of mentioned earlier, a little bit is the shifts that we have under contract.

Yes for sure.

Processes, the risk registers, starting that risk as we get deeper into.

The build cycle additional progress payments clause allows us to have more collections and.

It brought down our rents will have a higher booking rates as we get into more deliveries in the out years.

Speaker 6: and that's the essence of it. Yeah, I will say, David, I agree with Tom, but it's really the maturity of the shifts at Newport News that are going to drive a lot of that earnings growth.

That's the essence of it yes, well estate, David just I agree with Tom, but it's really the maturity of the shifts that Newport news are going to drive a lot of that that earnings growth.

Okay got.

Speaker 6: And Chris, maybe if you could touch on the unmanned portfolio, I think you highlighted it as a bit of a risk item last quarter, and I guess you also highlighted in the release today that it dragged on TS margin. Just an update on what you're seeing there. Thanks. Yeah, some progress there. Small and medium, we think.

And Chris maybe if you could touch on the unmanned portfolio. I think you highlighted is a bit of a risk item last quarter and then I guess you also highlighted in the release today that dragged on TFS margin just an update on what Youre seeing there yes, yes. Some some progress there are small.

Medium we think.

Speaker 7: uh... will both be awarded uh... late

We will both be awarded.

Right.

Speaker 7: Q1, early Q2, really after the budget is agreed upon. So we'll know a lot more after small and medium-sizer are awarded. We're making good progress on XL. We shipped our first modules to Boeing.

Q1 early Q2 really after the budget is agreed upon so we'll know a lot more.

After after small and medium size or our award is we're making good progress on XL, we shipped our first modules to Boeing so it's critically important we get we get that shift or that boat for Boeing gets at boat in the water to start demonstrating its capability. So so reasonable progress in unmanned and we'll know a lot more of this.

Speaker 7: So it's critically important we get that ship or that boat or Boeing gets that boat in the water to start demonstrating its capability. So reasonable progress in unmanned, and we'll know a lot more this year.

Year.

Alright, thanks very much sure.

Speaker 3: And the next question is from Pete Skavitsky with Alembic Global. Please go ahead.

And the next question is from Pete <unk> Kubicki with Alembic Global. Please go ahead.

Speaker 8: Good morning, guys, and I'll reiterate, like, best of luck, and Chris, congrats.

Hey, good morning, guys and I'll reiterate Mike Best of luck and Chris Congrats.

Speaker 8: Want to talk about aircraft carriers. It looks like work on the Ford elevators is finally finished up and, you know, the ship's getting closer to deployment. And I saw on your slides that the statement of work, I think, on the Kennedy is now done. Can you talk about maybe what you've learned about the technical risk on the Ford class and how that's going to apply to the Kennedy? And do you have that contract mod yet on the Kennedy? That's it. Thanks.

One thing about aircraft carriers it looks like work on the Florida elevators is finally finished up in ships getting closer to deployment.

And I saw on your slides at the statement of work I think on the Kennedy is now done could you talk about maybe.

What you've learned about the technical risk on the Ford class and how thats going to apply to the Kennedy.

Do you have that contract mod yet on the Kennedy.

Okay. Thanks.

Speaker 7: Yeah, we do have them all on the Kennedy. I got an old aircraft carrier program manager here that hasn't answered a question, so I'm curious if he wants to jump in here on the aircraft carriers, then I'll jump in after. Thanks, Chris. I think the first part of your question is, what did we learn from Ford that's going to go through the rest of the class?

Yes, we do have the model in the Canada.

<unk> aircraft carrier program manager here that hasn't answered a question. So I'm curious if she wants to jump in here on the aircraft carriers, then off Brian jump in after thanks, Chris.

I think the first the first part of your question is what do we learn from from.

Forward this kind of goes through the rest of the class.

And I think over.

Time, we've talked about it.

Wanted out that the first ship and our production run is also a prototype where we have to test out the mining plans that design.

Supply chains construction plans all of those things get tested.

Speaker 7: Um, we we then came off of that just to kind of set you on how we did this. We came off of that with a plan to invest capital. We invested about $250 million in capital. We reduced the price of of the Kennedy by about a billion dollars based on that. And that was really, really driven by learning curves.

We then came off of that.

Set you.

Now we did this we came off of that with a plan to invest capital we invested about $250 million in capital we reduced the price of.

The Kennedy by about a $1 billion based on that and that was really driven by learning curves.

We went to the government and said, Okay. We have now figured out how to efficiently build this ship understanding the supply chain and understanding the.

Speaker 7: understanding the supply chains and understanding the manning and the technology and all that sort of stuff and the learning curves, the next thing we need to do is we need to buy these things smarter. And so the government worked with us and we came up with a two-shift buy for 80 and 81.

The Manning and the technology and all that sort of stuff and the learning curve is the next thing we need to do is we need to buy these things smarter and so the government work with us when we came out with a two ship buy for $80 81.

Speaker 7: I think that, you know, where we are right now is weapons elevators on floor behind us. The ship is accelerating towards delivery from its last availability with us.

<unk> debt.

Where we are right now as weapons elevators on quarter behind us the ship is accelerating towards delivery from its last avail.

Availability with us.

Speaker 7: post-shock trials and it's accelerating towards its first deployment.

Post shock trials and it take celebrating towards its first deployment.

Speaker 7: I think you're going to see this ship out there carrying the flag and doing great things.

I think youre going to see the ship out there.

Carrying the flag and doing great things.

Speaker 7: In the meantime, we've got the modification for Kennedy to go forward. We've taken all of the lessons that we've learned from Ford. We've invested against those lessons to drive success on Kennedy. And as I think Chris pointed out, you know, the fabrication and work that we're already doing on Enterprise after that, and then Dory Miller after that.

In the meantime, we've got the modification for Kennedy to go forward, we've taken all of the lessons that we've learned from Ford we've invested against those lessons.

To drive success on Kennedy.

And as I think Chris pointed out.

The fabrication and work that we're already doing on enterprise after that and enduring Miller after that.

Speaker 7: I mean, you're talking about a four ship, a four ship program here that's going to be very mature and hot and running really well. And I think it's going to put the put our customer in a place where they can think seriously about how do we extend this program and move forward? And I and, you know, my my focus would be at this point is how do we take all of this in a package and start talking about 82?

We're talking about a four shift for ship program here, that's going to be very mature and hot and running really well and I think it is going to put the put our customer in a place where they can think seriously about how do we extend this program and move forward.

My focus would be at this point is how do we take all of this in a package and start talking about 82.

Speaker 7: and 83. I think that's where we need to be going with the program. I think it's positioned very well to do that. We're through the growing pains now and we're ready to accelerate into efficient production. I'm excited about the future of the program and it is a tremendous shift.

83, I think Thats, where we need to go on with the program I think its positioned very well to do that.

We're through the growing pains now.

We're ready to accelerate into efficient production.

Excited about the future of the program.

It is a tremendous shift.

That's great thanks very much.

Yes.

Speaker 3: The next question will be from Gautam Khanna with Cowen. Please go ahead.

The next question will be from Gautam Khanna with Cowen. Please go ahead.

Speaker 4: Hey, good morning, guys, and congratulations, Mike and Chris.

Hey, good morning, guys and congratulations Mike and Chris Thanks.

Speaker 5: By the way, it's sad. Now we have Dwayne leaving and, you know.

By the way it said that we have Duane, leaving and the announced.

Speaker 5: And now you might, but anyway, I just wanted to, uh, you'll, you'll be okay. I'm sure I won't leave. No, no insult meant that I just, uh, you know, it's, it's been a long time, you know, I was going to ask.

I know you Mike but.

Anyway, I just wanted to.

Youll be okay I'm sure.

Hello Lee.

Okay.

[laughter] no insult meant that I just.

<unk>.

It's been a long time.

Yes.

Speaker 5: about the guidance on shipbuilding margin. First of all, I mean, it seems extraordinarily precise, 8 to 8.1 percent. It's a tighter range than you've given in the past. And I was curious, you know, what informs that conviction around, you know, a 10 basis point swing? And given the soft Q1 start, I mean, is there any weighting you could tell us, like Q4 has got a ton of catch-ups or risk retirement opportunities or what have you? Like, just if you could kind of...

About the guidance on shipbuilding margin first of all I mean, it seems extraordinarily precise eight to eight 1%, it's a tighter range than you've given in the past and I was curious.

What informs that conviction around.

At 10 basis points Slagging.

And given the soft Q1 start.

Is there any weighting you could tell us like Q4 is that a ton of acute catch ups or risk retirement opportunities or what have you like just if you could kind of give.

Speaker 5: Give us a sense for why the precision and when do we get those lumpy-cume catch-up opportunities.

Give us a sense for why the precision and when do we get those lumpy Q catch up opportunities.

Later in the year.

Speaker 2: Sure, yeah, it is a more precise range than we gave last year. Last year we started out at 7.8, and we narrowed that in Q3 to 7.5.

Sure Yes. It is a more precise range that we gave last year last year, we started at seven to eight and we narrowed that in Q3 to seven five to eight that came in at 77.

Speaker 2: 8 and it came in at 7.7. And although that range was probably a safe and conservative range, we wound up on the top end of that range.

Although that range was probably a conservative range, we wound up on the on the top end of that range.

Speaker 2: We did see, you know, foresee that that could happen, but we wanted to see that the year play out with COVID, so that was a

Did see foresee that that could happen, but we want to see that play out with COVID-19 . So that was why.

Speaker 2: why we did that. I think going into 2022,

Why we did that.

Going into 2022.

Speaker 2: We did want to give a really wide range. We felt it would be a little bit more transparent where we think the year is going to land. We feel comfortable that's from where we exited at 7.7 percent for shipbuilding.

We didn't want to give a really wide range, we felt we'd be a little bit more transparent where we think the.

The year is going to land, but we feel comfortable that from where we exited at seven 7% for shipbuilding.

Speaker 2: Uh, we know the work we're doing, the backlog, you know, that's coming on board, which isn't really going to influence 2022 that much, but the work we're doing, the serial production, the lessons learned that Mike and Chris have talked about, we feel, you know, strong about that kind of going forward.

We know the work we're doing in the backlog.

Coming on board.

2022 that much but the work we're doing.

Production and lessons learned that Mike and Chris has talked about we feel strong about that.

Going forward.

Speaker 2: you know COVID could have an impact on the on the revenue but the cost efficiency and how we're operating right now we feel good about and we think that there's going to be a lift. We've been guiding that we're going to march our way back up and we think that's still in play here right now.

Yes.

Covid could have an impact on the on the revenue, but cost efficiency in how we're operating right now we feel good about and we think this is going to be a lift we've been guiding that we're going to March our way back up and we think that's still in play here right now.

Speaker 2: The portfolio mix, as we've said, but we take it behind us on VCS, is in the mix. So that's going to slow the march back, but it's still a march back up from where we thought we'd be. So we feel good about it right now as we get into the year and work down the risk.

Portfolio mix as we've said on but we take it behind us on Vcs in the mix. So that's going to slow the March back, but it's still a march backup for higher from where we thought we'd be.

We feel good about it right now as we work.

As we get it to work down the risk.

Speaker 2: we'll see that, that we'll realize that, right?

We'll see that.

We will realize that right.

Speaker 2: Now, specifically, what we see happening here is with more deliveries in 22, 23, and 24 than when we came from in 18, 19, 20.

Now specifically, what we see happening here is with more deliveries in 'twenty two 'twenty three 'twenty four and then when we came from in 18 1920.

Speaker 2: with the shifts as we're building them with the lessons learned in serial production. And there are a couple of shifts in the next year or so, uniquely contracted, higher incentives. I think of like DDG 125, for example, that was a modified FLEC-2 that we incorporated in ECP, uniquely how we contracted that with incentives on the schedule side of it. So there's a couple of nuances in the shifts that we believe are going to provide additional margin.

<unk>.

We're building them with with the lessons learned in serial production and there are a couple of shifts in the next year or so.

Uniquely contracted higher incentives I think of like DDG 125. For example that was a modified to incorporate in the ECP a unique uniquely how we contract with incentives on the schedule side of it so.

All of the nuances and the shifts that we believe are going to be providing additional margin.

Speaker 2: say, than a normal shift. But we have a lot of the side of that right now, and we feel comfortable under that look of 8 to 8 months.

In a normal shipment we have line of sight of that right now and we feel comfortable on an outlook of 88 one.

Speaker 5: And your point is it sequentially builds through the year, so Q4 is greater than Q3, greater than Q2, etc., in terms of margin? We didn't provide that guidance. I would tell you it's pretty flat. I mean, I think obviously a Q1 is going to be light. And then from there, we'll see how it plays out. But after we get out of Q1, it's not a significant driver from quarter to quarter.

And your point is it sequentially builds through the year. So Q4 was greater than Q3, two meters in Q2 et cetera in terms of margin.

We didn't provide that guidance I would tell you it's pretty flat I mean, I think obviously Q1 is going to be like and then from there we'll see how it plays out but after we get out of Q1, it's not a significant driver from quarter to quarter there.

Speaker 2: Okay. And just to follow up on- It's not a quarter to quarter game.

Okay, and then just a follow up on margin.

It's not a quarter to quarter game alright.

Speaker 5: Got it. Okay, now that's helpful. And then with Allion, I'm just curious, we've seen a lot of the government services contractors.

Got it Okay. That's helpful and then with Allianz.

I'm just curious if you've seen a lot of the government services contractors.

Speaker 5: you know, not have great results of late for whatever reason, whether it be COVID-19 , whether it be, you know, bookings or soft

Not have great results of late for whatever reason, whether it be COVID-19 , whether it would be.

Bookings are soft because of the government's not getting stuff awarded on time due to COVID-19 or continuing resolution and I'll, Mike I'm, just curious like what.

Speaker 5: because the government's not getting stuff awarded on time due to COVID or continuing revolutions and the like. I'm just curious like what...

Speaker 5: what can you say about sort of the alley on book to bill in q4 and

What can you say about sort of the alley on book to Bill in Q4.

Speaker 5: You mentioned there were some contracts you're bidding on in the first half. You know, how do you, what do you expect for Book to Bill and Allianz in 22?

You mentioned there were some contracts.

You are bidding on in the first half and how do you what do you expect for book to Bill at <unk>.

You too thanks.

Speaker 6: Thank you. So we think this, Chris, I think the book book to bill will be north of one based on the significant opportunities we have there.

So we think this Chris.

I think so.

Book.

Bill will be.

North of one based on the significant opportunities we have there.

Speaker 6: If the CR extends too far into the year, there could be some pressure on the top line, but we're pretty comfortable with our pipeline and the significant opportunities we're bidding on and the markets that we're in, we're pretty comfortable with the lion and technical solutions.

If the CR extends too far into the year there could be some.

Some pressure on the topline, but but we're pretty comfortable with the with our with our pipeline and the and the significant opportunities we're bidding on in the markets that we're in.

We're pretty comfortable with Alliant in technical solutions.

In Q4 book to Bill.

Speaker 4: Yeah, I was south of that. I don't have that specific information in front of me. Tom, if you have it, go ahead.

Yes, it was south of that I don't I don't have that specific information in front of me.

Thanks, Thomas Yeah go ahead.

I know it was 1111 Gram.

Thank you guys.

Speaker 5: The next question will be from George Shapiro with Shapiro Research. Please go ahead.

The next question will be from George Shapiro with Shapiro Research. Please go ahead.

Speaker 5: Yes, could you comment on where the learning curve has been on the Kennedy and you're 89% done. I remember in the beginning there was this big issue that you were going to have twice the learning curve that they may be suggesting.

Yes could you comment on where the learning curve has been on the Kennedy of your 89% done I remember in the beginning there was this big issue that you were going to have twice the learning curve with the Navy.

With suggesting.

Speaker 6: Yes, so we don't have a specific learning curve on Kennedy at this point. We just extended the schedule for the single-phase delivery. They're heavily into the volume work on the shift. They're miles ahead in some systems and making really good progress. So I'm comfortable with where they're at financially, but I don't have a specific learning curve for you right now, George.

Yes, so we don't we don't have a specific learning curve.

Candidate at this point, we just extended the schedule for the single phase delivery.

They are heavily into the volume work on the ship.

Miles ahead.

Some and some systems in.

We're making really good progress so I'm comfortable with where they are financially, but I don't have a specific learning curve for you right now George.

Speaker 5: Okay and then maybe one quick one for Tom. Given that New Jersey and Montana didn't meet the milestones in Q4, are they expected to meet them in Q1? And if so, why wouldn't the margin be a little better than the seven percent?

Okay, and then maybe one quick one for Tom given that New Jersey in Montana didn't meet the milestones in Q4 are they expected to meet them in Q1, and if so why wouldn't the margin be a little better than the 7%.

Okay.

Speaker 2: So they were planned to happen last year. I will tell you, though, that just as we go over the goal line, some of the milestones don't specifically bring margin immediately. Depending on where they finish in the quarter, they're going to need to see the hot wash that we do, and it could be both from the south corner. Even though they will bring a couple of dollars that goes into the mix against the portfolio. So when you really add up all the math, you're not going to see a big driver in one specific quarter like that. But it is a slight left.

So they were planned that happened last year I will tell you, though that just as we go over the goal line of some of the milestones specifically bank margin immediately depending on where we finished in the quarter then hop wash that we do an assessment.

Subsequent quarter, even though they will bring a couple of dollar that goes into the mix against the portfolio. So when you really add up all the math youre not going to see a big driver.

One specific quarter like that but it is it is a slight lift and that's probably as more accretive sort of $7 seven last year without them coming into this year.

Speaker 2: And that probably adds more credit to the 7-7 last year without them coming into this year, you know, bolsters our outlook and our perspective on what 8-8 will look like.

Bolsters, our outlook and our perspective on what April looks good remember George those are block four boats and we did take a charge on those so the opportunity for risk retirement is reduced.

Speaker 6: Remember, George, those are Block 4 boats, and we did take a charge on those. So the opportunity for risk retirement is reduced.

Speaker 5: Okay, thanks, and congratulations, Chris, and lots of luck to you, Mike.

Okay, Thanks, and congratulations Chris and lots of luck to you Mike.

Thanks, George George.

Speaker 5: Thank you. I'm not showing any further questions at this time. I would like to hand the conference back over to Mr. Petters for any closing remarks.

Thank you I'm not showing any further questions at this time I would like to hand, the conference back over to Mr. Petters for any closing remarks.

Speaker 7: My last earning calls I just want to take the opportunity to say thank you again to all of the folks that I've had the opportunity to work alongside with the last 35 years.

On my last earnings call. So I just wanted to take the opportunity to say thank you again.

Again to all of the folks that I've had the opportunity to work alongside with the last 35 years.

Speaker 7: It's been a privilege for me to serve as CEO of this company for so many years. And I frankly have enjoyed working with each and every one of you in the financial community and the business in our customer set.

It's been a privilege for me to serve as CEO of this company for so many years and frankly I've enjoyed working with each and every one of you.

In the financial community in the business and our customer set and I do appreciate your research and thoughtful questions. Even if I didn't say so at the time.

Speaker 7: And I do appreciate your research and thoughtful questions, even if I didn't say so at the time.

Speaker 7: I've learned a lot. I would hope that maybe you've learned a little along the way, but as we look forward, and as you can tell by today's call, our company is in very good hands with Chris and the senior leadership team, and I am confident that HII has a very bright, bright future. Thanks for joining us on today's call. I hope that you and your families continue to stay safe and healthy. We appreciate your time and your continuing interest in our company. Thank you.

I've learned a lot I would hope that maybe you've learned a little along the way.

But as we look forward and as you can tell by today's call.

Our company is in very good hands with Chris and the senior leadership team and I am confident that HII has a very bright bright future. Thanks for joining us on today's call I hope that you and your families continue to stay safe and healthy. We appreciate your time and your continuing interest in our company. Thank you very much.

Speaker 5: And thank you, sir. The conference has now concluded. Thank you for attending today's presentation.

And thank you Sir.

France has now concluded. Thank you for attending today's presentation you may now disconnect.

Speaker 9: www.larryweaver.com

Okay.

Yes.

[music].

Yeah.