Q4 2023 General Dynamics Corp Earnings Call

January 24, 2024

Good morning and welcome to the General Dynamics fourth quarter and full year 2023 earnings conference call. All participants will be in listen-only mode. After the speaker's remarks, there will be a question and answer session.

Good morning, and welcome to the General dynamics fourth quarter and full year 2023 earnings conference call. All participants will be in listen only mode. After the Speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press the star key followed by the number one on your tech.

If you would like to ask a question during this time, simply press the star key followed by the number one on your telephone keypad.

<unk> keypad if.

If you would like to withdraw your question, press star 1 again.

If you would like to withdraw your question Press Star one again.

Please note this event is being recorded.

He's known that'd be that is being recorded I would now like to turn the conference over to Nicole Shelton Vice President of Investor Relations. Please go ahead.

I would now like to turn the conference over to Nicole Shelton, Vice President of Investor Relations.

Nicole Shelton: Go ahead.

Nicole Shelton: Thank you operator and good morning everyone. Welcome to the General Dynamics fourth quarter and full year 2023 earnings conference call. Any forward-looking statements made today represent our estimates regarding the company's outlook. These estimates are subject to some risks and uncertainties.

Nicole Shelton: Thank you operator, and good morning, everyone welcome to the general dynamics fourth quarter and full year 2023 earnings conference call any forward looking statements made today represent our estimates regarding the company's outlook. These estimates are subject to some risks and uncertainties additional information.

Nicole Shelton: Regarding these factors is contained in the company's 10-K, 10-Q, and 8-K filings. We will also refer to certain non-GAAP financial measures for additional disclosures about these non-GAAP measures, including reconciliations to comparable GAAP measures. Please see the press release and slides that accompany this webcast, which are available on the <unk>.

Nicole Shelton: Bester relations page of our website Investor Relations Dot Gd Dot com.

Nicole Shelton: On the call today are Phebe Novakovic, our Chairman and Chief Executive Officer, and Jason Aiken, Executive Vice President, Technologies and Chief Financial Officer.

Phoebe: On the call today are phebe, Novakovic, our chairman and Chief Executive Officer, and Jason Aiken Executive Vice President Technologies, and Chief Financial Officer with the introduction is complete I will turn the call over to Phoebe.

Speaker Change: With the introductions complete, I will turn the call over to...

Speaker Change: Thank you, Nicole. Good morning, everyone, and thanks for being with us. Earlier this morning, we reported earnings of $3.64 per diluted share on revenue of $11,668,000,000, operating earnings of $1,288,000,000, and net earnings of $1,000,000,000.

Phebe: Thank you Nicole good morning, everyone and thanks for being with US earlier. This morning, we reported earnings of $3.64 per diluted share on revenue of $11 billion $668 million operating earnings of $1 billion $288 million and net earnings of $1 billion.

Speaker Change: Revenue is up $817 million, a strong 7.5% against the fourth quarter last year. Operating earnings are up $61 million, and earnings per share are up $0.06, or 1.7%.

Phebe: Revenue was up $817 million, a strong seven 5% against the fourth quarter last year operating earnings are up 61 million and earnings per share up 6% or one 7%.

Speaker Change: The year-ago quarter had $52 million more of other net income, which helps explain the more modest earnings per share growth.

Phebe: The year ago quarter had 52 million more of other net income, which helps explain the more modest earnings per share growth.

Speaker Change: In short, the quarter-over-quarter results compare quite favorably, particularly revenue and operating earnings.

Phebe: In short the quarter over quarter results compare quite favorably, particularly revenue and operating earnings.

Speaker Change: The sequential results are even better. Here we beat last quarter's revenue by $1,097,000, a very strong 10.4%, operating earnings by $231,000,000, or 21.9%, net earnings by $169,000,000, or 20.2%, and EPS by 60 cents, a 19.7% improvement.

Phebe: The sequential results are even better here, we beat last quarter's revenue by $1.097 billion, a very strong 10, 4% operating earnings by $231 million or 21, 9% net earnings by $169 million or 22%.

Phebe: And EPS by 60 sets, a 19, 7% improvement.

Speaker Change: As we promised that it would be, the final quarter is our strongest of the year in both revenue and earnings. In fact, revenue, earnings per share, operating earnings, and net earnings improved quarter over the previous quarter throughout the year.

Phebe: As you promised that it would be the final quarter is our strongest of the year in both revenue and earnings in fact revenue earnings per share operating earnings and net earnings improved quarter over the previous quarter throughout the year.

Speaker Change: It was a nice steady progression of sequential improvement.

Phebe: It was a nice steady progression of sequential improvement.

Speaker Change: For the full year, we had revenue of $42.3 billion, up 7.3%, and operating earnings of $4.25 billion, up 0.8%, and earnings per fully diluted share of $12.02, down 17 cents, a 1.4% decrease, mostly as a result of below-the-line items like other income, which was higher, and the tax provision, which was lower in 2022.

Phebe: For the full year, we had revenue of $42 3 billion up seven 3% and operating earnings of $4 to $5 billion up 8% and earnings per fully diluted share of $12.02 down 17 cents.

Phebe: One 4% decrease mostly as a result of below the line items like other income, which was higher than the tax provision, which was lower in 2022.

Speaker Change: The fourth quarter in the year are four and nine cents respectively below consensus.

Operator: Good morning, and welcome to the General Dynamics fourth quarter and full year 2023 earnings conference call. All participants will be in listen-only mode.

Phebe: The fourth quarter and the year are four and nine cents respectively below consensus. It is important to note the consensus or during the two weeks before this earnings release as a sell side became aware of Gulfstream deliveries from public sources. The Smith was exclusively because the G 700.

Speaker Change: It is important to note the consensus lord during the two weeks before this earnings release, as the sell side became aware of Gulfstream's deliveries from public sources. This miss was exclusively because the G700 did not certify before year end. As a result, Gulfstream was unable to deliver 15 G700s as we in the sell side had anticipated. I will have more to say about this in my segment remarks.

Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star 1 again. Please note this event is being recorded. I would now like to turn the conference over to Nicole Shelton, Vice President of Investor Relations.

Phebe: Not certified before year end as a result, Gulfstream was unable to deliver 15 G 700, as we and the sell side had anticipated I will have more to say about this in my segment remarks.

Speaker Change: While we miss consensus and our own expectations for reasons beyond our control, it should not distract from an otherwise good quarter and year.

Nicole Shelton: Thank you, operator, and good morning everyone. Welcome to the General Dynamics fourth quarter and full year 2023 earnings conference call. Any forward-looking statements made today represent our estimates regarding the company's outlook, and these estimates are subject to some risks and uncertainties.

Phebe: While we miss consensus and our own expectations for reasons beyond our control it should not distract from another wise good quarter and year.

Speaker Change: Let me ask Jason to provide some detail on our strong cash performance for the quarter and the year, overall order activity, and backlog, and any other items he might like to address.

Phebe: Let me ask Jason to provide some detail on our strong cash performance for the quarter and the year overall order activity and backlog and any other items you might like to address.

Nicole Shelton: Additional information regarding these factors is contained in the company's 10-K, 10-Q, and 8-K filings. We will also refer to certain non-GAAP financial measures. For additional disclosures about these non-GAAP measures, including reconciliations to comparable GAAP measures, please see the press release and slides that accompany this webcast, which are available on the Investor Relations page of our website, investorrelations.gd.com. On the call today are Phebe Novakovic, our Chairman and Chief Executive Officer, and Jason Aiken, Executive Vice President, Technologies, and Chief Financial Officer. With the introductions complete, I will turn the call over to... Thank you, Nicole.

Jason Wright Aiken: Thank you Phebe and good morning.

Jason Wright Aiken: Thank you, Phebe, and good morning.

Jason Wright Aiken: Order activity and backlog were a strong story for us in 2023, we finished the year with total backlog of $93 6 billion.

Jason Wright Aiken: We finished the year with total backlog of $93.6 billion, up $2.5 billion over last year.

Up to $5 billion over last year.

Jason Wright Aiken: Total estimated contract value, which includes options and IDIQ contracts, was nearly $132 billion.

Jason Wright Aiken: Total estimated contract value, which includes options and <unk> contracts was nearly 132 billion.

Jason Wright Aiken: In terms of orders the aerospace segment led the way with a one two to one book to Bill ratio in both the fourth quarter and full year and they ended the year with total backlog of $25 billion.

Jason Wright Aiken: The defense segments had a book to bill of .7 times in the fourth quarter and one to one for the full year.

Jason Wright Aiken: The defense segment had a book to Bill of <unk> seven times in the fourth quarter and one to one for the full year.

Good morning, everyone, and thanks for being with us. Earlier this morning, we reported earnings of $3.64 per diluted share on revenue of $11,668,000,000, operating earnings of $1,288,000,000, and net earnings of $1,000,000,000. Revenue is up $817 million, a strong 7.5% against the fourth quarter last year. Operating earnings are up $61 million, and earnings per share are up $0.06, or 1.7%. The year-ago quarter had $52 million more in other net income, which helps explain the more modest earnings per share growth. In short, the quarter-over-quarter results compare quite favorably, particularly revenue and operating earnings. The sequential results are even better.

Jason Wright Aiken: Overall, the company had a book-to-bill of 1.1 times for the year, and all four segments were one-to-one or better.

Jason Wright Aiken: Overall, the company had a book to Bill of one one times for the year and all four segments were one to one or better.

Jason Wright Aiken: Turning to our cash performance. It was another strong quarter with operating cash flow of $1 2 billion.

Jason Wright Aiken: Turning to our cash performance, it was another strong quarter with operating cash flow of $1.2 billion, which brings us to $4.7 billion of operating cash flow for the year.

Jason Wright Aiken: Which brings us to $4 7 billion of operating cash flow for the year.

Jason Wright Aiken: As discussed on previous calls, this level of cash flow was achieved on the strength of Gulfstream orders, additional payments on Combat Systems International programs, and continued strong cash performance in technology.

Jason Wright Aiken: As discussed on previous calls this level of cash flow was achieved on the strength of Gulfstream orders additional payments on combat systems International programs and continued strong cash performance and technologies.

Jason Wright Aiken: After capital expenditures, our free cash flow for the year was $3.8 billion, a cash conversion rate of 115%.

Jason Wright Aiken: After capital expenditures, our free cash flow for the year was $3 8 billion of cash conversion rate of 115%.

Jason Wright Aiken: This was nicely ahead of our anticipated cash flow for the year, notwithstanding the delayed certification and entry into service of the G700.

Jason Wright Aiken: This was nicely ahead of our anticipated cash flow for the year notwithstanding the delay in certification and entry into service of the G 700.

Jason Wright Aiken: Looking at capital deployment, capital expenditures, as I noted on the last call, were higher in the fourth quarter at $304 million, which brings us to $904 million for the full year.

Jason Wright Aiken: Looking at capital deployment capital expenditures as I noted on the last call were higher in the fourth quarter at $304 million, which brings us to $904 million for the full year.

Here we beat last quarter's revenue by $1,097,000, a very strong 10.4%, operating earnings by $231,000,000, or 21.9%, net earnings by $169,000,000, or 20.2%, and EPS by 60 cents, a 19.7% improvement. As we promised that it would be, the final quarter is our strongest of the year in both revenue and earnings. In fact, revenue, earnings per share, operating earnings, and net earnings improved quarter over the previous quarter throughout the year. It was a nice steady progression of sequential improvement. For the full year, we had revenue of $42.3 billion, up 7.3%, and operating earnings of $4.25 billion, up 0.8%, and earnings per fully diluted share of $12.02, down 17 cents, a 1.4% decrease, mostly as a result of below-the-line items like other income, which was higher, and the tax provision, which was lower in 2022.

Jason Wright Aiken: The lion's share of these investments are, of course, in our shipyards to support the Navy's submarine and shipbuilding.

Jason Wright Aiken: The lion's share of these investments are of course in our shipyards to support the Navy submarine in Shipbuilding plan.

Jason Wright Aiken: At 2.1% of sales, full-year capital expenditures were a little lower than our original expectation due to timing, so some of that naturally pushes into next year.

Jason Wright Aiken: At two 1% of sales full year capital expenditures were a little lower than our original expectation due to timing. So some of that naturally pushes into next year.

Jason Wright Aiken: As a result, we expect CapEx to be between 2% and 2.5% of sales next year and closer to 2% thereafter.

Jason Wright Aiken: As a result, we expect capex to be between two and two 5% of sales next year and closer to 2% thereafter.

Jason Wright Aiken: We also paid $360 million in dividends in the fourth quarter, bringing the full year to $1.4 billion.

Jason Wright Aiken: We also paid $360 million in dividends in the fourth quarter, bringing the full year to $1 4 billion.

Jason Wright Aiken: There were no shares repurchased in the quarter, so we finished the year with 2 million shares repurchased for $434 million at $215 per share.

Jason Wright Aiken: There were no shares repurchased in the quarter. So we finished the year with 2 million shares repurchased for $434 million at $215 per share.

Jason Wright Aiken: With respect to our pension plans, we contributed $106 million in 2023, which included a modest voluntary contribution to one of our commercial plans.

Jason Wright Aiken: With respect to our pension plans, we contributed $106 million in 2023, which included a modest voluntary contribution to one of our commercial plans and we expect to contribute approximately $75 million in 2024.

Jason Wright Aiken: and we expect to contribute approximately $75 million in 2024.

Jason Wright Aiken: After all this, we ended the year with a cash balance of $1.9 billion and a net debt position of $7.3 billion, down approximately $1.9 billion, more than 20% from last year.

Jason Wright Aiken: After all this we ended the year with a cash balance of $1 9 billion and our net debt position of $7 3 billion.

The fourth quarter of the year was four and nine cents respectively below consensus. It is important to note the consensus lord during the two weeks before this earnings release, as the sell side became aware of Gulfstream's deliveries from public sources. This miss was exclusively because the G700 did not certify before year end. As a result, Gulfstream was unable to deliver 15 G700s as we in the sell side had anticipated.

Jason Wright Aiken: Down approximately $1 9 billion more than 20% from last year.

Jason Wright Aiken: We have $500 million of debt maturing in 2024.

Jason Wright Aiken: Our net interest expense in the fourth quarter was $78 million, bringing interest expense for the full year to $343 million.

Jason Wright Aiken: That compares to $85 million and $364 million in the respective 2022 period.

Jason Wright Aiken: That compares to $85 million and $364 million in the respective 2022 periods.

Jason Wright Aiken: We expect interest expense in 2024 to continue to decrease to around $320 million.

Jason Wright Aiken: Turning to income taxes, we had an 18.1% effective tax rate in the fourth quarter, which brings our full year rate to 16.8%.

I will have more to say about this in my segment remarks. While we miss consensus and our own expectations for reasons beyond our control, it should not distract from an otherwise good quarter and year. Let me ask Jason to provide some detail on our strong cash performance for the quarter and the year, overall order activity, and backlog, and any other items he might like to address. Thank you, Phebe, and good morning.

Jason Wright Aiken: Turning to income taxes, we had an 18, 1% effective tax rate in the fourth quarter, which brings our full year rate of 16, 8% slightly below but generally in line with our guidance.

Jason Wright Aiken: Slightly below, but generally in line with our guide.

Jason Wright Aiken: Looking ahead to 2024, we expect the full-year effective tax rate to increase to around 17.5%, reflecting higher taxes on foreigners.

Jason Wright Aiken: Looking ahead to 2024, we expect our full year effective tax rate to increase to around 17, 5%, reflecting higher taxes on foreign earnings.

Jason Wright Aiken: That concludes this portion of my remarks, and I'll turn it back over to Phebe for segments.

Jason Wright Aiken: That concludes this portion of my remarks, and I'll turn it back over to Phebe for segment comments.

Phebe N. Novakovic: Thanks, Jason.

Phebe: Thanks, Jason.

Phebe: First aerospace.

Phebe: Dorian Aerospace is found in sequential and year over year improvement continuing strong demand for Gulfstream aircraft. The overall strength of Gulfstream service business and the continuing growth of jet aviation.

Jason Wright Aiken: We finished the year with a total backlog of $93.6 billion, up $2.5 billion over last year. The total estimated contract value, which includes options and IDIQ contracts, was nearly $132 billion. In terms of orders, the aerospace segment led the way with a 1.2 to 1 book-to-bill ratio in both the fourth quarter and full year, and they ended the year with a total backlog of $20.5 billion. The defense segments had a book-to-bill ratio of.7 times in the fourth quarter and one to one for the full year. Overall, the company had a book-to-bill of 1.1 times for the year, and all four segments were one-to-one or better.

Phebe N. Novakovic: In the quarter, aerospace had revenue of $2.74 billion and earnings of $449 million. This represents a 12% increase in revenue and a 33% increase in earnings on a quarter-over-quarter basis.

Phebe: In the quarter Aerospace had revenue of $2 74 billion and earnings of $449 million. This represents a 12% increase in revenue and a 33% increase in earnings on a quarter over quarter basis.

Phebe N. Novakovic: The sequential numbers are even stronger, with a 35% increase in revenue, coupled with a staggering 68% increase in operating revenue.

Phebe: The sequential numbers are even stronger with a 35% increase in revenue coupled with a staggering 68% increase in operating earnings.

Phebe N. Novakovic: The important point here is the dramatic increase in the delivery of in-service airplanes in the quarter, 39 versus 27 in the third quarter of 2023. A strong mix favoring large aircraft, strong pricing in the backlog, better overhead absorption, and improved supply chain response, leading to less out-of-station work, all contributed to a 16.4% margin in the quarter. For the full year, revenue of $8.62 billion is up only $54 million from the prior year, and operating earnings of $1.18 billion, improved by $52 million, on a 50 basis point improvement in operating margin.

Phebe: The important point here is a dramatic increase in the delivery of in service airplanes in the quarter 39 versus 27 in the third quarter of 2023, a strong mix favoring large aircraft strong pricing in the backlog better overhead absorption and improved supply chain response, leading to less out a station work.

Jason Wright Aiken: Turning to our cash performance, it was another strong quarter with operating cash flow of $1.2 billion, which brings us to $4.7 billion of operating cash flow for the year. As discussed on previous calls, this level of cash flow was achieved on the strength of Gulfstream orders, additional payments on Combat Systems International programs, and continued strong cash performance in technology. After capital expenditures, our free cash flow for the year was $3.8 billion, a cash conversion rate of 115%.

Phebe: Contributed to a 16, 4% margin in the quarter for the full year revenue of 8.62 billion is up only $54 million from the prior year and operating earnings of 1.18 billion improved by $52 million on a 50 basis point improvement in operating margin.

Jason Wright Aiken: This was nicely ahead of our anticipated cash flow for the year, notwithstanding the delayed certification and entry into service of the G700. Looking at capital deployment, capital expenditures, as I noted on the last call, were higher in the fourth quarter at $304 million, which brings us to $904 million for the full year. The lion's share of these investments is, of course, in our shipyards to support the Navy's submarine and shipbuilding programs.

Phebe N. Novakovic: Nevertheless, aerospace revenue and earnings are less than we anticipated for the quarter and the year because, as I mentioned earlier, we did not receive the certification of the G-700 in the fourth quarter and did not deliver 15 aircraft we had ready to go.

Phebe: Nevertheless, aerospace revenue and earnings are less than we anticipated for the quarter and the year because as I mentioned earlier, we did not receive the certifications. The G 700 in the fourth quarter and did not deliver 15 aircrafts, we had ready to go.

Phebe N. Novakovic: That deprived us of slightly over a billion dollars of revenue and close to $250 million in earnings. These, of course, are orders of magnitude figures.

Phebe: That deprived of slightly over $1 billion of revenue and close to $250 million in earning these of course are orders of magnitude figures.

Jason Wright Aiken: At 2.1% of sales, full-year capital expenditures were a little lower than our original expectation due to timing, so some of that naturally pushes into next year. As a result, we expect CapEx to be between 2% and 2.5% of sales next year and closer to 2% thereafter. We also paid $360 million in dividends in the fourth quarter, bringing the full year to $1.4 billion. There were no shares repurchased in the quarter, so we finished the year with 2 million shares repurchased for $434 million at $215 per share.

Phebe N. Novakovic: We were also unable during the course of the year to increase production of in-service aircraft as planned because of well-known supply chain issues that began to resolve in the fourth quarter.

Phebe: We are also unable during the course of the year to increase production of in service aircraft as planned because of well known supply chain issues that began to resolve in the fourth quarter.

Phebe: So where are we in our journey towards G. 700 certification, we're almost complete with the final technical inspection authorization.

Phebe N. Novakovic: So, where are we in our journey toward G700 certification? We are almost complete with the final technical inspection authorization.

Phebe N. Novakovic: FAA function and reliability flight testing is almost done and almost all of the paperwork associated with the process has been submitted.

Phebe: A function and reliability flight testing is almost done and almost all of the paperwork associated with the process has been submitted.

Phebe N. Novakovic: In the meantime, we are asking customers to schedule their pre-delivery inspections contemplating delivery this quarter.

Phebe: In the meantime, we are asking customers to schedule their pre delivery inspections contemplating delivery this quarter.

Phebe N. Novakovic: All that having been said, let me turn to the demand environment.

All that having been said, let me turn to the demand environment.

Jason Wright Aiken: With respect to our pension plans, we contributed $106 million in 2023, which included a modest voluntary contribution to one of our commercial plans, and we expect to contribute approximately $75 million in 2024. After all this, we ended the year with a cash balance of $1.9 billion and a net debt position of $7.3 billion, down approximately $1.9 billion, more than 20% from last year. We have $500 million of debt maturing in 2024. Our net interest expense in the fourth quarter was $78 million, bringing interest expense for the full year to $343 million.

Phebe N. Novakovic: The book to bill was 1.2 times in the quarter and 1.2 times for the year. Backlog increased $395 million sequentially and $938 million for the year. So aerospace demand remains strong for both aircraft and services at Gulfstream and Jet Aviation.

Phebe: The book to Bill was one two times in the quarter and one two times for the year backlog increased 395 million sequentially and $938 million for the year. So aerospace demand remains strong for both aircraft and services at Gulfstream and jet aviation.

Phebe N. Novakovic: are in the air are four and nine cents respectively below consensus. It is important to note the consensus was lowered during the two weeks before this earnings release as the sell side became aware of Gulfstream's deliveries from public sources. This miss was exclusively because the G700 did not certify before year-end.

Phebe N. Novakovic: I should add that strong order intake was interrupted for a two-to-three-week period twice during the year, once for a macroeconomic event and the second for a geopolitical event. I refer to the regional bank failures earlier in the year and the conflict initiated by the Hamas attack on Israel and the resulted conflict in Gaza.

Phebe: I should add that strong order intake was interrupted for two to three week period twice during the year once for a macroeconomic event and the second for a geopolitical event I refer to the regional bank failures earlier in the year and the conflict initiated by the Hamas attack on Israel and the result, the conflict in Gaza.

Phebe N. Novakovic: As a result, Gulfstream was unable to deliver 15 G700s as we on the sell side had anticipated. I will have more to say about this in my segment remarks. While we miss consensus and our own expectations for reasons beyond our control, it should not distract from an otherwise good quarter and year. Let me ask Jason to provide some detail on our strong cash performance for the quarter and the year, overall order activity and backlog, and any other items he might like to address. Thank you, Phoebe, and good morning.

Phebe N. Novakovic: In each case, order intake resumed after brief pause.

Phebe: In each case order intake resumed after brief pause.

Phebe N. Novakovic: As we go into the new year, the sales pipeline remains strong and sales activity is at a solid pace.

Phebe: As we go into the new year, the sales pipeline remains strong and sales activity is at a solid pace.

Phebe N. Novakovic: Aerospace backlog is up 72% since the first quarter of 2021 when we first detected a measurable uptake in order X.

Phebe: Aerospace backlog is up 72% since the first quarter of 2021, when we first detected a measurable uptick in order activity.

Jason Wright Aiken: That compares to $85 million and $364 million in the respective 2022 periods. We expect interest expense in 2024 to continue to decrease to around $320 million. Turning to income taxes, we had an 18.1% effective tax rate in the fourth quarter, which brings our full-year rate to 16.8%, slightly below, but generally in line with our guide. Looking ahead to 2024, we expect the full-year effective tax rate to increase to around 17.5%, reflecting higher taxes on foreigners. That concludes this portion of my remarks, and I'll turn it back over to Phebe for segments. Thanks, Jason.

Phebe N. Novakovic: In summary, aerospace results are in line with our original forecast, excluding the G700 certification delay.

Phebe: In summary, aerospace results are in line with our original forecast excluding the G 700 certification delay.

Phebe N. Novakovic: We look forward to a significant increase in deliveries in 2024 and improved operating margin, but I'll say more about this as we get the guidance.

Jason Wright Aiken: Order, activity, and backlog were a strong story for us in 2020. We finished the year with a total backlog of $93.6 billion, up $2.5 billion over last year. Total estimated contract value, which includes options and IDIQ contracts, was nearly $132 billion.

Phebe: We look forward to a significant increase in deliveries in 2020 for an improved operating margin, but I will say more about this as we get the guidance.

Phebe N. Novakovic: We also expect continued growth and margin improvement of jet aviation to perform well in the year.

Phebe: We also expect continued growth and margin improvement at jet aviation performed well in the year.

Phebe N. Novakovic: Next Combat System

Phebe: Next combat systems.

Jason Wright Aiken: In terms of orders, the aerospace segment led the way with a 1.2 to 1 book-to-bill ratio in both the fourth quarter and full year, and they ended the year with a total backlog of $20.5 billion. The defense segments had a book-to-bill ratio of.7 times in the fourth quarter and one-to-one for the full year. Overall, the company had a book-to-bill of 1.1 times for the year, and all four segments were one-to-one or better.

Phebe: Revenue in the quarter, a $2 $3 6 billion is up eight 5% from the year ago quarter operating earnings of 351 million up five 7% on a 40 basis point decrease in operating margin, but still a very good 14, 8%.

Phebe N. Novakovic: The majority of the growth in the quarter was at ordnance and tactical systems and European land systems. It was largely driven by higher artillery and propellant volume, including programs to expand production volume.

Phebe: The majority of the growth in the quarter was that Ordnance and tactical systems in European land systems. It was largely driven by higher artillery and propellant volume, including programs to expand production volume higher volume of prana is.

Phebe N. Novakovic: Higher Volume of Piranhas, Bridges and Eagles in Europe, and New International Tank Program.

Phebe: <unk> and Eagles in Europe, and new International tank programs.

Phebe N. Novakovic: Not surprisingly, the sequential comparisons are even better. Revenue is up $140 million or 6.3% and earnings are up $51 million or 17% on the strength of a 130 basis point improvement margin.

Phebe: Not surprisingly the sequential comparisons are even better revenue was up $140 million or six 3% and earnings are up $51 million or 17% on the strength of a 130 basis point improvement in margins.

First, aerospace. The story in aerospace is found in sequential and year-over-year improvement, continuing strong demand for Gulfstream aircraft, the overall strength of the Gulfstream service business, and the continuing growth of jet aviation. In the quarter, Aerospace had revenue of $2.74 billion and earnings of $449 million. This represents a 12% increase in revenue and a 33% increase in earnings on a quarter-over-quarter basis. The sequential numbers are even stronger, with a 35% increase in revenue, coupled with a staggering 68% increase in operating revenue. The important point here is the dramatic increase in the delivery of in-service airplanes in the quarter, 39 versus 27 in the third quarter of 2023. A strong mix favoring large aircraft, strong pricing in the backlog, better overhead absorption, and improved supply chain response, leading to less out-of-station work, all contributed to a 16.4% margin in the quarter.

Phebe N. Novakovic: From an order perspective, combat had a very good year with a 1.1 times book to build driven by very strong international demand for the Abrams main battle tank, growing demand on the munition side of the business, and particular strength in Europe.

Phebe: From an order perspective combat had a very good year with a 1.1 times book to Bill driven by very strong international demand for the Abrams main battle tank growing demand on the munitions side of the business and particular strength in Europe.

Phebe N. Novakovic: By the way, Combat's performance for the year significantly outperformed our expectations.

Phebe: By the way combat performance for the year significantly outperformed our expectations.

Phebe N. Novakovic: 2023 revenue was up 13% against a flat forecast provided earlier in the year. Operating earnings are up $72 million or 6.7% with operating margin at 13.9% for the year. In short, this group had a wonderful quarter and a year with strong revenue growth, strong margin performance, good order activity, and a strong pipeline of opportunity as we go forward.

Phebe: 123 revenue was up 13% against the flat forecast provided earlier in the year operating earnings are up $72 million or six 7% with operating margin of 13, 9% for the year in short this group had a wonderful quarter and year with strong revenue growth strong margin performance.

Phebe: Good order activity and a strong pipeline of opportunity as we go forward.

Phebe N. Novakovic: Turning to Marines

Phebe: Turning to marine.

Phebe N. Novakovic: The powerful marine systems growth story continues.

Phebe: The powerful marine systems growth story continues.

Phebe: Fourth quarter revenue of $3.408 billion is up 14, 8% over the year ago quarter revenue was also up 13, 5% sequentially and 12, 9% for the year. This was driven by Columbia class construction and engineering volume tail volume in service contracts at Bath.

Phebe N. Novakovic: Fourth quarter revenue of $3,408,000,000 is up 14.8% over the year-ago quarter. Revenue is also up 13.5% sequentially and 12.9% for the year. This was driven by Columbia-class construction and engineering volume, TAO volume, and service contracts at Bath.

For the full year, revenue of $8.62 billion is up only $54 million from the prior year, and operating earnings of $1.18 billion improved by $52 million on a 50 basis point improvement in operating margin. Nevertheless, aerospace revenue and earnings are less than we anticipated for the quarter and the year because, as I mentioned earlier, we did not receive the certification of the G-700 in the fourth quarter and did not deliver the 15 aircraft we had ready to go. That deprived us of slightly over a billion dollars in revenue and close to $250 million in earnings. These, of course, are orders of magnitude figures.

Jason Wright Aiken: With respect to our pension plans, we contributed $106 million in 2023, which included a modest voluntary contribution to one of our commercial businesses, and we expect to contribute approximately $75 million in 2024. After all this, we ended the year with a cash balance of $1.9 billion and a net debt position of $7.3 billion, down approximately $1.9 billion, more than 20% from last year. We have $500 million of debt maturing in 2024. Our net interest expense in the fourth quarter was $78 million, bringing interest expense for the full year to $343 million.

Phebe N. Novakovic: Operating earnings are down 8.4% over the year-ago quarter on a 160 basis point reduction in operating margins attributable to EAC rate decreases at electric boats.

Operating earnings are down eight 4% over the year ago quarter on 160 basis point reduction in operating margin attributable to EAC rate decreases at electric boat. These.

Phebe N. Novakovic: These rate decreases similarly impact the sequential and annual comparison with respect to operating earnings.

Phebe: These rate decreases similarly impact the sequential and annual comparison with respect to operating earnings.

Phebe N. Novakovic: The EAC decreases were primarily driven by two factors, later than promised material to EB, which drove additional attestation work at EB, and quality problems from several vendors.

Phebe: The EAC decreases were primarily driven by two factors later than promised material to E D, which drove additional attestation work at ABB and quality problems from several vendors.

Jason Wright Aiken: That compares to $85 million and $364 million in the respective 2022 periods. We expect interest expense in 2024 to continue to decrease to around $320 million. Turning to income taxes, we had an 18.1% effective tax rate in the fourth quarter, which brings our full-year rate to 16.8%, slightly below, but generally in line with our guidance. Looking ahead to 2024, we expect the full-year effective tax rate to increase to around 17.5%, reflecting higher taxes on foreigners. That concludes this portion of my remarks, and I'll turn it back over to Phebe for segments. Thanks, Jason.

Phebe N. Novakovic: On the positive side, we are continuing to work with the Navy and the Congress to help further stabilize the supply chain with additional funding for work. We are also working with certain suppliers to set up process improvements where we can.

Phebe: On the positive side, we are continuing to work with the Navy and the Congress to help further stabilize the supply chain with additional funding for work. We are also working with certain suppliers to setup process improvements where we can.

We were also unable during the course of the year to increase production of in-service aircraft as planned because of well-known supply chain issues that began to resolve in the fourth quarter. So, where are we on our journey toward G700 certification? We are almost complete with the final technical inspection authorization.

Phebe: E. B also needs to continue to improve its productivity to help offset some of the financial impacts from the supply chain.

Phebe N. Novakovic: EB also needs to continue to improve its productivity to help offset some of the financial impacts from the supply chain.

Phebe N. Novakovic: Marine Systems had a one-times booked a bill for the year, a good result for a group of shipyards that began the year with a total backlog of nearly $46 billion.

Phebe: Marine systems had a one times book to Bill for the year a good result for our group of shipyards and began here with the total backlog of nearly 46 billion.

Phebe N. Novakovic: First, aerospace. The story in aerospace is found in sequential and year-over-year improvement, continuing strong demand for Gulfstream aircraft, the overall strength of the Gulfstream service business, and the continuing growth of jet aviation. In the quarter, Aerospace had revenue of $2.74 billion and earnings of $449 million. This represents a 12% increase in revenue and a 33% increase in earnings on a quarter-over-quarter basis. The sequential numbers are even stronger, with a 35% increase in revenue coupled with a staggering 68% increase in operating revenue. The important point here is the dramatic increase in the delivery of in-service airplanes in the quarter, 39 versus 27 in the third quarter of 2023. A strong mix favoring large aircraft, strong pricing in the backlog, better overhead absorption, and improved supply chain response, leading to less out-of-station work, all contributed to a 16.4% margin in the quarter.

Phebe N. Novakovic: Jason will now give you some color on the technologies group for which he has responsibility and then I'll return for our outlook for 2024.

FAA function and reliability flight testing is almost done, and almost all of the paperwork associated with the process has been submitted. In the meantime, we are asking customers to schedule their pre-delivery inspections contemplating delivery this quarter. All that having been said, let me turn to the demand environment. The book to bill was 1.2 times in the quarter and 1.2 times for the year.

Phebe: Jason will now give you some color on the technologies group for which she has responsibility and then I'll return for our outlook for 2024.

Jason Wright Aiken: The Technologies Group had a solid quarter and a very strong year.

Jason Wright Aiken: The technologies group had a solid quarter and a very strong year revenue in the quarter of $3 2 billion was down three 1% compared with the prior year, while operating earnings of $305 million were down 10, 3% versus the fourth quarter of 2022.

Jason Wright Aiken: Revenue in the quarter of $3.2 billion was down 3.1% compared with the prior year, while operating earnings of $305 million were down 10.3% versus the fourth quarter of 2020.

Jason Wright Aiken: For the year, however, the group's revenue of $12.9 billion was up 3.4%, with both businesses experiencing nice growth.

Jason Wright Aiken: For the year. However, the group's revenue of $12 $9 billion was up three 4% with both business is experiencing nice growth.

Backlog increased $395 million sequentially and $938 million for the year. Thus, aerospace demand remains strong for both aircraft and services at Gulfstream and Jet Aviation. I should add that strong order intake was interrupted for a two-to-three-week period twice during the year, once for a macroeconomic event and the second for a geopolitical event. I refer to the regional bank failures earlier in the year and the conflict initiated by the Hamas attack on Israel and the resulting conflict in Gaza.

Jason Wright Aiken: The results exceeded our expectations on strong demand for the group's products and services.

Jason Wright Aiken: GDIT fared particularly well with increased volume across each of its customer-facing segments, defense, intel, and federal civilian.

Jason Wright Aiken: <unk> fared, particularly well with increased volume across each of its customer facing segments defense Intel and federal civilian.

Jason Wright Aiken: Operating earnings of $1.2 billion were down by 2% versus the prior year on a 50 basis point contraction in operating margin to 9.3%. And that's solely a function of the revenue mix as IT services grew faster than the defense electronics portfolio.

Jason Wright Aiken: Operating earnings of $1 $2 billion were down by 2% versus the prior year on a 50 basis point contraction in operating margin to nine 3% and that's solely a function of the revenue mix as services grew faster than the defense electronics portfolio.

Jason Wright Aiken: Turning back to the quarterly performance to break it down between the two businesses, GDIT's revenue was up in all four quarters compared with 2020.

Jason Wright Aiken: Turning back to the quarterly performance to break it down between the two businesses <unk> revenue was up in all four quarters compared with 2022 and is now grown their top line in each of the past three years.

Jason Wright Aiken: and they've now grown their top line in each of the past three years.

In each case, order intake resumed after a brief pause. As we go into the new year, the sales pipeline remains strong, and sales activity is at a solid pace. Aerospace backlog is up 72% since the first quarter of 2021, when we first detected a measurable uptake in order X. In summary, aerospace results are in line with our original forecast, excluding the G700 certification delay.

Jason Wright Aiken: The same is true for Mission Systems quarterly revenue performance, with the exception of the fourth quarter.

Jason Wright Aiken: The same is true for mission systems quarterly revenue performance with the exception of the fourth quarter.

Jason Wright Aiken: If you recall, last year's fourth quarter saw us break through a logjam in the supply chain and deliver an unusually high number of products, lifting both revenue and margins.

Jason Wright Aiken: If you recall last year's fourth quarter saw a breakthrough a logjam in the supply chain and deliver an unusually high number of products lifting both revenue and margins barring that anomaly in 2022, the group's comparisons on a quarterly and full year basis are quite favorable.

Phebe N. Novakovic: For the full year, revenue of $8.62 billion is up only $54 million from the prior year, and operating earnings of $1.18 billion improved by $52 million on a 50 basis point improvement in operating margins. Nevertheless, aerospace revenue and earnings are less than we anticipated for the quarter and the year because, as I mentioned earlier, we did not receive the certification of the G700 in the fourth quarter and did not deliver the 15 aircraft we had ready to go. That deprived us of slightly over a billion dollars in revenue and close to $250 million in earnings. These, of course, are orders of magnitude figures.

Jason Wright Aiken: Barring that anomaly in 2022, the group's comparisons on a quarterly and full-year basis are quite favorable.

Jason Wright Aiken: With respect to order activity and backlog, the technologies group had a very good year, notwithstanding the continuing trend of customer solicitations pushing to the right and recurring award protests.

Jason Wright Aiken: With respect to order activity and backlog the technologies group had a very good year, notwithstanding the continuing trend of customer solicitations pushing to the right and recurring award protests.

We look forward to a significant increase in deliveries in 2024 and an improved operating margin, but I'll say more about this as we get the guidance. We also expect continued growth and margin improvement in jet aviation to perform well this year. Next Combat System, revenue in the quarter of $2.36 billion is up 8.5% from the year-ago quarter. Operating earnings of $3,151 million are up 5.7% on a 40-basis point decrease in operating margins, but still a very good 14.8%. The majority of the growth in the quarter was in ordnance and tactical systems and European land systems. It was largely driven by higher artillery and propellant volumes, including programs to expand production volumes. Higher Volume of Piranhas, Bridges, and Eagles in Europe and New International Tank Program

Jason Wright Aiken: The individual businesses and the group as a whole achieved a one-to-one book to bill on solid revenue.

Jason Wright Aiken: The individual businesses in the group as a whole achieved a one to one book to bill on solid revenue growth.

Jason Wright Aiken: GDIT received awards totaling $13.5 billion, far exceeding their previous annual record set the year before.

Jason Wright Aiken: It received awards totaling $13 $5 billion far exceeding their previous annual record set the year before.

Jason Wright Aiken: They've got another 15 billion in awards pending adjudication and just shy of $2 billion in awards under protest.

Jason Wright Aiken: They've got another $15 billion in awards pending adjudication and just shy of $2 billion in awards under protest.

Jason Wright Aiken: Mission Systems had a great year as well, with the total value of submitted bids almost triple the level they saw in 2022.

Jason Wright Aiken: Mission systems had a great year as well with a total value of submitted bids almost triple the level. They saw in 2022.

Jason Wright Aiken: Of course, many of the group's awards come in the form of IDIQ contracts with potential value that doesn't initially hit the backlog, so much of these positive results will continue to manifest in the reported numbers over time.

Jason Wright Aiken: Of course, many of the group's awards come in the form of idea IQ contracts with potential value that doesn't initially hit the backlog. So much of these positive results will continue to manifest in the reported numbers over time.

Phebe N. Novakovic: We were also enabled during the course of the year to increase production of in-service aircraft as planned because of well-known supply chain issues that began to resolve in the fourth quarter. So, where are we on our journey toward G700 certification? We are almost complete with the final technical inspection authorization. FAA function and reliability flight testing is almost done, and almost all of the paperwork associated with the process has been submitted. In the meantime, we are asking customers to schedule their pre-delivery inspections contemplating delivery this quarter. All that having been said, let me turn to the demand environment. The book-to-bill ratio was 1.2 times in the quarter and 1.2 times for the year.

Jason Wright Aiken: To that point, we ended the quarter with a total estimated contract value for the group of nearly $41 billion, and the group's combined qualified pipeline exceeds $130 billion.

Jason Wright Aiken: To that point, we ended the quarter with a total estimated contract value for the group of nearly $41 billion.

Jason Wright Aiken: And the group's combined qualified pipeline exceeds $130 billion.

Jason Wright Aiken: So all in all, a great year for the technology.

Jason Wright Aiken: So all in all a great year for the technologies group.

Jason Wright Aiken: Yeah.

Jason Wright Aiken: So let me provide our operating forecast for 2024 with some color around our outlook for each business group and then the company-wide roll-up.

Jason Wright Aiken: So let me provide our operating forecast for 2020 four with some color around our outlook for each business group and then the company wide rollout.

Jason Wright Aiken: In 2024, we expect aerospace revenue of about $12 billion, up around 40% over 2023. Operating margin is expected to be up 130 basis points to 15%.

Jason Wright Aiken: In 2024, we expect aerospace revenue about 12 billion up around 40% over 2023 operating margin is expected to be up 130 basis points to 15%.

Jason Wright Aiken: Gulfstream deliveries will be around 160, materially over the 111 delivered in 2023. This is about 10 fewer deliveries than we anticipated in the multi-year forecast we gave you in January of 22.

Jason Wright Aiken: Gulfstream deliveries will be around 116 materially over the 111 delivered in 2023. This is about 10 fewer deliveries and we anticipated and the multiyear forecast. We gave you in January of 'twenty two.

Not surprisingly, the sequential comparisons are even better. Revenue is up $140 million, or 6.3%, and earnings are up $51 million, or 17%, on the strength of a 130 basis point improvement margin. From an order perspective, Combat had a very good year with a 1.1 times book to build, driven by very strong international demand for the Abrams main battle tank, growing demand on the munition side of the business, and particular strength in Europe. By the way, Combat's performance for the year significantly outperformed our expectations. In 2023, revenue was up 13% against a flat forecast provided earlier in the year.

Phebe N. Novakovic: Backlog increased $395 million sequentially and $938 million for the year. Thus, aerospace demand remains strong for both aircraft and services at Gulfstream and Jet Aviation. I should add that strong order intake was interrupted for a two- to three-week period twice during the year, once for a macroeconomic event and the second for a geopolitical event. I refer to the regional bank failures earlier in the year and the conflict initiated by the Hamas attack on Israel and the resultant conflict in Gaza. In each case, order intake resumed after a brief pause.

Jason Wright Aiken: The mix will include about 50 G700 deliveries and fewer G280s as a result of the Gaza conflict's impact on our Israel-based supplier.

Jason Wright Aiken: The mix will include about 50, G 700 deliveries and fewer G. <unk> as a result of the Gaza conflict impact on our Israel based supplier.

Jason Wright Aiken: As I just noted, we anticipate a 15% operating margin for the year, weaker in the first half, particularly in the second quarter, and then well over 15% in the third and fourth quarters.

Jason Wright Aiken: As I just noted we anticipate a 15% operating margin for the year weaker than the first half, particularly in the second quarter, and then well over 15% in the third and fourth quarters.

Jason Wright Aiken: While the ramp up is slightly less than previously anticipated, it is not without supply chain challenges.

Jason Wright Aiken: While the ramp up is slightly less than previously anticipated it does not without supply chain challenges.

Jason Wright Aiken: In combat systems at this time last year, we had anticipated revenue to be flat in 'twenty three with a changed threat environment. We had a 13% increase in revenue for 'twenty four we expect revenue to be up about 3% to $8 5 billion, coupled with a 50 basis point improvement in operating margin to 14.

Jason Wright Aiken: In combat systems, at this time last year, we had anticipated revenue to be flat in 23. With a change threat environment, we had a 13% increase in revenue. For 24, we expect revenue to be up about 3% to $8.5 billion, coupled with a 50 basis point improvement in operating margin to 14.4%.

Phebe N. Novakovic: As we go into the new year, the sales pipeline remains strong, and sales activity is at a solid pace. Aerospace backlog is up 72% since the first quarter of 2021, when we first detected a measurable uptake in orders. In summary, aerospace results are in line with our original forecast, excluding the G700 certification delay.

Jason Wright Aiken: 4%.

Jason Wright Aiken: The outlook is the result of the strong order activity we saw in 23 and the demand signals we see in Europe.

Operating earnings are up $72 million, or 6.7%, with operating margin at 13.9% for the year. In short, this group had a wonderful quarter and a year with strong revenue growth, strong margin performance, good order activity, and a strong pipeline of opportunity as we go forward. Turning to Marines, The powerful marine systems growth story continues. Fourth quarter revenue of $3,408,000,000 is up 14.8% over the year-ago quarter. Revenue is also up 13.5% sequentially and 12.9% for the year. This was driven by Columbia-class construction and engineering volume, TAO volume, and service contracts at Bath. Operating earnings were down 8.4% over the year-ago quarter on a 160 basis point reduction in operating margins attributable to EAC rate decreases at electric boats.

Jason Wright Aiken: The outlook as a result of the strong order activity, we saw in 'twenty, three and the demand signals, we see in Europe.

Jason Wright Aiken: To the extent that these demand signals start to convert into order activity, we could see some opportunity for additional revenue later in the year, particularly in our armaments and munitions business.

Phebe N. Novakovic: We look forward to a significant increase in deliveries in 2024 and an improved operating margin, but I'll say more about this as we get to guidance. We also expect continued growth and margin improvement of jet aviation to perform well in the year. Next, the combat system.

Jason Wright Aiken: As I noted earlier, the Marine Group has been on a remarkable growth journey.

Jason Wright Aiken: As I noted earlier, the Marine group has been on a remarkable growth journey.

Jason Wright Aiken: In 2023, revenue came in much stronger than expected, almost $1.6 billion, against a flattish forecast. Our outlook for this year anticipates revenue of about $12.8 billion, with operating margin improvement to 7.6%, which should result in a meaningful improvement in earnings in 2024.

Jason Wright Aiken: In 2023 revenues came in much stronger than expected almost one 6 billion against a flattish forecast or outlook for this year anticipates revenue of about $12 8 billion with operating margin improvement to seven 6%, which should result in a meaningful improvement in earnings in 2024.

Phebe N. Novakovic: Revenue in the quarter of $2.36 billion is up 8.5% from the year-ago quarter. Operating earnings of $3,151 million are up 5.7% on a 40-basis point decrease in operating margins, but still a very good 14.8%. The majority of the growth in the quarter was in ordnance and tactical systems and European land systems. It was largely driven by higher artillery and propellant volumes, including programs to expand production volumes. Higher Volume of Piranhas, Bridges, and Eagles in Europe and New International Tank Program. Not surprisingly, the sequential comparisons are even better.

Jason Wright Aiken: In Technologies, 2023 revenue was stronger than anticipated in both businesses. 2024 revenue is expected to be up about 1% to $13 billion. Within the group, GDIT will be up low single digits and mission systems will be down slightly due to a transition from legacy systems and a slow ramp up on new programs.

Jason Wright Aiken: And technologies 2023 revenue was stronger than anticipated in both businesses 2024 revenue is expected to be up about 1% to 13 billion within the group <unk> <unk> will be up low single digits and mission systems will be down slightly due to a transition from legacy systems and a slow ramp up on new program.

Jason Wright Aiken: Yes.

Jason Wright Aiken: Operating margins are expected to improve 20 basis points to about 9.5%. We see long-term low single-digit growth for the group and continued industry-leading margins.

Jason Wright Aiken: Operating margins are expected to improve 20 basis points to about nine 5%, we see long term low single digit growth for the group and continued industry leading margins.

These rate decreases similarly impact the sequential and annual comparison with respect to operating earnings. The EAC decreases were primarily driven by two factors: late delivery of promised material to EB, which drove additional attestation work at EB, and quality problems from several vendors. On the positive side, we are continuing to work with the Navy and Congress to help further stabilize the supply chain with additional funding for work. We are also working with certain suppliers to set up process improvements where we can. EB also needs to continue to improve its productivity to help offset some of the financial impacts from the supply chain. Marine Systems had a one-time booked bill for the year, a good result for a group of shipyards that began the year with a total backlog of nearly $46 billion.

Jason Wright Aiken: So for 2024 company-wide, we expect to see revenue of approximately $46.3 billion to $46.4 billion, an increase of around 9.5%.

Jason Wright Aiken: So for 2020 for a companywide, we expect to see revenue of approximately $46 3 billion to $46 4 billion, an increase of around nine 5%.

Jason Wright Aiken: We anticipate operating margin of 11% up 100 basis points from 2023.

Jason Wright Aiken: All this rolls up to an EPS forecast of around $14.40. A reasonable range would be $14.35 to $14.45.

Jason Wright Aiken: All of this rolls up to an EPS forecast of around $14 40.

Jason Wright Aiken: A reasonable range would be $14 35 to $14 45.

Phebe N. Novakovic: Revenue is up $140 million, or 6.3%, and earnings are up $51 million, or 17%, on the strength of a 130 basis point improvement margin. From an order perspective, Combat had a very good year with a 1.1x book to build, driven by very strong international demand for the Abrams main battle tank, growing demand on the munitions side of the business, and particular strength in Europe. By the way, Combat's performance for the year significantly outperformed our expectations. 2023 revenue is up 13% against a flat forecast provided earlier in the year. Operating earnings are up $72 million, or 6.7%, with operating margin at 13.9% for the year. In short, this group had a wonderful quarter and year with strong revenue growth, strong margin performance, good order activity, and a strong pipeline of opportunity as we go forward. Turning to Maureen,

Jason Wright Aiken: On a quarterly basis, the first two quarters look a lot alike with very strong third and fourth quarters.

Jason Wright Aiken: On a quarterly basis. The first two quarters look a lot alike with very strong third and fourth quarters.

Jason Wright Aiken: In summary, as we go into this year, we feel very good about the demand environment across all of our businesses.

Jason Wright Aiken: It has been some time since I have seen stronger demand signals and better promise of organic growth.

Jason Wright Aiken: It has been sometime since I have seen stronger demand signals and better promise of organic growth.

Jason Wright Aiken: We also have some very good opportunities across the business to improve operating margins.

Jason Wright Aiken: We also have some very good opportunities across the business to improve operating margins. All we must do is execute it almost goes without saying that we will be laser focused on operations Nicole back to you.

Jason Wright Aiken: All we must do is...

Jason Wright Aiken: It almost goes without saying that we'll be laser-focused on operations. Nicole, back to you.

Jason will now give you some color on the technologies group for which he has responsibility, and then I'll return for our outlook for 2024. The Technologies Group had a solid quarter and a very strong year. Revenue in the quarter of $3.2 billion was down 3.1% compared with the prior year, while operating earnings of $305 million were down 10.3% versus the fourth quarter of 2020. For the year, however, the group's revenue of $12.9 billion was up 3.4%, with both businesses experiencing nice growth. The results exceeded our expectations on strong demand for the group's products and services. GDIT did particularly well with increased volume across each of its customer-facing segments, defense, intel, and federal civilian. Operating earnings of $1.2 billion were down by 2% versus the prior year on a 50 basis point contraction in operating margin to 9.3%.

Speaker Change: As a reminder, we ask participants to ask one question and one follow-up so that everyone has a chance

Nicole Shelton: Thanks, Phebe as a reminder, we ask participants to ask one question and one follow up so that everyone has a chance to participate.

Speaker Change: Operator, could you please remind participants how to enter the queue?

Nicole Shelton: Operator could you please remind participants how to enter the queue.

Speaker Change: Thank you. At this time, I would like to remind everyone in order to ask a question, press star, then the number one on your telephone keypad. Again, please limit yourself to one question and one follow-up to allow everyone an opportunity to ask a question.

Speaker Change: Thank you at this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad again, please limit yourself to one question and one follow up to allow everyone an opportunity to ask a question.

Speaker Change: We will take our first question from Myles Walton at Wolfe Research.

Speaker Change: We'll take our first question from Myles Walton at Wolf Research.

Myles Walton: Thanks. Good morning.

Myles Walton: Thanks, Good morning.

Myles Walton: All right, Phoebe, I was hoping you could touch on the 700, not a surprise. How many do you have ready for pre-delivery inspection from your customers? And also relative to confidence of when the deliveries could take place, I mean, this is pretty much out of your control, the FAA.

Myles Walton: Thank you I was hoping you could touch on the 700 not a surprise.

Phebe N. Novakovic: The powerful marine systems growth story continues. Fourth quarter revenue of $3,408,000,000 is up 14.8% over the year-ago quarter. Revenue is also up 13.5% sequentially and 12.9% for the year. This was driven by Columbia-class construction and engineering volume, TAO volume, and service contracts at Bath. Operating earnings were down 8.4% over the year-ago quarter on a 160-basis point reduction in operating margin attributable to EAC rate decreases at electric boats.

Myles Walton: How many do you have ready for pre delivery inspection from your customers and also relative to confidence of when the deliveries could take place I mean, this is pretty much out of your control.

As published a few rules last week that are pending in half two.

Myles Walton: Published a few rules last week that are pending.

Phoebe: Go through their process. I'm just curious your confidence level for first quarter delivery versus say where you were.

Myles Walton: Go through their process I'm, just curious your confidence level for first quarter delivery versus say, where you were.

Phoebe: In the fourth quarter, expecting deliveries by year.

Myles Walton: In the fourth quarter expected deliveries by year end.

Phoebe: We have 15 airplanes ready to go, and the hope is that we deliver them this quarter. The notifications that Gulfstream made earlier, I guess, this week, are in the regular order and really have no material impact on the certification process. I tried to give you as much clarity as I could in...

Jason Wright Aiken: And that's solely a function of the revenue mix as IT services grew faster than the defense electronics portfolio. Turning back to the quarterly performance to break it down between the two businesses, GDIT's revenue was up in all four quarters compared with the same period last year, and they've now grown their top line in each of the past three years. The same is true for Mission Systems' quarterly revenue performance, with the exception of the fourth quarter. If you recall, last year's fourth quarter saw us break through a logjam in the supply chain and deliver an unusually high number of products, lifting both revenue and margins. Barring that anomaly in 2022, the group's comparisons on a quarterly and full-year basis are quite favorable. With respect to order activity and backlog, the technologies group had a very good year, notwithstanding the continuing trend of customer solicitations pushing to the right and recurring award protests. The individual businesses and the group as a whole achieved a one-to-one book to bill ratio on solid revenue.

Myles Walton: So we have 15 airplanes.

Myles Walton: Ready to go.

Myles Walton: And the hope is that that we deliver them this quarter the the notification.

Patients that Gulfstream made Oh I earlier I guess this week are in the regular order and really have no material impact on on the certification process I tried to give you as much clarity as I could and around.

Phebe N. Novakovic: These rate decreases similarly impact the sequential and annual comparison with respect to operating earnings. The EAC decreases were primarily driven by two factors: late delivery of promised material to EB, which drove additional attestation work at EB, and quality problems from several vendors. On the positive side, we are continuing to work with the Navy and Congress to help further stabilize the supply chain with additional funding for work. We are also working with certain suppliers to set up process improvements where we can. EBE also needs to continue to improve its productivity to help offset some of the financial impacts from the supply chain. Marine Systems had a one-time book-to-bill ratio of 1 to 10, a good result for a group of shipyards that began the year with a total backlog of nearly $46 billion.

Phoebe: around the certification and where we are.

Myles Walton: Around the certification and where we are.

Phoebe: Is there an 800 delivery assumed in the guidance?

Myles Walton: Is there an 800 delivery assumed in the guidance for 'twenty four.

Phoebe: So we're not going to go into what we've assumed for any given airplane in our guidance. So let me give you guys some perspective about this. For the last about eight years, we've tried to give you some clarity about a process over which we have control, no control. And it's kind of like sticking your fingers in a light socket to predict a process that we just don't control. So I think we're going to be silent as we go forward about any specificity around certification timing, because then we hear words like slip and miss, and these planes are going to get certified, but get certified on the FAA schedule.

Myles Walton: We're not going to go into what we've assumed in for any given airplane.

Myles Walton: And our guidance so let.

Myles Walton: Let me, let me give you guys. Some perspective about this for the last eight years. We've tried to give you some clarity about a process of which we have control no control and it's kind of like sticking your fingers in a light socket to predict a process that we just don't control. So I think we're gonna be silent as we go forward about any.

Jason Wright Aiken: GDIT received awards totaling $13.5 billion, far exceeding their previous annual record set the year before. They've got another $15 billion in awards pending adjudication and just shy of $2 billion in awards under protest. Mission Systems had a great year as well, with the total value of submitted bids almost triple the level they saw in 2022. Of course, many of the group's awards come in the form of IDIQ contracts with potential value that doesn't initially hit the backlog, so much of these positive results will continue to manifest in the reported numbers over time. To that point, we ended the quarter with a total estimated contract value for the group of nearly $41 billion, and the group's combined qualified pipeline exceeds $130 billion.

Myles Walton: <unk> specificity around around certification timing, because then we hear words like slip and Mrs. And these planes are going to get certified but get certified on the FAA schedule.

Speaker Change: Thank you.

Jason Wright Aiken: Jason will now give you some color on the technologies group for which he has responsibility, and then I'll return for our outlook for 2024. The Technologies Group had a solid quarter and a very strong year. Revenue in the quarter of $3.2 billion was down 3.1% compared with the prior year, while operating earnings of $305 million were down 10.3% versus the fourth quarter of 2020. For the year, however, the group's revenue of $12.9 billion was up 3.4%, with both businesses experiencing nice growth. The results exceeded our expectations on strong demand for the group's products and services. GDIT fared particularly well with increased volume across each of its customer-facing segments – defense, intel, and federal civilian. Operating earnings of $1.2 billion were down by 2% versus the prior year on a 50 basis point contraction in operating margin to 9.3%, and that was solely a function of the revenue mix as IT services grew faster than the defense electronics portfolio.

Speaker Change: Alright, thank you.

Speaker Change: Well move next to Ron Epstein of Bank of America.

Speaker Change: We'll move next to Ron Epstein at Bank of America.

Ron Epstein: Yes, hi, good morning.

Ron Epstein: Hey, good morning, Phebe and Jason. Maybe just circling back on your remarks, Phebe, around EB, but maybe more broadly, just kind of the ship industrial base. The DOD has been making some big investments. Where do you see Virginia-class build rates ultimately getting, Columbia too? Because it just seems like, you know, the supply chain and maybe just also from just a capacity perspective, we're just undercapacitized. So, I mean, have any thoughts on that?

Ron Epstein: Maybe just circling back on your remarks TB around.

Ron Epstein: But maybe more broadly just kind of the ship industrial base.

Ron Epstein: Yes.

Ron Epstein: <unk> been making some big investments.

Ron Epstein: Where do we where do you see.

Ron Epstein: Virginia class build rates ultimately getting.

Ron Epstein: Columbia too because it just seems like the supply chain.

Ron Epstein: And maybe just also from just a capacity perspective.

Ron Epstein: Or just under two times, so any thoughts on that.

Speaker Change: So let's step back a minute and talk a little bit about the shipbuilding industrial base in general and the submarine industrial base in particular. These are very heavily manpower-driven businesses and industry and an entire supply chain. And...

Ron Epstein: So, let's step back a minute and talk a little bit about the shipbuilding industrial base in general and the submarine industrial base. In particular these are very heavily manpower driven.

Jason Wright Aiken: So all in all, a great year for the technology. So, let me provide our operating forecast for 2024 with some color around our outlook for each business group and then the company-wide roll-up. In 2024, we expect aerospace revenue of about $12 billion, up around 40% over 2023. Operating margin is expected to be up 130 basis points to 15%.

Ron Epstein: Businesses in an industry analyst and an entire supply chain and.

Speaker Change: Our manpower availability was impacted significantly as a result of COVID in two respects. First, we had a really stunning increase in the timing and the number of retirements of seasoned workers throughout the industrial base. That, coupled with the post-COVID labor shortages, caused considerable perturbation in...

Ron Epstein: Our manpower availability was impacted significantly as a result of COVID-19 in two respects first we had in.

Ron Epstein: Really.

Ron Epstein: Stunning increase in the timing and the number of retirements of seasoned workers throughout the industrial base that coupled with a post COVID-19 labor.

Gulfstream deliveries will be around 160, materially over the 111 delivered in 2023. This is about 10 fewer deliveries than we anticipated in the multi-year forecast we gave you in January of 22. The mix will include about 50 G700 deliveries and fewer G280s as a result of the Gaza conflict's impact on our Israel-based supplier. As I just noted, we anticipate a 15% operating margin for the year, lower in the first half, particularly in the second quarter, and then well over 15% in the third and fourth quarters. While the ramp-up is slightly less than previously anticipated, it is not without supply chain challenges. For combat systems, at this time last year, we had anticipated revenue to be flat in 23.

Ron Epstein: Shortages caused considerable perturbation in.

Speaker Change: In the supply chain, those will begin to remedy. We've already seen some stabilization in the labor market. Those will remedy, but there's clearly learning that has to happen throughout the supply chain. I'd say with respect to capacity, an electric boat, we have sufficient capacity in the moment to deal with the demand that we see at the moment, but should that demand signal increase in the near term, we'll work closely with our Navy customer. I think key to the stabilization of the supply chain is improved delivery and improvement. And that happens as new workers come down their learning curves. We've benefited electric boats because they have a very robust training system in which our new workers come out at a higher level of proficiency, but still they need to come down their learning curves, and they're doing so nicely.

Ron Epstein: In the supply chain.

Jason Wright Aiken: Turning back to the quarterly performance, to break it down between the two businesses, GDIT's revenue was up in all four quarters compared with last year, and they've now grown their top line in each of the past three years. The same is true for Mission Systems' quarterly revenue performance, with the exception of the fourth quarter. If you recall, last year's fourth quarter saw us break through a logjam in the supply chain and deliver an unusually high number of products, lifting both revenue and margins. Barring that anomaly in 2022, the group's comparisons on a quarterly and full-year basis are quite favorable. With respect to order activity and backlog, the technologies group had a very good year, notwithstanding the continuing trend of customer solicitations pushing to the right and recurring award protests. The individual businesses and the group as a whole achieved a one-to-one book-to-bill ratio on solid revenue.

Ron Epstein: Those will begin to remedy we've already seen some stabilization in the in the labor market will remedy.

Ron Epstein: But theres clearly learning that has to happen throughout the supply chain.

Ron Epstein: I'd say with respect to capacity at electric boat, we are nicely capacity, yeah, that's sufficient capacity in the moment to deal with the.

Demand that we have we see at the moment, but should that demand signal an increase in the near term or will work closely with our navy customer.

Ron Epstein: Key to the stabilization of the as the supply chain is improved delivery and improved quality.

Ron Epstein: And that happens as as new workers come down their learning curves, we benefited electric boat because they have a very robust training system, and which are new workers come out at a higher level of proficiency, but still they need to come down their learning.

With a change threat environment, we had a 13% increase in revenue. For 24, we expect revenue to be up about 3% to $8.5 billion, coupled with a 50 basis point improvement in operating margin to 14.4%. The outlook is the result of the strong order activity we saw in 23 and the demand signals we see in Europe. To the extent that these demand signals start to convert into order activity, we could see some opportunity for additional revenue later in the year, particularly in our armaments and munitions business. As I noted earlier, the Marine Group has been on a remarkable growth journey. In 2023, revenue came in much stronger than expected, almost $1.6 billion, against a flattish forecast. Our outlook for this year anticipates revenue of about $12.8 billion, with operating margin improvement to 7.6%, which should result in a meaningful improvement in earnings in 2024. In Technologies, revenue in 2023 was stronger than anticipated in both businesses.

Jason Wright Aiken: They've got another $15 billion in awards pending adjudication and just shy of $2 billion in awards under protest. Mission Systems had a great year as well, with a total value of submitted bids almost triple the level they saw in 2022. Of course, many of the group's awards come in the form of IDIQ contracts with potential value that doesn't initially hit the backlog, so much of these positive results will continue to manifest in the reported numbers over time. To that point, we ended the quarter with a total estimated contract value for the group of nearly $41 billion, and the group's combined qualified pipeline exceeds $130 billion.

Ron Epstein: Learning curves and Theyre doing theyre doing so nicely.

Speaker Change: You know, I think to add a little bit of perspective to that, at Electric Boat, we increased our velocity and throughput on Virginia by about 10% this year and 24% and about 30% on Columbia. So Electric Boat is continuing to do well. They just need to continue to improve their productivity so we can continue to offset some of these financial impacts that we're seeing from the supply chain.

Speaker Change: I think to add a little bit of perspective to that at electric boat, we increased our velocity and throughput on Virginia by about 10% this year end.

Speaker Change: 24, and about 30% on Colombia, So electric boat is continuing to do well they just need to continue.

Speaker Change: Continue to improve their productivity. So we can continue to offset some of these financial impacts that we're seeing from the supply chain.

Speaker Change: But I would finally mention the Navy has been a very good partner in recognizing these challenges and working hard to get orders and certainty of demand into the supply chain, and that helps the entire supply chain plan.

Speaker Change: But I would finally mentioned the Navy has been a very good partner in recognizing these challenges and working hard to get orders and certainty of of demand into the supply chain and that helps the entire supply chain plan.

Phebe N. Novakovic: So all in all, a great year for the technology. So, let me provide our operating forecast for 2024 with some color around our outlook for each business group and then the company-wide rollout. In 2024, we expect aerospace revenue of about $12 billion, up around 40% over 2023. Operating margin is expected to be up 130 basis points to 15%.

Speaker Change: Got it and then maybe just one quick follow up.

Speaker Change: Got it. And maybe just one quick follow-on. Are we capacitized enough to meet the demand that AUKUS would require, you know, having an extra Virginia class every three years?

Speaker Change: Our capacity is enough to.

Speaker Change: The demand that August would require having an extra Virginia class every three years.

Speaker Change: So I think we're going to look at all of that with the Navy, but let me tell you, the best thing we can do for August in the moment is get back to two-a-year production, one step at a time.

Speaker Change: So I think we're going to look at that and all of that with the Navy, but but let me tell you. The best thing we can do for office in the moment is to get back to a year production.

Speaker Change: One step at a time.

Phebe N. Novakovic: Gulfstream deliveries will be around 160, materially over the 111 delivered in 2023. This is about 10 fewer deliveries than we anticipated in the multi-year forecast we gave you in January of 22. The mix will include about 50 G700 deliveries and fewer G280s as a result of the Gaza conflict's impact on our Israel-based supplier. As I just noted, we anticipate a 15% operating margin for the year, lower in the first half, particularly in the second quarter, and then well over 15% in the third and fourth quarters. While the ramp-up is slightly less than previously anticipated, it is not without supply chain challenges. For combat systems, at this time last year, we had anticipated revenue to be flat in 2023.

2024 revenue is expected to be up about 1% to $13 billion. Within the group, GDIT will be up low single digits, and mission systems will be down slightly due to a transition from legacy systems and a slow ramp-up on new programs. Operating margins are expected to improve 20 basis points to about 9.5%.

Speaker Change: We'll take our next question from Jason Gursky at the end of this.

Speaker Change: We'll take our next question from Jason Gursky at Citigroup.

Jason Gursky: Good morning, everybody.

Jason Gursky: Hey, good morning, everybody good morning.

Jason Gursky: Good morning. Good morning. I was wondering if you could talk a little bit about the G400.

Speaker Change: Good morning.

Jason Gursky: Wondering if you could talk a little bit about the G.

Jason Gursky: 400.

Jason Gursky: and how that plane seems to be performing from a market acceptance perspective.

And how that place seems to be performing from a market acceptance perspective.

Jason Gursky: Kind of the pipeline that you're seeing for that aircraft. I'm just kind of curious how that segment of your market is shaping up there.

Jason Gursky: So kind of a pipeline that you see that aircraft and just curious how that segment of your market shaping up there.

We see long-term low single-digit growth for the group and continued industry-leading margins. So for 2024, company-wide, we expect to see revenue of approximately $46.3 billion to $46.4 billion, an increase of around 9.5%. We anticipate operating margin of 11%, up 100 basis points from 2023. All this rolls up to an EPS forecast of around $14.40. A reasonable range would be $14.35 to $14.45.

Speaker Change: Come into the room.

Jason Gursky: In the new year.

Speaker Change: So the plane is performing very nicely in excess of the design parameters. We see considerable interest in that end of the market. And so we are quite positive about that airplane when it enters into service.

Jason Gursky: So the plane is performing very nicely and in excess of it of the design parameters, we see considerable interest and that end of the market and so we are.

Jason Gursky: We are quite positive about that airplane when it enters into service.

Speaker Change: Okay, Great and then your comments on the combat and.

Speaker Change: Great. And then your comments on combat and, you know, the potential for some orders converting into revenue coming out of Europe in the second half of the year. That's not, that doesn't sound like it's implied in your guidance, but I'm just kind of curious that, you know, how far into the year can we go get those orders and actually convert them into revenue?

Phebe N. Novakovic: With a changed threat environment, we had a 13% increase in revenue. For 2024, we expect revenue to be up about 3% to $8.5 billion, coupled with a 50 basis point improvement in operating margin to 14.4%. The outlook is the result of the strong order activity we saw in 23 and the demand signals we see in Europe. To the extent that these demand signals start to convert into order activity, we could see some opportunity for additional revenue later in the year, particularly in our armaments and munitions business. As I noted earlier, the Marine Group has been on a remarkable growth journey. In 2023, revenue came in much stronger than expected, almost $1.6 billion, against a flat-ish forecast. Our outlook for this year anticipates revenue of about $12.8 billion, with an operating margin improvement to 7.6%, which should result in a meaningful improvement in earnings in 2024.

Speaker Change: Tangible rewards orders converting to revenue coming out of Europe in the second half of the year.

Speaker Change: Good that's all I guess implied in your guidance, but I'm just kind of curious it.

Speaker Change: How far into the year.

Speaker Change: Oh.

Speaker Change: Get those orders magic.

Speaker Change: <unk>.

On a quarterly basis, the first two quarters look a lot alike, with very strong third and fourth quarters. In summary, as we go into this year, we feel very good about the demand environment across all of our businesses. It has been some time since I have seen stronger demand signals and better promise of organic growth. We also have some very good opportunities across the business to improve operating margins. All we must do is...

Speaker Change: Well, it depends on what the orders are for. On faster transaction material like service and munitions, they can move a little more quickly. Longer leads...

Speaker Change: Well it depends on what the orders are for an on faster transaction material like service and munitions. They can move a little more quickly longer lead.

Speaker Change: Thank you so much for joining us today, and we hope that this webinar will be of help to those of you who are interested in participating in this webinar, and we hope that this webinar will be of help to those of you who are interested in participating in this webinar. Thank you so much for joining us.

Speaker Change: Orders on combat.

Speaker Change: <unk> take a little bit longer so we factored in to the best of our ability then known demand signal and the velocity of contracting into into our plan. So the extent that there is upside it'll be I think largely on the on the armament musician munition.

Nicole Shelton: It almost goes without saying that we'll be laser-focused on operations. Nicole, back to you. As a reminder, we ask participants to ask one question and one follow-up so that everyone has a chance. Operator, could you please remind participants how to enter the queue? Thank you. At this time, I would like to remind everyone that, in order to ask a question, press the star, then the number one on your telephone keypad.

Speaker Change: programs that execute at a faster rate and to the extent that we can speed up even further the installation of additional jigs and fixtures for productivity as well as our increased scope on delivery of munitions that should help as well but we think we had you know look in all cases we give you a very balanced

Speaker Change: Programs that.

Speaker Change: Executed at a faster rate and to the extent that we can speed up even further.

Speaker Change: Our installation of additional jigs and fixtures for productivity as well as our increased.

Speaker Change: Scope on delivery of of munitions that should help as well, but we think we look in all cases, we gave you a very balanced I'd say 50 50 plan with opportunities.

Phebe N. Novakovic: In technologies, 2023 revenue is stronger than anticipated in both businesses. 2024 revenue is expected to be up about 1% to $13 billion. Within the group, GDIT will be up low single digits, emissions systems will be down slightly due to a transition from legacy systems and a slow ramp-up on new programs. Operating margins are expected to improve 20 basis points to about 9.5%.

Operator: Again, please limit yourself to one question and one follow-up to allow everyone an opportunity to ask a question. We'll take our first question from Myles Walton at Wolf Research. Thanks. Good morning.

Speaker Change: I'd say 50-50 plan with opportunities and risks, and we're quite comfortable with the estimates that we've given you at the time.

Speaker Change: Opportunities and risks and we're quite comfortable with the estimates that we've given you at the time.

Speaker Change: Okay.

Speaker Change: We'll go next to David Strauss at Barclays.

Myles Walton: All right, Phoebe, I was hoping you could touch on the 700, not a surprise. How many do you have ready for pre-delivery inspection from your customers? And also relative to confidence of when the deliveries could take place? I mean, this is pretty much out of your control; the FAA published a few rules last week that are pending. Go through their process.

Speaker Change: Okay.

David Strauss: Good morning, everyone. Hi, David. Good morning.

David Strauss: Good morning, everyone.

Speaker Change: Good morning.

David Strauss: Phebe, any thoughts on how the...

Speaker Change: CB any any thoughts.

Speaker Change: On how the.

Phebe N. Novakovic: budget process for for 24 might actually play out here given that we're you know we're quickly approaching you know the potential for a sequester

Speaker Change: The budget process for 24 might actually play out here given that we're we're quickly approaching.

Phebe N. Novakovic: We see long-term low single-digit growth for the group and continued industry-leading large growth. So for 2024, company-wide, we expect to see revenue of approximately $46.3 billion to $46.4 billion, an increase of around 9.5%. We anticipate operating margin of 11%, up 100 basis points from 2023. All this rolls up to an EPS forecast of around $14.40. A reasonable range would be $14.35 to $14.45.

Speaker Change: The potential for a sequester.

Speaker Change: So yeah.

Phebe N. Novakovic: So we have factored in all known funding into our plan and should we see a...

I'm just curious about your confidence level for first quarter delivery versus, say, where you were. In the fourth quarter, expecting deliveries by year. We have 15 airplanes ready to go, and the hope is that we deliver them this quarter. The notifications that Gulfstream made earlier this week, I guess, this week, are in the regular order and really have no material impact on the certification process.

Speaker Change: Yeah factored in funding.

Speaker Change: Funding into our plan and should we see.

Phebe N. Novakovic: and extensive and continued

Speaker Change: An extensive continued.

Phebe N. Novakovic: Continuing resolution, we'll have to see what impact that has on our faster transaction businesses, because every CR plays out a bit differently, and to the extent that we have a sequester, then we have factored some of that, but clearly you can't do all of it into your plan, so we'll adjust accordingly, but we are hopeful that Congress is able to.

Speaker Change: Continuing resolution will have to see what impact that has on our.

Speaker Change: On a faster transaction businesses, because you know every C. R plays out a bit differently.

I tried to give you as much clarity as I could around the certification and where we are. Is there an 800 delivery assumed in the guidance? So we're not going to go into what we've assumed for any given airplane in our guidance.

Speaker Change: And to the extent that we have in a sequester.

Operator: On a quarterly basis, the first two quarters look a lot alike, with very strong third and fourth quarters. In summary, as we go into this year, we feel very good about the demand environment across all of our businesses. It has been some time since I have seen stronger demand signals and better promise of organic growth. We also have some very good opportunities across the business to improve operating margins. All we must do is... It almost goes without saying that we'll be laser focused on operations. Nicole said, "Back."

Then we have factored some of that by a parent you know clearly you can't do all of it into your planned so we'll adjust accordingly.

So let me give you guys some perspective on this. For the last eight years, we've tried to give you some clarity about a process over which we have no control, no control. And it's kind of like sticking your fingers in a light socket to predict a process that we just don't control.

But we are hopeful that the Congress is able to.

Phebe N. Novakovic: pass a critical defense bill.

Speaker Change: Passe critical defense Bill.

Phebe N. Novakovic: You know, particularly in these times given the threat environment.

Speaker Change: You know, particularly in these times given the threat environment.

Speaker Change: Okay. Jason, I wanted to ask about free cash flow and capital deployment. You know, maybe help with some of the big moving pieces. I mean, obviously inventory was a big drag, but advances helped a lot. Your cash taxes have been really high. How do those all factor in?

Speaker Change: Okay.

Speaker Change: Just wanted to ask about free.

Speaker Change: Pre tasked me uncouple deployment.

Speaker Change: Maybe maybe help with some of the big moving pieces I mean, obviously inventory would you say.

So I think we're going to be silent as we go forward about any specificity around certification timing, because then we hear words like slip and miss, and these planes are going to get certified, but they will get certified on the FAA schedule. Thank you. We'll move next to Ron Epstein at Bank of America. Hey, good morning, Phebe and Jason.

Speaker Change: But advances helped below your cash taxes have been really high.

Speaker Change: Are those all factor in.

Speaker Change: in 24. And I assume your guidance includes nothing as usual for CAVA deployment. How should we think about that given you have very little in maturities this year? Thanks.

Speaker Change: In 2004 and.

Operator: As a reminder, we ask participants to ask one question and one follow-up so that everyone has a chance. Operator, could you please remind participants how to enter the queue? Thank you. At this time, I would like to remind everyone that, in order to ask a question, press the star, then the number one on your telephone keypad.

Speaker Change: I assume your guidance includes nothing unusual for for capital deployment.

Speaker Change: Should we think about that given you have very little in and maturities. This this year. Thanks.

Speaker Change: Yeah, so when you think about free cash flow, we are anticipating to continue in the 100% conversion range in 2024 and beyond. Obviously, we outperformed that a bit in 2023, but that doesn't affect what we expect in 2024. So, you know, the good news is a lot of the larger scale moving parts around cash flow are starting to settle down a little bit. We've experienced some big headwinds and then some corresponding tailwinds over the past several years. But right now, if you look ahead, I think you can expect for the aerospace group, fairly steady conversion at or slightly above 100% conversion. When you think about it, we had a pretty big tailwind when they were building the significant backlog over the past few years and all the deposits were coming in. So that more than offset any effect of inventory build. So as you transition into a period where you're starting to deliver off that inventory, but then you assume a steady one-to-one book-to-bill, you should be in a pretty regular burn rate at 100% conversion plus or minus for that business.

Speaker Change: Yes so.

Speaker Change: When you think about <unk>.

Speaker Change: Free cash flow, we are anticipating to continue in the 100% conversion range in 'twenty four and beyond obviously, we outperformed that a bit in.

Ronald J. Epstein: Maybe just circling back on your remarks, Phebe, around EB, but maybe more broadly, just kind of the ship industrial base. The DOD has been making some big investments. Where do you see Virginia-class build rates ultimately getting, Columbia too? Because it just seems like, you know, the supply chain and maybe also from just a capacity perspective, we're just undercapacitized. So, I mean, have any thoughts on that?

Speaker Change: In 2023, but that doesn't affect.

Speaker Change: What we expect in 'twenty four so.

Myles Walton: Again, please limit yourself to one question and one follow-up to allow everyone an opportunity to ask a question. We'll take our first question from Myles Walton at Wolf Reef. Thanks, good morning.

Speaker Change: The good news is a lot of the larger scale moving parts around cash flow are starting to settle down a little bit we've experienced some big headwinds and then some corresponding tailwind over the past several years, but right. Now if you look ahead I think you can expect for the aerospace group.

Phebe N. Novakovic: I was hoping you could touch on the 700, not a surprise. How many do you have ready for pre-delivery inspection by your customers? And also relative to confidence in when the deliveries could take place, I mean, this is pretty much out of your control; the FAA published a few rules last week that are pending, you know, go through their process. I'm just curious about your confidence level in first quarter delivery versus, say, where you were in the fourth quarter, expecting deliveries by year. So we have 15 airplanes ready to go, and the hope is that we can deliver them this quarter. The notifications that Gulfstream made earlier this week are in the regular order and really have no material impact on the certification process.

Speaker Change: Fairly steady conversion at or slightly above 100% conversion. When you think about it we got a pretty big tailwind when they were building a significant backlog over the past few years and all the deposits were coming in so that more than offset any infective inventory build so as you transition into a period, where you are starting to deliver off that inventory, but then you.

So let's step back a minute and talk a little bit about the shipbuilding industrial base in general and the submarine industrial base in particular. These are very heavily manpower-driven businesses and industries and an entire supply chain. And... Our manpower availability was impacted significantly as a result of COVID in two respects. First, we had a really stunning increase in the timing and the number of retirements of seasoned workers throughout the industrial base. That, coupled with the post-COVID labor shortages, caused considerable perturbation in...

Speaker Change: We assume a steady one to one book to Bill you should be in a pretty regular burn rate at 100% conversion plus or minus for that business.

Speaker Change: Combat Systems, on the other hand, should continue to see tailwinds as they work through some of the receivables and work in process on the international programs that we've made some great progress on in recent years. So that will continue for a couple of years. The Technologies Group is a steady provider, well above 100% conversion. And the Marine Systems Group, as we noted, is still finishing up some of the large capital projects. We're coming through that now, and we'll see what the future holds, as Phebe alluded to, in terms of Navy investment. But when you kind of net all those together, we're right about 100% for the coming year. If you look at capital deployment, as you noted, there's not a lot in terms of commitment. We've got $500 million in notes that mature out in November of this year. So we've got plenty of time to kind of see how things play out and decide what we want to do with that maturity. No rush on that decision. And we'll look at all options as we always have. I think we've got great opportunity for stepped-up share repurchases as more, I should say, as uncertainty sort of moves out of the environment. You know, we looked at the last half of last year, the last quarter of last year, and the significant threat of a government shutdown sort of hung over the environment. And that, you know, factors into our thinking as we think about how we preserve cash and deploy capital. So if we can get past that in March, then I think it provides a lot of optionality for us as we look ahead on the capital. You know, if you think about it, the demand signals we see and our expected growth make share repurchases increasingly compelling.

Combat systems on the other hand should continue to see tailwind as they worked through some of the receivables and work in process on the international programs that we've made some great progress on in recent years. So that will continue for a couple of years.

In the supply chain, those will begin to remedy. We've already seen some stabilization in the labor market. Those will remedy, but there's clearly learning that has to happen throughout the supply chain. I'd say with respect to capacity, an electric boat. We have sufficient capacity at the moment to deal with the demand that we see at the moment, but should that demand signal an increase in the near term, we'll work closely with our Navy customer. I think key to the stabilization of the supply chain is improved delivery and improvement, and that happens as new workers come down their learning curves.

Speaker Change: <unk> technologies group is a steady provider.

Phebe N. Novakovic: I tried to give you as much clarity as I could around the certification and where we are. Is there an 800 delivery assumed in the guidance? So we're not going to go into what we've assumed for any given airplane in our guidance.

Speaker Change: Well above 100% conversion and the Marine systems group as we noted is still finishing up some of the large capital projects were coming through that now and we'll see what the future holds as phebe alluded to in terms of Navy investment, but when you kind of net all those together, we're right about a 100% for the coming year.

Phebe N. Novakovic: So let me give you guys some perspective on this. For the last eight years, we've tried to give you some clarity about a process over which we have no control, no control. And it's kind of like sticking your fingers in a light socket to predict a process that we just don't control.

Speaker Change: If you look at capital deployment as you noted there's not a lot in terms of commitment we've got $500 million.

Speaker Change: Notes that mature in November of this year. So we've got plenty of time.

We've benefited from electric boats because they have a very robust training system in which our new workers come out at a higher level of proficiency, but they still need to come down their learning curves, and they're doing so nicely. You know, to add a little bit of perspective to that, at Electric Boat, we increased our velocity and throughput on Virginia by about 10% this year and 24% and about 30% on Columbia. So Electric Boat is continuing to do well. They just need to continue to improve their productivity so we can continue to offset some of these financial impacts that we're seeing from the supply chain. But I would finally mention the Navy has been a very good partner in recognizing these challenges and working hard to get orders and certainty of demand into the supply chain, and that helps the entire supply chain plan. I got it.

Speaker Change: See how things play out and decide what we want to do with that maturity.

Phebe N. Novakovic: So I think we're going to be silent as we go forward about any specificity around certification timing, because then we hear words like slip and miss, and these planes are going to get certified, but they're going to get certified on the FAA schedule. Thank you. We'll move next to Ron Epstein at Bank of America. Hey, good morning, Phebe and Jason.

Speaker Change: No rush on that decision and we will look at all options as we always have I think we've got great opportunity for stepped up share repurchases is more.

Speaker Change: I would say is uncertainty sort of moves out of the out of the environment. We looked at the last half of last year in the last quarter of last year and the significant threat.

Ron Epstein: Maybe just circling back on your remarks, Phebe, around EBE, but maybe more broadly, just kind of the ship industrial base. The DOD has been making some big investments. Where do we, where do you see Virginia class build rates ultimately getting in? Columbia too?

Speaker Change: The government shutdown sort of.

Over the environment in that.

Speaker Change: Factors into our thinking as we think about how we preserve cash and deploy capital. So we can get past that in March then I think it provides a lot of optionality for us as we look ahead on the on the capital deployment front.

Phebe N. Novakovic: Because it just seems like, you know, the supply chain and, and maybe also from just a capacity perspective, we're just undercapacitized. So, any thoughts on that? So let's step back a minute and talk a little bit about the Shipbuilding Industrial Base in general and the Submarine Industrial Base in particular. These are very heavily manpower-driven businesses and an industry and an entire supply chain.

Speaker Change: If you think about it the demand signals, we see it.

Speaker Change: <unk> gross make.

Speaker Change: Share repurchases increasingly compelling.

Speaker Change: Yes.

Speaker Change: Hey, one thing that Jason talked about, just mentioned tangentially, and I want to focus a little bit on and just give you guys some perspective. You know, the...

Speaker Change: Hey, one thing Jason talked about.

Speaker Change: Just mentioned tangentially in and I want to focus a little bit on and just give you guys. Some perspective.

Speaker Change: The what.

Speaker Change: When we talk about a one to one book to Bill in our businesses, that's really for planning purposes, it's not a forecast.

Speaker Change: When we talk about a one-to-one book to bill in our businesses, that's really for planning purposes. It's not a forecast. So just keep that in mind.

Speaker Change: So just keep that in mind.

Phebe N. Novakovic: Our manpower availability was impacted significantly as a result of COVID. In two respects, first, we had a really stunning increase in the timing and the number of retirements of seasoned workers throughout the industrial base. That, coupled with the post-COVID labor shortages, caused considerable perturbation in the supply chain. Those will begin to remedy. We've already seen some stabilization in the labor market. Those won't remedy.

Speaker Change: We'll move next to Sheila Kayoglu at Jefferson.

Ronald J. Epstein: And maybe just one quick follow-on. Are we equipped enough to meet the demand that AUKUS would require, you know, having an extra Virginia class every three years? So I think we're going to look at all of that with the Navy, but let me tell you, the best thing we can do for August at the moment is get back to two-a-year production, one step at a time. We'll take our next question from Jason Gursky at the end of this. Good morning, everybody. Good morning. Good morning.

Speaker Change: We'll move next to Sheila Ku Blue at Jefferies.

Speaker Change: Yeah.

Sheila Kahyaoglu: Good morning, Phebe, Jason. Thank you for the time. You're a great caller on Gulfstream. You gave some numbers around the loss of revenues and profit that slipped into 24 from the G700, which would imply, you know, north of 20% margins for the G700. And given you have quite a few built up already, any color you could give on...

Speaker Change: Good morning, Phebe, Jason Thank you for the time.

Speaker Change: Great color on Gulfstream, you gave some numbers around the law.

Speaker Change: Revenues and profits that slipped into 24 from the G 700, which would imply.

Speaker Change: With a 20% margins for the G 700, and so then you have quite a few built up already.

Speaker Change: The color you could give on.

Phebe N. Novakovic: But there's clearly learning that has to happen throughout the supply chain. I'd say with respect to capacity, at Electric Boat, we are nicely capacitated, with sufficient capacity at the moment to deal with the demand that we have and see at the moment, but should that demand signal an increase in the near term, we'll work closely with our Navy customer. I think key to the stabilization of the supply chain is improved delivery and improved quality. And that happens as new workers come down their learning curves.

Sheila Kahyaoglu: Profit Profile of the G700 relative to maybe the 650 and the 500 and 600.

The profile of the G 700 relative to maybe the 50 and the 506 hundred.

Jason Gursky: I was wondering if you could talk a little bit about the G400 and how that plane seems to be performing from a market acceptance perspective, and the pipeline that you're seeing for that aircraft. I'm just kind of curious how that segment of your market is shaping up there. Come into the room.

Speaker Change: Hey, can you repeat the last part of your question? It was kind of coming in. Sure, sorry. It was more just the profit profile of the G700 relative to the G700.

And can you repeat the last part of your question it was kind of coming in.

Speaker Change: Sorry, It was more just the profit profile of the G 700 relative.

Speaker Change: The 700 comes in at accretive margins, but as you all know, and many of you are quite expert in this, as we've talked about over the years, including on this call, the margin performance at Gulfstream is driven by a host of issues. And as I noted in my remarks, Mick...

Speaker Change: 50, and the five or 600 out that entered service just because yeah Ryan.

Speaker Change: Yeah. The 700 comes in at a at accretive margins, but.

So the plane is performing very nicely in excess of the design parameters. We see considerable interest in that end of the market, and so we are quite positive about that airplane when it enters service.

Speaker Change: As you all know and many of you are quite expert initiatives, we've talked about over the years, including on this call. The margin performance at Gulfstream is driven by a host of issues and as I noted in my remarks mix.

Jason Gursky: And then your comments on combat and, you know, the potential for some orders converting into revenue coming out of Europe in the second half of the year. That doesn't, that doesn't sound like it's implied in your guidance, but I'm just kind of curious about how far into the year we can get those orders and actually convert them into revenue. Well, it depends on what the orders are for. On faster transaction materials like service and munitions, they can move a little more quickly. Longer leads...

Speaker Change: pricing out of station work all impacted so I think you know again as I mentioned earlier the way to think about our plan is it really is a really balanced plan not quite the question you asked but I stick with that and I think about it that way you

Speaker Change: Pricing attestation work all impact it so I think you know.

Phebe N. Novakovic: We've benefited at Electric Boat because we have a very robust training system in which our new workers come out at a higher level of proficiency, but they still need to come down their learning curves. And they're doing so nicely. You know, to add a little bit of perspective to that electric boat, we increased our velocity and throughput on Virginia by about 10% this year and 24 and about 30% on Columbia. So the electric boat is continuing to do well; they just need to continue to improve their productivity. So we can continue to offset some of these financial impacts that we're seeing from the supply chain. But I would finally mention that the Navy has been a very good partner in recognizing these challenges and working hard to get orders and certainty of demand into the supply chain. And that helps the entire supply chain plan. I got it.

Speaker Change: Again as I mentioned earlier, the way to think about our plan as it really is it really balanced plan not quite the question you asked but I would stick with that and I think about it that way.

Speaker Change: But these new airplanes are coming in at very nice margins.

Speaker Change: Okay, and then if I could ask one more on the defense side of the business, just given a lot of what your peers are talking about as well, and you have pretty robust demand in marine and combat, but earnings growth tends to be below revenue growth. So just given inflation and mix, how do you think about Judy's ability to continue to grow defense profits? It seems like combat is seeing some of that.

Speaker Change: Okay, and then if I could ask one more on the defense side of the business just given a lot of what your peers are talking about as well and you have a pretty robust demand in marine and pop out.

Thank you so much for joining us today, and we hope that this webinar will be of help to those of you who are interested in participating in this webinar. Thank you so much for joining us; programs that execute at a faster rate and to the extent that we can speed up even further the installation of additional jigs and fixtures for productivity as well as our increased scope on delivery of munitions, that should help as well. But we think we had you know look, in all cases, we give you a very balanced, I'd say 50-50 plan with opportunities and risks, and we're quite comfortable with the We'll go next to David Strauss at Barclays.

Speaker Change: Earnings growth to be below revenue growth. So just given inflation and mix. How do you think about <unk> ability to continue to grow to that it seems like combat as being something about com.

Speaker Change: Combat is seeing some of it, but I tried to give you some perspective earlier on the impacts of what happened to the industrial base and the Marine Group, and it also impacted Gulfstream as a result of COVID. So for us, it's really a question of operating excellence, operating excellence, operating excellence. We're going to focus on that very heavily so we drive increased profitable growth.

Speaker Change: Combat is seeing some of it but I've tried to give you some perspective earlier on the impacts of what happened to the industrial base in the Marine group and it also impacted Gulfstream.

Speaker Change: As a result of Covid so for US it's really a question of operating excellence operating excellence operating excellence, we're going to focus on that very heavily so we drive increased profitable growth.

Speaker Change: That's the value proposition that we're looking at right now.

Speaker Change: Okay.

Speaker Change: We'll move next to Seth assessment at J P. Morgan.

Speaker Change: We'll move next to Seth Seifman at JPMorgan.

David Strauss: Good morning, everyone. Hi, David. Good morning. Phebe, any thoughts on how the.., budget process for for 24 might actually play out here given that we're you know we're quickly approaching you know the potential for a sequester, So we have factored in all known funding into our plan and should we see a.., and extensive and continued, Continuing resolution, we'll have to see what impact that has on our faster transaction businesses, because every CR plays out a bit differently, and to the extent that we have a sequester, then we have factored some of that, but clearly you can't do all of it into your plan, so we'll adjust accordingly, but we are hopeful that Congress is able to, pass a critical defense bill. You know, particularly in these times given the threat environment. Okay.

Phebe N. Novakovic: And then maybe just one quick follow-on. Are we capable enough to meet the demand that AUKUS would require, you know, having an extra Virginia class every three years? So I think we're going to look at all of that with the Navy. But let me tell you, the best thing we can do for AUKUS at the moment is get back to two-a-year production, one step at a time. We'll take our next question from Jason Gursky at, Good morning, everyone. Good morning. Good morning.

Seth M. Seifman: Okay, thanks very much, and good morning, everyone.

Seth: Okay, Thanks, very much and good morning, everyone.

Seth: Wow.

Seth M. Seifman: I wanted to start off asking about combat and just the 3% growth guide. I guess even if we adjust for some seasonality, I might have thought that the activity levels that we're seeing here in the early, what we saw in the second half of 23 would lead to some really quite robust growth in the first half, perhaps even double digit. And then being at 3% would imply something like flatter down in the second half.

Seth: Good morning, I wanted to start off asking about about combat.

Seth: And just the 3% growth guide I guess, even if we adjust for some seasonality I might have thought that the activity levels that we're seeing here in the in what we saw in the second half of 'twenty three.

Lead to some really quite robust growth in the first half, perhaps even double digit.

Jason Gursky: I was wondering if you could talk a little bit about the G400 and how that plane seems to be performing from a market acceptance perspective. Kind of the pipeline that you're seeing for that aircraft. I'm just kind of curious how that segment of your market is shaping up there.

Seth: And then being at 3% would imply something like flat or down in the second half.

Speaker Change: Am I not thinking about that cadence properly or is there some reason for the growth to really, you know, step off or come down in the second half? No, I wouldn't look at anything macro with respect to that. In a quickly growing environment, contracts tend to come in a little bit more lumpier.

Speaker Change: Am I not thinking about that cadence properly.

Speaker Change: Some reason for further growth to really.

Speaker Change:

Speaker Change: Step off or come down in the second no I don't I wouldn't look at anything macro with respect to that.

Phebe N. Novakovic: So the plane is performing very nicely and in excess of the design parameters; we see considerable interest in that end of the market. And so we are quite positive about that airplane when it enters service.

Speaker Change: N a N a quickly growing environment, Oh contracts tend to come in a little bit more lumpier.

Jason Wright Aiken: Jason, I wanted to ask about free cash flow and capital deployment. You know, maybe help with some of the big moving pieces. I mean, obviously, inventory was a big drag, but advances helped a lot. Your cash taxes have been really high. How do those all factor in? within 24.

Speaker Change: and and so this is simply a question of timing. I think we see mid to upper single digits over and and toward the higher upper single digits over our planned period but we've given you the plan that given the faster execution of contracting that we saw last year when they have a bit of a slowdown in the first couple quarters and then acceleration as the year goes on. Thank you.

Speaker Change: And so this is simply a question of timing.

Phebe N. Novakovic: And then your comments on combat and, you know, the potential for some orders converting into revenue coming out of Europe in the second half of the year. That doesn't sound like it's implied in your guidance, but I'm just kind of curious about how far into the year we can get those orders and actually convert them into revenue. Well, it depends on what the orders are for. On faster transaction materials like service and munitions, they can move a little more quickly. Longer leads Thank you very much for joining us today, and I hope that you will join us again for the next session of this webinar, programs that execute at a faster rate.

Speaker Change: We've seen mid to upper single digits over and towards the higher.

Speaker Change: Upper single digits over our plan period.

Speaker Change: But we've given you the plan that given the faster execution of contracting that we saw last year.

Jason Wright Aiken: And I assume your guidance includes nothing as usual for CAVA deployment. How should we think about that given you have very little in maturities this year? Thanks.

Speaker Change: Well they have a bit of a slow down in the first couple of quarters, and then acceleration as the year goes on.

Speaker Change: But the demand is there.

Jason Wright Aiken: Yeah, so when you think about free cash flow, we are anticipating to continue in the 100% conversion range in 2024 and beyond. Obviously, we outperformed that a bit in 2023, but that doesn't affect what we expect in 2024. So, you know, the good news is a lot of the larger-scale moving parts around cash flow are starting to settle down a little bit. We've experienced some big headwinds and then some corresponding tailwinds over the past several years.

Speaker Change: But the demand is there.

Speaker Change: Okay, excellent. And then on aerospace, I guess it's probably about two years ago that you gave us kind of, you know, a multi-year look at the aerospace business and the expectations there as the demand started to gather. You know, since that bunch of stuff has happened, I think, you know, demand has probably been a little stronger than expected. We've also seen some supply chain issues, some certification push-outs. You know, as we think about sort of a multi-year outlook for aerospace in terms of deliveries and profitability, is that something you can update at this time?

Speaker Change: Sure sure Okay.

Speaker Change: And then on.

Speaker Change: On aerospace I guess, it was probably about two years ago.

Speaker Change: You gave us.

Kind of a multiyear look at.

At the aerospace business and the expectations there as the demand started to gather.

Speaker Change: The bunch of stuff that happens I think that demand has probably been a little stronger than expected.

Speaker Change: We've also seen some supply chain issues some certification push outs.

Phebe N. Novakovic: And to the extent that we can speed up even further the installation of additional jigs and fixtures for productivity, as well as our increased scope for delivery of munitions, that should help as well. But we think we have, you know, look, in all cases, we give you a very balanced view. I'd say a 50-50 plan with opportunities and risks, and we're quite comfortable with the estimates that we gave you at the time. We'll go next to David Strauss at Barclays. Morning, everyone. Hi David.

Speaker Change: As we think about sort of a <unk>.

Your outlook for for aerospace in terms of deliveries and profitability.

Jason Wright Aiken: But right now, if you look ahead, I think you can expect for the aerospace group fairly steady conversion at or slightly above 100% conversion. When you think about it, we had a pretty big tailwind when they were building the significant backlog over the past few years and all the deposits were coming in, so that more than offset any effect of inventory build.

Speaker Change: Got it.

Speaker Change: Something you can update at this time.

Speaker Change: Yeah, so we're going to deliver 160 airplanes that's in our plan this year. I will say that 25 will be more deliveries and 26 even more deliveries. But at this point, given the issues that you mentioned, we're not going to be any more granular than that. We owe you additional fidelity as time goes on.

Speaker Change: Yeah. So.

Speaker Change: We're going to deliver 160 airplanes. That's in our plan this year I will say that.

<unk> 25 will be more deliveries in 'twenty six even more deliveries, but at this point.

Jason Wright Aiken: So as you transition into a period where you're starting to deliver on that inventory, but then you assume a steady one-to-one book-to-bill, you should be at a pretty regular burn rate at 100% conversion plus or minus for that business. Combat Systems, on the other hand, should continue to see tailwinds as it works through some of the receivables and works in process on the international programs that we've made some great progress on in recent years. So that will continue for a couple of years. The Technologies Group is a steady provider, well above 100% conversion.

Speaker Change: Given that the issues that you mentioned, it's a we're not going to be any more granular than that.

David Strauss: Phebe, any thoughts on how the budget process for 24 might actually play out here given that we're, you know, we're quickly approaching the potential for a sequester. So, um, we have factored in all known funding into our plan, and should we see an extensive and continued continuing resolution, We'll have to see what impact that has on our faster transaction businesses, because, you know, every CR plays out a bit differently. And to the extent that we have a sequester, then we have factored some of that, but apparently, you know, clearly we can't do all of it into your plan. So we'll adjust accordingly, but we are hopeful that Congress will be able to pass a critical defense bill, particularly in these times given the threat environment.

Speaker Change: Additional fidelity as time goes on.

Speaker Change: Yeah.

Speaker Change: Our next question comes from Noah Popenac at Goldman Sachs.

Speaker Change: Our next question comes from Noah <unk> at Goldman Sachs.

Noah Poponak: Hey, good morning, everyone. Morning.

Noah: Hey, good morning, everyone Martin <unk>.

Noah Poponak: Phebe, maybe just following on that, but a little bit bigger picture, I was curious to hear you talk about

Noah: Maybe just following on that but a little bit bigger picture I was curious to hear you talk about.

Noah Poponak: How you're managing supply versus demand in this in this pretty unique business jet market because if you go to 12 billion in revenue that's you know that's run rating 3 billion a quarter and based on the change in backlog I know that's imperfect but directionally the order rate had made it to 3 billion a quarter but it's now slowed a little bit and we're trying to figure out where this market settles out.

Noah: And how you're managing supply versus demand in.

Noah: And this is pretty unique business jet market, because if you go to $12 billion in revenue. That's your that's run rating 3 billion at quarter end.

Noah: Based on the change in backlog I know, that's imperfect, but directionally. The order rate had made it to see rebuilding recorder, but it's now slowed a little bit and we're trying to figure out where this market settles out.

Phebe N. Novakovic: Okay, um, Jason, one that's about free cash flow and capital deployment, you know, maybe maybe help with some of the big movie pieces. I mean, obviously, inventory was a big drag, but advances helped a lot of your cash taxes have been really high out. How do those all factor in?

Noah Poponak: And so, you know, you want to get customers airplanes.

Noah: And so you wanted to get customers airplanes, and you want to grow but I know you also want to maintain backlog and that youre more focused on pricing and margins than units.

Noah Poponak: and you want to grow, but I know you also want to maintain backlog and that you're more focused on pricing and margins than units.

Noah Poponak: and so if you're going to 12 and then as you just said to Seth, you're gonna go higher, you're gonna go higher.

Noah: And so if youre going to 12, and then as you just said the soft theyre going to go higher I.

Speaker Change: I guess you'd be burning backlog. So how do you think about managing that multi-year supply versus demand in that market?

Noah: I guess you'd be burning backlog. So how do you think about managing that multiyear supply versus demand in that market.

Jason Wright Aiken: I assume your guidance includes nothing, as usual, for capital deployment. How should we think about that, given you have very little in maturities this year? Thanks.

Speaker Change: Well, I don't see us particularly burning through backlog given the robust backlog we have and given the robust pipeline that we have. We're off to a good start this year. So I don't see anything that particularly drives a unhealthy burn through the backlog. We see, you know,

Noah: Wow.

Speaker Change: I don't see as particularly burning through backlog given the robust backlog, we have and given the robust pipeline that we have we're off to a good start this year. So I don't see anything that particularly drives a.

Jason Wright Aiken: Yeah, so when you think about free cash flow, we are anticipating it to continue in the 100% conversion range in 2024 and beyond. Obviously, we outperformed that a bit in 2023, but that doesn't affect what we expect in 2024. So, you know, the good news is a lot of the larger-scale moving parts around cash flow are starting to settle down a little bit. We've experienced some big headwinds and then some corresponding tailwinds over the past several years.

Jason Wright Aiken: And we'll look at all options, as we always have. I think we've got a great opportunity for stepped-up share repurchases as more, I should say, uncertainty sort of moves out of the environment. You know, we looked at the last half of last year, the last quarter of last year, and the significant threat of a government shutdown sort of hung over the environment.

Speaker Change: Unhealthy burned through the backlog.

Speaker Change: We see now.

Speaker Change: We have believed for some time, and it is turning out to be the case, that new clean sheet airplanes drive.

Speaker Change: Have believed for some time and it is turning out to be the case that new clean sheet airplanes drive.

Jason Wright Aiken: And that, you know, factors into our thinking as we think about how we preserve cash and deploy capital. So if we can get past that in March, then I think it provides a lot of optionality for us as we look ahead on capital. You know, if you think about it, the demand signals we see and our expected growth make share repurchases increasingly compelling. Hey, one thing that Jason talked about, just mentioned tangentially, and I want to focus a little bit on and just give you guys some perspective. You know, the the...

Speaker Change: incremental demand.

Speaker Change: Incremental demand.

Speaker Change: and we're certainly seeing that and we don't see much of an abatement in that.

Speaker Change: And we're certainly seeing that and we don't see much of an abatement in that.

Speaker Change: OK, so it sounds like you potentially expect the.

Speaker Change: Okay. So it sounds like you potentially expect the.

Jason Wright Aiken: But right now, if you look ahead, I think you can expect for the aerospace group a fairly steady conversion at or slightly above 100% conversion. When you think about it, we had a pretty big tailwind when they were building the significant backlog over the past few years and all the deposits were coming in. So, that more than offset any effective inventory build.

Speaker Change: You know, that quarterly order rate to pick back up moving forward as your new airplanes are more entrenched in the market.

Speaker Change: The quarterly order rate to pick back up moving forward as your new airplanes are more entrenched in the market.

Speaker Change: Well, look, our order rate has been quite healthy and quite wholesome, and we would expect additional orders.

Speaker Change: Well, if the order rate has been quite healthy and quite fulsome and we would expect additional orders.

Speaker Change: I'm supported by the pipeline to come in this year, so we're not going to give you any real granularity around orders per quarter, but we see nice demand, continuing interest, and a very solid pipeline. To me, those are the sort of foundational elements that we rely on for looking on a going forward basis, looking at what production can ultimately be.

Speaker Change: Supported by the pipeline to come in this year. So we're not going to give you any real Gwen granularity around orders per quarter, but we see nice demand continuing interest and a and a very solid pipeline to me those are the sort of foundational elements that we rely on for looking on a go.

When we talk about a one-to-one book to bill in our businesses, that's really for planning purposes. It's not a forecast. So just keep that in mind. We'll move next to Sheila Kayoglu at Jefferson. Good morning, Phoebe, Jason. Thank you for the time.

Jason Wright Aiken: So, as you transition into a period where you're starting to deliver off that inventory, but then you assume a steady one-to-one book to bill, you should be at a pretty regular burn rate at 100% conversion plus or minus for that business. Combat Systems, on the other hand, should continue to see tailwinds as they work through some of the receivables and work in process on the international programs that we've made some great progress on in recent years, so that'll continue for a couple of years. The Technologies Group is a steady provider, well above 100% conversion.

Speaker Change: Going forward basis looking at at what production can ultimately be.

You're a great caller on Gulfstream. You gave some numbers around the loss of revenues and profit that slipped into 24 from the G700, which would imply, you know, north of 20% margins for the G700. And given you have quite a few built up already, any color you could give on the Profit Profile of the G700 relative to maybe the 650 and the 500 and 600. Hey, can you repeat the last part of your question? It was kind of coming in. Sure, sorry.

Speaker Change: We'll move next to Cai von Remora TD Cowen.

Speaker Change: We'll move next to Kai Von Rumohr at TD College.

Speaker Change: Yes, thank you very much.

Speaker Change: Yes, Thank you <unk>.

Speaker Change: Good numbers. So Gulfstream, two issues. First, you mentioned the Hamas attack and the impact on the G280. Maybe tell me the status of that and what that means in terms of your ability to get deliveries. And secondly, you know, I think the bigger question is, by my quick math, it looks like

Speaker Change: Good good numbers to Gulfstream.

Speaker Change: Gulfstream.

Speaker Change: Two issues first.

Speaker Change: You mentioned, the Hamas attack and impact on the <unk>, maybe tell me the status of that and what that means in terms of your ability to get deliveries and secondly, I think the bigger question is.

It was more just the profit profile of the G700 relative to the G700. The 700 comes in at accretive margins, but as you all know, and many of you are quite experts in this, as we've talked about over the years, including on this call, the margin performance at Gulfstream is driven by a host of issues. And as I noted in my remarks, Mick... pricing out of station work all impacted. So I think you know again, as I mentioned earlier, the way to think about our plan is it really is a really balanced plan. Not quite the question you asked, but I stick with that, and I think about it that way you. But these new airplanes are coming in at very nice margins.

Speaker Change: By my quick math it looks like.

Speaker Change: Your guidance for 24 implies an 18% incremental margin at Gulfstream.

Speaker Change: Your guidance for 'twenty, four implies an 18% margin incremental margin at Gulfstream.

Jason Wright Aiken: And the Marine Systems Group, as we noted, is still finishing up some of the large capital projects. We're coming through that now, and we'll see what the future holds, as Phebe alluded to, in terms of Navy investment. But when you kind of net all those together, we're right about 100% for the coming year. But if you look at capital deployment, as you noted, there's not a lot in terms of commitment. We've got $500 million in notes that mature out in November of this year, so we've got plenty of time to kind of see how things play out and decide what we want to do with that maturity. There will be no rush on that decision, and we'll look at all options, as we always have. I think we've got a great opportunity for stepped-up share repurchases as more, I should say, uncertainty sort of moves out of the environment. We looked at the last half of last year, the last quarter of last year, and the significant threat of a government shutdown sort of hung over the environment.

Speaker Change: which seems low given, you know, the good margins you should be getting on the G700.

Speaker Change: Which seems low given you know the gross margins you should be getting on the G 700.

Speaker Change: Okay, so, so, right, so look, let's

Speaker Change: Okay.

Speaker Change: Alright, so look.

Speaker Change: Let's agree that we shouldn't, in any given moment, infer something from an implied margin.

Speaker Change: Yes.

Speaker Change: Well, let's agree that or or not we shouldn't in any given moment infer something from an implied margin I think as you know probably better than most of the margin performance in any given quarter is driven by a myriad of factors that we have gone over multiple.

Speaker Change: I think, as you know probably better than most, that the margin performance in any given quarter is driven by a myriad of factors that we have gone over multiple, multiple times. And I think in this environment where we are encouraged by the supply chain, but we've got more ways to go, we think that we have given you a very, very balanced plan, and I really stick to that plan. That's how I think about it. With respect to the 280, we have properly adjusted our plan.

Multiple times and I think in this environment, where we are encouraged by the supply chain, but we've got more ways to go we think that we have given you a very very balanced plan and I really stick to that plan. That's how I think about it with respect to the the $2 80.

Okay, and then if I could ask one more on the defense side of the business, just given a lot of what your peers are talking about as well, and you have pretty robust demand for marine and combat, but earnings growth tends to be below revenue growth. So, just given inflation and mix, how do you think about Judy's ability to continue to grow defense profits? It seems like combat is seeing some of that.

Speaker Change: We have properly adjusted our plan.

Speaker Change: to deal with the realities of what they are facing there. They are continuing to perform with retirees and management, and as I say, we factored all of that into our expectations for the year.

Speaker Change: To deal with the realities.

Speaker Change: Of what they are facing there.

Combat is seeing some of it, but I tried to give you some perspective earlier on the impacts of what happened to the industrial base and the Marine Group, and it also impacted Gulfstream as a result of COVID. So for us, it's really a question of operating excellence, operating excellence, operating excellence. We're going to focus on that very heavily so we can drive increased profitable growth. That's the value proposition that we're looking at right now. We'll move next to Seth Seifman at JPMorgan. Okay, thanks very much, and good morning, everyone.

Speaker Change: They are continuing to perform.

Speaker Change: With retirees and management and we as I say, we factored all of that into our expectations for the year.

Jason Wright Aiken: And that factors into our thinking as we think about how we preserve cash and deploy capital. So if we can get past that in March, then I think it provides a lot of optionality for us as we look ahead on the capital deployment front. You know, if you think about it, the demand signals we see and our expected growth make share repurchases increasingly compelling. Hey, one thing that Jason talked about, just mentioned tangentially, and I want to focus a little bit on, and just give you guys some perspective. You know, the the...

Speaker Change: So is that, I mean, I still don't quite understand, you know, the 18% margin. Is that sort of a P&L drag, the fact that there's...

Speaker Change: So is that I mean I see.

Speaker Change: Still don't quite understand.

Speaker Change: <unk> percent margin is that sort of a P&L drag the fact that there's.

Speaker Change: They can't get enough for the timing.

Speaker Change: I wouldn't say it's a P&L drag. It's just a reality of the multiplicity of factors that are impacting us. You know, 24 is a pivotal year. We saw significant improvement in the supply chain during the course of the year that, frankly, allowed us to increase production in the latter half of the year. If you recall, we were delivering between 24 and 25 aircraft, and we delivered 39 in the fourth quarter. That makes us pretty optimistic that we can continue to increase production, but we are cautious about the ability of the supply chain to keep up. All indicators are that they're doing quite well, but this is one step at a time, and there's more risk. As I say, we're optimistic. But we've got a ways to go.

Speaker Change: I wouldn't say, it's a P&L drag it's just a reality of the.

Speaker Change: A multiplicity of factors that are impacting US you know 24 is a pivotal year and we saw significant improvement in the supply chain. During the course of the year that frankly allowed us to increase production in the latter half of the year. If you recall, we were delivering between 24 and 25 aircraft and we delivered.

I wanted to start off asking about combat and just the 3% growth guide. I guess even if we adjust for some seasonality, I might have thought that the activity levels that we're seeing here in the early, what we saw in the second half of 23, would lead to some really quite robust growth in the first half, perhaps even double digit. And then being at 3% would imply something like flat down in the second half. Am I not thinking about that cadence properly, or is there some reason for the growth to really, you know, step off or come down in the second half? No, I wouldn't look at anything macro with respect to that.

<unk> 39 in the fourth quarter that makes us pretty optimistic that we can continue to incur.

Sheila Kahyaoglu: When we talk about a one-to-one book-to-bill in our businesses, that's really for planning purposes. It's not a forecast. So just keep that in mind. We'll move next to Sheila Kahyaoglu at Jeff. Good morning, Phoebe, Jason. Thank you for the time. Phoebe, great color on Gulfstream.

Speaker Change: Increased production, but we.

Speaker Change: We are cautious about the ability of the supply chain to keep up all indicators are that theyre doing quite well, but it. This is one step at a time and theres more risk because they say, we're we're optimistic but we've got a ways to go.

Phebe N. Novakovic: You gave some numbers around the loss of revenues and profit that slipped into 24 from the G700, which would imply, you know, north of 20% margins for the G700. And given you have quite a few built up already, any color you could give on the profit profile of the G700 relative to maybe the 650 and the 500 and 600. Hey, can you repeat the last part of your question? It was kind of coming in. Sure, sorry.

Okay.

Speaker Change: We'll move next to George Shapiro at Shapiro Research.

Speaker Change: We'll move next to George Shapiro with Shapiro research.

Speaker Change: Okay.

Speaker Change: Yeah.

In a quickly growing environment, contracts tend to come in a little bit more lumpy, and so this is simply a question of timing. I think we see mid to upper single digits over and toward the higher upper single digits over our planned period, but we've given you the plan that given the faster execution of contracting that we saw last year when they had a bit of a slowdown in the first couple quarters and then acceleration as the year went on. Thank you. But the demand is there. Okay, excellent.

George D. Shapiro: Yes, good morning.

George D. Shapiro: Yes, good morning, George.

George D. Shapiro: Just following up a bit on Kai's question, I mean, the incremental margin was like 38% here in this fourth quarter, which is pretty exciting.

George D. Shapiro: Just following up a bit on <unk> question I mean, the incremental margin was like 38% here in this fourth quarter, which is pretty extraordinary so.

Speaker Change: extraordinary so I mean what changes to really knock that down to the point that you know

George D. Shapiro: What changes to really knock that down to the point that.

Sheila Kahyaoglu: It was more just the profit profile of the G-700 relative. The 700 comes in at accretive margins, but as you all know, and many of you are quite experts in this, we've talked about over the years, including on this call, the margin performance at Gulfstream is driven by a host of issues. And as I noted in my remarks, Mitt.

<unk> comment.

Speaker Change: Hey, you guys are reverse engineering, incremental margin, and it's almost impossible to deal with in the complexity of this business. I would infer nothing from it.

Speaker Change: Hey, you guys are reverse engineering incremental margin and its almost impossible to deal with the complexity of this business I would infer nothing from it.

Speaker Change: Look, let's talk about the underlying capabilities. Gulfstream has a lot of operating leverage. They've always been a good, since we acquired them at GD years ago, they have been strong operating performers, you know, with very good margin performance and gross margins coming out of their operations. That won't change. But the mix of business.

Speaker Change: Let's talk about the underlying capabilities Gulfstream has a lot of operating leverage they've always been a good since we acquired them at G. D years ago, they have been strong operating performers.

And then on aerospace, I guess it's probably about two years ago that you gave us kind of a multi-year look at the aerospace business and the expectations there as demand started to gather. You know, since that bunch of stuff has happened, I think, you know, demand has probably been a little stronger than expected. We've also seen some supply chain issues, some certification push-outs. You know, as we think about sort of a multi-year outlook for aerospace in terms of deliveries and profitability, is that something you can update at this time? Yeah, so we're going to deliver 160 airplanes that are in our plan this year. I will say that 25 will be more deliveries, and 26 will be even more deliveries.

Phebe N. Novakovic: I think, you know, again, as I mentioned earlier, the way to think about our plan is a really balanced plan, not quite the question you asked, but I'd stick with that, and I'd think about it that way. But, in fact, these new airplanes are coming in at very nice margins. Okay, and then if I could ask one more on the defense side of the business, just given a lot of what your peers are talking about as well, and you have pretty robust demand in the Marine Corps and combat, but earnings growth tends to be below revenue growth. So just given inflation and mixed, how do you think about Judy's ability to continue to grow defense profits? It seems like combat is seeing some of that.

Speaker Change: With very good margin performance in gross margin coming out of their operations that won't change, but the mix of business.

Speaker Change: The level of any given quarters The level of any given quarters

Speaker Change: The level of any given quarter's.

Speaker Change: Timing around supply chain and its impact on avistation work and mix of service, jet aviation, all of those things are contributing. So there is nothing systemic other than those issues that you know and they are temporary and we will work through the supply chain issues. But there is nothing systemic that should concern you about where we stand on Gulfstream and its ability to increase margins, earnings, and revenue over time here.

Speaker Change: Timing around supply chain and its impact on avid station work and mix of service jet aviation all of those things are contributing.

Speaker Change: There is nothing systemic other than those issues that you know and they are temporary and we will work through the supply chain issues, but there is nothing systemic that should concern you about where we stand on Gulfstream and its ability to increase margins earnings then and and revenue over time here.

But at this point, given the issues that you mentioned, we're not going to be any more granular than that. We owe you additional fidelity as time goes on. Our next question comes from Noah Popenac at Goldman Sachs. Hey, good morning, everyone.

Sheila Kahyaoglu: Combat is seeing some of it, but I tried to give you some perspective earlier on the impacts of what happened to the industrial base and the marine group. And it also impacted Gulfstream as a result of COVID. So for us, it's really a question of operating excellence, operating excellence, operating excellence. We're going to focus on that very heavily. So we drive increased profitable growth. That's the value proposition that we're looking at right now. We'll move next to Seth Seifman at J.P. Morgan. Okay, thank you very much, and good morning, everyone.

Speaker Change: And one for you, Jason. The unbilled receivables were down like $450 million in the quarter. Is that just Ajax catching up?

Speaker Change: And one for you Jason the Unbilled receivables were down like $450 million in the quarter or is that just ajax catching up.

This morning, Phebe, maybe just following on that, but a little bit bigger picture, I was curious to hear you talk about how you're managing supply versus demand in this pretty unique business jet market. If you go to 12 billion in revenue, that's, you know, that's run rating of 3 billion a quarter, and based on the change in backlog, I know that's imperfect but directionally, the order rate had made it to 3 billion And so, you know, you want to get customers airplanes, and you want to grow, but I know you also want to maintain backlog and that you're more focused on pricing and margins than units, and so if you're going to 12, and then, as you just said to Seth, you're gonna go higher, you're gonna go higher. I guess you'd be burning through backlog.

Jason: It's a little bit Ajax and it's a little bit of the ongoing payments on our other large international program of combat systems. Those are the two big pieces. Yes, George.

Jason: It's a little bit a jackson, it's a little bit.

Jason: The ongoing payments on our other large international program of combat systems. Those are the two big pieces, Yes George.

Jason: Yes.

Speaker Change: We'll take our next question from Robert Spingarn at Melius Research.

Speaker Change: Take our next question from Robert Spingarn at Milius.

Speaker Change: Okay.

Robert M. Spingarn: Hey, good morning. Good morning.

Robert M. Spingarn: Hey, good morning.

Robert M. Spingarn:

CEB the Marine guide implies about 340 million in sales growth and in the past you've talked about Colombia, driving $400 million to $500 million of growth per year.

Robert M. Spingarn: The Marine Guide implies about $340 million in sales growth.

Robert M. Spingarn: And in the past, you've talked about Columbia driving 400 to 500 million of growth per year.

Robert M. Spingarn: So could an economic price adjustment for Virginia class

Robert M. Spingarn: So couldnt economic price adjustment for Virginia class B, a meaningful source of sales and operating income for marine.

Seth M. Seifman: Thanks, Adam. I wanted to start off asking about combat and just the 3% growth guide. I guess even if we adjust for some seasonality, I might have thought that the activity levels that we're seeing here or that we saw in the second half of 23 would lead to some really quite robust growth in the first half, perhaps even double-digit, and then being at 3% would imply something like flattening out in the second half. Am I not thinking about that cadence properly, or is there some reason for the growth to really step off or come down in the second half? No, I wouldn't look at anything macro with respect to that.

Robert M. Spingarn: Be a meaningful source of sales and operating income for Marines.

Robert M. Spingarn: and many more.

Robert M. Spingarn: In 2024.

Robert M. Spingarn: Well, EPA adjustments can always be a Well, EPA adjustments can always be a

Robert M. Spingarn: Wow EPA adjustments can always be a.

Robert M. Spingarn: A good source of income. Look, I think the way that we've always talked about the marine growth being somewhat lumpy.

Robert M. Spingarn: A good source of income.

Robert M. Spingarn: Look I think the way that we've always talked about the marine growth being somewhat lumpy.

So how do you think about managing that multi-year supply versus demand in that market? Well, I don't see us burning through backlog given the robust backlog we have and given the robust pipeline that we have. We're off to a good start this year.

Speaker Change: Thank you for joining us.

Three to 500 million in any given year, but.

Robert M. Spingarn: In the next.

Robert M. Spingarn: Two years, we expect between $600 million and $1 billion and per annum growth. So the growth is there. It just comes in at a on a lumpier basis than than than you might then one might want but it is there and.

So I don't see anything that particularly drives an unhealthy burn through the backlog. We see, you know, We have believed for some time, and it is turning out to be the case, that new clean sheet airplanes drive incremental demand, and we're certainly seeing that, and we don't see much of an abatement in that. OK, so it sounds like you potentially expect the

Speaker Change: Then you might, then one might want, but it is there.

Phebe N. Novakovic: In a quickly growing environment, contracts tend to come in a little bit more lumpy, and so this is simply a question of timing. I think we'll see mid to upper single digits over and toward the higher upper single digits over our planned period. But we've given you the plan that given the faster execution of contracting that we saw last year, we may have a bit of a slowdown in the first couple of quarters and then acceleration as the year goes on. But the demand is there. Sure. Okay.

Robert M. Spingarn: So with respect to to Virginia, and any EPA adjustments, we're continuing to work with the Navy we had contemplated the impact of Colombia Prioritization has had the Navy on Virginia, and that's just a work in progress as we work through all the particulars with the Navy but.

Speaker Change: So with respect to Virginia and any EPA adjustments, we're continuing to work with the Navy. We had contemplated the impact of Columbia prioritization as had the Navy on Virginia, and that's just a work in progress as we work through all the particulars with the Navy. But we think we've given you a pretty good indicator of this year's revenue, and we'll adjust it accordingly if anything changes on the upside.

You know, that quarterly order rate to pick back up moving forward as your new airplanes are more entrenched in the market. Well, look, our order rate has been quite healthy and quite wholesome, and we would expect additional orders. I'm supported by the pipeline coming in this year, so we're not going to give you any real granularity around orders per quarter, but we see nice demand, continuing interest, and a very solid pipeline. To me, those are the sort of foundational elements that we rely on for looking on a going forward basis, looking at what production can ultimately be. We'll move next to Kai von Rumohr at TD College.

Robert M. Spingarn: We've given you a pretty good indicator of this year's revenue and <unk> and we will adjust accordingly, if if anything changes on the upside.

Speaker Change: So just to be clear, there's nothing in there for an adjustment yet? No. I think it's premature to put numbers in before you've got an agreement with your customer.

Robert M. Spingarn: So just to be clear there is nothing in there for it for an adjustment yes, no I think it's premature to put numbers and before you've got an agreement with your phone right now.

Seth M. Seifman: And then on aerospace, I guess it was probably about two years ago that you gave us kind of a multi-year look at the aerospace business and the expectations there as demand started to gather. You know, since that bunch of stuff has happened, I think demand has probably been a little stronger than expected. We've also seen some supply chain issues, and some certification pushouts. You know, as we think about sort of a multi-year outlook for aerospace in terms of deliveries and profitability, is that something you can update at this time? Yeah, so we're going to deliver 160 airplanes. That's in our plan for this year.

Speaker Change: Thank you.

Speaker Change: Fair enough. Thank you.

Speaker Change: And Audra, I think we have time for just one more question.

Speaker Change: And Andre I think we have time for just one more question.

Andre: Thank you, we'll take that question from Peter Arment at Baird.

Audra: Thank you. We'll take that question from Peter Arment at Bears.

Yes, thank you very much. Good numbers. So Gulfstream, two issues. First, you mentioned the Hamas attack and the impact on the G280.

Peter J. Arment: Thanks. Good morning, Phebe and Jason. Hey, Phebe, maybe just to add on.

Peter J. Arment: Yes. Thanks, Good morning television, Jason Hey, Phebe, maybe just to end and just speak on Marine just you've given us a lot of details on what some of the pressures were but we've seen throughout the industry.

Speaker Change: He's given us a lot of details.

Speaker Change: We've seen throughout the industry

Maybe tell me the status of that and what that means in terms of your ability to get deliveries. And secondly, you know, I think the bigger question is, by my quick math, it looks like your guidance for 24 implies an 18% incremental margin at Gulfstream, which seems low given, you know, the good margins you should be getting on the G700. Okay, so, so, right, so look, let's agree that we shouldn't, in any given moment, infer something from an implied margin.

Peter J. Arment: The defense production Act has been used to kind of improve some capacity at rocket motors munitions is there an opportunity I mean I know the Navy is a really good partner and customer is there an opportunity for you to get some relief and free up some additional resources for you at the yards.

Speaker Change: Cassie at Rock and Roll.

Speaker Change: Is there an opportunity? I mean, I know the nation...

Speaker Change: are not

Phebe N. Novakovic: I will say that 25 will be more deliveries, and 26 will be even more deliveries. But at this point, given the issues that you mentioned, we're not going to be any more granular than that. We owe you additional fidelity as time goes on. Our next question comes from Noah Poponak at Goldman Sachs. Hey, good morning, everyone.

Speaker Change: Get some relief and free up.

Peter J. Arment: Yeah.

Speaker Change: So we have been pretty well resourced by the Navy and for many, many years in anticipation of particularly the Columbia and Block 5. So I think from our perspective where we really need some assistance and continued assistance from the Navy is stabilization of on-time delivery and quality coming out of the supply chain. So I think that as we go through this year, I'm sure there will be additional opportunities for us to work with the Navy and find some ability to relieve those pain points that remain in the supply chain.

Speaker Change: So we have been pretty.

Speaker Change: Pretty well resource by the Navy and for many many years in anticipation of the particularly the Columbia in block five.

Speaker Change: So I think from our perspective, where we really need some assistance and continued assistance from the Navy is stabilization of on time delivery and quality coming out of the out of the supply chain. So I think that as we go through this year I'm sure there'll be.

Noah Poponak: Morning, Phebe. Maybe just following on that, but a little bit bigger picture, I was curious to hear you talk about. How you're managing supply versus demand in this pretty unique business jet market because if you go to 12 billion in revenue, that's, you know, that's run rating of 3 billion a quarter and based on the change in backlog, I know that's imperfect but directionally, the order rate had made it to 3 billion a quarter, but it's now slowed a little bit, and we're trying to figure out where And you want to grow, but I know you also want to maintain backlog and that you're more focused on pricing and margins than units. And so if you're going to 12, and then, as you just said, the fact that you're going to go higher. I guess you'd be burning through backlog.

I think, as you probably know better than most, that the margin performance in any given quarter is driven by a myriad of factors that we have gone over multiple, multiple times. And I think, in this environment where we are encouraged by the supply chain, but we've got more ways to go, we think that we have given you a very, very balanced plan, and I really stick to that plan. That's how I think about it.

Speaker Change: Additional opportunities for us to work with the Navy and find some ability to relieve those pain points that remain in the supply chain.

Speaker Change: Appreciate the color thanks, Jamie.

Speaker Change: Hey, and listen, before I, we leave, I just wanted, this is for many of you may know, this is Jason's last earnings call. And I wanted to thank him for his excellent years of service as a CFO. He will be missed, but his work will continue at Technologies. So I'm sure all of you will join me in congratulating Jason on a superb CFO job well done over the years.

Speaker Change: And listen before I.

Speaker Change: We leave I just wanted this is for met many of you May know this is Jason's last earnings.

With respect to the 280, we have properly adjusted our plan to deal with the realities of what they are facing there. They are continuing to perform with retirees and management, and as I say, we factored all of that into our expectations for the year. So is that, I mean, I still don't quite understand, you know, the 18% margin. Is that sort of a P&L drag, the fact that there's... They can't get enough of the timing. I wouldn't say it's a P&L drag.

Speaker Change: Earnings call.

Speaker Change: I wanted to thank him for his excellent years of service as a as.

Speaker Change: As a CFO and he will be missed.

Speaker Change: But his work will continue at the technologies so.

Speaker Change: I'm sure all of you will.

Speaker Change: Join me in congratulating, Jason not a superb CFO job well done over the years.

Speaker Change: Thank you all for joining our call today. As a reminder, please refer to the General Dynamics website for the fourth quarter earnings release and highlights presentation. If you have any additional questions, I can be reached at 703-876-3152.

Speaker Change: Okay, well. Thank you all for joining our call today as a reminder, please refer to the general dynamics website for the fourth quarter earnings release and highlights presentation. If you have any additional questions I can be reached at 700 38763152.

It's just a reality of the multiplicity of factors that are impacting us. You know, 24 is a pivotal year. We saw significant improvement in the supply chain during the course of the year that, frankly, allowed us to increase production in the latter half of the year. If you recall, we were delivering between 24 and 25 aircraft, and we delivered 39 in the fourth quarter. That makes us pretty optimistic that we can continue to increase production, but we are cautious about the ability of the supply chain to keep up. All indicators are that they're doing quite well, but this is one step at a time, and there's more risk. As I say, we're optimistic, but we've got a ways to go.

Phebe N. Novakovic: So how do you think about managing that multi-year supply versus demand in that? Well, I don't see us burning through backlog, given the robust backlog we have, and given the robust pipeline that we have. We're off to a good start this year. So I don't see anything that particularly drives an unhealthy burn through the backlog.

Speaker Change: And this concludes today's conference call. Thank you for your participation you may now disconnect.

Speaker Change: And this concludes today's conference call. Thank you for your participation. You may now disconnect.

Speaker Change: Yeah.

Speaker Change:

Speaker Change: Yeah.

Phebe N. Novakovic: We see, you know, We have believed for some time, and it is turning out to be the case that new clean sheet airplanes drive Incremental Demand, and we're certainly seeing that, and we don't see much of an abatement in that. Okay, so it sounds like you potentially expect the, You know, that quarterly order rate to pick back up moving forward as your new airplanes are more entrenched in the market. Well, look, our order rate has been quite healthy and quite wholesome, and we would expect additional orders. So, folks, just a final note to just kind of build on: We'll move next to Kai Von Rumohr at TD Cowan. Yes, thank you very much, Phebe.

Speaker Change: Yeah.

We'll move next to George Shapiro at Shapiro Research. Yes, good morning. Just following up a bit on Kai's question, I mean, the incremental margin was like 38% here in this fourth quarter, which is pretty exciting and extraordinary, so I mean, what changes to really knock that down to the point where you know, Hey, you guys are reverse engineering the incremental margin, and it's almost impossible to deal with in the complexity of this business.

Speaker Change: Yeah.

George D. Shapiro: Look, let's talk about the underlying capabilities. Gulfstream has a lot of operating leverage. They've always been a good, since we acquired them at GD years ago, they have been strong operating performers, you know, with very good margin performance and gross margins coming out of their operations. That won't change.

Cai von Rumohr: Good, good numbers. So Gulfstream, two issues. First, you mentioned the Hamas attack and the impact on the G280.

Cai von Rumohr: Maybe tell me the status of that and what that means in terms of your ability to get deliveries. And secondly, you know, I think the bigger question is, by my quick math, it looks like your guidance for 24 implies an 18% incremental margin at Gulf St, which seems low given, you know, the good margins you should be getting on the G700. Okay, so, so, right, so, look, let's... Let's agree that we shouldn't, in any given moment, infer something from an implied margin.

But the mix of business, the level of any given quarter, timing around the supply chain and its impact on advisory work and mix of service, jet aviation, all of those things are contributing. So there is nothing systemic other than those issues that you know, and they are temporary, and we will work through the supply chain issues. But there is nothing systemic that should concern you about where we stand on Gulfstream and its ability to increase margins, earnings, and revenue over time here. And one for you, Jason. The unbilled receivables were down by like $450 million in the quarter.

Phebe N. Novakovic: I think, as you probably know better than most, that the margin performance in any given quarter is driven by a myriad of factors that we have gone over multiple, multiple times. And I think, in this environment, where we are encouraged by the supply chain, but we've got more ways to go, we think that we have given you a very, very balanced plan, and I really stick to that plan. That's how I think about it.

Jason Wright Aiken: Is that just Ajax catching up? It's a little bit of Ajax, and it's a little bit of the ongoing payments on our other large international program of combat systems. Those are the two big pieces.

Phebe N. Novakovic: With respect to the 280, we have properly adjusted our plan to deal with the realities of what they are facing there. They are continuing to perform with retirees and management, and as I say, we factored all of that into our expectations for the year. So is that, I mean, I still don't quite understand, you know, the 18% margin. Is that sort of a P&L drag, the fact that there is? You know, they can't get enough of the timing. I wouldn't say it's a P&L drag.

George D. Shapiro: Yes, George. Let's take our next question from Robert Spingarn at Milius. Hey, good morning. Good morning.

Robert M. Spingarn: The Marine Guide implies about $340 million in sales growth. And in the past, you've talked about Columbia driving 400 to 500 million dollars of growth per year. So could an economic price adjustment for the Virginia class be a meaningful source of sales and operating income for Marines, and many more? Well, EPA adjustments can always be a good source of income. Look, I think the way that we've always talked about marine growth being somewhat lumpy. Thank you for joining us. Then you might, then one might want it, but it is there.

Cai von Rumohr: It's just a reality of the multiplicity of factors that are impacting us. You know, 24 is a pivotal year. We saw significant improvement in the supply chain during the course of the year that, frankly, allowed us to increase production in the latter half of the year. If you recall, we were delivering between 24 and 25 aircraft, and we delivered 39 in the fourth quarter. That makes us pretty optimistic that we can continue to increase production, but we are cautious about the ability of the supply chain to keep up. All indicators are that they're doing quite well, but this is one step at a time, and there's more risk. As I say, we're optimistic, but we've got a ways to go. We'll move next to George Shapiro at Shapiro's.

So with respect to Virginia and any EPA adjustments, we're continuing to work with the Navy. We had contemplated the impact of Columbia prioritization as had the Navy on Virginia, and that's just a work in progress as we work through all the particulars with the Navy. But we think we've given you a pretty good indicator of this year's revenue, and we'll adjust it accordingly if anything changes on the upside. So just to be clear, is there nothing in there for an adjustment yet?

Robert M. Spingarn: No. I think it's premature to put numbers in before you've got an agreement with your customer. Thank you. And Audra, I think we have time for just one more question. Thank you. We'll take that question from Peter Arment at Bears.

Peter J. Arment: Thanks. Good morning, Phebe and Jason. Hey, Phebe, maybe just to add on. He's given us a lot of details. We've seen Cassie throughout the industry, at Rock and Roll.

George D. Shapiro: Yes, good morning. Hi, George. I'm just following up a bit on Kai's question. I mean, the incremental margin was like 38% here in this fourth quarter, which is pretty good. So, I mean, what changes to really knock that down to the point that, you know, Cai's... Hey, you guys are reverse engineering incremental margin, and it's almost impossible to deal with in the complexity of this business. I would infer nothing from it, talk about the underlying capabilities, and say that GoldStream has a lot of operating leverage. They've always been a good band...

Is there an opportunity? I mean, I know the nation... is not. Get some relief and free up. So we have been pretty well resourced by the Navy for many, many years in anticipation of, particularly, Columbia and Block 5. So I think from our perspective where we really need some assistance and continued assistance from the Navy is stabilization of on-time delivery and quality coming out of the supply chain. So I think that as we go through this year, I'm sure there will be additional opportunities for us to work with the Navy and find some ability to relieve those pain points that remain in the supply chain.

Jason Wright Aiken: Since we acquired them at GD years ago, they have been strong operating performers with very good margin performance and gross margins coming out of their operations. That won't change, but the mix of business... The level of any given quarter's...

Hey, and listen, before I we leave, I just wanted, as many of you know, this is Jason's last earnings call, and I wanted to thank him for his excellent years of service as a CFO. He will be missed, but his work will continue at Technologies. So I'm sure all of you will join me in congratulating Jason on a superb CFO job well done over the years. Thank you all for joining our call today. As a reminder, please refer to the General Dynamics website for the fourth quarter earnings release and highlights presentation. If you have any additional questions, I can be reached at 703-876-3152. And this concludes today's conference call. Thank you for your participation. You may now disconnect.

Jason Wright Aiken: Timing around the supply chain and its impact on out-of-station work and mix of service, jet aviation, all of those things are contributing. So there is nothing systemic other than those issues that you know, and they are temporary, and we will work through the supply chain issues. But there's nothing systemic that should concern you about where we stand on Gulfstream and its ability to increase margins, earnings, and revenue over time here. And one for you, Jason: the unbilled receivables were down like $450 million in the quarter. Is that just Ajax catching up? It's a little bit of Ajax, and it's a little bit of the ongoing payments on our other large international program of combat systems. Those are the two big pieces.

George D. Shapiro: Yes, George. We'll take our next question from Robert Spingarn at Milius. Hey, good morning. Good morning.

Robert M. Spingarn: Phebe, the Marine Guide implies about $340 million in sales growth. And in the past, you've talked about Columbia driving 400 to 500 million in growth per year. So could an economic price adjustment for the Virginia class be a meaningful source of sales and operating income for Marines? Well, EPA adjustments can always be a good source of income.

Phebe N. Novakovic: Look, I think the way that we've always talked about marine growth being somewhat lumpy, three to five hundred million in any given year, but in the next two years, we expect between six hundred million and a billion dollars per annum of growth. So the growth is there; it just comes in on a lumpier basis than one might want, but it is there. So, with respect to Virginia and any EPA adjustments, we're continuing to work with the Navy. We have contemplated the impact of Columbia prioritization, as has the Navy, on Virginia, and that's just a work in progress as we work through all the particulars with the Navy. But we think we've given you a pretty good indicator of this year's revenue, and we'll adjust it accordingly if anything changes on the upside. So, just to be clear, is there nothing in there for an adjustment yet?

Phebe N. Novakovic: No. I think it's premature to put numbers in before you've got an agreement with your customer. Thanks. And Audra, I think we have time for just one more question.

Peter J. Arment: Thank you. We'll take that question from Peter Arment at Baird. Thanks, good morning, Phebe and Jason. Hey, Phebe, maybe just to add on, you've given us a lot of details. We've seen throughout the industry. Is there an opportunity?

Phebe N. Novakovic: I mean, I know they are not getting some relief and are free of. So we have been pretty well resourced by the Navy for many, many years in anticipation of, particularly the Columbia and Block V. So I think from our perspective, where we really need some assistance and continued assistance from the Navy is stabilization of on-time delivery and quality coming out of the supply chain. So I think that as we go through this year, I'm sure there'll be additional opportunities for us to work with the Navy and find some ability to relieve those pain points that remain in the supply chain. Hey, and listen, before we leave, I just wanted to say this is, for many of you, this is Jason's last earnings call. And I wanted to thank him for his excellent years of service. As a CFO, he will be missed. But his work will continue at technologies.

Phebe N. Novakovic: So I'm sure all of you will join me in congratulating Jason on a superb CFO job well done over the years. Okay, well, thank you all for joining our call today. As a reminder, please refer to the General Dynamics website for the fourth quarter earnings release and highlights presentation. If you have any additional questions, I can be reached at 703-876-3152. And this concludes today's conference call. Thank you for your participation. You may now disconnect.

Q4 2023 General Dynamics Corp Earnings Call

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