Q3 2022 Aerojet Rocketdyne Holdings Inc Earnings Call
Greetings and welcome to the Arab jet Rocketdyne third quarter 2022 earnings conference call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.
A reminder, this conference is being recorded it is now my pleasure to introduce your host Kelly Anderson <unk>.
As controller and Investor Relations. Thank you Kelly you may begin.
Thank you and good morning, and welcome to the Aerojet Rocketdyne third quarter 2022 earnings results Conference call, leading our discussion today are <unk>, Chief Executive Officer, and President and Dan Bailey Chief Financial Officer. Following their prepared remarks, we will open the line for your questions.
Before we begin the call I'd like to remind you that our remarks. This morning may contain forward looking statements that relate to the future performance of the company and these statements are intended to qualify for the Safe Harbor protection from liability established by the private Securities Litigation Reform Act.
Any such statements are not guarantees of future performance and factors that could influence. Our results are highlighted in today's press release and others are contained in our filings with the Securities and Exchange Commission.
Such statements are based upon information available to the company as of the date hereof and are subject to change for future development.
Except as required by law the company does not undertake any obligation to update such statements.
Our remarks this morning and in today's press release also contain non-GAAP financial measures within the meaning of regulation G promulgated by the Securities and Exchange Commission.
And such release is a reconciliation of these non-GAAP financial measures to the comparable financial measures calculated in accordance with GAAP. Finally, we have posted supplemental slides regarding our quarter that are available on aerojet Rocketdyne Investor Relations site for download, which we encourage you to review.
With that I'd like to turn the conference call advertising Drake, Chief Executive Officer, and President at Aerojet Rocketdyne Eileen. Please go ahead, thanks, Kelly and good morning, everyone and welcome to Aerojet Rocketdyne <unk> third quarter 2022 earnings call.
Today I'll discuss our results for the quarter at a high level and touch on our longer term objectives for the business. I'll, then turn it over to Dan for a review of our financial results macro trends and the outlook I am pleased to share that aerojet rocketdyne demonstrated strong operating profits and improved cash flow for the <unk>.
Quarter.
Adjusted EBIT DAP was nearly 14% in Q3 and free cash flow was $22 million keeping us on track for positive cash generation in the back half of the year as expected.
Sales for the quarter were also up both sequentially and year over year book to Bill is <unk> nine on a year to date basis and backlog remains healthy at $6 7 billion underscoring Aerojet rocketdyne as a preferred supplier for our nation's defense and space systems.
Focus in Q3 remains on supporting our defense development programs, which continue to perform well as they mature. This includes the next generation interceptor GBS D. Now called Sentinel and hypersonic programs all of which were solid performers at the same time, we're enhancing our <unk>.
Petitor position through strategic investment operational efficiencies and cost controls this will support sustained profitable growth across our programs. We did continue to experience some headwinds to sales related to supply chain delays, most notably on the RF twenty-five program.
However, the program is meeting its material receipt plan in October and we continue to believe the timing delays are short term in nature or is 25 sales were up from 13% of sales in the second quarter to 15% of sales in the third quarter and this trend is expected to.
<unk> through the fourth quarter.
It's important to note that aerojet rocketdyne orange twenty-five engines are not impacting Nasa's Artemis launch schedule in any way. They always 25 engines for their first two Artemis launches have already been delivered to NASA and engines for the third and fourth launches are complete and nearly complete.
Secondly, as you'll recall from last quarter, we took a significant charge on a portion of the standard missile program, resulting from supply chain issues combined with an outlook from the U S government and customers if they would like to increase annual production rates as an update on that contract I'm pleased to tell you.
They were on target with our plan to substantially increase annual production capacity, which included opening our second production facility earlier. This month, we feel confident that this proactive investment will not only allow us to complete our current contract within the period of performance, but also puts it.
A path to be in place to address anticipated quantity increases starting in 2024.
We remain confident in our ability to hit our revenue and adjusted EBITDA targets, excluding EAC adjustments for the year and Dan will expand on this in his comments shortly.
Turning now to our long term objectives, we are intensely focused on investing in line with our nation's defensive space priorities and driving improvements to our competitive edge to position Aerojet rocketdyne for enhanced shareholder value creation.
I'll start with the work, we're doing to provide reliable and innovative products for America's National security and support a diversified mix of defense and space programs several of which we've outlined in our supplemental slide deck.
On the defense side, we're continuing our work on setting all the nation's next ground based strategic deterrent, including advancing the development of both the third stage large solid rocket motor and the post booster propulsion system. Among other milestones, we announced that we successfully conducted.
The post boost propulsion system critical design review for Sentinel, passing a major review gate on the path to flight readiness and paving the way for fabrication demonstration and testing a propulsion components. Prior to production. We are also pleased to announce that aerojet rocketdyne was selected to power.
Power, the Navy's compact rapid attack weapon or car.
Part of the Raytheon missile defense teams development of this next generation torpedo.
Our company will provide the after body propulsion system and tail for the new torpedo the new torpedo will use innovative stored chemical energy propulsion systems, or skips, which will significantly improve its capabilities. This work will build on the successful testing of our skips lithium.
Boiler earlier, this year, which we developed through our R&D investment at our Coleman Aerospace facility. In addition to the use of sketched for compact rapid attack weapons torpedoes. We're also under contract to the U S. Navy to develop scripts for the Navy's largest mark 54 Mod.
Two torpedo.
Against the backdrop of these program wins, while also advancing important work in hypersonic and counter hypersonic test and development as we've talked about previously aerojet rocketdyne as an industry leader in hypersonic propulsion technology, which will be increasingly important to us as we look to the future.
Turning now to space, we're looking forward to Nasa's Artemis one launch in just a few weeks. The company has provided critical elements to the autonomous one mission with propulsion on both the SLS rocket and the Unquote Orion spacecraft Artemis one is a first in a series of missions to return.
Arne American astronauts, including the first woman and the first person of color to the Moon.
This launch will come on the heels of massive double asteroid redirection test or a dart in which a spacecraft impacted of near Earth asteroid propelled by 12, Aerojet Rocketdyne thrusters. The goal of this mission was to demonstrate a method of asteroid deflection by deliberately striking an asteroid.
At high speed to change the asteroids motion in space.
The spacecraft closed in on the asteroid a flight proven propulsion systems conducted last minute course corrections to ensure accurate impact in.
In addition to providing the chemical propulsion system for the spacecraft Aerojet Rocketdyne NASA evolutionary xenon thruster commercial our next C system was also tested during the mission to assess the thrusters potential application for future deep space.
Missions.
<unk> C is a next generation solar electric propulsion system designed and built by Aerojet Rocketdyne based on mission proven technology developed at NASS as Glenn Research Center.
This quarter Aerojet Rocketdyne also provided all of the thrust needed to power the successful launch of our United launch Alliance Delta for heavy rocket carrying a classified payload for the National reconnaissance office.
I used a reliable and flight proven Rs 68 at our old 10 propulsion systems, which have delivered 100% mission success since the delta for program's inception.
Two remaining delta for heavy launches slated for the first quarters of 2023 and 2024.
In addition to our strong alignment with National Defense and space priorities. We're also taking actions to increase efficiency manage our costs and position the company for a strong and successful future.
Today I want to highlight our investments in a few of our facilities to make us more competitive.
This quarter, we opened a new 51000 square foot building in Camden, Arkansas, which consolidates multiple manufacturing activities under one roof.
With the ability to eventually support large scale.
Rocket Motors to power next generation missiles, the new facility integrate solid rocket motor manufacturing activities, improving operational efficiency, increasing production capacity, reducing costs and providing for even safer operations. The facility results in reduction of the need to.
Transport motives across our Hampton site during manufacturing by more than 90%.
The first program to begin production of the new manufacturing facility is the propulsion system for the Pac three missile segment enhancement.
We're also leasing a new facility to expand our presence in Huntsville, Alabama by nearly 380000 square feet. This will provide additional job opportunities and builds on a 700% increase over the last five years and the number of employees, we have working at our facilities in Huntsville.
This facility solidifies Huntsville, as our an Earth manufacturing center of excellence and the expansion allows us to increase defense manufacturing capacity once it becomes operational in 2023.
In addition, we're delivering results from prior long term investments in our Huntsville, and Camden facilities. We previously transfer production of large solid rocket motors to these sites as part of our competitive improvement program.
Our teams at those facilities are incorporating innovative materials and applying efficient manufacturing processes to design and produce the advanced technology systems needed to power defense across multiple domains. For example, this quarter, where the Air Force Research Laboratory at Woods are for.
Space, California, we successfully tested a next generation large solid rocket motor called ESR, 19, which was designed and fabricated at Huntsville and cast insured and Camden. This advanced solid rocket motor approves cost and performance by incorporating a.
Graphite composite case, and affordable advanced nozzle and a high energy long life solid propellant a demonstration of this new capability is directly applicable to legacy large solid rocket motor applications and is a building block for multiple systems under <unk>.
Element today.
Before handing the call over to Dan I want to reiterate that we continue to execute on our goals and I'm, making strong progress to position the company for the future when investing in new capabilities, which directly support our nation's defense and space priorities as well as increasing our capacity to me.
Growing demand for our products with that I'll turn the call over to Dan and join you later to answer questions.
Thank you Eileen and thank you all for joining us on today's earnings call.
Today I'll discuss year over year results for our key metrics and update you on some of the actions we have taken to mitigate the ongoing supply chain and hiring challenges, we discussed last quarter as.
As a reminder, we will not provide formal guidance today, but that is something we would tend to do you get into early next year.
Our third quarter sales were approximately $550 million up 1% from the prior year and up 4% from the prior quarter.
Greece over the prior year, driven by higher volume and Gi and standard missile, partially offset by email address and Royalton on.
On a year to date basis sales were approximately $1 6 billion, which is comparable to the prior year.
<unk> continued to reflect supply chain delays and on a year to date basis the impact from the reversal of revenue on a portion of the standard missile program that were discussed last quarter.
On the supply chain front. The most significant driver continues to be the Ars 25 program as our suppliers experienced longer lead times than previously expected and we continue working through first article certification testing as we restart this program.
We continue working closely with our customers and suppliers. We are meeting our material receipts are planned for October .
As Irene mentioned, our RF twenty-five sales increase sequentially in Q3, and we expect that trend to continue through the end of the year.
While the remainder of our portfolio of programs in both defense and space arent seat individually significant impact from supply chain to us there are pockets of delays that have slowed our sales growth in the quarter.
Last quarter, we also discussed the hiring challenges to support anticipated second half sales. We are seeing an improvement on this front, having reduced the number of open positions from 400 to about $2 50, we continue to accelerate our hiring efforts to support anticipated fourth quarter sales.
While the prolonged impact from supply chain delays and workforce challenges I've led to slower than anticipated sales growth in the current quarter are anticipated to continue into the fourth quarter.
We still expect our current year revenue growth to be environment, our long term target of low to mid single digits.
Switching now to backlog our book to Bill ratio was <unk> nine in the first nine months of the year, bringing total backlog to $6 7 billion.
Which is equal to approximately three times our annual sales.
The strong backlog position reflects the contract wins that Eileen discussed.
Also as a reminder, backlog includes the Royalton contracts signed with you away in the second quarter for Amazon's project type of satellite broadband system.
As well as a number of key multi year contracts such as ours twenty-five oral 10 standard missile Pac three and Fad, which were signed over the past several years.
This backlog does not yet include orders, where senior in javelin associated with the ongoing war in Ukraine. However, we anticipate that we will see growth in demand for these products over the near to midterm and are investing in the modernization of our facilities to increase capacity and efficiency in anticipation of this demand.
In addition to the strong backlog and the durability of our many long lifecycle franchise programs and the potential we see from our development programs give us confidence that we will continue to experience tremendous demand for our products through the rest of the decade and beyond.
Moving on to profitability, our adjusted EBITDA for the third quarter of $75 7 million was an increase of 32% from the prior quarter and a decrease of 8% from the prior year the.
The year to date adjusted EBITDA of $186 5 million was an 18% decrease from the prior year driven by the unfavorable cumulative contract adjustment in the second quarter related to the portion of the standard missile program.
In addition, the third quarter of last year included a significant favorable contract adjustment on the oral <unk> program, which provided a headwind into the current quarter and year to date period comparisons.
The underlying profit margin run rate has continued to improve across our program portfolio with adjusted EBITDA margin for the third quarter, but a very strong 13, 8%, bringing the year to date margin rate to 11, 7%.
These are below the prior year margin of 15, 1% and 42% for the three and nine month periods, respectively. Due to the prior year favorable contract adjustments of <unk> 68 in the current year unfavorable contract adjustment from a portion of the standard missile program.
Excluding EAC adjustments from sales and adjusted EBITDA for all periods.
Underlying adjusted EBITDA margin increased year over year from 34% to 37% in the third quarter from 12, 5% to 34, 6% in the nine months period, respectively.
Ongoing program and operational performance improvements across the portfolio and stringent overhead cost management contributed to steady margin growth for the quarter and year to date for.
For the year to date, the primary drivers of increase and adjusted EBITDA excluded EAC adjustments were increased profitability on fad and the remaining portions of standard missile as well as lower stock compensation expense.
With our diverse portfolio of new development contracts and legacy production contracts, which are performing very well. We continue to believe we can achieve a long term adjusted EBITDA margin range of 14%.
Lastly, our free cash flow for the third quarter was a positive $22 3 million as we work diligently to decrease our working capital.
This compared to an inflow of $70 2 million in the same period of the prior year.
For the nine months year to date, we have had an outflow of $98 million as compared to an inflow of $78 1 million in the same period of the prior year.
As I mentioned last quarter. The current year to date negative free cash flow was largely impacted by working capital growth on large multiyear fixed price contracts in the defense business unit.
Strong cash flows over the past three years from these multi year contracts, but that makes 2022 and 2023 more challenging until we begin upward cycle again with new multiyear contracts beginning in 2024.
In addition to these programmatic drivers year to date free cash flow also reflects higher cash taxes in the prior year given the change in treatment for research and development expenditures, which as an item affecting everyone in the industry.
We've also incurred $46 5 million in unusual expenditures related to the proxy contest and related litigation other legal matters and costs related to the terminated Lockheed Martin merger agreement.
We expect to have strong cash flow in the fourth quarter.
In terms of broader balance sheet management on September 19th we completed the cash redemption of all outstanding convertible notes, we paid $242 million in cash to settle the approximately 146 million of principal plus premium and accrued interest.
With this transaction, we recognized a onetime noncash charge of $22 6 million related to the change in value of a derivative that was created when the redemption notice was issued.
As previously mentioned redemption of these notes will be <unk> accretive to our diluted EPS for the year intention, it's accretive on a full year basis going forward.
Wherever the noncash charge related to the derivative had a negative impact of <unk> on the third quarter and year to date, yes.
We ended the quarter with total cash and short term investments of $346 7 million and continued our long standing unlevered balance sheet position with net cash of $39 1 million.
We continue our focus on managing our working capital to generate predictable free cash results over the long term.
As a closing thought we remain enormously confident in the business based on the strong demand for our innovative products and the execution of our team.
Looking ahead as I've discussed we are investing in line with the nation's top defense and space priorities driving improvements to enhance our competitive edge and positioning the business to increase value for our shareholders.
With that operator, please open the line for questions.
Thank you we will now be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.
Confirmation tone will indicate your line is in the question queue.
You May press star two if you'd like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star one moment. Please poll for questions.
Yeah.
Thank you. Our first question is from Scott <unk> with Jefferies. Please proceed with your question.
Hi, Dan.
Dan you've talked about slightly positive free cash flow for the year and you pointed to an expected strong Q4, how do you think about some of the main drivers into that implied Q4 inflection and how are you thinking about the broader moving pieces into 2023.
Sure. Thanks, Scott Good morning, we do expect a strong fourth quarter, we generally do have a stronger fourth quarter in cash most of that will be driven by our collection on receivables suits most.
Mostly just a working capital burn down.
Delivery on products towards the year end.
Going into next year as I did mentioned.
A couple of years of challenge to get to our goal of a 100% of net income. So we will do better next year as we continue to work down our working capital at the long term working capital on those multiyear contracts. So it will come up that scale, a little bit next year, but we won't get back to a 100% until the following year.
Thank you and then I'll, maybe just take a step back you are emerging from a proxy battle there have been some press reports out there about the future of the company.
Broadly as you think about the future how are you thinking about the value drivers and the road map to drive equity value going forward.
Alright, thanks for the question so.
As I've said before the fundamentals of our business.
Both on space and defense remains very strong.
We often see where youre kind of on an upward wave of both space and defense and we are and we believe we're focused on the right areas by investing in line with the nation space and defense priorities that we've talked about also while we're driving competitive improvements at this team has a track.
Rocket.
Very successfully doing over the last seven years, we've taken a $1 billion of cost out of the business. We have a very strong backlog and a nearly $7 billion and.
This indicates a very strong customer demand for <unk>.
And we're also making investments in the business.
We have a very talented and dedicated workforce and super excited about the future.
Thank you.
Thank you.
Thank you our next question.
With J P. Morgan. Please proceed with your question.
Okay, Thanks, very much and good morning, everyone.
Hum.
Irene I restaurants.
Inside defense last week about.
Potentially looking for a third solid rocket motor source.
In order to be able to produce.
Hypersonic.
Propulsion that they think is going to.
Be required in the future.
What's your thought process around that where do you feel like things.
Okay stand right now.
In terms of the overall solid rocket motor base and what EOG is looking for from you and how that might evolve.
Yes sure.
If it's the same amount of fly Red I think they were saying a second source to occurring.
Program, but nonetheless, you know as we.
And you mentioned hypersonic so when we think of kind of the hypersonic world. It really covers.
Our range.
National security capabilities everything from deterrent missiles tactical missiles aircraft or missile defense technologies and.
And the great part of that is at Aerojet Rocketdyne as participating in all of those areas is very well positioned for wins because of our leadership rally in developing hypersonic propulsion technologies, that's really built on decades of our experience.
Over the long run and hypersonic as I've mentioned before is expected to contribute to 5% to 10% of our total sales and Doj has identified hypersonic as a national priority and the great thing is we're in a strong position to win significant roles in these pro.
Graham's going forward.
And so we believe hypersonic she is going to be a generational program for us like many of our other franchise programs and we're very well situated as you get a big piece of that business in the future.
Okay. Okay.
Great.
I guess digging in a little bit more on the quarter and the programs I think there.
The release mentioned.
Year on year declining and gamblers.
Obviously, that's a place where.
We'll probably see some some growth overtime I would think.
What drove the decline in the quarter and kind of.
How do you see that.
Revenue from that program evolving.
Sure. Thanks, Seth I'll take that one.
Some of that is just timing with gamblers.
But as I mentioned.
We talked about <unk> 25, being the largest contract impacted by supply chain and then we did have a supply chain impact that.
<unk>.
<unk> drove the standard missile charge last quarter, but there are other pockets.
The company that are having.
<unk> supply chain issue, so I would say some of that downturn is.
Gamblers supply chain slowdown as well.
Which affected some of our timing of our deliveries.
So let's.
I'd say, that's the driver and to your point, though that is a program, where we see opportunity going forward for growth.
Do share that the production of that with Northrop Grumman So as much as we can get share there will continue to grow.
Just maybe to tag team on that one.
I think everybody has seen that you.
Ukraine's fight against Russian invasion has really increased the demand for.
<unk> programs to include Gamblers.
<unk> javelin and Stinger. So we've had a number of inquiries about several of our tactical programs to include these three from both the department of defense in the missile crime.
Customers. So we're really proud to be a part.
Of these franchise programs and a continuation of these programs is really part of the growth rate we previously.
Discuss so given the increased interest in gamblers javelin and Stinger. We've mentioned before there is a potential to add volume to our outlook as he systems are replenished over the 'twenty three 'twenty five.
Timeframe and we're actively involved in discussions that could lead to contracts for these replenishment efforts.
Efforts.
Okay, Okay excellent and then.
With regard to gamblers, I guess, when you think about some of the execution challenges there now.
And then we think about kind of what happened.
On standard missile last quarter, I guess, how you know how confident do you feel about the fact that you.
You have your arms around she's done gamblers and won't be able to stay.
Close enough to the delivery targets and eventually catch up in order to maintain profitability on the program.
So I feel very positive about it you know as we've mentioned we.
Have increased production on a couple of our lines to include.
The standard missile, we opened up a brand new facility in Camden, Arkansas, just gosh, just a couple of weeks ago.
To help us on.
On production and put a second shift on there we're working with our supply chain. We also look at you know any bottlenecks in the supply chain, where we need to dual source. So we have quite a lot of activity in our supply chain to make sure that.
Any suppliers that are very key and that can be a single source failure that dual sourcing them to make sure that we're not impacted like we have been in the past when perhaps the supplier has a major issue like a fire or something else that we recently experienced so we feel good about.
That and maybe it sounds like two of the last quarter I mentioned.
Really having some issues with.
Hiring I'm pleased to say that last quarter I mentioned, we needed about 400 people that number is down at 250, and we've also seen our attrition rates come down which is nice.
And we've been doing that a lot through really expanding our premises programs are attracting talent, sometimes you have to go outside of A&D.
To look at like industrial manufacturing the chemical industry car manufacturing companies that have a huge focus on quality and deliberately like we do so I feel like we've made a nice improvement quarter over quarter.
On both opening up a couple of new facilities and Camden, Arkansas.
Our our hiring efforts have seen a nice improvement.
Improvement in and also the attrition rates coming down and we also recently announced that we leased.
Pretty large building in Huntsville, Alabama, where we're going to transfer some of the inner work from Camden, Arkansas to Huntsville, Alabama, and that will really help with some of the bottlenecks that we've seen recently so this team is all over the operational improvements.
There's a lot of that is why you've seen the nice uptick in the profitability in Q3.
Okay, Great that's very good color. Thanks.
And then maybe just last one.
Dan If we look at 2020 in 2021, I think <unk> 25 was a fairly consistent three.
<unk> hundred $75 million or so sales and just kind of what.
I've always kind of thought of that as kind of a steady program going forward to.
To the extent that there winds up being the shortfall. There in 2022 is that something that becomes a catch up and so you know 2023 becomes the baseline sales plus whatever did not show up in 2022 or is that not the right way to think about it and just kind of.
375 going forward.
No I think that is a good way to think about it.
Driver as we've mentioned is largely supply chain, driven so receipts of materials and so that should push into next year and you should see an uptick.
But again this is a long term program.
We recognize revenue based on cost cost so it will kind of normalize and flatten out, but you will get some lumpiness when we do receive those materials overtime, but but yes.
Your General point I mean, you can set your 2022 and expect that's going to go up.
Okay. Thanks, I'll pass along and get back in the queue. Thanks.
Thank you.
As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad.
Our next question is from Michael Karmali with Peru.
Please proceed with your question.
Hey, good morning, guys. Thanks for taking my question.
Maybe just to stay on the supply chain, just just for clarification I mean.
Raytheon continues to call out the rocket motor supply chain there.
Talked about the technical problems and they're not seeing a recovery until first half 'twenty four.
You guys or is and they've been talking about this for several quarters now but.
Could you just give any color there.
These are related to some of your programs or anything you can provide there.
Yes.
I guess I'll start and good morning.
So as we mentioned we took a significant EAC adjustment in Q2 and that was a portion.
Standard missile and that that is supply to our customer Raytheon. So that is a piece of that as I mentioned.
And that was the new manufacturing facility I mentioned that we just opened up in October to help with that and Thats, where we did have a supplier issue we had a fire at.
Our supplier, we dual source that and now have a second source. So we're up and running and we opened up the new facility. So we could do a catch up with the second shift because it's tough to make up that production when you're down due to a major supplier issue and also the big factor.
It took the EAC adjustment and spent the money to facilitate a new building and bring.
New employees in is because not only did we want to make sure that we caught up on that contract, but we have opportunity actually to in the contract early so I feel like.
We have recovered we have some catch up but that that's our piece.
The Raytheon.
Supply chain issue and I'm not sure of the other issues that they might be having.
Got it.
Your job it sorry, Michael about the timing right.
Xylene that particular piece of that program. We're working on we're going to get it ahead of schedule, but that schedule is intended to end about early 2025, so that kind of correlates to the timeframe that they are talking about but as it relates.
Star piece, Raytheon I'm sure I'm, not going to speak for them, but probably other issues on that program of their own got it no. That's.
Helpful. And then just to be clear from a modeling standpoint, I think last quarter. You guys said mid single digit revenue growth through this year, but I think you said, it's now more kind of low to mid single because if you were going to get that that mid it would imply.
Steep sequential ramp here until the fourth quarter.
But just given some of the supply chain tightness. It seems like we should be calibrated towards more of a low single digit growth rate for the year for 'twenty two.
Yes for 2022, you're correct.
We do see a significant ramp.
Okay got it.
And then just maybe.
One last one just kind of general inflationary environment. How are you guys managing through this on some of your fixed price contracts I mean.
Are you able to pass some of these costs through are you having to wait for the next sort of you know.
Task order or any any color just on how you guys are managing through the the inflationary environment.
You continue to ask this question I posted.
The businesses on this question and we're still not seeing anything significant.
The increase from from inflation and largely that's because the majority of our large fixed price contracts or on multi year contracts right now and so we have multiyear.
Fixed price with our suppliers and so we're not feeling that increase in prices were on fixed prices with them. So.
Again, we will see as we come through the cycle of the negotiations of the next multi years, which will start kind of at the end of 'twenty four 'twenty five we might see increases in their prices at that time that we would flow upward.
Through our contracts as well so if inflation continues through that period, but we're not seeing any near term impacts from it.
Got it got it and maybe just one last one just on the backlog.
Down a little bit sequentially, but can you just maybe characterize what you're seeing in terms of the demand environment on sort of the shorter cycle call. It off can both tactical systems in the portfolio you mentioned, Ukraine, that's going on there is presumably going to be some significant replenishment here.
Do you think youre seeing the demand signals, where should we expect.
Uptick in weather.
Whether it's javelin stinger.
So anything else that might drive bookings in the coming periods.
Okay.
We do see signals there, but we are those.
Those are those will come through the primes to us and so in the very near term we don't have any.
I think we have one firm order on stinger, but haven't seen firm orders yet for javelin and.
And in the increases in GMO or S. So would you expect them to come.
And this positive rhetoric around the money that's been put aside quarter replenishment, but we don't have firm orders, yet but probably.
Probably into the next couple of years.
Got it perfect. Thanks, guys I'll jump back in the queue here.
Thank you.
Thank you. Our next question is from Seth Eastman with J P. Morgan.
Okay.
Thanks, very much for the additional question I couldnt much off the call without asking I imagine novel.
Get asked as well.
Net cash balance at the end of Q3 based on the Q4 protection, probably a higher net cash balance at.
At the end of the year.
Post.
The convert.
How do you think about capital deployment headed into.
2023.
Good.
We are still.
As you also may have noticed we've extended our senior.
The senior credit facility.
Termination of that was going to be September of next year. The maturity, we pushed that out a couple of years.
To give a leading our board continued time to work out the strategic capital deployment.
Objectives of the company. So that is something we're still taking a very close look at the board has now met twice.
You need to have those conversations and looking at all the different opportunities that are available to us whether that be organic growth inorganic growth we.
We do need.
We do have.
Visibility into you spoke about the large solid rocket motor.
Opportunities, we have going forward there are some capital expenditures, we do need to make to do that so we have some internal capital deployment to make but then we're looking at other strategies or what have you and.
Again, extending that credit facility that we have right now will give us time to kind of think about what that structure is going forward.
Great. Thanks very much.
Thank you. Thank you.
Thank you there are no further questions at this time I'd like to turn the floor back over to a lean Drake for any closing comments.
Great. Thank you and just a few words to wrap up.
You can see that we're focused on the right areas to position <unk> for continued profitable growth.
Investing as I mentioned in line with our nation's priorities in driving the improvements to our operations I'm incredibly proud of this team and the work we've accomplished this quarter and collectively we appreciate the trust of our customers and we remain laser focused on delivering value for our shareholders and with that.
Thank you everyone for your time today and enjoy your day. Thank you.
This.
Today's conference you may disconnect your lines at this time, thank you for your participation.