Q3 2024 Huntington Ingalls Industries Inc Earnings Call

October 31, 2024

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Speaker Change: I would now like to hand, the call over to Kristy, Thomas Vice President of Investor Relations. Mr. Thomas You may begin.

Okay.

Thank you operator, and good morning, everyone welcome to the HII third quarter 2024 conference call matters discussed on today's call constitute forward looking statements, including our estimates regarding the company's outlook involve risks and uncertainties and reflect the company's judgment based on information.

Okay.

Uh huh.

The New York Times, the New York Times, and the New York Times.

Speaker Change: <unk> at the time of this call. These risks and uncertainties may cause our actual results to differ materially.

Speaker Change: Ladies and gentlemen, thank you for standing by and welcome to the third quarter, 2020-4 HIV-I earnings conference call.

Additional information regarding these factors is contained in today's press release and the Companys SEC filings.

We also will 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 at IR Dot HII dot com on.

Speaker Change: On the call today are Chris Kastner, President and Chief Executive Officer, and Tom Seeley, Executive Vice President and Chief Financial Officer, I will now turn the call over to Chris.

Thanks, Christy and thank you for joining the call everyone.

Earlier today, we released our third quarter results and announced updated guidance for the year.

Speaker Change: Before I get to the results I want to thank the 44000 employees, who build shifts in our shipyards and you saw some of the most pressing technical challenges related to our national security within our mission Technologies Division at.

At Hai our mission is clear it is to deliver the most powerful ships and all domain solutions in service of our nation trading advantage for our customers to protect peace and freedom around the world.

Now for the results.

Third quarter revenue was $2 7 billion and earnings per share was $2 56.

Down from $3 70, a year ago.

We updated our shipbuilding revenue guidance for the full year to approximately $8 8 billion.

And our mission technologies revenue guidance to a range of $2 eight to $2 85 billion.

We also updated our 2020 for shipbuilding margin guidance to 5% to 6% and revised our 2020 for free cash flow guidance, two zero to $100 million.

I will provide some operational milestone updates and division highlights prior to providing a more detailed discussion surrounding the quarter's performance and guidance changes.

During the quarter Newport News shipped the final module, a Virginia class submarine, Utah <unk>.

Speaker Change: 801 and.

Speaker Change: And on <unk> 79, Kennedy the shift is progressing into the test and turnover phase 92% of compartments have been turned over to the Navy and all 19 of the ships combat systems are turned over to the government tests team.

Looking ahead slowed off of SSN 800, Arkansas has moved to 2025 due to a customer driven design change that requires incorporation prior to launch.

At Ingalls Shipbuilding, we received a $9 6 billion award of a multi ship procurement of amphibious warships, which provides strong revenue visibility for years to come.

Combining this with a series of milestone achievements in the quarter and early October including the launch of LPT 30, Harrisburg Billowed out of three or four hypersonic missile tubes into the DDG 1000 zoom wall structure in Asia slide off on DDG 100008, Ted Stevens, the second Ingalls flight III.

Destroyer some solid progress is being made at Ingalls.

Our results also reflect strong performance emission technologies with 14% revenue growth year to date over 2023, and a third quarter funded book to Bill of two two mission technologies had several significant contract wins in the third quarter totaling $11 billion of potential contract value.

Speaker Change: Including a $6 7 billion contract to provide electronic warfare engineering and technical services support for the U S Air Force.

The single award indefinite delivery indefinite quantity contract is the largest ever awarded <unk> mission Technologies Division.

We were also awarded a $3 billion Federal Government single Award task order for National Security services, and new and emerging technology, a $458 million contract to modernize U S government comms and it networks and a $209 million contract to support U S Air Force weapon systems.

Speaker Change: Development and Sustainment.

We ended the third quarter with backlog of $49 4 billion of which approximately $28 billion is currently funded.

Further to results and guidance changes to issues have impacted our expectations for the year.

Speaker Change: First based on our constructive discussions with our Navy partner, we expected to reach an agreement for Virginia class block five in block six and Columbia class submarines in the second half of 2024.

Speaker Change: Starting this fall some uncertainty emerged about the timing of that agreement.

We're we're confident an agreement will be reached and discussions continue we have updated our profitability and cash flow assumptions based on the uncertain timing and structure of that award.

We continued to pursue innovative contracting approaches that incentivize greater investments in our workforce facilities and technology.

These investments are critical to the goal of yielding accelerated program schedules that meet the urgent needs of the Navy.

Second our assumptions of performance improvement and risk reduction have not been achieved this is due to late critical material deliveries and reduced experienced levels within our teams both in production touch labor and supervision the.

The combination of material delivery delays and inexperienced leads to labor inefficiency and in some cases to rework, which affects program schedules.

Speaker Change: Late supply chain material has necessitated a renewed look at our labor plans and delivery schedules. This alignment of labor and material from the supply chain is critical to mitigating program cost.

Speaker Change: It bears repeating that nearly all of the ships currently under construction were negotiated prior to Covid.

These ship contracts, which provide long term revenue visibility did not anticipate and their cost targets and risk limiting clauses, the significant disruption of our workforce and supply chain or the subsequent inflation experienced by us and the broader economy.

They did not anticipate a significant loss of shipbuilding experienced in our yards through early retirements and the training requirements of new shipbuilders.

As I said the terms of these contracts are still governing the majority of the work underway now at Newport News.

Speaker Change: Let me be clear delays and cost increases on these ships are unacceptable to me my team and all of us at HII.

Looking ahead, we continue to take decisive actions to focus on the fundamentals of shipbuilding to ensure that we finish these ships get them delivered to the navy and transitioned to shifts negotiated in the context of our current economic reality further regarding actions to improve performance I'll focus on three points starting with <unk>.

Speaker Change: All the ships currently under construction were negotiated prior to Covid.

Speaker Change: For us.

I want to emphasize we have thousands of highly skilled and committed shipbuilders and Theyre example, and Mentorship are invaluable as we develop a new generation of manufacturing talent to execute on our backlog and the demand ahead of us.

Speaker Change: Ship contracts, which provide long term revenue visibility did not anticipate and their cost targets and risk limiting clauses, the significant disruption of our workforce and supply chain or the subsequent inflation experienced by us and the broader economy.

We are making significant investments in craft proficiency training and leadership development.

Speaker Change: They did not anticipate a significant loss of shipbuilding experienced in our yards through early retirements and the training requirements of new shipbuilders.

So that our deck plate execute safely efficiently and with first time quality, our innovative craft learning centers virtual and augmented reality training cells and form and support strategies are helping to accelerate learning within the teams.

Speaker Change: As I said the terms of these contracts are still governing the majority of the work underway now at Newport News.

Speaker Change: In partnership with the submarine industrial base, the Hampton roads regional training pipeline has grown its capacity, allowing Newport news shipbuilding to higher 30% of craft new hires from a pre hire training pipeline up from only 5% two years ago.

Speaker Change: Let me be clear delays and cost increases on these shifts are unacceptable to me my team and all of us at HII.

Speaker Change: Looking ahead, we continue to take decisive actions to focus on the fundamentals of shipbuilding to ensure that we finish these ships get them delivered to the navy and transitioned to shifts negotiated in the context of our current economic reality further regarding actions to improve performance I'll focus on three points starting with work for.

Also at Newport News, we remain focused on deploying a maturing a common operating system across all programs to improve execution.

Speaker Change: And trades, where we first piloted this we are seeing meaningful throughput improvement by enabling our frontline leaders to spend more time on the deck plate with their people and by standardizing and simplifying how they put their teams to work every day.

Speaker Change: I want to emphasize we have thousands of highly skilled and committed shipbuilders and Theyre example, and Mentorship are invaluable as we develop a new generation of manufacturing talent to execute on our backlog and the demand ahead of us.

We are also investing in data analytics and pilot projects utilizing AI to find faster solutions to material delivery delays and mitigate the impacts of the ship Assembly schedules.

Speaker Change: We are making significant investments in craft proficiency training and leadership development.

Speaker Change: Although our deck plate execute safely efficiently and with first time quality.

Scaling the operating system across all production areas as our best near term opportunity to improve throughput, while we pursue long term structural improvements to our infrastructure supply base and workforce.

Second supply chain and supplier development, we are working with the Navy fueled by a submarine industrial base funding to improve supply chain performance.

Speaker Change: With the goal of helping to accelerate throughput in the shipyards. We are also investing in new centralized manufacturing centers of excellence for high risk items to improve cost and schedule predictability for these build sequence critical parts.

Speaker Change: Third capacity, we are outsourcing additional work to new suppliers, which helps to rebuild the industrial base and takes the work to where there is additional workforce and investing in new industry, four <unk> technologies, including additive manufacturing and digital engineering.

As an example, we are outsourcing over 1 million hours in 2024 and plan to increase that by over 30% in 2025.

Speaker Change: We are committed to growing the manufacturing ecosystem necessary to build these ships.

Speaker Change: Additionally, we are reviewing cost across all three divisions to remain competitive and meet our cost objectives.

Speaker Change: This enterprise wide review includes a thorough evaluation of our overhead costs and support costs to ensure that each element supports our customer requirements.

We're evaluating capital in a similar fashion and ensuring we focus our capital on improving throughput.

Speaker Change: While our previous cash flow forecast included a capital expenditure target at 5% of sales from 2024 through 2026, we have reduced our planned spend for 2024, and we are thoroughly evaluating our 2025 and 2026 capital plans to reflect the uncertainty of the timing and structure of the future contract.

<unk> activity.

Speaker Change: Turning to Washington, while the government operates under a continuing resolution into December we continue to engage with the navy on the most appropriate path forward on the submarine contracts.

As demonstrated with our recent multi year procurement award for amphibious ships HII has a record of reaching equitable agreement on this type of contract that deliver sustainable returns for the company and savings to the customer.

In closing before I turn the call over to Tom I want to emphasize these primary points.

First we are confident we are focused on the right things on the fundamentals to execute on our current backlog and once we transition to these post COVID-19 contracts cost and schedule performance and predictability will improve.

Second on the outstanding contract awards in Shipbuilding, we expect agreement at a fair cost and schedule that reflects our current operating environment and we will continue to work with the Navy until we get this complete.

Finally, the long term value equation for HII has not changed there is unprecedented demand for our products and services. We remain confident in our mid to long term guidance of 90% to 10% shipbuilding margins and we firmly believe the actions. We are taking will enable us to stabilize performance as we continued to work through these ships and <unk>.

Speaker Change: Tom.

Thanks, Chris and good morning, Let me first start by briefly discussing our third quarter results then I'll address our updated outlook for more detail. Please refer to the earnings release issued this morning and posted to our website.

Tom Seeley: Beginning with our consolidated results on slide six of the presentation, our third quarter revenues of approximately $2 7 billion decreased two 4% compared to the same period last year. This decreased revenue was attributable to declines at both Ingalls Shipbuilding and Newport News shipbuilding, partially offset by growth emission technologies.

Speaker Change: Operating income for the quarter of $82 million decreased by $90 million or <unk> 52, 3% from the third quarter of 2023 and operating margin of 3% in the quarter compares to six 1% in the same period last year.

Decreased operating income was largely driven by declines at both Newport News, and Ingalls, which I will discuss in more detail in a moment.

Speaker Change: Net earnings in the quarter were $101 million compared to $148 million in the third quarter of 2023 <unk>.

Diluted earnings per share in the quarter were $2 56.

Compared to $3 70 in the third quarter of the prior year.

Our contractual commitments increased by approximately $900 million in the period, bringing backlog to $49 4 billion at the end of the quarter. While we did secure the $9 6 billion award in the court at Ingalls for $4 in February shifts, including <unk> 10, Elpida 33, 34, and 35, we recorded just the <unk>.

Speaker Change: Authorized value to date approximately $565 million in the quarter, we will see the awarded values of those shifts grow overtime as authorizations expand.

Moving to slide seven Ingalls revenues of $664 million in the quarter decreased $47 million or six 6% from the same period last year, driven primarily by lower volumes in the in February assault ships in the National Security Cutter program, partially offset by higher surface combatant volume.

Speaker Change: Ingalls operating income in the quarter was $49 million and operating margin was seven 4% compared to 73 million and 10, 3% respectively from the same period last year.

The decreases were primarily due to lower performance on in February assault ships and surface combatants.

Speaker Change: At Newport News revenues of $1 4 billion in the quarter were down $41 million or two 8% from the same period last year, driven primarily by lower volumes in naval nuclear support services as well as the cumulative adjustments on the Virginia class submarine program and aircraft carriers, partially offset by higher volumes in the Columbia.

Speaker Change: Class submarine program.

Newport News operating income in the quarter was $15 million and operating margin of one 1% compared to $90 million and six 2% respectively in the prior year period.

Newport News results included net unfavorable cumulative adjustments totaling $78 million, including $34 million in block four of the Virginia class submarine program $16 million on the enterprise, Steven <unk> and Dora smell of CV and 81, two carrier contract and $14 million on the refueling and complex overhaul of the U S.

Speaker Change: First John C Stennis Cvs 74.

As Chris described these unfavorable adjustments were driven by both the change in our assumption around contract awards as well as program performance challenges as we have not achieved planned performance improvements.

During the quarter. Some weather issues were reported publicly that we had previously disclosed to our customer and.

Speaker Change: An initial assessment at Newport News shipbuilding determined that fewer than two dozen welders did not consistently followed procedures in their world process. We continue to work alongside with the Navy through a comprehensive investigation and analysis to determine the extent of any financial impact.

Speaker Change: Newport News operating income in the quarter was $15 million and operating margin of one 1% compared to $90 million and six 2% respectively in the prior year period.

Speaker Change: Admission technologies revenues of $709 million increased $24 million or three 5% compared to the third quarter of 2023, primarily due to higher volumes in cyber electronic warfare and space.

Speaker Change: Newport News results included net unfavorable cumulative adjustments totaling $78 million, including $34 million in block four of the Virginia class submarine program $16 million on the enterprise, Steven <unk> and Dora smell of CV and 81, two carrier contract and $14 million on the refueling and complex overhaul of the.

Emission technologies operating income for the quarter was $33 million and operating margin was four 7% compared to $24 million and three 5% respectively in the third quarter of last year.

SaaS John C Stennis <unk> 74.

The increases were primarily driven by higher cyber electronic warfare and space volumes as well as equity income from nuclear and environmental joint ventures.

Speaker Change: Third quarter results for emission technologies included approximately $25 million of amortization of purchased intangible assets.

During the quarter. Some weather issues were reported publicly that we had previously disclosed to our customer and.

Speaker Change: Mission technologies EBITDA margin in the third quarter was eight 9%.

On pads to eight 2% in the third quarter of 2023, and eight 5% last quarter.

As Chris noted mission technologies performance in 2024 has been very strong with year to date sales growth of 14%.

Speaker Change: This follows 2023 revenue growth of 13, 1% over 2022.

That emission technologies revenues of $709 million increased $24 million or three 5% compared to the third quarter of 2023, primarily due to higher volumes in cyber electronic warfare and space.

Speaker Change: Mission technologies third quarter contract awards, which entail Newark, and Recompete wins across the service branches and multi domain operations represent nearly $11 billion in total potential contract value a record for emission technologies.

Speaker Change: Mission technologies operating income for the quarter was $33 million and operating margin was four 7% compared to $24 million and three 5% respectively in the third quarter of last year.

Turning to slide eight cash generated by operations was $213 million in the quarter.

Net capital expenditures were $77 million or two 8% of revenues.

Speaker Change: Free cash flow in the quarter was $136 million.

Cash contributions to our pension and other post retirement benefit plans were $12 million in the quarter.

We have provided an update to our 2024 and 2025 pension outlook in the appendix of todays slides.

The cash flow impacts related to the updated forecasts are quite minimal.

Speaker Change: Pension related numbers are subject to year end performance and measurement criteria.

As usual, we plan to provide a multiyear update our pension estimates on our fourth quarter call in January.

During the quarter, we repurchased approximately 134000 shares at a cost of approximately 35 million, bringing the year to date total to 608000 shares at a cost of $162 million.

Speaker Change: With cash from operations now below our initial expectations consistent with our capital allocation priorities, we have throttled repurchases for the remainder of the year.

Speaker Change: Also during the quarter, we paid cash dividends of $1 30 per share or <unk> $52 million in aggregate yes.

Yesterday, we were pleased to announce an increase to our quarterly dividend to $1 35 per share or an increase of approximately three 8%.

Moving on to our updated outlook, which we have summarized on slide nine we've increased emission technologies revenue by $50 million for the year now to two eight to $2 85 billion and increase their margin outlook to 375%.

For shipbuilding, we have centered on revenue guidance to the low end of the range at $8 8 billion. Our prior shipbuilding revenue and margin guidance anticipated receiving an omnibus of submarine contract awards and contract modifications and corporately opportunities to address key shipbuilding structural challenges across the Newport News enterprise focus.

Speaker Change: <unk> on investments in our workforce aiding attrition in training.

Speaker Change: And investments in our infrastructure buildings facilities manufacturing tooling and AIDS for additional throughput and capacity across the Newport News portfolio.

While we remain confident that we will ultimately receive a new contract awards, we have now uncertain of the timing and whether the overall contracting construct of those awards will enable full pursuit of near term key investments needed to accelerate performance rate and volume of the Newport news portfolio of contracts.

Speaker Change: Our initial guidance for 2024 also assumed incremental program performance improvement consistent with dollar expectations to capture learning curve improvements and production efficiencies over time performance has not improved at the forecasted rate due to work force and experienced and delays with the supply chain, which along with our updated.

Speaker Change: Contracting expectation has a near term impact on our ability to achieve progress milestones burned down working capital and collect associated cash.

The results and updated outlook announced today reflect the reduced performance trajectory aligned to current conditions.

Our updated shipbuilding operating margin expectation for the year is down 5% to 6%.

Our updated free cash flows between zero and $100 million at our capital expenditure outlay for the year has been reduced from five 3% to three 4% of sales.

Speaker Change: Prior guidance anticipated contract structures that would have allowed us to capture additional progress milestones as well as the inclusion of incentives related to the new contract Awards.

We expect to return to more normal free cash flow levels. Once we are able to work through.

<unk> portions of our current contracts and have a better understanding of the new submarine awards.

Speaker Change: In light of this dynamic we are withdrawing our five year free cash flow target.

Speaker Change: Beyond our operational guidance. We have also made modest updates to our outlook for pension related items interest expense and our expected tax rate for the year, which has declined to 17%.

The lower annual forecasted tax rate is driven by third quarter results that include an increase in the research and development tax credits for current and prior years, resulting in an effective tax rate of approximately 10% for Q3.

Speaker Change: Turning to the balance sheet, we ended the quarter with liquidity of approximately $1 3 billion and modest leverage of approximately two one times net debt to trailing 12 month EBITDA.

Our capital allocation priorities are unchanged, including our commitment to investment grade credit rating.

Speaker Change: Full investment in our shipyards continued dividend growth.

And the return of excess cash through share repurchases.

Speaker Change: Within the third quarter, we expanded our revolver from one five to $1 7 billion and raised our commercial paper program from 1 billion to $1 7 billion consistent with our normal cost of business and given the more favorable interest rate environment. We are considering a new debt issuance in the coming months.

Speaker Change: Proceeds would be used in part to support the redemption of the $500 million senior notes due in May 2025, and for other general corporate purposes. This plan is still under evaluation.

Further to Chris's comments on our focus on cost efficiency ongoing across the corporation.

We recently announced the consolidation of mission technologies into four groups down from the previous six business units simplifying the division structure of our key growth initiatives, while enhancing competitiveness by reducing operational costs.

Speaker Change: This more efficient alignment of the portfolio talent and resources will support continued long term business growth.

Speaker Change: To close I'll reiterate that while our updated guidance removes the assumption of a near term omnibus contract agreement for the next increment of Vcs in Columbia submarines, we continue to advocate for innovative and sensible solutions to address the urgent shipbuilding industry challenges we have discussed.

We are confident in our ability to work through the current challenges. We will continue to focus on aggressively driving performance improvement in our shipyards, expanding capacity and throughput and securing equitable contract solutions that address the business realities of the current operating environment.

Speaker Change: With that I'll turn the call back over to Kristy to manage Q&A.

Kristy Thomas: Thanks, Tom as a reminder to everyone on the call. Please limit yourself to one initial question and one follow up so that we can get as many people through the queue as possible.

Greater I will turn it over to you to manage the Q&A.

Speaker Change: Thank you we will now begin the Q&A session.

As a reminder, if you would like to ask a question. Please press star one on your telephone keypad.

If for any reason you would like to remove your question or your question has been answered you May press star two.

If you are using a speaker phone. Please remember to pick up your handset before asking your question.

And Vcs and Columbia submarines, we continue to advocate for innovative and sensible solutions to address the urgent shipbuilding industry challenges we have discussed.

Speaker Change: The first question is from the line of Tom Kona with PD Cowen. Your line is now open. Please go ahead.

Speaker Change: Yeah.

Hey, guys couple of questions good morning.

Speaker Change: Tom.

Speaker Change: Tom You mentioned.

It sounded like contingent on signing these new submarine contracts was an implicit assumption.

Speaker Change: You get relief on existing contracts that are in the yard.

Thanks, Tom as a reminder to everyone on the call. Please limit yourself to one initial question and one follow up so that we can get as many people through the queue as possible.

And so I'm curious how much of the.

Speaker Change: The negative Q catch up.

At Newport news related to.

Christy: Operator, I will turn it over to you to manage the Q&A.

To that.

Speaker Change: How that impacts.

Thank you we will now begin the Q&A session.

Speaker Change: The ongoing booking rate.

Sounds like you are booking.

As a reminder, if you would like to ask a question. Please press star one on your telephone keypad.

Speaker Change: With this assumption in mind already so im curious like whats the incremental.

If for any reason you would like to remove your question or your question has been answered you May press star two.

It was in what was already established if you will and then.

I guess, that's my first question and then the second one is related to the wells.

If you are using a speaker phone. Please remember to pick up your handset before asking your question.

Speaker Change: <unk>.

Speaker Change: How much of the <unk> catch up relates to that.

Speaker Change: The first question is from the line of good Tom Kona with TD Cowen. Your line is now open. Please go ahead.

Speaker Change: And then I'll leave it for someone else.

Okay got them all let me hand, this is Chris I'll handle the first question and then.

Speaker Change: Yeah.

Tom Kona: Hey, guys couple of questions good morning.

I'll start in on the wells and Tom can answer it but.

Speaker Change: Paul.

Speaker Change: Morning, Paul you mentioned.

Really in the quarter, we had two issues impacting us.

It sounded like contingent on signing these new submarine contracts with an implicit assumption that.

Speaker Change: We had performance and execution on the deck plate.

Really on these pre Covid ships and then we had the.

That you'd get relief on existing contracts that are in the yard.

The assumption really for the year.

The quarter end at end of the guidance actually relative to the 17th ship contract I think it helps to get into detail a little bit on what happened in the quarter from a performance standpoint.

And so I'm curious how much of.

Speaker Change: The negative Q catch up.

At Newport news related to.

To that.

How that impacts.

And the largest impact was related to the block for submarines and you have 798 and 800 nearing some critical milestones where are you going through the test program and Youre Buttoning, some systems up and we just encountered rework.

Speaker Change: The ongoing bookings right. So I mean, it sounds like you are booking with us.

This assumption in mind already so im curious whats the incremental.

It was in what was already established if you will and then.

On systems that we didn't expect and we have and that impacts schedule and we're having to roll through that and that's that's really.

Speaker Change: So I guess, that's my first question and then the second one is related to the wells.

Speaker Change: We work.

Illustrative of what we're finding on these pre COVID-19 ships.

Speaker Change: As there was unpredictability as you move into.

Blending them up in entering into these major milestones, which creates some predictability going forward on the 17 ship contract and we're making good progress as I said in my script.

Speaker Change: When you think about the 17th submarines.

Speaker Change: It's really a reset.

The portfolio.

Speaker Change: In Newport News. This is not business as usual you can't simply just put that much work into our facility and expect it to be executed, especially in this environment that we're operating in.

Relative to labor on the supply chain and the capacity in the industrial base. So we've been working very hard with the customer to try to get those those 17 ships right.

And it's a broad base.

Speaker Change: Sort of con.

Contract that we're working on that really unlocks investment.

Speaker Change: And labor and infrastructure and technology across the portfolio.

Speaker Change: We're going to keep working on it.

We thought we were pretty close to getting it done it's in review still.

Speaker Change: And alternatives are being reviewed and we're supporting that conversation, but it's just created some unpredictability.

Not only in the quarter and a year, but but in our outlook and we're working through that but ultimately.

I can represent that when that contract is executed is going to be a fair and equitable equitable contract.

It's going to be broad based and it's going to reflect.

The economic environment in which we're operating it does not have us any good to have greater cost or schedules on these submarines that are so urgently needed that.

That we can't achieve so that's kind of what happened.

In the quarter and the year end and in guidance I don't think its appropriate to parse it between.

Speaker Change: Performance.

What we thought was going to happen with the 2017 17 ship contract there was.

Speaker Change: Incentives in that contract that we thought we would realize that we just did it.

It's tough to parse it between the two.

Speaker Change: On the wells.

Speaker Change: Tom.

Started that conversation a bit and I'll, let him talk about the financials, but really this is a process issue. This is a small fraction of our awesome awesome welders in the yard and a small fraction of wells that were impacted were working very closely with the customer.

It's about the issue and come through the issue and we think we'll march through that very smartly.

So Tom do you want to comment on the financials related to that.

As we proceed through the investigations that have actually closed that out we'll have a finality on the financial front, we have taking an initial booking its not material its not identified in the Q.

Just for the cost that we think that could be deemed allowable on that so we'll get you more information as we close that out.

Speaker Change: <unk>.

That's all I have to say about that on the first part I would just add as Christmas commenting trying to the reason why we wouldn't parse out between performance.

Speaker Change: And the new contract innovative.

Speaker Change: Approach, that's still ongoing right now to negotiations this optionality against that and we'll have to see how that plays out that's not.

Appropriate for us to comment at this time is trying to work and negotiate ourselves through that without any partner.

Speaker Change: Okay.

Speaker Change: Thank you.

Speaker Change: Sure.

Speaker Change: Thank you.

Speaker Change: The next question is from the line of Robert Spingarn with Melius Research. Your line is now open. Please go ahead.

Good morning. This is Scott on for Rob Spingarn.

Morning, Scott.

Speaker Change: Chris.

Scott: Morning, Chris The press release in your opening remarks, you talked about innovative contracting approaches that incentivize greater investments in the workforce facilities and technology.

Speaker Change: Presumably you're referring to the solid funding plan.

Where the Navy wants to pull funding from both that haven't started construction.

Support higher wages and infrastructure build right now so I'm just wondering if you could talk about your thoughts on the <unk> plan and then I have another follow up on that as well.

Speaker Change: Well, it's the SaaS plan is kind of broadly reported I don't want to get into too much detail you kind of hit the basics there.

We supported it was it was an excellent idea.

It was a navy initiative that that we supported.

I still believe it's the <unk>.

<unk> best way to get at this issue because it unlocks such investment in the workforce.

Speaker Change: The infrastructure and technology.

We're still in discussions on alternatives.

Speaker Change: With the Navy.

And the Congress and supporting and asking questions on alternatives.

Speaker Change: But that's the plan.

It was a very good idea that we think is still.

Under review and potentially could be put under contract, although we don't forecast that happening.

Over the balance of this year.

Okay, and then there was a letter from a bipartisan group of Senators. It was regarding the solid plan, but it also mentioned that there could be a $17 billion shortfall in funding on the Virginia class program over the next six years I understand shipbuilding cost increased significantly but does the <unk>.

<unk> billion dollars shortfall down remotely close to you.

Speaker Change: And do you think Congress will support plugging that shortfall.

Speaker Change: Yes.

Not going to comment on the ability of Congress.

Additional funding the beauty of thoughts what you didn't need any more funding.

Speaker Change: So I'd really.

Speaker Change: Don't think it's appropriate for me to comment on the baseline that was used for that for that increase but look the teams are working very hard.

Speaker Change: To come to a contract solution on these 17 17 ships we.

We need to make sure that that solution is equitable and reflects our current macroeconomic environment and also enables the initial investment.

So that we can get these critical assets to the fleet as soon as possible.

Alright, thanks for taking the question.

Speaker Change: Sure.

Thank you.

The next question is from the line of Myles Walton with Wolfe Research. Your line is now open. Please go ahead.

Speaker Change: Yes, Thanks, Eric.

I was hoping you could talk maybe give us a little bit of color on the $800 per.

Speaker Change: Operating cash flow.

For the year, how much of that was specifically tied to the contract slipping out.

Speaker Change: Okay.

Yeah, So I'm not going to comment on the ability of Congress to obtain additional funding the beauty of sorts, what you didn't need any more funding.

Speaker Change: Beyond this year and how much was tied to performance I know you didn't do that before the EIC given the size of the cash Cogs I hope you can do for them.

Speaker Change: So.

Speaker Change: Really.

Don't think it's appropriate for me to comment on the baseline that was used for that for that increase but look the teams are working very hard.

Speaker Change: Yes, So let me start and Thompson.

And as you know we.

We really when we think through guidance, we risk adjust everything so.

To come to a contract solution on these 17 17 ships.

It's really a combination of both.

We need to make sure that that solution is equitable and reflects our current macroeconomic environment and also enables the initial investment.

Speaker Change: Both the new contract as well as.

Progress within the yards. So Tom I don't know if you want to comment further on that yes. So we talked a little bit about this in Q1 and Q2 and we had a pathway to to make the guide and obviously at that time, you could see on the balance sheet at the working capital was rising right. There we have talked about progress progress timing, making the major milestones that Michelle.

So that we can get these critical assets to the fleet as soon as possible.

Speaker Change: Yeah.

Speaker Change: Alright, thanks for taking the question.

Speaker Change: Sure.

Speaker Change: Thank you.

Speaker Change: The next question is from the line of Myles Walton with Wolfe Research. Your line is now open. Please go ahead.

The main milestones and the incentives to put the capital.

Speaker Change: Yeah.

Behind the scenes and than what we normally have just the run rate of other dedicated change change orders and things of that nature and composite Lee between the recoveries of the performance and the recoveries of those.

Speaker Change: Yes. Thanks.

Was hoping you could maybe give us a little bit of color on the $800 million cut to operating cash flow.

For the year, how much of that was specifically tied to the contract slipping out.

That's how we pick up our margin and cash up the pathway, which clearly we are at the beginning of the year. When we laid out the plan and then into Q1 and Q2, we still have pathways from performance and from the investments.

Speaker Change: This year and how much was tied to performance I know you didn't want to do that for the U C. But given the size of the cash got to hope you can do it for this.

Speaker Change: Yes.

Come about with the 17 Bucks on innovative contracting approach to be able to kind of hit our guide here.

Speaker Change: Let me start and Tom can.

Speaker Change: Stephen as you know, we we really when we think through guidance, we we risk adjust everything so.

Speaker Change: The backup that we've seen right now obviously is twofold is the awards certainly all 17 months do not look eminent by the end of the year I think we hope you all know that.

It's really a combination of both.

Both the new contract as well as.

And then from a performance standpoint, we've been able to make progress, but not enough progress with the right progress and the progress timing as limiting us to be able to fill all the costs that are on the balance sheet right. Now we thought it was prudent to take the $6 million to $700 million.

Our progress within the yards.

Speaker Change: Tom I don't know if you want to comment further on that yeah. So we talked a little bit about this in Q1, and Q2 and we had a pathway to to make the guide and obviously at that time when you could see on the balance sheet at the working capital was rising right that we are talking about progress progress timing, making the major milestones that Michelle.

Speaker Change: We've had at the beginning of the year, bringing that down to zero to $100 million.

So again, it's a piece of the awards and Thats a timing aspect. It's a piece on both the performance obviously, when we bring the 76% to 708 and margin for shipbuilding down to five to six this year.

The main milestones and the incentives for the capital.

Behind the scenes and than what we normally have just the run rate of audit you indicated change change orders and things of that nature and composite Lee between the recoveries of the performance and the recoveries of those I mean, that's how we pick up our margin and cash.

Less margin means less cash.

So so so that was a piece of it there is a piece of timing where it moves from 24% to 25 and then there is.

<unk> was clearly at the beginning of the year when we laid out the plan and then into Q1 and Q2, we still had pathways from performance and from the investments that would come about with the 17 boats.

Piece of the operations here, so it's a mix of it.

Speaker Change: But we thought it was prudent after the Q2 call when we saw some headwinds RMB.

Innovative contracting approach being able to be pushed through and executed by the end of the year as well as Q3's performance to bring Doug.

Speaker Change: It is contracting approach to be able to kind of hit our guide here.

Speaker Change: The backup that we've seen right now obviously is twofold is the awards certainly all 17 votes do not look eminent by the end of the year I think we hope you'll know that.

Speaker Change: Guidance on this call.

Speaker Change: Yes no.

Speaker Change: I get the moving parts I'm, just hoping because obviously the timing piece is an important question.

And then from a performance standpoint, we've been able to make progress, but not enough progress with the right progress and the progress timing as limiting us to be able to fill all the costs that are on the balance sheet right. Now. So we thought it was prudent to take the $6 million to $700 million.

Timing or performance in the contract will conclude.

Perceive some of that is timing and so I would just ask is it.

Three quarters related to the contracts what is it that high or is it not that high.

Speaker Change: We've had at the beginning of the year bring that down to zero to $100 million.

Yes so.

So again, it's a piece of the awards and Thats a timing aspect. It's a piece on both the performance obviously when we bring the the 76 to 78 in margin for shipbuilding down to five to six this year.

Myles I understand the question I understand that.

Speaker Change: The split that you said you are asking about.

The interesting thing about that 17 ships is the construct of that contract right now.

Less margin means less cash there's a piece of it. So so so that was a piece of it there's a piece of timing where it moves from 24% to 25 and then there is just a piece of the operations here. So it's a mix of it but we thought it was prudent after the Q2 call when we saw some headwinds on the.

Just don't know.

We've been in active discussions on.

What it's going to look like I am very confident they're going to order those submarines.

Speaker Change: But.

We just don't know the ultimate construct of that.

So it's just it's a challenge to break that out for you.

Innovative contracting approach being able to push through and executed by the end of the year as well as Q3's performance to bring down.

Speaker Change: Okay, maybe a follow up question and I'll leave it as we're going into next year in terms of normalcy or cash generation of this business what would be the framework that you would suggest for thinking about cash generation of the business.

Speaker Change: Guidance on this call.

Yeah no.

I get the moving parts I'm, just hoping because obviously the timing piece is an important question if its timing or if its performance and the contract I think we could.

Speaker Change: Well I think it's going to be choppy for a couple of years quite honestly miles, we're taking a hard look at all our expenses R. R.

Perceive some of that is timing and so I would just ask is it.

Three quarters related to the contracts what is it that high or is it not that high.

Our capital, where we're looking at that.

But it's all going to be.

Speaker Change: Yeah. So.

Speaker Change: <unk>.

The indicators of cash are all going to be about performance and how that shifts how that how that contract comes together.

Speaker Change: Okay.

Speaker Change: Myles I understand the question I understand that.

Speaker Change: The split that you said you're asking about.

Speaker Change: We execute at the deck plate and proceed.

The interesting thing about that 17 ships is the construct of that contract right now we just don't know.

Speaker Change: And just how we transition into those new contracts.

Speaker Change: That's going to be the story from a cash flow standpoint for the next couple of years for us.

We've been in active discussions on.

What it's going to look like I am very confident they're going to order those submarines.

Speaker Change: Okay alright, thank you.

Speaker Change: Yes.

Speaker Change: But we.

Speaker Change: Thank you.

We just we just don't know the ultimate construct of that so it's just it's a challenge to to break that out for you.

The next question is from the line of Pizza Kubicki with Alembic Global Your line is now open. Please go ahead.

Okay, maybe a follow up question and I'll leave it as we're going into next year in terms of normalcy of cash generation of this business what would be the framework that you would suggest for thinking about it.

Speaker Change: Hey, good morning, guys.

Speaker Change: I guess just on the block.

Just on the block for charges.

Speaker Change: Design change the Navy requested on the 800 did did they kind of do.

Speaker Change: Cash generation of the business.

Do they pay you guys for that or did that for some of the negative EAC.

Well I think it's going to be choppy for a couple of years quite honestly miles, we're taking a hard look at all of our expenses are our.

Yes so.

Speaker Change: It's both of those.

Speaker Change: <unk>.

Back up in the quarter.

Speaker Change: Our capital, where we're looking at that.

Part of that is the design change related to 800, Theres, probably some upside on that one that gets negotiated.

But it's all going to be.

Speaker Change: The indicators of cash are all going to be about performance and how that shifts how that how that contract comes together.

Potentially it's clearly a class one change for work that needed to get done before we floated off.

Speaker Change: We execute at the deck plate and proceed.

Speaker Change: But that was not the only issue in the quarter for 800.

And just how we transition into those new contracts.

Speaker Change: There could potentially be some upside related to that.

That's going to be the story from a cash flow standpoint for the next couple of years for us.

Okay, and then just at Ingalls it seemed like on the last call.

Speaker Change: Okay alright, thank you.

<unk> had a field that.

Speaker Change: Yes.

Things were going to improve imminently at Ingalls.

Speaker Change: Thank you.

The next question is from the line of Pizza Kubicki with Alembic Global Your line is now open. Please go ahead.

And it seems like they're largely in serial production now in there.

Speaker Change: So I'm just wondering if you can categorize or characterize.

Speaker Change: Hey, good morning, guys.

Is there a pretty meaningful net attrition issues at Ingalls is wow.

I guess just on the block.

And then just on the block for charges.

Why are things kind of going in the wrong direction there.

Design change at the Navy requested on the 800 did did they kind of.

Speaker Change: Yes, I wouldn't necessarily say theyre going in the wrong direction at Ingalls. They do have the same issues that everyone in manufacturing is pacing relative to green labor and they're working very hard to.

Did they pay you guys for that or did that for some of the negative EAC.

Speaker Change: Yes so.

Speaker Change: It's both boats.

Speaker Change:

To address that issue with Ingalls right now is theres just less opportunity for positive adjustments you don't see significant negative adjustments, but you don't see significant positive either so they're there.

Speaker Change: Backed up in the quarter.

Part of that is the design change related to 800, Theres, probably some upside on that one that gets negotiated.

Speaker Change: They are fighting through the same issues as everyone on manufacturing United States fighting through relative to Green labor fragile supply.

Potentially it's clearly a class one change for work that needed to get done before we floated off.

But that was not the only issue in the quarter for 800.

Supply chain, but I got a lot of a lot of confidence that ingalls team theyre, making their milestones in there and they are proceeding on on their programs. So that bundled contracts was very positive.

There could potentially be some upside related to that.

Okay, and then just at Ingalls it seemed like on the last call.

Speaker Change: It's really representative of the type of contract we need going forward.

<unk> had a field that.

Speaker Change: Things were going to improve imminently at Ingalls.

Speaker Change: To reflect our current macroeconomic environment, ensuring we protect ourselves against the risk of inflation.

And it seems like they're largely in serial production now in there.

So I'm just wondering if you can categorize if you characterize.

Speaker Change: And a fragile supply chain, so yeah, I've got a lot of confidence in Ingalls team.

Is there a pretty meaningful net attrition issues at Ingalls as well.

Speaker Change: Okay. Thank you.

Speaker Change: Sure.

Why are things kind of going in the wrong direction there.

Speaker Change: Thank you.

Yes, I wouldn't necessarily say theyre going in the wrong direction at Ingalls. They do have the same issues that everyone in manufacturing is pacing relative to green labor and they're working very hard to.

The next question is from the line of David Strauss with Barclays. Your line is now open. Please go ahead.

Alright, thank you.

Good morning, Chris and good.

Good morning in terms of the.

Speaker Change: The submarine industrial base money all the mine has been growing at this.

They are fighting through the same issues as everyone in manufacturing United States fighting through relative to Green labor a fragile supply.

Where is it going and are you seeing any evidence that it's actually helping at this point.

Yes, so the industrial based funding.

Really positive developments there from from Congress, and the Navy to flow that money and David and industrial base.

It's really representative of the type of contract we need going forward.

Speaker Change: It gets distributed.

Primarily in the supply base, but we benefit from it as well and.

To reflect our current macroeconomic environment, ensuring we protect ourselves against the risk of inflation.

Speaker Change: There will be benefits related to the promise it just doesn't happen.

And a fragile supply chain, so I got a lot of confidence in Ingalls team.

Very quickly when you're talking about.

Speaker Change: Potentially new tooling.

Okay. Thank you.

New building so it takes a while to get that stuff done and then.

Speaker Change: Sure.

And then to reap the benefits from it so.

Thank you.

Speaker Change: We are actually rebuilding.

The next question is from the line of David Strauss with Barclays. Your line is now open. Please go ahead.

Speaker Change: The industrial base related to shipbuilding right now and expanding capacity both through Navy investments as well as our investments.

Speaker Change: Good morning, Thank you.

So I think it's a very positive development I think actually I know theres going to be benefits that come from it. It's just we're going to have to be a bit patient.

Good morning, Chris and good.

Good morning in terms of the.

The submarine industrial base money all the money that's been growing into.

Speaker Change: Okay.

Where is it going and are you seeing any evidence that it's actually helping at this point.

And as a follow up I think to Myles question.

Speaker Change: Tom.

Speaker Change: Yes, so the industrial based funding.

Tom: Maybe just going after with the working capital side of things.

Really positive developments there from from Congress and the Navy to flow that money and David Industrial base.

Speaker Change: I guess youre about 9% right now on working capital.

I'm guessing your guide for the full year implies something like.

Speaker Change: It gets distributed.

Primarily in the supply base, but we benefit from it as well and.

Q4, we get down to around six to seven.

Is that right and do you still view kind of a normal level of working capital around around 5%.

There will be benefits related to the problem is it just doesn't happen.

Very quickly when you're talking about.

Potentially new tooling.

Yes. So I think obviously you can calculate we are in the upper <unk> right now and we are going to take a couple of.

New building so it takes a while to get that stuff done and then.

Speaker Change: And then to reap the benefits from it so.

100, 200 basis points out of it by the end of the year. There is a range of variability between zero and 100.

Speaker Change: We are actually rebuilding.

The industrial base related to shipbuilding right now and expanding capacity both through Navy investments as well as our investments.

Once we get past that Navy ships here pre COVID-19 chips, we will get back to a normal range of cash flow.

So I think it's a very positive development I think actually I know theres going to be benefits that come from it. It's just we're going to have to be a bit patient.

Speaker Change: As Chris said that could be 12 to 18 18 months ago.

Speaker Change: 24 into 25, so just got to work ourselves through that.

Making progress the cost is there on the on the balance sheet.

Speaker Change: Okay.

Just have to finish these ships up and get paid the cash flow comments as we make our deliveries. So it's just a function of.

And as a follow up I think to Myles question.

Speaker Change: Tom.

Speaker Change: Scribing through.

Maybe just going after with the working capital side of things.

The current portfolio of ships.

I guess, you're about 9% right now on working capital I'm guessing your guide for the full year implies something like.

Speaker Change: Alright, thank you.

Speaker Change: Mhm.

Speaker Change: Well done.

Thank you.

Before we get down to around six to seven.

The next question is from the line of Scott <unk> with Deutsche Bank. Your line is now open.

Is that right and do you still view kind of a normal level of working capital around around 5%.

Hey, good morning.

Good morning, Scott.

Speaker Change: Tom the low end of the Shipbuilding margin guide seems to imply significantly more negative EAC is in the fourth quarter. So I guess do you see risks there.

Speaker Change: Yes. So I think obviously you can calculate we are in the upper <unk> right now and we are going to take a couple of.

100, 200 basis points out of it by the end of the year. There is a range of variability between zero and 100 and I do think once we get past. These shifts here pre COVID-19 chips, we will get back to a normal range of cash flow.

Speaker Change: So my question is what prevents that risks from crystallizing.

Other than getting the submarine contract.

And then why not just book those negative EAC now so we're going to guide to them.

Speaker Change: As Chris said that could be 12 to 18 18 months.

Speaker Change: Yeah.

Speaker Change: So we gave you the range of 5% to 6% for the end of the year.

Speaker Change: We ended 2014 to 25, so just got to work ourselves through that.

Obviously with the actual say after Q1 Q2 Q3, you can kind of calculate with Atlanta volume against that but generally speaking there still a spread there of about 300 basis points between the low end of it.

Speaker Change: We're making progress the cost is there on the on the balance sheet.

We just have to finish these ships up and get paid the cash will come as we make our deliveries. So it's just a function of scribing through.

Hi, and 400 basis points between the low end at the high end and it just depends on how we how we perceive your Q4 performance right, we have making progress and milestones, making those incentives I talked to iqos the capex incentives at the moment.

The current portfolio of ships.

Speaker Change: Alright, thank you.

Speaker Change: Mhm.

Well done.

Speaker Change: Thank you.

The next question is from the line of Scott <unk> with Deutsche Bank. Your line is now open.

Speaker Change: Incentives on that.

Speaker Change: And then.

Getting paid by the end of the year on the cash out on the margin side, we're watching the AAC files.

Speaker Change: Yes.

Speaker Change: Hey, good morning.

Speaker Change: Good morning, Scott.

Finding a floating I guess.

Tom the low end of the shipbuilding margin guidance seems to imply significantly more negative EAC is in the fourth quarter.

The shifts that we have here right now so we wanted to make sure we had appropriate range that had all outcomes there's upside to it.

As you see between five 6%.

So I guess do you see risks there.

Speaker Change: So my question is what prevents that risks from crystallizing other.

And we'll just we'll see how the year proceed as we close out.

Other than getting the submarine contract.

We did wash out as we mentioned in the scripts.

And then why not just book those negative EAC is now as we're going to guide to them.

Speaker Change: The.

So we gave you the range of 5% to 6% for the end of the year.

Speaker Change: Investment.

Speaker Change: The upside that you would get is the investment dollars flow through here for.

Obviously with the actual say after Q1 Q2 Q3, you can kind of calculate with Atlanta volume against that but the <unk>.

Speaker Change: The Vcs in Colombia, Bill Tusa, that's now.

A factor as far as the year end closeout.

Generally speaking there still a spread there.

300 basis points between the low end and high end 400 basis points between the low end at the high end and it just depends on how we how we perceive your Q4 performance right, we have making progress and milestones, making those incentives I talked to iqos, the capex incentives and performance incentives on that.

Okay. Thank you and then Chris sorry, if I missed it but do you still expect to deliver <unk> 79 in 2025.

And does that pre COVID-19 ship seeing any issues or rework requirements in the testing phase like those you referenced on block four Virginia class.

Speaker Change: Yes, so no no change in the milestones other than what I referenced in my script.

Speaker Change: And then.

We're absolutely impacted on all those pre COVID-19 shifts by by additional rework.

Speaker Change: And really the fragility of the supply chain.

Speaker Change: We've talked previously about it.

Speaker Change: Kind of the variability in our supply chain going down from an inflation and predictability standpoint, but when something breaks when youre going through the test program something breaks and you have to go reorder after rebuild it.

Speaker Change: The arthritis in the system.

Related to getting that back which causes schedule risks so.

Yes, no change to 79 right now.

But it's just going to be a challenge completing any shift that was done.

Speaker Change: <unk> negotiated pre COVID-19.

Speaker Change: Thank you.

Thank you.

Speaker Change: The next question is from the line of Jason Gursky with Citi. Your line is now open. Please go ahead.

Yeah, Thanks, and good morning, everybody.

Good morning, Jason Hey, Chris.

Hey, just kind of curious how you go about managing the business with this much.

Certainty going on.

Speaker Change:

Speaker Change: New contracts and just kind of how youre going to go about managing through this and then.

Speaker Change: I can't help but wonder.

Speaker Change: Yes.

Speaker Change: Slowing down here for some period of time.

If something breaks and you have to go reorder or you have to rebuild it.

There's just the arthritis in the system.

Might be helpful. As you try to convert some of your green labor into.

Related to getting that back which causes schedule risks so.

Speaker Change: More experienced labor so I'm, just kind of curious could we wake up someday and.

Yes, no change to 79 right now.

But it's just going to be a challenge completing any ship that was done.

Speaker Change: And see that we just hit the pause button with two guys figure out how to get this work done more.

Speaker Change: Negotiated pre COVID-19.

Speaker Change: Tzaddik, Liam we tend to restart is that is that a bad idea I'm just trying to understand.

Speaker Change: Thank you.

Speaker Change: How this skips.

Speaker Change: Thank you.

Speaker Change: Yes.

Speaker Change: So Jason Thank you for that question and.

Speaker Change: The next question is from the line of Jason Gursky with Citi. Your line is now open. Please go ahead.

First first of all I don't think theres any backup related to the urgency.

Speaker Change: Yeah, Thanks, and good morning, everybody.

Thats required to get these ships delivered and we're doing all we can to.

Speaker Change: Good morning, Jason Hey, Chris.

Jason Gursky: Hey, just kind of curious how you go about managing the business with this much.

Speaker Change: To get get these ships delivered to the Navy.

But you bring up a very good point related to green labor and while we're on our hiring plan for the year were actually repositioning our strategy relative to hiring where we're reducing our reliance on green labor, we're just going to hire less.

Uncertainty going on.

It started new contracts and just kind of how youre going to go about managing through this and then.

Speaker Change: I can't help but wonder.

If <unk>.

And we're going to focus on more experienced labor.

Speaker Change: Slowing down here for some period of time.

Speaker Change: Because we're just out of alignment are out of balance.

Might be helpful. As you try to convert some of your green labor into.

I'm, an experienced level right now, which leads to rework, which leads to an efficiency.

More experienced labor so I'm, just kind of curious could we wake up someday and.

And it's not good for anyone so we're repositioning that a bit.

Speaker Change: And see that we just hit the pause button, let you guys figure out how.

Speaker Change: Which I don't consider that slowing down.

To get this work done more methodically and we tend to restart is that is that a bad idea I'm just trying to understand.

I consider that investing in the workforce.

You are more efficient.

And really aligning and that's what we're doing with our capital plans and our cost structure as well Jason is we're aligning those investments.

Speaker Change: How this gets well.

So Jason Thank you for that question and.

First first of all I don't think theres any backup related to the urgency.

Speaker Change: And that cost structure.

Speaker Change: Well, we think the pace of activity will be going forward.

Thats required to get these ships delivered and we're doing all we can to.

As I said previously it does and it doesn't do anyone any good to have.

To get get these ships delivered to the Navy.

To meet your hiring plan and then not have supply chain material. There right. So I think you bring up a good point I think we have to be very disciplined in how we do that I think we have to be really disciplined in how we put these ships under contract as well.

Speaker Change: We cant sign a contract and hope we have to do that we have to do it.

Speaker Change: Understanding the current macroeconomic environment and understanding our proficiency of our labor force the fragility of the supply chain potential for increased inflation and all of the work that's happening within the shipyard. So you bring up a good point, we're thoughtful about it we're thinking about it and we're making sure that.

Speaker Change: We do it responsibly.

Right, Okay, I appreciate that and then.

Speaker Change: Sure.

Speaker Change: Somebody's got to ask a question about mission technologies right I mean.

Speaker Change: That business continues thank you.

Speaker Change: Form well nice growth.

Speaker Change: Margin margins are.

<unk> well there so maybe just talk a little bit about the next few years at mission Tech the pipeline that you have there.

Speaker Change: The outlook for book to Bill.

Speaker Change: The mix that you have in the current backlog of kind of what Youre chasing.

Speaker Change: Just.

The potential for for book to bills growth rates margins kind of just give us a share of mosaic. That's two years to think about that business sure.

Sure sure mission technology is doing very well grown at 14% year to date over last year.

Some really big wins of $11 billion of wins.

The outlook for that business couldnt be better and it's broadly across their portfolio.

Speaker Change: <unk> just reached.

Restructured their business to focus on where they think the higher growth areas are you think about CFO of ISR electronic warfare unmanned or on crude.

Vehicles, so there they're doing very well the pipeline is strong the team seems to be very focused.

And I look forward to them performing over the next few years consistent with the growth rates or even beyond the growth rates that we communicated.

Speaker Change: At our Investor day.

So I'm very pleased with mission technology. So the team is executing executing very well Tom do you have anything to add on mission technologies.

Speaker Change: Spacing.

Tom: Just a half on the back end and on top of the growth rate that we've seen this year at 14% year to date has been 13% from 'twenty two to 'twenty three.

Speaker Change: Just.

Speaker Change: The potential for for book to bills growth rates margins kind of just give us a mosaic in the next few years to think about that business.

Im excited by that the efficiency that Chris Chris talked to asking six business units before we're leveraging strongest the strongest leaders in the portfolio and the talent.

Sure sure mission technology is doing very well and they've grown at 14% year to date over last year.

Some really big wins of $11 billion of wins.

<unk> to be EBIT more efficient on new business.

Rate structure, so I'm excited with what Theyre doing there.

Outlook for that business couldnt be better and it's broadly across their portfolio.

Honing the business and the line acquisition was in 2021 and each year, we're finding opportunity sense too.

Speaker Change: Team just recently.

Restructured their business to focus on where they think the higher growth areas already think about C. Five ISR electronic warfare unmanned or on crude.

It would take more cost out we'll get some additional.

Synergies within the division and the interfacing with Vince and shipbuilding and that the opportunity set there continue to grow and how we can leverage Mr technologies applications in tech into how we construct and support our shipbuilding. So I'm excited about the future and we kind of set that up.

Vehicles, so there they're doing very well the pipeline is strong the team seems to be very focused.

And I look forward to them performing over the next few years consistent with the growth rates are even beyond the growth rates that we communicated.

Tom: Thesis of.

A 7% to 9% growth, 8% to 10% EBITDA I know that firsthand was up 4% from 2021 to 'twenty, two but as I say the last two years had been 13 and 14% higher than the initial hoping in the projection that we gave for our 707% to 9% growth and it's nice to see a couple of quarters here, where the EBIT margins.

Speaker Change: At our Investor day.

I'm very pleased with mission technology. So the team is executing executing very well Tom do you have anything to add on mission technologies.

Tom Kona: Just hop on the backend and our top of the growth rate that we've seen this year at 14% year to date has been 13% from 22 to 23 so.

Im excited by that the efficiency that Chris Chris talked to asking six business units before we're leveraging strongest the strongest.

And so a lot of cost type contracts over that but as we continue to mature the portfolio and the relationships with our customers additional contracts there'll be opportunity sets to kind of build out from just 80% to 85% cost tied into other type of car.

The portfolio of the talent.

Aligning to be EBIT more efficient on new business.

Rate structure, so I'm excited with what Theyre doing there as they are owning the business and the line acquisition was in 2021 and each year, we're finding opportunities to.

Tom: Contracts and delivery orders against those bulk contracts that will offer opportunities.

The higher returns as well more products and services.

Take more cost out or get some additional.

Speaker Change: Engineering solutions and study so.

Tom Kona: Synergies within the division and the interfaces and shipbuilding and then the opportunity set there continue to grow and how we can leverage emission technologies.

I think it is going well right now.

I'm excited that it brings about a new line of customer sets different avenues of funding we talked at Investor day. The opportunity sets. We have there to go international commercial contract in Australia.

Applications in tech into how we construct and support our shipbuilding so.

Over to England, and with the orchestra opportunity sets in front of us too so.

That's hitting on all cylinders for us.

Right, Okay, I appreciate that color and.

Speaker Change:

Speaker Change: The questions here.

Speaker Change: Thanks, Jason.

Thank you.

The next question is from the line of Seth Sigman with Jpmorgan. Your line is now open. Please go ahead.

Okay, Thanks, very much and good morning.

Good morning, I wanted to ask good morning.

You mentioned doing doing more outsourcing and kind of hiring less.

How do we think about how that effects.

Speaker Change: Returns.

And cost estimates when more of the work is done with outsourcing.

And when we see all this money going into the submarine industrial base.

Some of that going into kind of our restarting small and medium sized shipyards elsewhere.

Should we think about.

Greater percentage of.

The work being being outsource going forward and kind of what does that mean for margins.

Yes, I think theres going to be a greater.

Percentage of our work outsource going forward, if there is a premium related to that.

And youre seeing that impact in the profitability of our current portfolio now I don't think its going to be a significant impact going forward on these ships because we pretty much made most of those decisions, but we will increase the industrial base and increase in outsourced partners on our future contracting activity.

And we make sure we protect those potential increases in those targets, that's what I mean about when I when I talk about ensuring that.

Speaker Change: Our new shifts reflect the current macroeconomic environment, which means youre going to outsource more which means it costs more so we.

Speaker Change: We will outsource more we'd need to expand the capacity in shipbuilding will do that but we need on these new contracts to ensure we protect ourselves.

Speaker Change: I'll hop on the backend of that to you.

I wouldn't want you to takeaway that we're going to see.

Difficult to reduce harvest the hiring the training working on retention.

The backdrop that we've given you is that it's going to be additional growth in shipbuilding right from 3% to 4% so that needs to be more volume and capacity right. It's not out of the inability to iron out, but because of the topline growing so it will be outsourcing what makes sense.

Compared to maybe the inefficiency of some things we do inside that we don't have the capacity to do it all that goes into the business construct as we outsource will in source that is teams that we can have pop into the yard painters and welders at times on ships that can pop in here for a month or a couple of quarters and help out as well and again, maybe a slight premium.

It's going to be a significant impact going forward on these ships because we pretty much made most of those decisions.

We will increase the industrial base and increase our outsource partners on our future contracting activity and we make sure we protect those potential increases in those targets, that's what I mean about.

A lot of times, you don't pay it will pay benefit.

Tom Kona: When I talk about ensuring that.

Speaker Change: And then coming in here to offset the inefficient. So we haven't maybe schedule growth of the inefficiencies of the inexperienced some of the experience that we have in the yard here all that's rolled into the EAC write him. So I see that as nothing but positive also this opportunity sets for us to do other things like operating centers manufacturing operating so thats in the <unk>.

Our new shifts reflect the current macroeconomic environment, which means youre going to outsource more which means the cost more so.

We will outsource more we need to expand the capacity in shipbuilding, we will do that but we need on these new contracts to ensure we protect ourselves.

Tom Kona: I'll hop on the back end of that period.

I wouldn't want you to takeaway that we're going to see.

We're always kind of studying that so we're not flat footed here, we've kind of talked over the last two or three years since COVID-19 about hiring and we were successful with that we see the attrition is a draw here and now we're kind of pivoting to like the answer to that is it's more training more relationships and engagement with our new hires and then where we need to supplement that that's where we either outsource in.

We reduced hiring the hiring the training working on retention.

Tom Kona: The backdrop that we've given you is that it's going to be additional growth in shipbuilding right from 3% to 4% so that needs to be more volume and capacity right. It's not out of the inability to iron out, but because of the topline growing so it will be outsourcing where it makes sense.

I will look at other operating centers that we can team with.

And compared to maybe the inefficiency of some things we do inside and we don't have the capacity to do it all that goes into the business construct as we outsource will in source. This teams that we can have pop into the yard painters and welders at times on ships that can pop in here for a month or a couple of quarters and help out as well and again it may be a slight premium.

Speaker Change: <unk> acquire or things of that nature. So all of that's in play on how we're trying to manage the business as we see going forward.

Alright, Okay, and then maybe then to follow up.

Speaker Change: You mentioned kind of that 3% to 4% annual shipbuilding growth.

That target I think was that was also based on the investments that you guys are making with the.

Tom Kona: A lot of times, you don't pay pay like the benefit of that and then coming in here to offset the inefficient. So we haven't maybe schedule growth of the inefficiencies of the inexperienced some of the experience that we have in the yard here and all that's rolled into the EAC write him. So I see that as nothing but positive also those opportunity sets for us to do other things.

Elevated capex over three years.

Now this year for sure and it seems like maybe.

Speaker Change: Going forward the capital plan is much lighter without the kind of capacity and productivity that that would come from that capital spending is it still appropriate to be thinking about that sort of 3% to 4% top line over the next few years.

Speaker Change: So absolutely right I wouldn't want anyone to see the signal of the Capex is reduced for this year, we had guided 5% for the next three years from $24 25, and 26 with 24 being five three so we've prudently kind of hedged that back end and we're managing accordingly, because we want to see is it going to be an incremental approach or are we still going to do.

Something more globally like an omnibus approach for the 17 boats that we have but none of that work has moved out every year. We've re plan our tenure annual operating plan and none of that work has moved out of the plant. So the business the value equation that we have that specific.

Speaker Change: Skills opportunities since we have the growing navy requirement with a 30 year shipbuilding plan and the five year fight at all that's in place here as Chris said, we're trying to make sure that we marry that business environment and the headwinds that we see with both the labor needs and the supply chain availability, we're trying to bury home too.

Speaker Change: Fair and equitable contracts going forward that protects.

Speaker Change: Finding the right balance between affordability and our profitability. So that has not changed the value equation of HII.

Speaker Change: It does mean that for the remaining part of this year as we're trying to do.

Speaker Change: Get rid of a little bit of the cloudiness and how thats going to play out and see the floating on performance take hold in Q4 and going forward. We throttle back just from a capex and cash position to be prudent in the short term, but medium to long term really nothing changes from what we envisioned and what we've walked.

The industry in Sri through at Investor Day, right that was a medium to long term, we've talked about three to five for medium and five to 10 years.

The thesis of HII investment.

Speaker Change: What.

We see this discipline has not changed at all.

Speaker Change: Great. Thanks very much.

Speaker Change: Thanks.

Thank you.

The next question is from the line of Ron Epstein with Bank of America. Your line is now open. Please go ahead.

Speaker Change: Yes.

Speaker Change: Good morning, Doug.

Doug: Good morning.

Speaker Change: Thank you.

Through this but I'm still trying to get my head around.

Speaker Change: Back at the Investor Day, when you guys gave your outlook how could you not see this comment.

Speaker Change: Yeah.

Speaker Change: Yes so.

Speaker Change: It's a good question Ron you talked about at Investor Day, It was kind of a broad.

Look at the at the business on a medium to long term take on growth rates and where we saw performance was going.

Prudent in the short term, but medium to long term.

Really nothing changes from what we envisioned and what we want.

Consistent with Investor Day, We said, we had to kind of get through these pre COVID-19 contracts and our assumptions of how we're going to get through them.

Tom Kona: Industry and Sri through at Investor Day, right that was a medium to long term, we talked about three to five for medium and five to 10 year.

Speaker Change: The thesis of HII investment in what.

Speaker Change: We're just a little bit too optimistic.

Speaker Change: We see this discipline has not changed at all.

Speaker Change: So we're.

We're having to deal with it.

We have a very good accounting process, where we are relative to <unk> every quarter.

Speaker Change: Great. Thanks very much.

Speaker Change: Thanks.

Speaker Change: We have to we have to take an issue if it shows up.

Speaker Change: Thank you.

Speaker Change: The next question is from the line of Ron Epstein with Bank of America. Your line is now open. Please go ahead.

Speaker Change: So it's not grossly inconsistent with the challenges we knew we had.

On these on these on these contracts that were negotiated pre covet, we're just going to have to get through them and transition to these new contracts.

Speaker Change: Yeah.

Tom Kona: Yes.

Ron Epstein: Good morning, guys.

Speaker Change: Good morning.

Speaker Change: I think we've been.

Speaker Change: Reflects our current environment.

Kind of through this but I'm still trying to get my head around.

Speaker Change: Back at the Investor Day, when you guys gave your outlook, how Christian at Caesars Com.

Speaker Change: Got it got it and then how should we think about margins into next year I mean can you talk about that.

Tom Kona: Amen.

Yes so.

Yes, so they're going to be we're not going to provide guidance until the end of January on that.

It's a good question Ron you talked about at Investor Day, It was kind of a broad.

And it's going to be a reflection of how we execute over the next couple of months our expectations of execution for the balance of the year those risks and opportunities and then well we think that 17 shifts.

Tom Kona: Look at the at the business on a medium to long term take on growth rates and where we saw performance was going.

Tom Kona: Consistent with Investor Day, We said, we had to kind of get through these pre COVID-19 contracts and our assumptions of how we're going to get through them.

Submarine contract looks like.

Speaker Change: Whether it gets awarded together whether it gets awarded.

We're just a little bit too optimistic.

Speaker Change: Separately in the FY 'twenty four boats, what that construct looks like and what the incentives are look like on that so we'll give we will give that.

Tom Kona: So we're.

Tom Kona: We're having to deal with it.

We have a very good accounting process, where we rolled through our EAC is every quarter.

That information out in for guidance in 2025.

We have to we have to take an issue if it shows up.

So it is not grossly inconsistent with the challenges we knew we had.

In January.

Speaker Change: And those are the those are the factors that will influence that Tom I don't know if you have anything you want to add to that that you kind of it's just going to be a function of performance and these new contract awards that we have.

On this on these on these contracts that were negotiated pre covet, we're just going to have to get through them and transition to these new contracts.

Tom Kona: That reflect our current environment.

So I think it's premature right now for us to kind of guide that we gave you a range to get out of this year.

Tom Kona: Okay.

Speaker Change: Got it got it and then how should we think about margins into next year I mean can you talk about that.

Speaker Change: And then we'll give you a perspective kind of going forward, we understand what's impacting us we're throwing a lot of horsepower.

Yes, so they're going to be we're not going to provide guidance until the end of January.

Internal investment.

Speaker Change: On our labor front and on the supply chain I.

I mentioned at to your question on the inverse should I mentioned about how to work off the existing ships. The ships that have been doing COVID-19 and post Covid last three four years now I know a lot of people say, hey, COVID-19 is behind us but.

Speaker Change: The contract value that we brought in here was pre Covid and then with the loss of hedge and the experience and the fragility of the supply chain.

Speaker Change: The impacts are still real today.

It's impacting the ship at the deck plate parts and labor or it's just the cumulative effect of higher costs over the performance of the shifts in both as I ran through the three or four years.

Speaker Change: Three years of Covid, 9% inflation for couple of years and that tightening of the labor market, although as a real impacts that we're kind of living each day. So if you recall I broke that hey, we got every year, we get rid of a couple of boats and shifts that went through that we start some new boats and ships and then it's about the equity of the new contracts that we bring home with additional backstops our clauses.

Speaker Change: More alignment program schedules and then the cost returns that we see would get cranked into new beds, and we find that that overlap between affordability and profitability on the on the New awards.

Speaker Change: There is a transition period of that.

The new portfolio, replacing the existing portfolio, we have here, but.

I think that's that's the color.

Speaker Change: Yes.

Yeah, and then maybe just one more question.

And tell me if I'm just oversimplifying this but.

When you look at the commercial Airlines as an example, they had a pilot shortage until they paid their pilots a lot more than that sort of turned away.

Speaker Change: It is simple and the yards just paying the shipbuilders more more talented people with more experience.

They're a way to work with the Navy to do that.

Yes, that's why we're working with the Navy to.

Speaker Change: To do that now we've worked with them on some interesting.

Projects relative to increasing the labor and we're seeing some promising results for.

For that so Ron you bring up a good point.

Speaker Change: It's something we're working very closely with the navy to to address.

Speaker Change: <unk>.

17 ship submarine contract we've done it at Ingalls already in some areas and we're seeing some positive results.

Speaker Change: It is an over simplification, but we think that is one lever you can pull to improve retention improve performance and improve predictability.

Yes that makes sense alright. Thank you.

Speaker Change: Sure.

Speaker Change: Thank you.

Speaker Change: The next question is from the line of Robert Stallard with vertical research. Your line is now open. Please go ahead.

Thanks, so much good morning.

Good morning.

Robert Stallard: Chris and I won't belabor. This the 17th ship issue, but I was wondering if you could elaborate on what the the.

The potential sticking points on it or is it very basically that the cost per unit has gone up significantly versus what the Navy is prepared to pay you had budgeted or are you trying to get some sort of re.

<unk> labor and we're seeing some promising results.

<unk> on the older pre COVID-19 contract. So what exactly is the issue here.

For that so Ron you bring up a good point.

It's something we're working very closely with the navy to to address.

Yeah. So so so fundamentally the budgets that were established for those boats.

On the on the 17 ship submarine contract we've done it at Ingalls are already in some areas and we're seeing some positive results.

Speaker Change: Was a few years ago and it didn't really have the.

Our current environment baked into the budget scenario, so that creates a risk.

Tom Kona: It is an oversimplification, but we think that is one lever you can pull to improve retention improve performance and improved predictability.

Speaker Change: Just that.

Speaker Change: Rates of risk in getting those under contract.

Speaker Change: Okay that makes sense alright. Thank you.

But it also doesn't if we were to just kind of go business as usual to put those under contract. It doesn't address the significant investment that is required to meet the critical need for the submarine schedules.

Tom Kona: Sure.

Tom Kona: Thank you.

The next question is from the line of Robert Stallard with vertical research. Your line is now open. Please go ahead.

So whenever you do something thats somewhat innovative and create an asset that can be used for investment.

Speaker Change: Thanks, so much good morning.

Speaker Change: Good morning.

Robert Stallard: Chris and I won't belabor. This 17 ship issue, but I was wondering if you could elaborate on what that.

It just takes longer to get that approved.

We still think it's the right approach.

Robert Stallard: Potential sticking points all here or is it very basically that the cost per unit has gone up significantly versus what the Navy is prepared to pay you had budgeted.

So it's a combination of both of the things you mentioned, what the budget was not enough, but it also doesn't.

Unlock all of the investment that.

You were trying to get some sort of.

Speaker Change: That we need to make in the industrial base to meet our contract schedules. So it's a little bit of.

Recommence on the older pre COVID-19 contract. So what exactly is the issue here.

Speaker Change: Budgeting challenge, but also how do we attack this issue.

Tom Kona: Yes.

So fundamentally the budgets that were established for those boats.

Holistically, so we can accelerate submarine production.

Was a few years ago and it didn't really have the.

Alright, and then just a quick one for Tom Mission technologies in Q4, it looks like things step down is there a reason for that.

Our current environment baked into the budget scenario, so that creates a risk.

Speaker Change: Yes.

So that creates a risk in getting those under contract.

Speaker Change: We're being conservative right now on the way that plays out a piece of the performance that we see here is timing.

Speaker Change: So.

But we're still if you notice we are raising the guide both on the top line and the bottom line. In addition technology. So there's no issue or problem. There, we'll just let it play out.

So whenever you do something thats somewhat innovative and create an asset that can be used for investment.

Speaker Change: They've.

Met or exceeded where we thought they land in each quarter I'm feeling positive about that but there's still another.

Tom Kona: It just takes longer to get that approved.

Speaker Change: Two plus months to kind of play out here and I'm looking forward to provide us some good news in February.

We still think it's the right approach.

So it's a combination of both of the things you mentioned, what's the budget was not enough, but it also doesn't.

Speaker Change: Okay. Thanks, Tom.

Speaker Change: Mhm.

Tom Kona: Unlock all the investment that.

Speaker Change: Thank you.

The next question is from the line of Doug Barnett with Bernstein. Your line is now open. Please go ahead your line is.

That we need to make in the industrial base to meet our contract schedules. So it's a little bit of <unk>.

Tom Kona: Budgeting challenge, but also how do we attack this issue.

Speaker Change: Hey, guys. This is Michael Mccormack answer, Doug Hey, Mike.

Tom Kona: Holistically, so we can accelerate submarine production.

Just a quick question on labor I know that you've talked about sort of your outsourcing and hiring goals.

Speaker Change: Alright, and then just a quick one for Tom Mission technologies in Q4, it looks like things step down is there a reason for that.

Especially in the quarter I know last quarter I said that.

Speaker Change: But an update there would be alcohol or adequate follow up.

Tom Kona: Yes.

Speaker Change: We're being conservative right now on the way that plays a piece of the performance that we see here is timing.

Yeah, we haven't seen market improvement in attrition, that's why we're kind of repositioning the way, we're hiring and focusing on less century level and more experienced labor because they tend to they tend to stay so.

Speaker Change: And.

But we're still if you notice we are raising the guide both on the top line and the bottom line of that addition technology. So there's no issue or problem there.

Yes, no meaningful change in attrition.

We'll just let it play out.

Speaker Change: Okay.

They've met or exceeded where we thought they land in each quarter.

Speaker Change: And then just I.

Speaker Change: Yes.

Speaker Change: <unk>.

Positive about that but there's still another.

Speaker Change: <unk> only call.

Speaker Change: Two plus months to kind of play out here.

Speaker Change: And how we should think about sort of the margin profile.

Speaker Change: I'm looking forward to provide us some good news in February.

I will close on these ships.

A little color on that would be helpful.

Okay. Thanks, Tom.

Speaker Change: Okay.

Yes, I'm, sorry, if I can I will instead of a trouble understanding what your question is I think it was margin profile on aircraft carriers, and we don't give margin by program.

Speaker Change: Mhm.

Thank you.

The next question is from the line of Doug Barnett with Bernstein. Your line is now open. Please go ahead.

So it's just not something we do but I do I'm still very confident there is a 90% to 10% business, we just need to transition out of these pre COVID-19 contracts.

Speaker Change: Hey, guys. This is Mike Mccormack.

Speaker Change: Hey, Mike.

Mike McCormack: Just a quick question on labor I know that you've talked.

Speaker Change: Okay. Thank you.

Speaker Change: That's where they outsource to rehiring.

Speaker Change: Thanks.

Speaker Change: Within the quarter I know last quarter.

Speaker Change: Okay.

Speaker Change: Thank you.

Speaker Change: Okay.

Speaker Change: An update there.

The next question is from the line of Noah <unk> with Goldman Sachs. Your line is now open. Please go ahead.

I have a quick follow up.

Yes, we haven't seen market improvement in attrition, that's why we're kind of repositioning the way, we're hiring and focusing on less century level and more experienced labor because they tend to they tend to stay so.

Hey, good morning.

Speaker Change: Good morning.

Hey, thanks.

Speaker Change: Yeah.

Speaker Change: Yes, no meaningful change in attrition.

Speaker Change: Can you frame.

Speaker Change: The timing.

Speaker Change: Okay and then just.

Speaker Change: Rich you will no longer have pre pandemic contracts flowing through your financials.

Let me now I guess.

Speaker Change: <unk>.

Speaker Change: And Amy Wong.

And how we should think about sort of the margin profile.

And so it transitions out.

I think between 24 and 28 about 50, 50% to 60% of the work is pre COVID-19.

Speaker Change: Some of these ships.

Any color on that would be uncle Sam.

I'm, sorry, if I can handle instead of a trouble understanding what your question is I think it was margin profile on aircraft carriers, and we don't give margin by program.

Speaker Change: And just depending on the pace and tempo of the New awards. So we got the we got the breakdown.

Speaker Change: Breakdown the New awards.

Post Covid FY2023 on the destroyers.

So it's just not something we do but I do I'm still very confident there is a 90% to 10% business, we just need to transition out of these pre COVID-19 contracts.

Speaker Change: Ingalls just picked up the bundle in Q3, we're talking about the 17 boats here for the last two on FY 'twenty four block five Vcs. The next 10 boats for block six and then the Columbia Bill too.

Speaker Change: Okay. Thank you.

Speaker Change: Thanks.

Speaker Change: Okay.

And then Cvs 75, RC, which.

Speaker Change: Thank you.

Speaker Change: We're already on contract for long lead on that comes in here from a construction standpoint, I believe at the end of 'twenty five 'twenty six.

The next question is from the line of Noah <unk> with Goldman Sachs. Your line is now open. Please go ahead.

It's 234 years out is it starts to meaningfully ramp in.

Speaker Change: Hey, good morning.

Good morning.

And we switch over in a couple of years that there'll be more post COVID-19.

Speaker Change: Hey, thanks.

Speaker Change: Yeah.

Speaker Change: Can you frame.

Speaker Change: Jobs and there are pre COVID-19 here so.

Speaker Change: The timing.

Rich you will no longer have pre pandemic contracts flowing through your financials.

That's in the 27 2008 timeframe, where we swing over.

It's more potent.

Speaker Change: Okay.

Yeah, sorry transitions out.

Speaker Change: Yes.

Speaker Change: Okay.

I think between 24 and 28 about 50, 50% to 60% of the work is pre COVID-19.

Speaker Change: Okay, and Tom I guess just on the you.

You had had a multi year free cash flow framework for a while and.

Speaker Change: And just depending on the pace and tempo of the New Awards you saw we got we got a if I breakdown the New awards post post Covid FY2023 on the destroyers.

<unk> talked about kind of normalized recurring annual levels.

Speaker Change: Is there any new way you're framing the recurring.

So English has picked up the bundle in Q3.

Annualized number I guess, it's a little surprising you pulled that because youre showing you can toggle the capex, we're not insignificant amount and you've referenced.

Speaker Change: Talking about the 17 boats here for the last two on FY 'twenty four block five Dcs. The next 10 boats for block six and then the Columbia Bill too.

Speaker Change: Timing, although I guess, if it's a multiyear window, where the margins are just structurally lower from pre pandemic contracts then.

And then <unk> 75 or <unk>.

Already on contract for long lead on that comes in here from a construction standpoint, I believe at the end of 'twenty five 'twenty six.

Then maybe not so I don't know if theres any additional color you can provide on how youre thinking about the beyond 'twenty four freak out yes, I can I can we did think about that if you think about the five year guide and here we are.

It's 234 years out is it starts to meaningfully ramp and.

And we switch over in a couple of years that there'll be more post COVID-19 or jobs and there are pre COVID-19 here. So.

The first of the five years, and where you got from six to 702 zero to 100.

I do the quick math, and just say hey, they all three six is now like a $3 billion area. So.

Speaker Change: That's in the 27 28 timeframe, where we swing over.

Speaker Change: So close upfront of the five year run here, we really want to kind of get out of this year with actuals see what's happening.

Speaker Change: It's more potent.

Speaker Change: Yes.

Speaker Change: Okay.

Okay, and Tom I guess, just on the you had had a multi year free cash flow framework for a while and.

Speaker Change: New.

Speaker Change: Omnipod is incremental.

Innovative contracting approach and see how that takes hold the timing and the pace and the investments on that and we just thought it was better to take it off the table right now and well evaluate when we feel.

Speaker Change: <unk> talked about kind of normalized recurring annual levels.

Speaker Change: Is there any new way you're framing the recurring.

Good enough that we can give you a number that we can hang on right now so.

Annualized number I guess, it's a little surprising you pulled that because youre showing you can toggle the capex by a not insignificant amount and you've referenced.

We could have adjusted it and then it could even be higher than that or less than that depending on the patient tempo of the awards and performance. So we're.

We're going to hold that back I mean, we hold R.

Timing, although I guess, if it's a multiyear window, where the margins are just structurally lower from pre pandemic contracts then.

Our guides near and Dear.

Even on the call with us for many years, we talk about our ability to meet or exceed our guide we want a good run there from a cash since we started this cash flow perspective back at end of 2019 from 'twenty to 'twenty four each guide, we met or exceeded and of course, we're missing that kind of big time here. This year and we thought it was just.

And maybe not so I don't know if theres any additional color you can provide on how you're thinking about the beyond 24 free cash yes, I can I can we did think about that but if you think about the five year guide and here we are.

The first of the five years and we've gone from six to 700 zero to 100.

More prudent for us to take a break.

Speaker Change: As I do the quick math, and just say hey, they all three six is now like a $3 billion area.

I understand what we have here she how the contracting landscape plays out over the next six to 12 months and then we can revisit that in the future.

Speaker Change: <unk> close upfront of the five year run here, we really wanted to kind of get out of this year with actuals see what's happening on the new.

Speaker Change: Okay, I would say okay. Thanks comments that I still think yes, I would say to my earlier comments, that's still the HII value.

Speaker Change: Omni box incremental.

Value has not changed 30 of shipbuilding plan, the five year fight at our backlog, it's a pace and tempo piece on performance and throughput on existing work and then it's the.

Good enough that we can give you a number that we can hang on right now so.

It's a modification of the new awards.

We could have adjusted it and then it could even be higher than that or less than that depending on the pace and tempo of the awards and performance. So we're going to we're going to hold that back I mean, we hold R.

Speaker Change: As Chris said.

Speaker Change: Business as usual or as we kind of.

Look for additional investments in labor and capacity and throughput and our supply chain, which need to dollars, which will assist us as far as I.

Our guidance near and Dear.

As I mentioned in Q1 and Q2.

Cause those new contract awards bring equity in terms of margin and cash for investments.

They facilitate unlocking the value of the existing contracts that we can have the funds that are on there. So it's a fairly decent swing are on changing the trajectory of performance capacity and throughput and the recovery and the improvement going forward and we just have to see how that plays out over the next couple of quarters.

More prudent for us to take a break.

I understand what we have here she how the contracting landscape plays out over the next six to 12 months and then we can revisit that in the future.

Speaker Change: Yeah.

Okay I appreciate it thank you.

Okay, I would say two comments that I still think yes, I would say to my earlier comments, that's still you know the HII value.

Speaker Change: Thanks Noah.

Speaker Change: Thank you.

Speaker Change: I am not showing any further questions at this time.

Value has not changed tried to 30, a shipbuilding plan the five year fight at our backlog, it's a pace and tempo piece on performance and throughput on existing work and then it's.

I would now like to hand, the call back over to Mr. Kastner for any closing remarks.

Sure. Thank you to wrap it up today I'd like to summarize we remain focused on optimizing our operations improving our cost structure in shipbuilding performance and driving higher throughput. We believe the actions, we're taking will enable us to stabilize performance as we continue to work through these ships. Thanks again for your interest and participation today.

Modification of the New awards.

Speaker Change: As Chris said.

Speaker Change: Business as usual or as we kind of.

Speaker Change: Look for additional investments in labor and capacity and throughput and our supply chain, which need to dollars, which will assist us as far as I.

As I mentioned in Q1 and Q2.

That does conclude today's conference call you may now disconnect.

Speaker Change: Cause those new contract awards bring equity in terms of margin and cash for investments.

Speaker Change: Okay.

Speaker Change: They facilitate unlocking the value of the existing contracts that we can have the funds that are in there. So.

Speaker Change: Yeah.

It's a fairly decent swing are on changing the trajectory of performance capacity and throughput and recovery and the improvement going forward and we just have to see how that plays out over the next couple of quarters.

Speaker Change: Yeah.

Okay I appreciate it thank you.

Speaker Change: Thanks Noah.

Speaker Change: Thank you.

I'm not showing any further questions at this time.

I would now like to hand, the call back over to Mr. Casner for any closing remarks.

Speaker Change: Yeah.

That does conclude today's conference call you may now disconnect.

Speaker Change: Okay.

Speaker Change: Yeah.

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