Q1 2024 General Dynamics Corp Earnings Call

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Operator: Good morning, and welcome to the General Dynamics First Quarter 2024 Earnings Conference Call. All participants will be in a listen-only mode. And after the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press the star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star 1 a second time. Please note, this event is being recorded, and I would now like to turn the conference over to Nicole Shelton, Vice President of Investor Relations. Please go ahead.

Speaker Change: Good morning, and welcome to the General dynamics first quarter 2024 earnings Conference call.

Speaker Change: All participants will be in a listen only mode and after the Speakers' remarks, there will be a question and answer session.

Speaker Change: If you would like to ask a question during that time simply press star followed by the number one on your telephone keypad.

Speaker Change: If you would like to withdraw your question Press Star one a second time.

Speaker Change: Please note this event is being recorded.

Speaker Change: I would now like to turn the conference over to Nicole Shelton Vice President of Investor Relations. Please go ahead.

Nicole M. Shelton: Thank you, Operator, and good morning, everyone. Welcome to the General Dynamics First Quarter 2024 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. 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 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 Kim Correa, our Chief Financial Officer. I will now turn the call over to Phebe.

Nicole M. Shelton: Thank you operator, and good morning, everyone. Welcome to the General dynamics first quarter 2024 conference call any forward looking statements made today represent our estimates regarding the company's outlook. These estimates are subject to some risks and uncertainties additional information regarding these factors is contained in the Companys 10-K 10-Q.

Nicole M. Shelton: 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 slides that accompany this webcast, which are available on the Investor Relations page of our website Investor Relations Dot Gd Dot com.

Nicole M. Shelton: On the call today are phebe, Novakovic, our chairman and Chief Executive Officer, and Kim Korea, Chief Financial Officer, I will now turn the call over to Phoebe.

Phebe N. Novakovic: Thank you, Nicole. Good morning, everyone, and thanks for being with us. As you can see from our press release, we reported earnings of $2.88 per diluted share on revenue of $10.7 billion, operating earnings of $1.36 billion, and net earnings of $799 million. These results compare quite favorably to the year-ago quarter. Revenue is up 8.6% against the first quarter of last year, and operating earnings are up 10.4%. Net earnings are up 9.5%. As a result, earnings per diluted share are up $0.24, or 9.1% more than the year-ago quarter. The operating margin for the entire company was 9.7%, a 20 basis point improvement over the year-ago quarter.

Phoebe: Thank you Nicole good morning, everyone and thanks for being with US as you can discern from our press release, we reported earnings of $2.88 per diluted share on revenue of $10 7 billion operating earnings of $1 billion and $36 million and net earnings of $799 million.

Phoebe: These results compare quite favorably to the year ago quarter revenue is up eight 6% against the first quarter last year operating earnings are up 10, 4%.

Phoebe: Net earnings are up nine 5%.

Phoebe: As a result earnings per diluted share up 24 cents or nine 1% more than the year ago quarter.

Phoebe: The operating margin for the entire company was nine 7%, a 20 basis point improvement over the year ago quarter.

Phebe N. Novakovic: Overall, these numbers represent a very strong quarter and a good start to 2024. However, we fell below our own expectations for the quarter and below analyst consensus, which is predicated, at least in part, on our forecast. The rather obvious explanation is that we forecast 15 to 17 G700 deliveries in the quarter, which did not happen. We received FAA certification for the G700 at the very end of the quarter, too late to make any G700 deliveries.

Phoebe: Overall these numbers represent a very strong quarter and a good start to 2024, However, we fell below our own expectations for the quarter and below analysts' consensus which is predicated at least in part on our forecast.

Phoebe: Rather obvious explanation is that we forecast, 15% to 17 G 700 deliveries in the quarter, which did not happen.

Phoebe: We received FAA certification for the <unk> seven hundreds at the very end of the quarter too late to make any G 700 deliveries.

Phebe N. Novakovic: This obviously impacted revenue and earnings in the aerospace group in the quarter. The good news is that we now have certification, and the delay in deliveries does not change our outlook for the year. Gulfstream still plans to deliver 50 to 52 G700s this year, so our aerospace forecast for the year remains unchanged. I'll give you a little more color on this later in my remarks, and other good news, as you can see, with strong performance across the defense portfolio.

Phoebe: This obviously impacted revenue and earnings in the aerospace group in the quarter.

Phoebe: The good news is that we now have certification and the delay in deliveries does not change our outlook for the year.

Phoebe: Gulf stream still plans to deliver 50 to $52 seven hundreds this year.

Phoebe: So our aerospace forecast for the year remains unchanged I'll give you a little more color on this later in my remarks.

Phoebe: In other good news is you can see with strong performance across the defense portfolio.

Phebe N. Novakovic: In short, we performed very well in the quarter on those things within our control. At this point, let me ask Kim Carrere, our CFO, to provide details on our order activity, solid backlog, and cash activity before I come back with segment observations.

Phoebe: In short, we performed very well in the quarter over those things within our control.

Phoebe: At this point, let me ask him career, our CFO to provide details on our order activity solid backlog and cash activity before I come back with segment observations.

Kimberly A. Kuryea: Thank you, Phebe, and good morning. I'll start with orders and the backlog. We had a solid quarter from an orders perspective, with an overall book-to-bill ratio of one-to-one for the company. Order activity was particularly strong in the Combat Systems Group, with a book-to-bill ratio of 1.6 to 1, and in the aerospace and technology segment, which each had a book-to-bill ratio of 1.2 to 1.

CAREER: Thank you Phebe and good morning.

CFO: I'll start with orders and backlog, we had a solid quarter from an orders perspective with an overall book to bill ratio of one to one for the company.

CFO: Order activity was particularly strong in the combat systems group with a book to Bill of one six to one.

CFO: And then the aerospace and technology segments, which each had a book to bill of one two to one.

Kimberly A. Kuryea: We ended the quarter with a total backlog of $93.7 billion, up slightly from year-end and up 4% from a year ago. Our total estimated contract value, which includes options and IDIQ contracts, ended the quarter at approximately $134 billion, up 1.5% from year end. Turning to our cash performance for the quarter, we had an expected slow start to the year, absent the delayed certification and entry into service of the G700 and continued G700 inventory bills. So let's start with technology.

CFO: We ended the quarter with total backlog of $93 $7 billion up slightly from year end and up 4% from a year ago.

CFO: Our total estimated contract value, which includes options and <unk> contracts ended.

We ended the quarter at approximately $134 billion.

CFO: One 5% from year end.

CFO: Turning to our cash performance for the quarter.

CFO: We hadn't expected slow start to the year absent the delayed certification and entry into service of the 700 and continued G 700 inventory build.

CFO: So let's start with technologies we.

Kimberly A. Kuryea: We continue to see strong cash performance from that group in the quarter. As anticipated, combat systems and marine systems both built working capital in the quarter based on their unique mix of contract timing versus expected payment. Finally, moving to aerospace, the lack of G700 deliveries drove us to use cash in the quarter. As a result, our free cash flow for the quarter was a negative $437 million. Since all of what I described is timing-related, we still have an expectation for the year of a cash conversion rate around 100 percent. We expect most of the negative free cash flow to reverse in the second quarter, followed by substantially improving free cash flow in each of the third and fourth quarters.

We continued to see strong cash performance from that group in the quarter.

CFO: As anticipated combat systems, and Marine systems, both built working capital in the quarter based on their unique mix of contract timing versus expected payments.

CFO: Finally, moving to aerospace the lack of G 700 deliveries drove us to use cash in the quarter.

CFO: As a result, our free cash flow for the quarter was a negative $437 million.

Since all of what I described is timing related we still have an expectation for the year of a cash conversion rate around 100%.

CFO: We expect most of the negative free cash flow to reverse in the second quarter, followed by substantially improving free cash flow in each of the third and fourth quarters.

Kimberly A. Kuryea: Now to discuss our capital deployment activity. Capital expenditures were $159 million, or 1.5% of sales in the quarter. Similar to last year, you should expect capital expenditures to increase in subsequent quarters throughout the year as we anticipate spending between 2 and 2.5 percent of revenue on CapEx this year. Over 50% of that expected spend will be for infrastructure at our three shipyards as we continue to invest to support the Navy's submarine and shipbuilding plans.

Speaker Change: Now to discuss our capital deployment activities.

Speaker Change: Capital expenditures were $159 million or one 5% of sales in the quarter.

Speaker Change: Similar to last year, you should expect capital expenditures to increase in subsequent quarters throughout the year as we anticipate spending between two and two 5% of revenue on Capex. This year.

Speaker Change: Over 50% of that expected spend will be for infrastructure at our three shipyards as we continue to invest to support the Navy submarine in shipbuilding plan.

Kimberly A. Kuryea: Also in the quarter, we paid $361 million in dividends and repurchased approximately 390,000 shares of stock for $105 million, at just under $269 per share. When you add it all up, we ended the quarter with a cash balance of around $1 billion and a net debt position of $8.2 billion. Our net interest expense in the quarter was $82 million, compared with $91 million for the same quarter last year. The reduction in interest expense was attributed to a lower debt balance. Finally, turning to income taxes, we had a 17.5% effective tax rate in the quarter, right in line with our four-year guidance, which reflects higher taxes on foreign earners.

Speaker Change: Also in the quarter, we paid $361 million in dividends and repurchased approximately 390000 shares of stock for $105 million at just under $269 per share.

Speaker Change: When you add it all up we ended the quarter with a cash balance of around $1 billion and our net debt position of $8 2 billion.

Speaker Change: Our net interest expense in the quarter was $82 million compared with 91 million for the same quarter last year.

Speaker Change: The reduction in interest expense was attributed to our lower debt balances.

Speaker Change: Finally, turning to income taxes.

Speaker Change: We had a 17, 5% effective tax rate in the quarter right in line with our full year guidance, which reflects higher taxes on foreign earnings.

Phebe N. Novakovic: Phebe, that concludes my remarks. I'll turn it back over to you.

Speaker Change: That concludes my remarks, I'll turn it back over to you.

Phebe N. Novakovic: Thanks, Kim. Now, let me review the quarter in the context of the business segments and provide detailed color as appropriate. First, aerospace. Aerospace did very well in the absence of the G700 delivery. It had revenue of $2.1 billion and operating earnings of $255 million with a 12.2% operating margin. Revenue is $192 million more than last year's first quarter, a 10.1% increase. To give you a little detail here, the increase was driven by an increase in new aircraft deliveries and an increase in services at both Gulfstream and Jet Aviation, partially offset by significantly lower special mission aircraft activity, which is always lumpy. The 24 deliveries in the quarter were fewer than planned, but three more than the year-ago quarter.

Speaker Change: Thanks, Kim now, let me review the quarter in the context of the business segments and provide detailed color as appropriate first aerospace.

Speaker Change: Aerospace did very well in the absence of the G 700 delivery. It had revenue of $2 1 billion and operating earnings of $255 million with a 12, 2% operating margin.

Speaker Change: Revenue is $192 million more than last year's first quarter at 10, 1% increase.

Speaker Change: To give you a little detail here the increase was driven by an increase in new aircraft deliveries and an increase in services at both Gulfstream and jet aviation, partially offset by significantly lower special mission aircraft activity, which is always lumpy.

Speaker Change: The 24 deliveries in the quarter, a fewer than plan the three more than the year ago quarter. The mix in the quarter favorite large cabin and the $6 50 in particular, which helped both revenue and earnings.

Speaker Change: Operating earnings of $255 million or up 26 million over last year's first quarter and 11, 4% increase earnings on both new aircraft and aircraft services enjoyed good increases offset in part by lower earnings on special mission higher G&A and net R&D.

Phebe N. Novakovic: The mix in the quarter favored large cabins and the 650 in particular, which helped both revenue and earnings. Operating earnings of $255 million are up $26 million over last year's first quarter, an 11.4% increase. Earnings on both new aircraft and aircraft services enjoyed good increases, offset in part by lower earnings on special missions, higher G&A, and net R&D. While Gulfstream will continue to experience part shortages that cause significant out-of-station work, which is inherently less efficient, the supply chain is clearly improving and much more predictable.

Speaker Change: Wow Gulfstream will continue to experience part shortages that caused significant out of station work, which is inherently less efficient the supply chain is clearly improving and much more predictable.

Speaker Change: As it is now apparent we plan to deliver a considerable number of G. Seven hundreds in 2020 for the first <unk> to be delivered or fully built and deliveries have begun by the end of this month. The next seven to eight we'll be ready.

Speaker Change: We plan to deliver these $50 to 52 planes over the quarters and relatively even numbers with improving margins quarter over quarter as we go along.

Speaker Change: The first 20, what we call the lot one carry some cost and retrofit burden that will not affect subsequent aircraft deliveries.

Phebe N. Novakovic: As it is now apparent, we plan to deliver a considerable number of G700s in 2024. The first 20 to be delivered are fully built, and deliveries have begun. By the end of this month, the next seven to eight will be ready. We plan to deliver these 50 to 52 planes over the quarters in relatively even numbers with improving margins quarter over quarter as we go along. The first 20, what we call lot one, carry some cost and retrofit burden that will not affect subsequent aircraft delivery.

Speaker Change: So expect margins in the second quarter to be similar to the first quarter with significant improvement in Q3 and Q4.

Speaker Change: Aerospace had a decent quarter from an orders perspective with a book to Bill of one two to one in dollar terms sales activity and customer interest as evidenced this quarter, but concerns over persistent inflation and monetary policy in the U S. Together with concerns about conflict in the middle East has slowed the consummation.

Speaker Change: <unk> of transactions to some degree.

Speaker Change: It is also worth noting that a significant portion of the demand we see is fleet replenishment for corporations.

Speaker Change: These multi aircraft deals usually proceed at a slower pace.

Phebe N. Novakovic: So expect margins in the second quarter to be similar to the first quarter with significant improvement in Q3 and Q4. Aerospace had a decent quarter from an orders perspective with a book-to-bill of 1.2 to 1 in dollar terms. Sales activity and customer interest are evident this quarter, but concerns over persistent inflation and monetary policy in the U.S., together with concerns about conflict in the Middle East, have slowed the consummation of transactions to some degree. It is also worth noting that a significant portion of the demand we see is fleet replenishment for corporations. These multi-aircraft deals usually proceed at a slower pace.

Speaker Change: The G 800 flight test and certification program continues to progress well the aircraft design manufacturing and the overall program are very mature we continue to target certification of G. 800 for nine months. After the G 700 certification, although I am increasingly reluctant to.

Speaker Change: Give estimates about these things that are ultimately out of our control.

Speaker Change: In short aerospace team had a good quarter G 700, FAA certification is in the rearview mirror and we hope. He asked this certification is hard on its heels and we expect nicely improving margins, particularly in the second half.

Speaker Change: Next combat systems combat had revenue of $2 1 billion up almost 20% over the year ago quarter.

Phebe N. Novakovic: The G-800 flight test and certification program continues to progress well. The aircraft design, manufacturing, and the overall program are very mature. We continue to target certification of the G-800 for nine months after the G-700 certification, although I'm increasingly reluctant to give estimates about these things that are ultimately out of our control. In short, the aerospace team had a good quarter. G700 FAA certification is in the rearview mirror, and we hope EASA certification is hard on its heels. And we expect nicely improving margins, particularly in the second half. Next, Combat Systems.

Speaker Change: Earnings of $282 million are up 15, 1% margins at 13, 4% or down 60 basis points over the year ago quarter.

It is interesting to observe that this very strong increase in revenue is in comparison to last year's first quarter, which enjoyed a 5% increase over 22.

Speaker Change: Yeah.

Speaker Change: We saw increased revenue performance at each of the three businesses increase came from higher volume on new International tank programs higher artillery program volume and higher volume on piranha programs and bridges.

Speaker Change: We also experienced very strong order performance.

Phebe N. Novakovic: Combat had revenue of $2.1 billion, up almost 20% over the year-ago quarter. Earnings of $282 million are up 15.1%, and margins at 13.4% are down 60 basis points over the year-ago quarter.

Speaker Change: In the quarter drove total backlog to $15 6 billion up $1 5 billion from this time a year ago quarter.

Speaker Change: Demand for combat systems and products continues to increase particularly in Europe and in some lines of business in the U S.

Speaker Change: Orders for wheeled and tracked combat vehicles are up significantly reflecting the heightened threat environment. In addition to several new combat vehicles starts.

Phebe N. Novakovic: It is interesting to observe that this very strong increase in revenue is in comparison to last year's first quarter, which enjoyed a 5% increase over 22. We saw increased revenue performance at each of the three businesses. The increase came from higher volume on new international tank programs, higher artillery program volume, and higher volume on piranha programs. We also experienced very strong order performance. Orders in the quarter drove total backlog to $15.6 billion, up $1.5 billion from this time a year ago.

Speaker Change: Demand for Abrams also continues we've seen tank orders from new users and a number of countries will be introducing abrams into their combat seats for the first time.

Speaker Change: Since Q1 last year, we have received almost $1 billion in orders from both the U S allies through Fms and the U S Army.

Speaker Change: In the U S. We are rapidly increasing ammunition production with the opening of our Texas facility, which will increase current 155 millimeter ammo capacity by 83%.

Speaker Change: As the year goes on we will continue to work with our army customer to further increase annual capacity to meet their requirements.

Phebe N. Novakovic: Demand for combat systems and products continues to increase, particularly in Europe and in some lines of business in the U.S. Orders for wheeled and tracked combat vehicles are up significantly, reflecting the heightened threat environment, in addition to several new combat vehicle starts. Demand for Abrams also continues. We've seen tank orders from new users, and a number of countries will be introducing Abrams into their combat fleets for the first time.

Speaker Change: Turning to marine systems once again, our shipbuilding units are demonstrating impressive revenue growth.

Speaker Change: Let me repeat the recent history that I gave you last year at this time with respect to growth this decade the.

Speaker Change: First quarter 'twenty 'twenty was up nine 1% against Q1 of 2019 Q1, 'twenty one was up 10, 6% over Q1 'twenty Q.

Speaker Change: Q1 'twenty two.

Speaker Change: Was up six 8% over Q1, 'twenty one and.

Speaker Change: In Q1, 'twenty three was up 12, 9% over Q1 'twenty two.

Phebe N. Novakovic: Since Q1 last year, we have received almost $1 billion in orders from both U.S. allies through FMS and the U.S. Army. In the U.S., we are rapidly increasing ammunition production with the opening of our Texas facility, which will increase current 155mm ammo capacity by 83%. As the year goes on, we will continue to work with our Army customer to further increase ammo capacity to meet their requirements. Turning to Marine

Speaker Change: Finally, this quarter at $3 3 billion is up 11, 3% over Q1 'twenty three.

Speaker Change: This is an impressive growth ramp by any standard however growth ramps up this character bring with them supply chain and operation issues that are challenging that.

Speaker Change: This particular quarters growth was almost exclusively Columbia class constructions.

Speaker Change: Operating earnings of $232 million in the quarter up 10% from the year ago quarter operating margin is basically the same as last year's quarter. We.

Phebe N. Novakovic: Once again, our shipbuilding units are demonstrating impressive revenue growth. Let me repeat the recent history that I gave you last year at this time with respect to growth in this decade. The first quarter of 2020 was up 9.1% against Q1 of 2019, and Q1 2021 was up 10.6% over Q1 2020. Q122 was up 6.8% over Q121, and Q123 was up 12.9% over Q122. Finally, this quarter at $3.3 billion, it's up 11.3% over Q1 2023. This is an impressive growth ramp by any standard; however, growth ramps of this character bring with them supply chain and operation issues that are challenging. This particular quarter's growth was almost exclusively Columbia-class construction.

Speaker Change: The pace that this will improve as we progress through the year.

Speaker Change: As we have talked about on previous calls the story at the Marine group is efficiently managing the growth propelled by the U S Navy's need for ships, particularly submarines.

Speaker Change: As a labor intensive heavy manufacturing industry. The shipbuilding industrial base was hit hard by the demographic impacts of Covid.

Speaker Change: This coupled with a number of sole source suppliers of highly complex components has made it difficult for the industrial base to keep pace with increasing demand.

The significant financial investments, we have made in our shipyards over the last 12 years, particularly at electric boat has mitigated the impact on us, but we are still hit by schedule and quality problems in the supply chain.

Speaker Change: Our job is to minimize the efficiency and schedule impacts of late material by increasing our throughput.

Speaker Change: And we are doing that each and every quarter in Q1 alone our productivity increased to 11%, but there is more to do.

Phebe N. Novakovic: Operating earnings were $232 million in the quarter, up 10% from the year-ago quarter. However, operating margin was basically the same as last year's quarter. We anticipate that this will improve as we progress through the year. As we have talked about on previous calls, the challenge at the Marine Group is efficiently managing the growth propelled by the U.S. Navy's need for ships, particularly submarines. As a labor-intensive heavy manufacturing industry, the shipbuilding industrial base was hit hard by the demographic impacts of COVID. This, coupled with a number of sole source suppliers of highly complex components, has made it difficult for the industrial base to keep pace with increasing demand.

Speaker Change: Finally, the Navy is investment in the supply chain has helped and will continue to help as we move forward.

Speaker Change: For technologies, we're off to a solid start.

Speaker Change: Revenue in the quarter of $3 2 billion is down less than 1% from the prior year, but up 2% over the fourth quarter of last year and modestly ahead of our expectation for the start of the year.

Speaker Change: Operating earnings of $295 million consistent with last year, yielding a margin of nine 2%.

Speaker Change: As we have previously discussed margins will continue to be driven by the mix of service activity and hardware volume.

Speaker Change: The group received 4 billion in orders during the quarter for a book to Bill ratio of one two to one both businesses experienced strong order activity in <unk> case, the highest book to Bill since mid 2019.

Phebe N. Novakovic: The significant financial investments we have made in our shipyards over the last 12 years, particularly at Electric Boat, have mitigated the impact on us, but we are still hit by schedule and quality problems in the supply chain. Our job is to minimize the efficiency and schedule impacts of late material by increasing our throughput, and we are doing that each and every quarter. In Q1 alone, our productivity increased 11%, but there is more to do. Finally, the Navy's investment in the supply chain has helped and will continue to help as we move forward with technologies. We're off to a solid start.

Speaker Change: This led to a total backlog of $13 5 billion, an increase of over 5% from a year ago and total estimated contract value of $42 7 billion.

Speaker Change: The story in technologies as wanted to steady growth, particularly at GTI tea and increasingly at mission systems as they transition from legacy programs to new programs and faster growth lines of business.

Speaker Change: Both businesses have robust pipelines driven by their respective investments and different technologies.

The group's continued focus on margin performance will result in sequential margin expansion throughout the year as they continue to build their backlog and grow.

Phebe N. Novakovic: Revenue in the quarter of $3.2 billion is down less than 1% from the prior year but up 2% over the fourth quarter of last year and modestly ahead of our expectations for the start of the year. Operating earnings of $295 million are consistent with last year, yielding a margin of 9.2%. As we have previously discussed, margins will continue to be driven by the mix of IT service activity and hardware volume. The group received $4 billion in orders during the quarter for a book-to-bill ratio of 1.2 to 1.

Speaker Change: As you know we never updated guidance at this time a year apart from what I have already said about aerospace I will stick to that custom do however, confirm the guidance. We gave you at the end of last quarter and we'll update it at mid point of the year as we typically do.

Speaker Change: This concludes my remarks with respect to what was in many respects a rewarding quarter let.

Speaker Change: Let me now turn the call back to Nicole to take your questions.

Nicole M. Shelton: Thank you Phebe as a reminder, we ask participants to ask one question and one follow up so that everyone has a chance to participate operator could you. Please remind participants how to enter the queue.

Phebe N. Novakovic: Both businesses experienced strong order activity, in GDIT's case, the highest book-to-bill since mid-2019. This led to a total backlog of $13.5 billion, an increase of over 5% from a year ago, and a total estimated contract value of $42.7 billion. The story in technologies is one of steady growth, particularly at GDIT and increasingly at mission systems as they transition from legacy programs to new programs and faster growth lines of business. Both businesses have robust pipelines driven by their respective investments in different technologies.

Nicole M. Shelton: Yeah.

Nicole M. Shelton: And thank you we will now begin the question and answer session.

Speaker Change: If you have dialed in and would like to ask a question. Please press star one on your telephone keypad to raise your hand and join the queue.

Speaker Change: If you would like to withdraw your question simply press Star one again.

Speaker Change: If you are called upon to ask your question and our listening via Speakerphone on your device. Please pick up your handset and ensure that your phone is not on mute when asking your question.

Phebe N. Novakovic: The group's continual focus on margin performance will result in sequential margin expansion throughout the year as they continue to build their backlog and grow. As you know, we never update guidance at this time of year. Apart from what I have already said about aerospace, I will stick to that custom. We do, however, confirm the guidance we gave you at the end of last quarter, and we'll update it at the midpoint of the year, as we typically do. This concludes my remarks with respect to what was, in many respects, a rewarding quarter. Let me now turn the call back to Nicole to take questions. Thank you, Phebe.

Speaker Change: Again, we do ask pardon me that you. Please limit yourself to one question and one follow up question.

Speaker Change: And again press star one to join the queue.

Speaker Change: And your first question comes from Scott <unk> with Deutsche Bank. Your line is open.

Scott: Hey, good morning, good morning.

Scott: Kim can you clarify the G 700 delivery expectation for the second quarter is it the 20th that are ready to go plus the seven to eight that will be ready at the end of this month. So let me, let me kind of tackle that I I.

Scott: Alluded to it in in my opening statement.

Scott: But where we have 50 to 52 airplanes that are going to deliver and about equal amounts of this 700 and the second through the fourth quarters, So think about it that way.

Nicole M. Shelton: Thank you, Phebe. As a reminder, we ask participants to ask one question and one follow-up so that everyone has a chance to participate. Operator, could you please remind participants how to enter the queue? And thank you. We will now begin the question and answer session.

Speaker Change: I think that'll that'll help you.

Speaker Change: Okay. Thank you and then Phebe I was hoping you could spend a moment maybe talking about the growth that combat systems is currently seeing in Europe, and perhaps how you expect that to trend over the coming quarters. Thank you.

Operator: And thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. If you are called upon to ask your question and are listening via speakerphone on your device, please pick up your handset and ensure that your phone is not on mute when asking your question.

Phebe: So the growth in Europe is clearly driven by the threat environment, we've seen increases in orders for combat wheeled and tracked vehicles.

Phebe: And a significant bridge orders were also seeing increased orders coming out of.

Phebe: Out of various countries and in Europe for Abrams through the Fms process. So we see that demand signal continuing until the threat environment frankly.

Phebe: Frankly improves.

Phebe: Yeah.

We will take our next question from Seth Sigman with J P. Morgan Your line is open.

Operator: Again, we do ask, pardon me, that you please limit yourself to one question and one follow-up question. And again, press star 1 to join the queue. And your first question comes from Scott Deuschle with Deutsche Bank. Your line is open. Hey, good morning. Kim, can you clarify the G700 delivery expectation?

Seth Seifman: Good morning, Seth.

Seth Seifman: Thanks very much.

Seth Seifman: Looking to our marine when we think about.

Seth Seifman: The expectation for a.

Seth Seifman: Profit margin for the year and kind of where we started or are there kind of visible milestones that you see through the remainder of the year that bring that number higher or kind of a change in mix or kind of what drives the underlying margin improvement through the year.

So two things one is the increase in productivity in each of the shipyards and we see that we've been seeing that for the last few quarters.

Phebe N. Novakovic: Let me kind of tackle that. I alluded to it in my opening statement, but we have 50 to 52 airplanes that are going to deliver about equal amounts of the 700 in the second through the fourth quarters. So think about it that way.

Seth Seifman: And it's also a fewer disruptions from the supply chain. So those are the two primary factors.

Speaker Change: Alright, Okay, Okay, great and then.

Speaker Change: When we think about I think you mentioned some of the headwinds to demand.

Phebe N. Novakovic: So I think that'll, that'll help you. Okay, thank you. And then, Phebe, I was hoping you could spend a moment maybe talking about the growth that combat systems are currently seeing in Europe and perhaps how you expect that to trend over the coming quarters. Thank you. So the growth in Europe is clearly driven by the threat environment. We've seen increases in orders for combat wheeled and tracked vehicles and significant bridge orders. We're also seeing increased orders coming out of various countries in Europe for Abrams through the FMS process. So, we see that demand signal continuing until the threat environment is Frankly Improved.

Speaker Change: At Gulfstream from here in terms of.

Speaker Change: Monetary policy.

Speaker Change: Geopolitical issues just to kind of a firm.

Speaker Change: The expectation for 160 deliveries this year.

Speaker Change: And the way that the backlog will trend through the year. The expectation is that that's that's a very sustainable number with.

Speaker Change: Potential for that to grow in the years beyond.

Speaker Change: So let me, let me clarify a bit.

Speaker Change: They are I don't see concerns about inflation or monetary policy impacting demand. It really is just impacting the time from the initiation of a potential interest to the closure of an order which is also impacted somewhat by.

Seth Seifman: And we will take our next question from Seth Seifman with J.P. Morgan. Your line is open. Morning, Seth. Good morning. Thanks very much.

Phebe N. Novakovic: Looking to Maureen, when we think about, you know, the expectation for the profit margin for the year and kind of where we started, are there kind of visible milestones that you see through the remainder of the year that bring that number higher? Or kind of, is it a change in mix? Or kind of, you know, what drives the underlying margin improvement through

Speaker Change: Large fleet.

Speaker Change: Airplane fleet orders from corporate customers.

Speaker Change: So think about it that way, but more of a timing issue with.

Speaker Change: With the completion of the deals in and not and not a headwind to overall demand. So I think that's an important nuance and we're still sticking to our delivery guidance for the year and anything you know going forward basis.

As we've innovated before we see that.

Seth Seifman: So, two things. One is an increase in productivity at each of the shipyards, and we see that; we've been seeing that for the last few quarters. And there are also fewer disruptions in the supply chain. So those are the two primary factors.

Those deliveries increasing over time.

Yeah.

Speaker Change: And we will take our next question from Robert Stallard with vertical research. Your line is open.

Robert Stallard: Thanks, so much good morning, Laura.

Robert Stallard: Yeah.

Robert Stallard: Phebe I was wondering if you could comment on the recently passed them seem to be signed supplemental and what implications that could have for the combat basis, but also on the submarine side, what sort of additional funding could come from the U S. Navy.

Phebe N. Novakovic: Okay, okay, great. And then just when we think about I think, you know, you mentioned some of the headwinds to demand at Coldstream from here in terms of monetary policy, you know, geopolitical issues, just just to kind of affirm, you know, the expectation for 160 deliveries this year, and, you know, the way that the backlog will trend through the year, the expectation is that that's, you know, that's a very sustainable number with, you know, with potential for that to grow in the years beyond.

Phebe: So let me take them in inverse Florida.

Phebe: And on the submarine side the preponderance of the funding in the supplemental is to help stabilize the industrial base.

Phebe: Ensuring that we continue to.

Phebe: Drive order activity on a consistent and repeatable basis.

So that is really on the submarine side in combat I think you can see there was a fair amount of.

Phebe: Of ammo funding and we had fully anticipated that.

Speaker Change: Okay, and then just secondly, I was wonder if you could give us an update on the Ajax program in the U K.

Phebe N. Novakovic: So, let me clarify a bit. I don't see concerns about inflation or monetary policy impacting demand. It really is just impacting the time from the initiation of a potential interest to the closure of an order, which is also impacted somewhat by large airplane fleet orders from corporate customers. So think about it that way; it's more of a timing issue with the completion of the deals and not a headwind to overall demand. So I think that's an important nuance.

Speaker Change: So it is proceeding extremely well through test and continue to work with our customer, but theyre very pleased with the performance of the vehicle.

Speaker Change: Okay. That's great. Thank you very much.

Speaker Change: We will take our next question from Sheila <unk> with Jefferies. Your line is open.

Speaker Change: Yeah.

Sheila: Good morning, Bobby.

Sheila: Thank you for that time I wanted to ask one about aerospace and Im sorry for.

Sheila: Putting you on the spot with the mental math, but last year or last quarter, you talked about the G 700 profit contribution being around 25%.

Phebe N. Novakovic: And we're still sticking to our delivery guidance for the year. And I think, you know, on a going forward basis, as we've intimated before, we see those deliveries increasing over time. And we will take our next question from Robert Stallard with Vertical Research. Your line is open. Thanks so much. Good morning.

Sheila: So when we think about the Q1 performance. It was actually really good relative to our number of 12, 1% margin.

Speaker Change: It would imply you see a deceleration in the underlying business for aerospace just given G. 700 comes in at 50 units. So I guess, how do we think about the mix movement throughout the year for aerospace.

Speaker Change: Well.

Speaker Change: Let's talk about the first part of cat and that in that question I don't believe we've ever disclosed any margin on a particular airplane and we haven't there I think we can't it can't take and discern.

Robert Stallard: And we will take our next question from Robert Stallard with Vertical Research. Your line is open. Thanks so much. Good morning.

Phebe N. Novakovic: So let me take them in inverse order. On the submarine side, the preponderance of the funding and the supplemental is to help stabilize the industrial base, ensuring that we continue to drive order activity on a consistent and repeatable basis. So that is really on the submarine side and combat. I think you can see there's a fair amount of AMO funding, and we had fully anticipated that. So it is proceeding extremely well through testing, and we continue to work with that customer, but they're very pleased with the performance of the vehicle.

Speaker Change: Revenue and earnings in any given quarter is attributable to one airplane. So I think you need to think about it holistically, but we see the we don't see any real changes in the mix through out the year and Ah well.

Speaker Change: Do a detailed bottom up review in Q2, but for right now we're sticking with both our mix our earnings or margin and revenue expectations. So.

Speaker Change: We're off to a pretty good start I'd say and.

Sheila Karin Kahyaoglu: We will take our next question from Sheila Kahyaoglu with Jeffries. Your line is open.

And we're we're very encouraged shantou the outlook looks for the rest of the year.

Phebe N. Novakovic: Good morning, Phebe. Thank you for your time.

Speaker Change: Can we assume that <unk> 700 is accretive to the 15% full year guidance.

Sheila Karin Kahyaoglu: I wanted to ask one about aerospace, and I'm sorry for putting you on the spot with some mental math, but last year or last quarter, you talked about the G700 profit contribution being around 25%. So when we think about the Q1 performance, which was actually really good relative to our number of 12.1% margin, it would imply you see a deceleration in the underlying business for aerospace, just given the G700 comes in at 50 units. So I guess what do we think about the mixed movement throughout the year for aerospace?

Speaker Change: So so think about it this way.

Speaker Change: This is ultimately going to be a very profitable program, but as I explained in my remarks, the first lot of 20 or so carries with it additional costs, we will see those in largely in Q2. So think about Q2 as an increase in revenue of about $1 billion.

Speaker Change: Billion won.

Speaker Change: And in earnings of about 100 million to $110 million and then progressed nicely thereafter, and again thats all impacted by the multiplicity of of of factors and in our aerospace business to drive margins.

Phebe N. Novakovic: Well, let's talk about the first predicate in that question. I don't believe we've ever disclosed any margin on a particular airplane, and we haven't been there. I think we can't take and discern revenue and earnings in any given quarter attributable to one airplane, so I think you need to think about it holistically. But we don't see any real changes in the mix throughout the year. And we'll do a detailed bottom-up review in Q2.

Speaker Change: Yeah.

Speaker Change: And we will take our next question from David Strauss with Barclays. Your line is open.

David Strauss: Thanks, Good morning.

Good morning.

David Strauss: BB so rob.

David Strauss: Rob's question on the supplemental in the submarine industrial base money. So there's money there theres a lot of money in the base budget. It appears youre spending additional capex today.

Phebe N. Novakovic: But for right now, we're sticking with both our mix, our earnings, our margin, and revenue expectations. So we're off to a pretty good start, I'd say, and we're very encouraged at how the outlook looks for the rest of the year.

David Strauss: Youll eventually recover.

David Strauss: Through working capital profit.

Speaker Change: How do I mean.

Speaker Change: So a lot of money I mean, how does that manifest itself in your numbers as we think about over the next couple of years.

Sheila Karin Kahyaoglu: Can we assume that the G700 is accretive to the 15% four-year guidance?

Speaker Change: So for the supply chain support.

Phebe N. Novakovic: So, think about it this way. This is ultimately going to be a very profitable program, but as I explained in my remarks, the first batch, 20 or so, carries with it additional costs. We'll see those largely in Q2. So think about Q2 as an increase in revenue of about $1 billion to $1.1 billion and in earnings of about $100 million to $110 million, and then progress nicely thereafter. And again, that's all impacted by the multiplicity of factors in our aerospace business that drive margins, and we will take our

Speaker Change: Has a minimal impact on us however extremely important.

Speaker Change: Because the stabilization of the supply chain is critical to the resumption of full cadence on Virginia, and the increased cadence on Colombia.

Speaker Change: So funding is also robust for submarines, we've got one projected in 'twenty five and then.

Speaker Change: It would be extremely helpful to get a false you know ships out of our Virginia.

Speaker Change: Also appropriated because that again helps stabilize the industrial base with repeatable.

David Strauss: And we will take our next question from David Strauss with Barclays. Your line is open.

Phebe N. Novakovic: Phebe, so Rob's question on the supplemental and the submarine industrial-based money, you know, so there's money there, there's a lot of money in the base budget appears, you're spending additional capex today that, you know, you'll eventually recover through working capital profit. How does, I mean, it's a lot of money, I mean, how does that manifest itself in your numbers as we think about over the So

Speaker Change: Revenue that they can plan around town.

Speaker Change: Okay. Thanks for that.

Speaker Change: Last quarter you meet some.

Speaker Change: More kind of positive comments regarding the potential for share repurchase and Stubhub, obviously, you did a little bit this quarter, but not not that much. How how are you thinking about that now did that have to do with the fact that you ended up burning cash in Q1, just just how youre thinking about share repo in the balance sheet from here. Thanks.

David Strauss: So, for supply chain support, it has minimal impact on us, but it is extremely important because the stabilization of the supply chain is critical to the resumption of full cadence on Virginia and the increased cadence on Columbia. So funding is also robust for submarines. We've got one projected in 25, and then it would be extremely helpful to get a full ship set of Virginias also appropriated because that again helps stabilize the industrial base with repeatable revenue that they can plan around.

Speaker Change: The way, we think about share repurchases and this will be true going forward is really in the regular order recall, what we were facing in Q1 and that was we're looking down the throat of AR.

Potential and at some point looked very likely government shutdown.

Speaker Change: And so I think that prudence and conservatism and in the face of that kind of uncertainty is is really key but the cash performance for the remainder of the year is going to be very strong and we will act accordingly.

Phebe N. Novakovic: Okay, thanks for that. Last quarter, you made some more positive comments regarding the potential for share repurchases to step up. Obviously, you did a little bit this quarter, but not that much. How are you thinking about that now? Did that have to do with the fact that you ended up burning cash in Q1? Just how are you thinking about share repo and the balance sheet from here? Thanks.

Speaker Change: Yeah.

Speaker Change: And we will take our next question from Noah <unk> with Goldman Sachs. Your line is open.

Noah: Hi, good morning, everyone. Good morning.

Noah: TB, what's what's the framework for the pace of <unk> 700 deliveries beyond this year compared to this year.

Noah: Im not asking for quarterly numbers or anything like that but just given this year's.

David Strauss: So, the way we think about share repurchases, and this will be true going forward, is really in the regular order. Recall what we were facing in Q1, and that was: we were looking down the throat of a potential, and at some point, looked very likely, government shutdown. And so I think that prudence and conservatism in the face of that kind of uncertainty are really key. But the cash performance for the remainder of the year is going to be very strong, and we will act accordingly. And we will take our next question from Noah Poponak with Goldman Sachs. Your line is open. Hi, good morning, everyone. Good morning. Phebe, what's the framework for the argument?

Speaker Change: I have some abnormalities compared to.

Speaker Change: Our recurring.

Speaker Change: Airplane.

Speaker Change: And then Tim just what's the updated view.

Tim: Are you on free cash flow to net income conversion for the year.

Well, so let me talk about 700.

Tim: Never except I think on one or two occasions books about five six years ago.

Tim: I'll give the future year expectations, but 700 isn't very very successful program and it will continue to execute well I'll turn it over to Cameron on cash cash. Thank you phebe.

Cameron: So with respect to cash and the expectation, we still anticipate achieving about 100% of our free cash flow conversion in 2024.

Noah Poponak: And we will take our next question from Noah Poponak with Goldman Sachs. Your line is open.

Cameron: We had expected the first quarter to be negative even before considering the fact that we didn't deliver any G. Seven hundreds. So we had planned for a negative.

Phebe N. Novakovic: Well, so let me talk about 700. We never, except on one or two occasions, about five, six years ago, give the future year expectations, but 700 is a very, very successful program, and it will continue to do well. I'll turn it over to Kim on cash. On cash. Thank you, Phebe.

Cameron: Free cash flow in the first quarter and that was mostly driven by some contract timing in the combat systems segment and some in the Marine systems segment.

Cameron: But we expect that most of that negative cash will reverse in the second quarter with a stronger third quarter and then a steeper ramp in the fourth quarter.

Kimberly A. Kuryea: Thank you, Phebe. So with respect to cash and expectations, we still anticipate achieving about 100 percent of free cash flow conversion in 2024. We had expected the first quarter to be negative even before considering the fact that we didn't deliver any G700. So we had planned for a negative free cash flow in the first quarter, and that was mostly driven by some contract timing in the combat system segment and some in the marine system segment. But we expect that most of that negative cash will reverse in the second quarter with a stronger third quarter and then a steeper ramp in the fourth quarter.

Cameron: We will take our next question from Myles Walton with Wolfe Research. Your line is open.

Myles Walton: Thanks, Good morning, Steve.

Myles Walton: Comment on.

Myles Walton: Could you comment on the margin expansion implied that combat systems as you move through the rest of the year I think it has to be either 100 basis points on average up year on year mhm, the rest of the year.

Speaker Change: And maybe.

Speaker Change: Underlying dynamics.

Speaker Change: Given the volume why we didn't see more of a drop through margin in the first quarter.

Speaker Change: So what drove margin in the first quarter were two things mix as we.

Speaker Change: Came off of older legacy programs in particular in the vehicle world and and in the U S. And then and began ramping up newer programs all vehicle programs in the U S and then.

Myles Walton: We will take our next question from Miles Walton with Wolf Research. Your line is open.

Myles Walton: Thanks. Good morning.

Phebe N. Novakovic: Phebe, could you comment on the margin expansion implied at combat systems as you move through the rest of the year? I think it has to be 80 to 100 basis points on average up year on year for the rest of the year. And maybe the underlying dynamics of, given the volume, why we didn't see more of a drop-through margin in the first quarter?

Speaker Change: A significant amount of the revenue growth came from facilities investment, which by definition carries a lower.

Speaker Change: Margin and production so both of those things will reverse.

Speaker Change: Throughout the course of the year and combat margins will increase.

Myles Walton: So, what drove margin in the first quarter were two things, mixed as we came off of older legacy programs, particularly in the vehicle world and in the U.S., and began ramping up newer programs, vehicle programs in the U.S., and then a significant amount of the revenue growth came from facilities investment, which, by definition, carries a lower margin than production. So both of those things will reverse throughout the course of the year, and combat margins will increase. Our expectation is quarter over quarter, and remember, this is a high operating leverage group. They ought to do quite well here.

Speaker Change: Increase our expectation is quarter over quarter remember this is a high operating leverage group. So they are.

Speaker Change: They ought to do quite well here.

Speaker Change: Okay, and one clarification on Gulfstream backward if I could I think there was some adjustment downward in the backlog was where those cancellations or forex, maybe six six a large job cancellations or thereabouts.

Speaker Change: Uh huh.

Speaker Change: I don't think that's the way to look at it but why doesn't Nicole I'll get back to on that but there wasn't we didn't have any particular notable cancellations.

Speaker Change: So let us let us unpack that one with you a little later.

Phebe N. Novakovic: Okay, and one clarification on Gulfstream's backlog, if I could. I think that there was some downward adjustment in the backlog. Were those cancellations or 4X, maybe six large jet cancellations or thereabouts?

Speaker Change: Thanks.

Speaker Change: We will take our next question from Ron Epstein with Bank of America. Your line is open.

Ronald Epstein: Hey, Jeff Good morning.

Ronald Epstein: Yeah.

Ronald Epstein: So phebe with the increased demand.

Speaker Change: And so on and so forth.

Phebe N. Novakovic: I don't think that's the way to look at it, but why didn't Nicole get back to you on that? We didn't have any particular notable cancellations, so let us unpack that one with you a little later.

Ronald Epstein: Are you doing to mitigate any issues that could arise for growth in those markets.

Ronald Epstein: And then maybe markets given all the demand growth has been.

Ronald Epstein: The supply chain.

Speaker Change: Yeah. So in the combat World, there's a little bit more of a robust supply chain in general that we typically have not had difficulty with typically.

Ronald Epstein: We will take our next question from Ron Epstein with Bank of America. Your line is open.

Ronald Epstein: Good morning. Good morning.

Speaker Change: We know a priori the suppliers, who could conceivably cause issues and we've been working with them too.

Phebe N. Novakovic: So, Phebe, with the increased demand for munitions..., so on and so forth. I mean, what are you doing to mitigate any of the issues that could arise from growth in those markets? Just like we've seen in, you know, in the Navy markets, given all the demand and growth, there have been supply chain issues. What are you expecting?

Speaker Change: Ensure that they can manage this this growth, but we're pretty comfortable that we can execute the growth.

Speaker Change: Hum.

Speaker Change: Our focus is really on on operations and execution and those will be the two key drivers.

Ronald Epstein: Yeah. So in the combat world, it's a little bit more of a robust supply chain in general that we typically have not had difficulty with. We know a priori the suppliers who could conceivably cause issues, and we've been working with them to ensure that they can manage this growth, but we're pretty comfortable that we can execute the growth. You know, our focus is really on operations and execution, and those will be the two key drivers of profitability in that group.

Speaker Change: Of the of the profitability in that group.

Speaker Change: Got it got it and then maybe back to kind of the middle side of the house and the supply chain can you give us any color on where there are actual weaknesses in the supply chain, where investment has to be paid.

Speaker Change: So I'd say in a large and the single source sole source supplier. So are by definition critical and I know that the Navy has focused quite <unk>.

Speaker Change: Quite intensely on those those particular products and and supply chain items, and I think they've been pretty explicit about where some of that might be and I think it's best to think about it that way.

Ronald Epstein: Got it, got it. And then maybe back to the kind of the naval side of the house and the supply chain. Can you give us any color on where there are actual weaknesses in the supply chain where investment is needed?

Phebe N. Novakovic: So I'd say in the large, in the single source, sole source suppliers who are by definition critical and I think the Navy has focused quite quite intensely on those particular products and supply chain items, and I think they've been pretty explicit about where some of that might be, and I think it's best to think about it that way, but we do believe that working with a Navy customer The continued infusion into that supply chain will help stabilize, but they are the pacing item now, for Electric Boat.

Speaker Change: But we are we do believe that working with the navy customer the.

The continued infusion into that supply chain will help stabilize but they are the pacing item now.

Speaker Change: For electric boat.

Speaker Change: And we will take our next question from Doug Harned with Bernstein. Your line is open.

Douglas Stuart Harned: Good morning, Thank you.

Douglas Stuart Harned: On marine and good morning.

Douglas Stuart Harned: On Marine the Navy recently described.

Douglas Stuart Harned: Shipbuilding delays really across programs and the one that really stood out with Columbia class with latest reported on the turbines and the bell.

Douglas Stuart Harned: And we will take our next question from Doug Harned with Bernstein. Your line is open.

Can you give us a sense of changes you've seen in schedule that effect, you kind of across the program base and particularly on Colombia.

Douglas Stuart Harned: Good morning. Thank you.

Phebe N. Novakovic: Unmarine in the Navy is recently described as some shipbuilding delays across programs, and the one that really stood out was the Columbia class with delays reported on the turbines and the bow. Can you give us a sense of changes you've seen in the schedule that affect you kind of across the program base and particularly on Columbia?

Douglas Stuart Harned: So I think you've articulated what the Navy has said I will tell you our throughput and productivity has been strong on Columbia is the it enjoys the highest national security priority.

Douglas Stuart Harned: So we have done pretty well on Colombian or are increasing our throughput on Colombia.

Douglas Stuart Harned: So I think you've articulated what the Navy has said. I will tell you that our throughput and productivity have been strong on Columbia. It is the, it enjoys the highest national security priority. So we have done pretty well on Columbia and are increasing our throughput on Columbia. So then it's really those pacing items that are out there, and we're working with our Navy customer to see if there are additional things we can do to recover some schedule and if there are any workarounds, but this is going to be a bit of a slog for the supply chain.

So then it's really those pacing items that are out there and we're working with our navy customer to see if there are additional things we can do to recover some schedule and if there are any workarounds, but this is gonna be a bit of a slog for the supply chain.

Douglas Stuart Harned: And then also on the answer building.

Douglas Stuart Harned: Inflation deflation to affected shipbuilding costs, a lot over the last few years, we've seen pricing on New awards go up.

Phebe N. Novakovic: Well, also on shipbuilding, inflation has affected shipbuilding costs a lot over the last few years. We've seen pricing on new awards go up. And when you look forward in the budget, is there a concern that the Navy's budget is really going to be able to afford the kinds of inflation increases that may come along with, you know, the continued ramp in shipbuilding?

Douglas Stuart Harned: When you look forward in the budget is there a concern that youre basically if youre going through really its the navy, but it's really going to be able to afford the clients are in place and increases that may come along with it.

Douglas Stuart Harned: The continued ramp in shipbuilding.

Speaker Change: Yeah. So I think you've known over the years I cannot comment on individual service budgeting, but inflation certainly has been a factor and to the extent that we can increase throughput to offset some of that we will but the navy is well aware of that.

Douglas Stuart Harned: Yeah, so I think you've known over the years that I tend not to comment on individual service budgeting. But inflation certainly has been a factor. And to the extent that we can increase throughput to offset some of that, we will, but the Navy is well aware of the inflation impact and I think it is working hard, you know, with the whole shipbuilding industrial base to address some of that.

Speaker Change: Inflation impact and I think is working hard.

Speaker Change: Whole shipbuilding industrial base to adjust some of that.

Speaker Change: And we will take our next question from Kristine <unk> with Morgan Stanley. Your line is open hey.

Kristine Liwag: And we will take our next question from Kristine Liwag with Morgan Stanley. Your line is open.

Kristine: Hey, good morning.

Kristine: Phebe following up on the Marine question you know in addition to the the delay in the Columbia class. The D. O D did requests one less Virginia class for the fiscal year 'twenty five a budget request. So I mean, if we take all this into perspective.

Phebe N. Novakovic: Phebe, following up on the Marine question, you know, in addition to the delay in the Columbia class, the DOD did request one less Virginia class for the fiscal year 25 budget request. So, I mean, if we take all this into perspective, can you provide some context on what this means for marine revenue growth over the next few years? And there's a margin with a seven handle on it. Is that the new norm for this business?

Kristine: Can you provide some context on what this means for marine revenue growth over the next few years and does the margin with a seven handle on it is that more the new norm for this business.

Speaker Change: So let me address that in the inverse order margins will be improving at our shipyards. We have every expectation of all of our shipyards.

Kristine Liwag: So let me address that in the inverse order. Margins will be improving at our shipyards. We have every expectation for all of our shipyards, NASCO, BAS, and Electric Boat. One of the things that we've talked frequently about is the margin impact of quality and schedule problems coming out of the supply chain, and as the supply chain stabilizes, that will help as well.

<unk> Nasco Bath and electric boat one of the things as we've talked frequently about is the margin impact of quality and schedule problems coming out of the supply chain and as the supply chain stabilizes.

Speaker Change: That will help as well and what's what was your first part of your question.

Speaker Change: The revenue cadence, including the just one Virginia, yeah. So okay. So.

Phebe N. Novakovic: And What was your first question?

Kristine Liwag: The revenue cadence, including just one Virginia. Yeah.

Speaker Change: So it has no impact in the short term for electric boat, because we've got plenty of work in front of us.

Phebe N. Novakovic: So, OK, so it has no impact in the short term for Electric Boat because we've got plenty of work in front of us. But it could have an impact in the years beyond our planning horizon. But critical here is, in fact, the additional ship set of funding. We have long lead material on Virginia that is very important to the supply chain. And to the extent that we can ensure that we get a full second Virginia ship set so that we're buying it for a year, I think it is very important for the overall health of the industrial submarine industrial base.

Speaker Change: It could have a impact in the outer years.

Speaker Change: Outside of our planning horizon, but critical here is in fact, the additional ships at of funding we have long lead material on Virginia that is very important to the supply chain and to the extent that we can ensure that we get a full second Virginia chipset.

Speaker Change: So that we're buying it to a year I think is very important for the overall health of the industrial submarine industrial base.

Speaker Change: Thank you phebe.

Kenneth George Herbert: And we will take our next question from Ken Herbert with RBC. Your line is open.

Speaker Change: And we will take our next question from Ken Herbert with RBC. Your line is open.

Speaker Change: Okay.

Phebe N. Novakovic: Yeah, good morning, Phoebe and Kim. If we look at your comments around timing in Gulfstream, is it still fair to assume that you should be looking at a book to bill at one or greater for Gulfstream in 24 hours?

Kenneth George Herbert: Yes, hi, good morning, Phebe and Kim Good morning, if we if we look for you to get your comments around timing and Gulfstream is it still fair to assume that you should be looking at a book to bill of one or greater for Gulfstream and 24.

Kenneth George Herbert: So, it's a good planning assumption. It is how we are thinking about our internal planning, but let's see how we do as we start to significantly ramp up production and deliveries. So, but as I said, that's our good planning assumption.

Kenneth George Herbert: So it's a good planning assumption.

Kim Korea: It is how we are thinking about our internal planning, but let's see how we do is we start to significantly ramp up production and deliveries so but.

Speaker Change: But as I said, that's that sounds good.

Planning assumption.

Kimberly A. Kuryea: Okay, great. And just a clarification for Kim, the comments sound like the free cash flow ramp really sort of accelerates in the second half of the year. But with all the 700 deliveries expected this quarter, free cash flow should be positive in the second quarter, correct?

Speaker Change: Okay, Great and just a clarification for Tim comment sounded like the free cash flow ramp really sort of accelerates in the second half of the year, but with all the 700 deliveries expected this quarter.

Speaker Change: Free cash flow should be positive in the second quarter correct.

Speaker Change: Yes, that's pretty much what you should assume.

Kenneth George Herbert: Yes, that's pretty much what you should assume.

Robert Spingarn: Okay, great. Thank you very much.

Speaker Change: Okay, great. Thank you very much.

Phebe N. Novakovic: And we will take our next question from Robert Spingarn with Mellius Research. Your line is open.

Speaker Change: We will take our next question from Robert Spingarn with Melius Research. Your line is open.

Robert Spingarn: Hi. Good morning. Phoebe, you said recently that even though the aerospace supply chain is improving, your ramp this year could challenge that improvement. I was wondering if you could elaborate on that a little bit.

Robert Spingarn: Hi, good morning, good morning <unk>.

Robert Spingarn: You said recently that would be even though the aerospace supply chain is improving your ramp this year could challenge that improvement I was wondering if you could elaborate on that a little bit.

Phebe N. Novakovic: So we still have, look, it's definitely improving. Quality is improving, and schedule reliability is improving. But make no mistake, we still have a lot of out-of-station work. And that impacts the profitability and margin on airplanes that are experiencing it. So we definitely see improvement. We are optimistic that they can keep pace, but it's not without its margin challenges.

Robert Spingarn: Yeah.

Speaker Change: So we still have long it's definitely improving.

Robert Spingarn: Our quality is improving and scheduled reliability is improving but make no mistake. They still have a lot of out of station work and that impacts the profitability and margin on on airplanes that are experiencing that so we definitely see improvement we are optimistic.

Robert Spingarn: That they can keep pace, but it's not without it.

Robert Spingarn: Margin challenges.

Peter J. Arment: Ok, and then also, I think you commented that you had good bookings in aerospace in the quarter reflecting strong demand, but I think you've said, you know, the U.S. has been very strong. How is aircraft demand elsewhere in the world? Sorry, there's no real answer.

Speaker Change: Okay and then also I think you comment did you had good bookings.

Speaker Change: Aerospace in the quarter, reflecting strong demand, but I think you've said.

Speaker Change: The U S has been very strong how is aircraft demand elsewhere in the world.

Speaker Change: So theres no real change I think from a from the previous quarters. The U S corporations private and public high net worth individuals both U S and outside the U S. So no real changes no real surprises.

Phebe N. Novakovic: So there's no real change, I think, from the previous quarters, U.S. corporations, private and public, high net worth individuals, both U.S. and outside the U.S., so no real changes, no real surprises. Sort of the typical customer base that we see is, I think, the way you should think about it. And we will take our next question from Peter Arment with Baird. Your line is open.

Speaker Change: Sort of the typical customer base that we see because I think the way you should think about it.

Speaker Change: Thank you.

Speaker Change: And we will take our next question from Peter Arment with Baird. Your line is open.

Peter J. Arment: Thanks, Good morning Kim.

Peter J. Arment: The army wants to reach 100000, a 155.

Peter J. Arment: Thanks. Good morning, Phebe and Kim. Hey, Phoebe.

Shelves by I think October 2025 can you update us on how your ramp is going if you've discussed that that supply chain is a little more robust.

Phebe N. Novakovic: Yeah, so our ramp there is more about increasing the facilities that we have, and as I noted in my remarks, the opening of our Texas facility, which we worked very, very hard to expedite and, frankly, did in almost record time, was very important because it increased the throughput and the productivity of the number of shelves by 83%. So we're on track with the Army to get where we need to be, and our objective is to move even faster, and so far we have, but the Army has been a critical and extremely important partner here in what is really a national security imperative. For that, and then just, if you could make any comments.

Kim Korea: Yeah, so our our our ramp there it's more about increasing the facilities that we have and and as I noted in my remarks.

Kim Korea: The opening of our Texas facility, which we worked very very hard to expedite and frankly did at an almost record time was very important because it would increase the throughput and the productivity of the the number of shelves by 83.

Kim Korea: Percent. So we're on track with OSA Army to get where we need to be and our objective is to move even faster and so far we have been.

Kim Korea: But the army has been a critical.

Kim Korea: An extremely important partner here.

Kim Korea: And what is really a national security imperative.

Speaker Change: Yeah. Thanks for that and then just if you could make any comments on on the G. 280 program just given the car.

Peter J. Arment: 280 Program, conflict that's going on. So we had anticipated the impacts on the 280s in our guidance to you, but I will tell you that they are doing quite well and are slightly ahead of our schedule. We're still sticking to our deliveries, but I think it's, it's notable that they're managing pretty well in this tough environment.

Speaker Change: Conflict, that's going on in the Middle East.

Speaker Change: So we had anticipated.

Speaker Change: The impacts on the two ladies in our in our guidance to you, but I will tell you that they are.

Speaker Change: Doing quite well and are slightly ahead of our of our schedule, we're still sticking to our deliveries, but I think it's notable that.

Speaker Change: There are managing pretty well in this tough environment.

Speaker Change: I appreciate the color. Thanks Phebe.

Phebe N. Novakovic: We will take our next question from Cai Von Rumohr with T.D. Cowan. Your line is open.

Speaker Change: We will take our next question from Cai von rumor with TD Cowen Your line is open.

Cai von Rumohr: Yes, thank you, Phebe, and good quarter. Thanks, guys. So could you update us on the status of the G400? How's it doing? And is it fair to assume that it might have a gap of approximately 12 months between its certification and that of the G800?

Speaker Change: Yes, Thank you phebe and good quarter. Thanks.

Speaker Change: Thanks Guy.

Speaker Change: So could you update us on the status of the G 400, How's it doing and is it fair to assume.

Speaker Change: I have a job of approximately 12 months between its certification and out of the G 800.

You know I.

Phebe N. Novakovic: You know, I think I said last quarter, I'm done with predicting a process over which we have little control. We've tried in the past to give you indicators of our internal or, actually, our internal dates. But so I'm kind of out of the detailed predicting mode. But I will say the program is doing extremely well, and it will fly in the third quarter, and I think we'll be flying a pretty mature airplane.

Speaker Change: I think I said last quarter, I'm I'm I'm I'm I'm done predicting a process over which we have little control. We've tried in the past I gave you indicators of our internal or actually our internal or dates, but so I'm I'm kind of out of the detailed predicting mode I will say the.

Speaker Change: Sam is doing extremely well and and Ah. It's a it will fly and <unk> in the third quarter and I think we'll be flying a pretty mature airplane.

Cai von Rumohr: Excellent. And then your R&D was up a fair amount in the first quarter. Could you give us some color on, you know, the pattern of the R&D at Gulfstream this year and looking forward? How should we think about that? Well, pretty much steady as she goes.

Speaker Change: Excellent and then your R&D was up a fair amount in the first quarter could you give us some color of.

Speaker Change: The pattern of the R&D at Gulfstream this year and looking forward, how should we think about that.

Speaker Change: Well pretty much steady as she goes particularly this year, we've got a number of as you know programs and the certification process.

Phebe N. Novakovic: Well, pretty much steady as she goes, particularly this year. We've got a number of, as you know, programs in the certification process. And so I'd see that, at least through this year, pretty, pretty consistent. No real surprises here. Study as she goes.

Speaker Change: And.

Speaker Change: So I can see that our at least through this year is pretty pretty consistent no real surprises here as steady as she goes.

Speaker Change: Okay. Thank you.

Jason Michael Gursky: And we will take our next question from Jason Gursky with Citigroup. Your line is open.

Speaker Change: Okay.

Speaker Change: And we will take our next question from Jason Gursky with Citigroup. Your line is open.

Phebe N. Novakovic: Good morning, everybody. I wanted to just quickly go back to your comments on aerospace and what I guess you'd describe as an elongation of your sales cycle. Maybe you could just talk a little bit about the overall size of the pipeline and how that is evolving. I understand, you know, things are taking longer to close, but I'd also be kind of curious to know whether there are an increasing number of people that are interested. So I...

Jason Michael Gursky: Hey, good morning, everybody.

Jason Michael Gursky: I wanted to just quickly go back to your comments on aerospace and what I would guess you'd describe it as an elongation of your sales cycle.

Jason Michael Gursky: Maybe you could just talk a little bit.

Jason Michael Gursky: About the overall size of the pipeline and how that is evolving I understand thanks for taking longer to close but I would also be kind of curious to know whether there are an increasing number of people that are interested.

Jason Michael Gursky: So, the pipeline remains robust, and I look to that as encouraging, a good sign. It's been that way for a while. People want our airplanes, and that's Driving Demand.

Jason Michael Gursky: Yeah.

Jason Michael Gursky: Pipeline remains robust.

Jason Michael Gursky: And.

Jason Michael Gursky: I look to that as encouraging.

Jason Michael Gursky: A good sign it's it's been that way for a while people want our airplanes and that's driving demand.

Phebe N. Novakovic: Okay, great. So good metrics going on there. It sounds like then, maybe this is a question targeted at technologies, but I'd love to get some updated thoughts from you on artificial intelligence, AI, the adoption that you're seeing with your customers, how you see this kind of playing out and affecting your business. And maybe this, as I suggest, is focused on technology.

Speaker Change: Okay great.

Speaker Change: Good metrics going on there. It sounds like then just really quickly. Maybe this is a question of targeted AD technologies, but I'd love to get some updated thoughts from you on artificial intelligence AI.

Speaker Change: The adoption that you're seeing with your customers how are you.

Speaker Change: You see this kind of playing out and affecting your business and then maybe.

Speaker Change: So just focused on technologies.

Jason Michael Gursky: Yeah, so we have been investing in AI to support our customers, and particularly at GDIT and, to a lesser extent, at mission systems. And I would say that there we are working closely with our customers; they define what the art of the possible is for them in AI. And as you all know, there are some government governance challenges around that. But the more sophisticated we get in our ability to tailor AI solutions, I think the more comfortable our customer becomes, and will ultimately drive some increased revenue. I haven't seen too much of that yet because I think the government is not unlike other industries where its adoption is. People are careful, and they think properly so. And I would argue that would be true across the entirety of our business.

Speaker Change: Yeah. So we have been investing in AI to support our customers and particularly G D I T and somewhat at mission systems.

Speaker Change: And I would say that there are we're working closely with our customer as they define what the art of the possible is for them in AI.

Speaker Change: And then as you all know there's some government governance challenges around that but the more sophisticated we get and our ability to tailor AI solutions and the more comfortable our customer becomes and will ultimately drive.

Speaker Change: Some increased revenue haven't seen too much of that yet because I think the.

Speaker Change: No I think the government is not like unlike other industries, where its adoption is.

Speaker Change: People are careful and I think properly so.

Speaker Change: And I would argue that would be true across the entirety of our business.

Phebe N. Novakovic: Abby, I think we're... Sorry.

Speaker Change: I think we have.

Nicole M. Shelton: Sorry, I was going to say, I think we have time for just one more question. Thank you. Our final question today comes from Gavin Parsons with UBS. Your line is open.

Speaker Change: I'm just going to say I think we have time for just one more question.

Speaker Change: Thank you.

Speaker Change: Our final question today comes from Gavin Parsons with UBS. Your line is open.

Gavin Eric Parsons: Thanks. Good morning. Good morning, David. You highlighted the stronger second half aerospace.

Gavin Parsons: Thanks, Good morning.

Gavin Parsons: Yeah.

Gavin Parsons: You highlighted the stronger second half aerospace margins, that's a more normal volume and G 700 production.

Phebe N. Novakovic: [inaudible] You know, we will update you in our regular order. I mean, we kind of keep our discipline, as you well know, around updating guidance. And I think that that's appropriate.

Gavin Parsons: Is that more of an appropriate starting point for 2025, and the full year of 15% nice.

Gavin Parsons: Nice try.

Speaker Change: Oh, Yeah, I think yeah that once you get through the first slot or did you do that.

Phebe N. Novakovic: I think right now we're just focused, given the steep ramp-up in the second half of the year, we're really focusing on, you know, trying to hit that mark at this point in time.

Speaker Change: Our performance from a margin standpoint will continue to improve in and you'll see that third quarter will be significantly better than second quarter and fourth quarter will be even better still but will.

Phebe N. Novakovic: And we should get there soon.

Speaker Change: You know if we will update you in our regular order.

Nicole M. Shelton: Great, well, thank you everyone for joining our call today. As a reminder, please refer to the General Dynamics website for the first quarter earnings release and highlights presentation. If you have additional questions, I can be reached at 703-876-3155. And ladies and gentlemen, this concludes today's call, and we thank you for your participation.

Speaker Change: Keep our discipline as you well know around updating guidance and I think that that's appropriate.

Speaker Change: Yes, I appreciate that detail.

Speaker Change: And then just in terms of the 100% cash conversion for the year, what's the opportunity to exceed that given last year, you were well above and you built a lot of do 700 inventory.

Speaker Change: I think right now we're just focused given the steep ramp in the second half of the year, we're really focusing on you know trying to hit that Mark at this point in time.

Speaker Change: Okay.

Speaker Change: And we should get there.

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

Operator: And ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect. Ladies and gentlemen, this concludes today's call, and we thank you for your participation.

Speaker Change: And ladies and gentlemen, this concludes today's call and we thank you for your participation you may now disconnect.

Speaker Change: Yeah.

Speaker Change:

Speaker Change: