Q1 2025 General Dynamics Corp Earnings Call

Speaker Change: Good morning and welcome to the General Dynamics First Quarter 2025 earnings conference call. All lines have been put on mute to prevent any background noise.

Speaker Change: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the start key, followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Please note, this event is being recorded. Thank you for your time.

Speaker Change: At this time, I'll turn the conference over to Nicole Shelton, Vice President of Investor Relations.

Nicole Shelton: Thank you, operator, and good morning, everyone. Welcome to the General Dynamics' first quarter, 2025 conference call. Any forward-looking statements made today represent our estimates regarding the company's outlook. These estimates are subject to some risks and uncertainties. Additional information regarding these factors is contained in the company's 10K, 10Q, and 8K filings.

Nicole Shelton: We will also refer to certain non-GAAP financial measures. For additional disclosures about these non-GAAP measures , including reconciliation to comparable GAAP measures , please see the slides that accompany this webcast which are available on the investor relations page of our website, investorrelations.gd.com

Speaker Change: On the call today are Phoebe Novakovic, Chairman, and Chief Executive Officer, Kim Kuryea, Chief Financial Officer, and Jason Aiken, Executive Vice President Technologies. I will now turn the call over to Phoebe

Phebe Novakovic: Thank you, Nicole. Good morning everyone, and thanks for being with us.

Phebe Novakovic: As you can discern from our press release, we reported earnings of $3.66 per deleted share on revenue of $12.2 billion, operating earnings of $1.268 million, and net earnings of $994 million.

Phebe Novakovic: These results compare quite favorably to the year ago quarter. Revenue is up 13.9% operating earnings are up 22.4% and net earnings are up 24.4%.

Phebe Novakovic: As a result, earnings per diluted share are up 78 cents or 27.1% more than the year ago quarter.

Phebe Novakovic: The operating margin for the entire company was 10.4%, a 70 basis point improvement over the year-go quarter.

Phebe Novakovic: While Aerospace led the way with a 45.2% revenue increase, each of the defense segments also enjoyed revenue increases

Phebe Novakovic: A similar pattern is true with respect to operating earnings. Aerospace led the way with the stunning 69.4% increase in each of the defense segments contributed nice improvements to operating earnings as well

Phebe Novakovic: We have obviously opened the year with a very strong quarter. It is important to note that the comparative quarter in 2024 also showed very good growth in all respects over first quarter, 23.

Speaker Change: We also be consensus by 16 cents in the quarter. At this point let me ask Kim Kuryea, our CFO , to provide detail on our order activity, solid backlog and cash activity before I come back with segment observation.

Kim Kuryea: Thank you, Phoebe, and good morning. I'll start with orders and backlog. We had a solid quarter with over ten billion dollars of orders.

Kim Kuryea: Our overall book to bill ratio for the company was less than one time due in part to the 14% increase in revenue from last year.

Kim Kuryea: This resulted in total backlog being slightly down from your end to $89 billion a quarter end.

Kim Kuryea: Our total estimated contract value, which includes options in IDIQ contracts, ended the quarter at a little over $141 billion.

Kim Kuryea: Turning to our cash performance for the quarter, we expected the flow start to the year. In terms of timing, this year will look a lot like last year with cash building throughout.

Kim Kuryea: The build-up of inventory as we approach certification and entry into service of the G800 impacted aerospace, and although technologies had a solid quarter, the defense businesses as a whole were impacted by a working capital build-up due to growth and timing.

Kim Kuryea: As a result, our free cash flow for the quarter was a negative $290 million. This was better than expected as our business units worked to drive cash to the left.

Kim Kuryea: For the rest of the year, we expect modestly positive cashflow in the second quarter followed by substantially improving free cashflow in each of the third and fourth quarters.

Kim Kuryea: Now, to discuss capital deployment activities, capital expenditures were $142 million or 1.2% of sales in the quarter.

Kim Kuryea: Similar to last year, you should expect capital expenditures to increase in subsequent quarters throughout the year, as we anticipate spending around 2% of revenue on CapEx investments in our businesses this year. [inaudible]

Kim Kuryea: Also in the quarter, we returned in excess of $980 million to shareholders in the form of dividends and charity purchases.

Kim Kuryea: This included $383 million paid in dividends and repurchases of approximately $2.4 million shares of stock for $600 million at an average price of just over $252 per share.

Kim Kuryea: In addition, in late March, we repaid $750 million of notes that matured on April 1. [inaudible]

Kim Kuryea: As a reminder, we have an additional $750 million of notes maturing in May, although we ultimately intend to refinance those notes, the timing of when we do that may be influenced by market conditions.

Kim Kuryea: When you added all up, we ended the quarter with cash balance of around $1.2 billion and a net deck position of $8.4 billion.

Kim Kuryea: Our net interest expense in the quarter was $89 million, compared to $82 million last year. The increase was due to utilization of commercial paper during the quarter.

Kim Kuryea: Finally, turning to income taxes, we had a 17.2% effective tax rate in the quarter, generally consistent with our four-year guidance.

Phebe Novakovic: Phoebe, that concludes my remarks. I'll turn it back over to you. Thanks, Kim. Now, let me review the quarter in the context of the business segments and provide detailed color as appropriate.

Phebe Novakovic: First Aerospace. Aerospace did particularly well in the porter. It had revenue of $3.03 billion in operating earnings of $432 million with a 14.3% operating margins.

Phebe Novakovic: Revenue is 942 million more than last year's first quarter, a 45.2% increase.

Phebe Novakovic: To give you a little color here, the increase was driven by a 50% increase in aircraft deliveries, including 13 new G700s and higher services revenue at both Gulf Stream and Jet Aviation.

Phebe Novakovic: 36 deliveries in the quarter are about as planned. Recall, however, that there were no G-700 deliveries in the first quarter of 2024. So this quarter really shows the robust revenue increase driven by the introduction of the G-700. [inaudible]

Phebe Novakovic: In addition, we saw improved margins on our G700 deliveries. In short, we expect revenue growth throughout the year but at a slowing rate of growth because G700 deliveries began in the second quarter of last year.

Phebe Novakovic: As I indicated last quarter, the supply chain continues to improve and is performing better to both schedule and quality. We are finding fewer faults, and those we are finding are becoming easier to fix. In short, I am increasingly confident that we can meet this year's delivery plans.

Phebe Novakovic: We are also pleased that the G800 was certified by both the FAA and the ASA on April 16th. This is expected to be a smooth entry into service, and we have some reason to believe that we can exceed our plan deliveries of G800.

Phebe Novakovic: I would be remiss if I fail to mention that jet aviation made a significant contribution to the court's results. Its revenue was up 8% and earnings up 22% over the year ago, a quarter on 160 basis point improvement in operating margin. This business has become a real

Phebe Novakovic: In summary, the aerospace team has had a good quarter. G800 FAA and EASA certification is behind us and we are improving our G700 delivery cadence and operating margin.

Phebe Novakovic: Turning to market demand, we had a point eight, both to bill in the quarter, even as aircraft deliveries increased by 50 percent. [inaudible]

Phebe Novakovic: Orders are consistent with our internal plan at about the same number of units as the first quarter in 23 and 24.

Phebe Novakovic: We expect that the certification of the G800 is better than planned performance characteristics and the early deliveries to customers will stimulate demand.

Phebe Novakovic: We continue to see improved interest across all models in the US albeit with cautious concern by customers about the macroeconomic environment and the impact of tariffs on their businesses.

Middle East activity remains strong.

So let's move on to the defense businesses.

Phebe Novakovic: Combat had revenue of 2.18 billion up 3.5% over the year ago quarter. Earnings of 291 million are up 3.2%. Marges at 13.4% are consistent with the year ago quarter.

Phebe Novakovic: It's interesting to observe that this year's revenue growth is on top of our first quarter 2024 growth of almost 20%. So nice compound growth.

Phebe Novakovic: The increased revenue performance occurred at Ordnance and Tactical Systems in European land systems, land systems helped steady.

Phebe Novakovic: We also experience good order performance, orders in the quarter-jow backlog to 16.9 billion, up 1.3 billion from this time of year ago.

Phebe Novakovic: Demand for combat system products continues to be robust with particular strength in Europe . Orders for wheeled and tracked vehicles are up, reflecting the heightened threat environment.

Phebe Novakovic: In addition to several new combat vehicle starts, we are working closely with the US Army to accelerate Abrams modernization [inaudible]

Phebe Novakovic: In the U.S., we are rapidly increasing munitions capacity and production with the opening of our projectile facility in Texas and our load and assembly impact facility in Arkansas. All in all, combat had a solid quarter and is off to a good start for the year.

Phebe Novakovic: Turning to Marine Systems. Once again, our shipbuilding units are demonstrating impressive revenue growth. Let me repeat the recent history that I gave you this time last year with respect to growth in this decade.

Phebe Novakovic: The first quarter of 2020 was up 9.1% against Q119. The first quarter of 2020 was up 9.1% against Q119.

Q1'21 was up 10.6% over Q1'20.

Q123 was up 12.9% over Q122.

Phebe Novakovic: Q1 2024 was up 11.3% over Q1 23. And finally, this quarter is up 7.7% over Q1 24. This has been a really nice rate of growth for the shipyards and the repair yards.

Phebe Novakovic: This growth has come at significant costs for facilities and significant increase in hiring. The good news is we've been able to hire and train the people we require to support our growth.

Phebe Novakovic: This particular quarter's growth was driven by Columbia class of Virginia class construction as well as an increase in DDG-51 construction.

Phebe Novakovic: Operating earnings are 250 million in the quarter, up 7.8% from the year ago quarter. Operating margin is identical to last year's quarter.

Phebe Novakovic: We have struggled to achieve operating leverage to go with our rapid revenue growth, but operating earnings have grown on a consistent basis as well.

Phebe Novakovic: We continue to be impacted by delays and quality problems in the supply chain. Material and parts are late and sometimes exhibit quality escapes.

and new shipbuilders continue to come down, learning curse. [inaudible]

Phebe Novakovic: We have more work to do, but we have made progress. In addition, one of the unions, the Draftsman, a largely white collar union that converts engineering specs to drawing has voted to authorize the strike. The Draftsman, the Draftsman, the Draftsman, the Draftsman,

Phebe Novakovic: We are working closely with the Navy and the new administration to continue to address the problems in the supply chain and look for opportunities to improve throughput and performance of the shipyard.

Phebe Novakovic: The growth profile continues to look strong and demand is not abated. Our job is to continue to improve ourselves and to help the industrial base get stronger with the help of the government.

Phebe Novakovic: A technology group had a strong start to the year with revenue of $3.43 billion million dollars.

Phebe Novakovic: Operating earnings of 328 million, we're up 11.2% over the year ago quarter on a 40 basis point improvement in operating margins, from 9.2 to 9.6%

Phebe Novakovic: The operating margin improvement is encouraging given the top line shift toward ISP services with carrier lower margin than the defense electronics side of the portfolio.

Phebe Novakovic: This reflects strong performance ignition systems as the transition from legacy programs to new franchises continues.

Phebe Novakovic: The group's order activity was also encouraging with the book to build a 1.1 times for the quarter and trailing 12 months even against the strong revenue growth.

Phebe Novakovic: As a result, the group's backlog is up almost 7% from a year ago, and their total estimated contract value is up more than 10% of the same period.

Phebe Novakovic: Their focus on advanced technology enabling autonomous platforms, smart munitions, subsea warfare, and strategic deterrence as well as advanced AI, cloud, cyber, 5G and quantum solutions is driving demand for the group.

Phebe Novakovic: Their pipeline of qualified opportunities remains strong at 120 billion, and their win-and-capture rates in the 80% range reflect the compelling value they're providing their customers.

Phebe Novakovic: While this year is off to a strong start, a significant amount of uncertainty hangs over the market, particularly on the IT services side of the business, as the administration establishes its own spending priorities.

Phebe Novakovic: That said, our team has a great understanding of governments emerging technology needs and is committed to innovating to solve the toughest technical challenges across the government at the best return for their customers.

Speaker Change: As you know, we never update guidance at this time of year. Apart from what I've already said about aerospace, I will continue with back practice. There is, however, no hiding from this porter's performance and its application for the year.

Speaker Change: Let me speak to terrorists for a moment. We cannot yet discern to what extent the defense businesses will be impacted over time. The more potentially impactful problem is in aerospace, where we are a significant net provider of export revenue to the US.

Speaker Change: We do not know the scope and breadth of the terrorist issue at the moment and that will not for a while.

Speaker Change: Accordingly, anything I might say on that subject will be sheer speculation, so I do not intend to answer questions on the subject of tariffs, because anything I say on that subject given our lack firm and knowledge will almost certainly be wrong [inaudible]

That's the sure that we are working the related issues diligently.

Speaker Change: This concludes my remarks about a good quarter and let me turn the call back to Nicole to take questions.

Nicole Shelton: Thank you, Phoebe. As a reminder, we asked participants to ask one question and one follow-up so that everyone has a chance to participate. Operator, could you please remind participants how to enter the queue?

Speaker Change: Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again.

Nicole Shelton: and again we ask that you please limit yourself to one question and one follow-up to allow everyone an opportunity to ask a question.

Speaker Change: We will take our first question from Peter Arment at Beard.

Peter Arment: Yeah, thanks. Good morning, Phoebe Kim, Jason Nicole. Nice results. Phoebe, maybe just given in the spirit of everything that's going on, GD, technology segment had a really good bookings quarter, kind of bucking the trend of...

Speaker Change: The industry, maybe, could you talk a little bit about, I guess, any visibility or any discussions then?

Peter Arment: Judy is supporting kind of the GSA in their efforts and just, you know, how are things looking from a bookings and a cost savings environment with their current administration?

Speaker Change: Peter, that's a good question. I asked Jason to join us on the call to provide us more color for those of you who wanted some, so I'll turn that over to Jason.

Jason Akin: Thanks, Phoebe. Good morning, Peter. I think as you'd expect, along with a number of GDIT's peers that I'm sure you've heard from, we've been inactive.

Jason Akin: Conversation and actively working with the customer to identify opportunities for savings, for increased value and so on, from the services and the solutions that we provide. I think it's important to as a reminder that we are not

Jason Akin: Strictly in the consulting business per se. We deliver mission-driven solutions, we deliver solutions to the customer's most challenging technology issues.

Jason Akin: and but the fact is we are in the conversation and as part of that conversation we are going to partner with our customer and we are going to find the savings that they're looking for.

Jason Akin: At this point, the only thing I could comment in terms of what we're seeing in our results is you saw you heard about the strong results in the quarter. First quarter was very strong, not only from a revenue and earning standpoint, but also the order book was healthy. So,

Jason Akin: On the one hand we're seeing a little bit of sluggishness in the solicitation and the proposal and award process.

No different than the rest of our peers.

Jason Akin: But we'll have to see how that plays out, how long that sustains, and how much of that is just an impact of a new administration setting their priorities and no different than any transition we see with a new administration. So a lot still to be determined, nothing to change yet, the outlook for the year remains the same. And I think we'll know a lot more about the midpoint of the year.

We'll move next to Jason Gursky at City.

Jason Akin: desire to stand up office of shipbuilding inside the White House and all the efforts that we're seeing from them on supporting the industrial base here in the United States and just look to get your take on what you're hearing. [inaudible]

Jason Akin: We've been in touch with the office. We're very happy to have the focus on shipbuilding across the enterprise.

So we consider that all goodness and we've had productive conversations.

Jason Akin: with multiple elements of the administration, and we're working with them to see...

Jason Akin: In some cases, how we can accelerate throughput productivity. I've been sure up.

Jason Akin: We can shore up the industrial base, particularly on the defense side, and opportunities for more commercial building where they may arise.

Jason Akin: So I think attention on a subject of national importance is always beneficial.

Speaker Change: Okay, great. And then quick follow up question would just be on the executive orders that it last week about the potential for.

Speaker Change: seems like a rewrite of federal acquisition regulation. I would love to get your take on this administration.

Speaker Change: Approach to procurement reform seems like every administration comes in and wants to reform how acquisition is done. Just curious if you think this one's going to be any different kind of, you know, potential opportunities and risks as we go through this process for the industrial base writ large. Thanks.

Speaker Change: So I think that acquisition reform is always lawtatory, and I think the extent to which it succeeds is understanding what works in the acquisition process and what doesn't.

Speaker Change: So I think that part of the dialogue that we're all having is, here's the good things because there are not a lot of good things within the process.

the cost drivers.

Speaker Change: The elements that tend to slow down or build bureaucracy. So I think those are good conversations, and we've always been supportive of acquisition reform.

We'll move back to David Strauss at Barclays.

Thank you. Bye.

Thank you. Thank you.

Thanks. Good morning. Hi, David.

Speaker Change: Phoebe, has there been a change in kind of the order activity or customer interests? Any noticeable change that you've seen at Gulf Stream, you know, post all the tariff announcements in early April , any slowing or anything?

Speaker Change: The pipeline remains good. I'd say everyone's a little bit cautious.

Speaker Change: figuring out to the extent to which the tariffs will impact any one of their businesses, but the pipeline remains strong across the portfolio of products.

So, so far, so good.

Speaker Change: Okay, and a follow-up on the on the marine side. Could you give an update on-

Speaker Change: Getting the money, you know, the significant funding that was in the CR under contract and maybe progression on, you know, the larger block six Virginia class contract.

So, we're working with the administration on on...

Speaker Change: Getting the supplemental funding in the CR under contract, and so we've had their productive conversations and

Speaker Change: and we'll continue those so I don't think it's appropriate to talk anymore about that, but to the extent to which that we get those funds

Speaker Change: into the shipyards, into wages, and additional throughput capacity. That's all beneficial in the big conversations that have to happen around block six.

Speaker Change: and the second build of Columbia. So, the Navy intends for those to happen this year, but I think we need a lot of building blocks before we get there, including getting the supplemental under contract and starting to execute there. [inaudible]

Next we'll move to Robert Stollard at Vertical Research.

Thanks so much. Good morning. Good morning.

Speaker Change: Phoebe, you said some positive things about the aerospace supply chain that you've experienced in the last couple of months. But I was wondering if in recent weeks this whole tariff thing has shifted the landscape here particularly with regard to engines.

Speaker Change: So, let's just be clear about the supply chain. It made very good progress, but the problems are not all behind us and so we continue to work at a station work.

and continue to find some issues. [inaudible]

Speaker Change: I think it's a little soon to tell within the supply chain the extent to which we've got.

Speaker Change: Real concerns, their suppliers have real concerns. I would say that a lot of what we consume, internal consumption material, has a significant amount of US content.

Speaker Change: So how all of this plays out is remains to be seen here.

Okay, thanks so much.

We'll go next to Kristine Liwag at Morgan Stanley .

Hi, good morning everyone. Good morning.

Speaker Change: Jason, I want to focus on technologies a little bit. You mentioned that you're working on savings that you can provide the customer. It seems like GSA, the GSA was disappointed with the initial proposals from the industry about cost savings. [inaudible]

Speaker Change: So can you talk about what's the potential size of savings you could provide with the new approach and if we could size the potential effect on your revenue stream as this materializes, that'd be great. Thanks.

Speaker Change: Yeah, I'm afraid I'm going to give you an answer you're not going to be happy with Kristine. The point is, you know, as I said, we are in a good healthy active discussion with that customer. We are identifying savings. Some of that, as you might imagine.

Speaker Change: is from a conversation that's been discussed quite a bit around shifting to a fixed price and outcome based type contracts, which we very much welcome. We have a good healthy portion of that in our backlog and portfolio already. But the fact is, it's an ongoing dialogue with the customer. And so I think it'd be inappropriate to get out ahead of that in a public conversation and get ahead of them on that.

Speaker Change: G600s coming to market. I know you mentioned that there hasn't been significant change in demand, but I was wondering if you could provide color regarding customer behavior and how the deliveries of these newer jets are affecting the older pieces and how you expect that to play out regarding pricing. Thank you very much.

Speaker Change: You know, it's interesting, old as relatives. It's a brand new idea. So I take your point, but a little bit of humor here. The interest in the 500 and 600 continued to be very strong.

each one has its market segment for those different missions.

Speaker Change: Just so you know, an older airplane again, though from a relative point of view, it's the 650.

I think we deliver the last six.

Speaker Change: 650, this quarter, so that's kind of a seminal end to a really an extraordinary airplane, and I would say a real market changer for the last 15 years.

Show, but demand remains good, the deliveries are on cadence.

Speaker Change: largely on cadence, but again we still have some perturbations from the supply chain, but we'll hopefully get some of those behind us as the supply chain or fully recover.

I hope that answered your question. Thank you.

Next, we'll move to Ken Herbert at RBC Capital Markets.

Thank you.

Hi, P.B. and everybody, good morning.

Peter Arment: Winning. Nice Gulfstream deliveries in the first quarter, Phebe. Sounds like supply chains getting better. Sounds like maybe there's some incremental upside to fully your expectations, but can you provide any commentary on cadence of deliveries as we think about second quarter and second half of the year from Gulfstream? [inaudible]

Peter Arment: I'm pretty consistent. We'll have some mixed changes. Quarter over quarter, like we typically do, but pretty consistent and we're sticking with our

Peter Arment: with the estimate that we gave you on the last call.

Peter Arment: As you all know, we never, I think once in the last 12-13 years, if we once or twice, if we ever update it in the second quarter . . .

Peter Arment: Yeah, in the first quarter, we always laid to the second quarter. So we'll give you more clarity to the extent that there are any changes in that second quarter update.

Speaker Change: Okay, great. And just as a follow-up, you called out Middle East good order activity there. Are you seeing anything else geographically, maybe any areas of softness or anything else that sticks out in terms of customer activity on Gulf Stream? Thank you.

Peter Arment: Pretty much consistent with what we've seen recently the U.S. is strong.

and Middle East is strong.

So far I haven't seen any systemic changes here [inaudible]

Full moon next to Scott Mechis at Melius Research

Morning.

Morning.

Peter Arment: Phebe, quick question on marine general cotton of US strategic command recently stated that the Columbia program record may need to be increased given today's elevated threat environment, considering the Navy's fleet of 14 Ohio class submarines carry 280 SLBMs, but on each Columbia is only designed to carry 16 SLBMs.

Peter Arment: Is there interest from the DOD that you've heard about increasing the Columbia program to maintain a wonderful one replacement of SLBM launch capability? This is a great opportunity.

Peter Arment: a question that comes up or a subject that comes up in extended conversations.

So I'm sure it is on people's minds [inaudible]

Speaker Change: Okay, and then turning to Gulf Stream, deliveries were very good this quarter, were there any customers that tried to accelerate the deliveries to get ahead of the tariffs?

Uh, not that I'm aware of. [inaudible]

Okay, thanks very much.

We'll go next to Gavin Parsons at UBS.

Thanks, Morning.

Learning.

Speaker Change: Phoebe, you mentioned the improvement in the G700 margin, was one key better than your plan and do you still expect to step down in the 2Q and 3Q margin?

Speaker Change: including MIX among others. In the second quarter, pretty much the progression that we gave you last.

Speaker Change: Last call in January . So again, if that changes, we'll update you at the end of Q2.

It's so far that's still our plan.

Speaker Change: Okay, appreciate it. And you mentioned you expect J-800 certification to drive a step up in orders. There, did you book any J-800s in the first quarter? [inaudible]

Speaker Change: We've had, yeah, I'm almost certain we did, and we've had certainly additional interest since the certification.

Speaker Change: It's a popular airplane. Let's recall that airplane is the replacement for the 650.

Sixty's, as I noted. It's, um...

Speaker Change: Lee's, you know, that's out of production at the end of this quarter. Already out of production actually, largely, and we're in the delivery mode, so the last delivery will be this quarter, so that'll be an additional, I think, stimulant to demand.

Speaker Change: and we'll move to our next question from Seth Seifman with AP Morgan.

Thank you very much. Good morning everyone. Good morning, Seth.

Seth Sleifman: I want to ask in marine just starting off with the 7% margin slightly higher than what was initially.

Seth Sleifman: expected for the year, and potentially bringing those last two block five votes. Well, hopefully bringing those votes under contract this year will, you know.

Seth Sleifman: We'll see about the rest. Does that create maybe a little bit less risk when we think about the margin

and the past two years. [inaudible]

Seth Sleifman: I think to the extent that we can continue to stimulate reproductive activity in the supply chain as well as at the shipyard, that is always a risk reduction, so I think

Seth Sleifman: Every time that we can facilitate that, that is a good thing.

Seth Sleifman: I'll just note on the 7% margin, we had a charge in the fourth quarter last year that didn't leave as it, and that was some mixed driven.

Seth Sleifman: You didn't ask this question, but I'll answer it anyway. We'll stick with as we stand today with our, we're going to hover in the upper sixes. [inaudible]

Seth Sleifman: in Margin. But yes, as I said, any action on the part of the government to stimulate productivity always takes risk out of the profile.

Speaker Change: Okay, okay, thanks. And then just as a follow-up on the capital deployment and...

Speaker Change: Balance Sheet. With the share of purchases in the first quarter, I guess we'll affect the share account for the year.

Speaker Change: I think Kim, you mentioned maybe waiting potentially to refinance some of the debt that's due in the second quarter. Should we think about some incremental interest expense at all this year that may be offset some of the goodness from...

Peter Arment: from Sherry Poe or how to, I guess, how do those two things kind of net out and then, you know, Phoebe, I think you said over time that you're typically opportunistic on Sherry Poe and this was, you know, a bigger quarter than we're used to seeing and so, you know, what was kind of the thought process around that. [inaudible]

Sure, I'll start with...

Speaker Change: Just to clarify, I didn't necessarily say we were waiting, we're just watching what's happening in the market in terms of the rates.

related to the refinancing of the debt.

So just wanted to clarify on that.

Speaker Change: And as you stated, we did have significant share repurchase in the first quarter and we continue to look at share repurchase throughout the rest of the year, depending on the facts and circumstances as they present themselves. And so I would say that we will likely have slightly more interest expense.

predicted for the rest of the year.

Speaker Change: and I would say, too, our general attitude about capital deployment has unchanged in our share we purchased our opportunistic that the stock was a good buy a lot since this course.

Thank you.

Thank you.

We'll take our next question from Andre Madrid at BTIG.

Thank you.

Good morning, everyone. Good morning.

Um...

Speaker Change: You know, given all the recent tension around trade, do you think there's a reluctance moving forward for allies to work with U.S. contractors? I mean...

Speaker Change: You saw several Northern European nations kind of coming together and saying that they were intending to collectively buy a competing infantry combat vehicle. Like, do we expect stuff of this magnitude kind of moving forward? And yeah, like I said, do we expect trade to kind of linger and weigh on? [inaudible]

You know, allies dealing with contractors like Judy.

Speaker Change: I think that we have to see how all that plays out, but I think you know that we are a little bit different, and this is largely talking about combat systems, because that's our pre-eminent . . . . . . .

Speaker Change: and Business in Europe . But this is a European business run by Europeans with manufacturing facilities in Europe , sourced in Europe , almost exclusively.

Speaker Change: Show, these are long-standing 30-year and some instances companies in their home countries.

Speaker Change: So I think we're a little bit different. I would say that the demand on the first quarter for European

GD products was certainly there. And, and, and.

Speaker Change: The European land system has a superb portfolio of products to offer, and we have seen increased demand and increased spending, so that bodes well from our perspective for...

for these businesses.

Speaker Change: Got it. Got it. That's helpful. And then if I could just squeeze in one more, I think some of your peers pointed out a slower pace of contract words in the first quarter. Did you see anything of this nature? Could you provide more color there? Yeah.

Phebe Novakovic: on a pretty meaningful uptick in revenue. We had a book to build greater than one to one. So so far, we're not seeing an impact through the end of the first quarter. And as Phoebe said, the pipeline for the business remains very strong. The pipeline for the business remains very strong.

Speaker Change: The issue that I think most people are talking about and we're seeing Franklin the same thing is what I would refer to as perhaps a sluggishness if you will.

and the cadence of...

Solicitations and Award Activity

Speaker Change: But as a reminder, that's not necessarily something new for this business. In the GDIT side in particular, we've talked for some time about dealing with these types of issues of protracted and drawn out.

Speaker Change: Adjudications and award activities, protests, and other things that extend that order cadence beyond what would be a regular order. So, while this is something we're tracking and it's something everybody's talking about, I don't necessarily think it's something aberrationally different than what we've been used to dealing with in the past, and so we'll just have to see how it plays out as we go forward. Thank you very much.

We'll take our next question from Sheila Kahyaoglu at Jeffries.

Good morning, Phebekin. And, um...

Speaker Change: Phoebe Orkin, maybe two follow-ups if I can, both on margins, one on aerospace and one on marine, on aerospace. Can you just update us on how we think about the last 650 being delivered in this quarter as the G800 ramp and how we think about the different blocks with G700 progressing throughout the year?

Speaker Change: So we're continuing to improve G700 margins. We are not, however, at what I would call a normal cadence yet.

Speaker Change: We'll deliver at high margins and the 800 will come in at higher margins than the 700 because it's not carrying as much burden of R&D as the 700s did for a slot of 700s.

So.

Speaker Change: These are all, I think, beneficial to us. And you had a question on the Marine margins? Yes, please. Yeah.

Speaker Change: I just thought your prepared remarks mentioned the government and working with them a lot more so I was wondering over the last quarter or two, what's really changed, whether it was the hiring cadence, the investment required from GD or the government customer working closer with you to support the marine buildout.

So, this is March 15th. I'd say there's a step up in engagement.

on the civilian side of the government with us.

on building that cadence, getting the throughput up, getting productivity. Everybody.

Increases.

Speaker Change: ensuring that we can continue to hire the workers that we have been hiring, that the wage structure is appropriate, and that the investments take us to the next level. And I suspect that the next series of investments you'll see.

some investment in resiliency allotted. And, um...

Speaker Change: and, again, additional productivity and throughput with increased automation, even more increased automation. They have quite a bit that we've spent, you know, the last decade.

Speaker Change: and recently putting it in the shipyards and then additional fixtures for additional throughput so that we can really get our pace where it needs to be.

to deliver what the nation needs.

Speaker Change: of the government to support the supply chain and get the supply chain stabilized. It's better in places, but we've got a ways to go.

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

Mariana Reyes-Moran: Good morning, everyone. This is Mariana by Desmond Armpord, Ron today. Good morning.

Speaker Change: I wanted to do a follow-up on combat systems. Could you mind discussing what is the pipeline of opportunities in Europe , especially because we continue to see headlines on increased commitment to build up their defenses?

So we've seen increased...

Speaker Change: Discussions in, really throughout Europe , the Eastern Europe as well as Central Europe now,

Speaker Change: They started being earnest with the invasion of Ukraine, and they picked up even more, each one of those governments is allocated an increasing amount of it.

Resources to Defense Spending. [inaudible]

So I would say it's across the board.

Speaker Change: Thank you, and my follow-up is going to be on error. Where are your expectations for, especially in this macro environment, or evolving uncertainty? Where are your expectations for a book to be long-ostream for the full year?

Speaker Change: So, we are close to one to one for the year. I think we're actually at 0.9 but live picnics. That's pretty close to one. So we continue to see that as achievable in the moment.

Should that change, we'll let you know, and could you do?

Next, Full Moon to Myles Walton at Wolf Research . . .

Miles Walton: Thanks, Phoebe, I really can't put precision on the tariffs. [inaudible]

Miles Walton: from Stepin' the Landline here. Are you right about that? I know, I know. So your confidence that you alluded to in the full year outlook, is that encompassing your assessment of what you're going to see?

Miles Walton: We don't think that the sense guys get hit much, there will be some Gulf Stream impacts and nothing we see so far is extraordinary. But we had a long way to go and I think a lot of the supply chains have to.

Miles Walton: assimilate these changes and see the impacts to accept that they have them on them.

but...

Miles Walton: That's all I can give you. If I were any more specific, the one thing I could assure you is it would be wrong, and you all would be highly irritated that I gave you a wrong number. So I'm giving you really how we see it from our foxful moment.

All right, and then the follow-up, we talked about-

Speaker Change: Initiatives on government services. Is there anything you're seeing as at least your combat business and their view on the role of the Army?

and maybe the XM30 and M10. [inaudible]

S.D.

King, Priorities, Dorothy Priorities, and Framework.

Speaker Change: So, you know, one of the things that is a truism about Washington that is now a truism on steroids.

Speaker Change: is that rumor is rampant. So I want to see what the budget's actually show, but the CR did fund

Stryker and Abrams at a lesser rate. You think the Army's plan had been one full brigade of Abrams?

Speaker Change: Third Ruketa Strikers, and they cut that request by about a third so we need to find a little bit more stable funding profile, particularly for the supply chain.

Speaker Change: That really perturbates the supply chain badly. There is great interest on the part of the army and we are working daily with them to accelerate the next generation Abrams.

So we consider that a...

A very positive step in Army recapitalization and modernization.

Thank you. Thank you.

Next, we'll go to Noah Poponak at Goldman Sachs.

Noah Popanac: Hey, good morning, everyone. Good morning. I just wanted to go back to technologies, Jason and or Phoebe, and it's interesting you mentioned engagement with the customer and that this dialogue, back and forth dialogue is going on and

Noah Popanac: I wondered how much are they just asking for reductions versus how much are you showing them capability that can help them gain efficiency as well adding revenue to your business.

Noah Popanac: and then additionally I'm curious how much discussion is there on contract structure and how that could impact margins whether positively or negatively.

Noah Popanac: Yeah, looking short, I'd say it's all of the above. Not to mince words, they are looking for reductions across the board and we are actively participating in that and making recommendations to help them solve the problem they're trying to solve.

Noah Popanac: but to your point there are opportunities down the road because the fact is when you look at the types of efficiencies they're trying to drive the type of head count reductions they're looking for

Noah Popanac: It is absolutely the very types of things that we provide in terms of these technology solutions and digitization and so on, but enable those types of reduction.

Noah Popanac: There's going to be a period where it's a shorter term conversation and then it's going to turn to a longer term conversation and to your point about opportunity in that.

I think uh...

Noah Popanac: You know, look, we talked about fixed price, flash outcome based type contracts and again I mentioned we're comfortable with that we have a good bit of that in our portfolio. Thank you very much.

Noah Popanac: and that should bring an opportunity for us. The fact is there's no different than any other contract, geometry, fixed price versus cost plus. When you take on more risk there should be an opportunity for a little better margin, but all of it comes at a better price and a better outcome for the customer.

Noah Popanac: I guess if I were to add one other thing to watch out from a risk standpoint, we need to be careful from a mission perspective.

Noah Popanac: that if there's dueling priorities of significantly reducing workforce within the government and at the same time on a meaningful level in sourcing this type of work to the customer, that can come a great peril and we need to be mindful of that in these conversations and make sure we don't compromise any mission capability. Thank you very much.

Noah Popanac: I appreciate all that detail, Jason, and just one quick one, Kim, what's your updated thinking for a full year free cash load and an income conversion?

Kim Kuryea: I think we're sticking with the forecast that we gave you in January .

Kim Kuryea: At this point in time, we're obviously always trying to improve upon that but at this point in the year we're going to stick to that forecast.

Speaker Change: Okay, Audra, I think now we have time for just one last question.

Unidentified Moderator: and we'll take that question from Gautam Khanna at TD Kallen.

Yeah, thank you guys.

Speaker Change: Jason, I wanted to just follow up on the prior question.

Speaker Change: Have you actually seen Doge or whatever we want to call this?

Speaker Change: Deep book, a lot of terminate contracts with GDIT because that happened and it's so guinea quantify what that aggregates do.

Speaker Change: Yeah, I'm sure if you look at the public information around Doge, they list all the contract actions that they've taken action on and we have been a part of that. There have been some stop work orders, some partial stop work orders and so on. In terms of impact of that, I'm not going to quantify that for the years. I said the outlook for the year for the business remains the same. If anything, I think I would remind you.

Speaker Change: that historically the way General Dynamics puts contract value into backlog is...

Speaker Change: Materially different and more conservative than most of GDIT's peers, we're very rigorous about that and so from a color standpoint I think I'll put it that way but those things are going on and it's going to be part of the conversation.

Speaker Change: Gotcha, and it's factored it. Okay, and then just to follow up on Gulfstream CB, could you remind us what percentage of the pipeline of opportunities on the large cabin side are with non-US customers, like a rough percentage of half? [inaudible]

Speaker Change: Is it the quarter? Yeah, no, it's less than half. I think it typically runs.

6040, something like that, 60US. [inaudible]

Okay, good.

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

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

these two are BEST FRIENDS!