Q1 2025 Huntington Ingalls Industries Inc Earnings Call
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Speaker Change: Record that if you need further assistance. Please press star followed by zero I would now like to hand, the call over to Kristy Thomas Vice President of Investor Relations. Mr. Thomas You may begin.
Kristy Thomas: Thank you operator, and good morning, everyone welcome to the H I I first quarter 2025 conference call matters discussed on today's call that constitute forward looking statements, including our estimates regarding the company's outlook involve risks uncertainties.
Kristy Thomas: D and reflect the company's judgment based on information available at the time of this call.
Kristy Thomas: These risks and uncertainties may cause our actual results to differ materially additional information.
Kristy Thomas: Information regarding these factors is contained in today's press release and the Companys SEC filings.
Kristy Thomas: We will also refer to certain non-GAAP financial measures for additional disclosures about these non-GAAP measures, including reconciliations to comparable GAAP measures. Please see the slides that accompany this webcast, which are available on the Investor Relations page of our website at IR Dot HII Dot com.
Kristy Thomas: On the call today are Chris Kastner, President and Chief Executive Officer, and Tom Kelly Executive Vice President and Chief Financial Officer.
Chris Kastner: I'll now turn the call over to Chris.
Chris Kastner: Thanks Christy.
Speaker Change: Everyone and thank you for joining the call.
Speaker Change: I'll start by providing an update on our 2025 operational initiatives which include.
Speaker Change: Enhancing shipbuilding throughput, reducing costs and securing new contract awards.
Speaker Change: In the first quarter, we made progress against our goal of improving shipbuilding throughput by 20% year over year.
Speaker Change: Ingalls is largely on plan and their production milestones remain unchanged.
Speaker Change: Newport News is modestly behind plan half of this variance is driven by the atypical weather we experienced in January and February.
Speaker Change: The most significant variance of Newport news resides with Cvs on 80.
Speaker Change: This is directly related to the late major equipment that has to be installed in the whole of the ship.
Speaker Change: These delays directly impact the construction approach and have limited the progress we can make on the ship.
Speaker Change: Once this equipment has received from our suppliers, which is scheduled throughout the summer we anticipate an acceleration of progress.
Speaker Change: Additionally for both shipyards are outsourcing efforts continue.
Speaker Change: And we expect this to ramp throughout the year to support our throughput goals.
Speaker Change: Our South Carolina production facility is online and is already completed the first carrier unit for Newport News.
Speaker Change: The team remains focused on meeting our delivery schedules and is working with the navy to identify additional initiatives that will accelerate scheduled performance.
Speaker Change: Turning to our cost reduction efforts plans are in place and we intend to reach our goal of $250 million in annualized cost reduction by year's end.
Speaker Change: We have an agreement on the block five FY 2004 to both contract and will now turn our focus to the block six and Columbia Bill two contracts.
Speaker Change: Also I want to highlight our strategic focus in 2025 aligns nicely with the administration's defense priorities.
Speaker Change: On April nine the Trump administration released two executive orders modernizing defense acquisitions, and spurring innovation and the defense industrial base and restoring America's Maritime dominance.
Speaker Change: We're working with our customers on strengthening the industrial base and accelerating the transition of new capabilities to the Warfighter.
Speaker Change: We are leaning into the use of other transaction authorities and are working with the rapid capabilities office as a means to leverage new technologies.
Speaker Change: For example in April we delivered the first two lionfish small on crude undersea vehicles to the U S. Navy under a program that could scale to 200 vehicles the.
Speaker Change: The program was developed in partnership with the U S Navy and defense innovation unit to accelerate adoption of dual use commercial technologies into U S Department of defense programs.
Speaker Change: This quarter, we also announced that our emission technologies Division was selected to develop an open architecture high energy laser counter drone system for the U S. Army's rapid capabilities in critical technologies office.
Speaker Change: HII will develop and test the high energy laser prototypes to acquire track and destroy small to medium sized unmanned aircraft systems.
Speaker Change: On the shipbuilding side of the business, we established an Mou with HD Hyundai heavy industries. The Mou provides a framework for us to jointly explore opportunities to collaborate on accelerating shift production and support the defense and commercial shipbuilding projects.
Speaker Change: Like our existing strategic relationship with U K based Babcock International we believe international partnerships are crucial to strengthening the allied industrial base.
Speaker Change: Given our core business these strategic relationships position us to support initiatives that May result from the maritime executive order.
Speaker Change: Turning to the results first quarter revenue was $2 7 billion and earnings per share was $3 79. We ended the first quarter with backlog of 48 billion of which approximately $28 billion is currently funded now let me share a few first quarter highlights.
Speaker Change: During the quarter at Ingalls Shipbuilding, we launched DDG 129, Jeremiah Denton christened <unk> 30, Harrisburg and started fabrication of <unk> 30 to Philadelphia.
To develop and test our high energy laser prototype to acquire track and destroy small to medium sized unmanned aircraft systems.
Speaker Change: At Newport News <unk> 79, Kennedy continued catapult testing and achieved 95% of compartments turn it over to the Navy.
On the shipbuilding side of the business, we established an Mou with HD Hyundai heavy industries. The Mou provides a framework for us to jointly explore opportunities to collaborate on accelerating shift production and supported defense and commercial shipbuilding projects.
Speaker Change: And on the Virginia Class program, we completed a major test event on the first part of block five SSN Ido to Oklahoma.
Speaker Change: Also at our recently acquired Newport News Charleston operations, we retained 99% of the transitioning workforce and these new shipbuilding team members are working on submarine and carrier units to help increase throughput at Newport News. We also celebrated the graduation of a 115 apprentices during the apprentice school graduations.
Like our existing strategic relationship with U K based Babcock <unk>.
Speaker Change: At both shipyards. These graduates started the apprentice program during Covid and we look forward to higher numbers of graduates in upcoming years. Following the expanded enrollment we've recently experienced.
Speaker Change: Turning to mission technologies. In addition to delivering the initial lines as small Uavs I mentioned earlier, we surpassed 700 remiss untreated underwater vehicles sold and delivered to 30 countries.
Speaker Change: Key wins emission technologies in the quarter. In addition to the high energy laser weapon system included a contract to expand shipboard and shore based training support for the U S Navy and coalition forces.
Speaker Change: Pilot training contract to support the nation's combat ready Force an award from the U S Air Force to protect systems and software and a task order to support global Aerospace operations.
Speaker Change: Turning to activities in Washington for a moment, while our full year continuing resolution for defense is unprecedented we are pleased with the support provided for our shipbuilding programs, which supports our target of achieving more than $50 billion in new awards across 2025 and 2026.
Speaker Change: The full year, continuing appropriations and extensions Act 2025 included funding for three Arleigh Burke class surface combatants, one Virginia class submarine one San Antonio class amphibious ship and they are coh for CV and 75.
Speaker Change: I'll note that we do not expect a material impact related to tariffs. We purchased the vast majority of our material domestically. We have long term purchase agreements in place for material that may be impacted by tariffs.
Speaker Change: In summary, I am encouraged by the results to date and the progress our team has made against the operational initiatives we've laid out.
Speaker Change: But I also know there is significant work to be done as we continue to execute for our customers and create value for our shareholders. Our outlook is unchanged and over the next few years as we execute on our pre COVID-19 contracts and transition into the post COVID-19 contracts, we will continue to reduce risk and align our portfolio baselines with it.
Speaker Change: Current environment.
Speaker Change: I fully expect topline growth with a forecast of $15 billion of revenue by 2030, as well as margin or free cash flow normalization in the years ahead.
Tom Kelly: And now I'll turn the call over to Tom for some remarks on our financial performance Tom.
Tom Kelly: Thanks, Chris and good morning, let me start by briefly discussing our first quarter results and then I will address our reaffirmed outlook for the year for more detail. Please refer to the earnings release issued this morning and posted to our website.
Tom Kelly: Beginning with our consolidated results on slide five of the presentation. Our first quarter revenues of approximately $2 7 billion decreased two 5% compared to the same period last year.
Tom Kelly: This decrease revenue was attributable to declines at Newport News Shipbuilding Ingalls Shipbuilding emission technologies.
Tom Kelly: Ingalls revenues of $637 million decreased by two 7% compared to the first quarter of 2024, driven primarily by lower volume on amphibious assault ships.
Tom Kelly: Newport News revenues of $1 4 billion decreased by two 6% compared to the first quarter of 2024, driven primarily by lower volumes in aircraft carriers and naval nuclear support services, partially offset by higher volumes and the Columbia class submarine program.
Tom Kelly: Mission technology revenues of $735 million decreased by 2% compared to the first quarter of 2024, driven primarily by lower volume and <unk> ISR.
Tom Kelly: Results for the quarter exceeded our guidance the year over year decline was expected and related to nonrecurring sales in the first quarter of 2024.
Operator: Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, please press star putted by one on your telephone keypad. If you change your mind, please press star putted by two. Please be advised that today's conference is being recorded. If you need further assistance, then please press star putted by zero.
Speaker Change: In more detail. Please refer to the earnings release issued this morning and posted to our website.
Tom Kelly: Moving on to slide six segment operating income of $171 million in the first quarter of 2025 increased less than 1% compared to the first quarter of 2024.
Speaker Change: Beginning with our consolidated results on slide five of the presentation.
Speaker Change: Our first quarter revenues of approximately $2 7 billion decreased two 5% compared to the same period last year.
Speaker Change: This decrease revenue was attributable to declines at Newport News Shipbuilding Ingalls Shipbuilding emission technologies.
Tom Kelly: And by improved performance at mission technologies in cyber and electronic warfare, and space and Unproved systems, which was largely offset by lower amphibious assault ship risk retirement at Ingalls.
Christie Thomas: I would now like to hand the call over to Christie Thomas, Vice President of Investor Relations.
Speaker Change: Ingalls revenues of $637 million decreased by two 7% compared to the first quarter of 2024, driven primarily by lower volume on its abuse assault ships.
Tom Kelly: At Newport News segment operating income improved by $3 million or three 7% compared to the first quarter of 2024.
Christie Thomas: Mrs. Thomas, you may begin. Thank you, operator. And good morning, everyone.
Speaker Change: Newport News revenues of $1 4 billion decreased by two 6% compared to the first quarter of 2024, driven primarily by lower volumes in aircraft carriers and naval nuclear support services, partially offset by higher volumes and the Columbia class submarine program.
Tom Kelly: Results in the quarter included unfavorable performance related adjustments were <unk> 80 enterprise as well as block four and block five of the Virginia class program, which were offset by contract incentives.
Christie Thomas: Welcome to the HII first quarter 2025 conference call. Matters discussed on today's call that constitute forward looking state Including our estimates regarding the company's outlook involve risks and uncertainties and reflect the company's judgment based on information available at the time of this call. These risks and uncertainties may cause our actual results to differ materially. Additional information regarding these factors is contained in today's press release and the company's SEC filing. We will also refer to certain non-GAAP financial measures.
Tom Kelly: Consolidated operating income for the quarter over $161 million increased by $7 million or four 5% from the first quarter of 2024 and operating margin of five 9% in the quarter compared to five 5% in the same period last year.
Speaker Change: Mission technology revenues of $735 million decreased by 2% compared to the first quarter of 2024, driven primarily by lower volume and <unk> ISR.
Speaker Change: Results for the quarter exceeded our guidance the year over year decline was expected and related to nonrecurring sales in the first quarter of 2024.
Tom Kelly: The improvement was driven by a more favorable operating fast Cas adjustment as well as the favorable segment's results I've noted.
Speaker Change: Moving on to slide six segment operating income of $171 million in the first quarter of 2025 increased less than 1% compared to the first quarter of 2024.
Christie Thomas: 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.hii.com.
Tom Kelly: Net earnings in the quarter were $149 million compared to $153 million in the first quarter of 2024.
Tom Kelly: Diluted earnings per share in the quarter with $3.79 compared to $3 87.
Speaker Change: Driven by improved performance at mission technologies in cyber and electronic warfare, and space and Unproved systems, which was largely offset by lower amphibious assault ship risk retirement at Ingalls.
Christie Thomas: On the call today are Chris Kastner, President and Chief Executive Officer, and Tom Stiehle, Executive Vice President and Chief Financial Officer.
Tom Kelly: In the same period last year.
Tom Kelly: Our contractual commitments increased by approximately $2 1 billion in the period, bringing backlog to 48 billion at the end of the quarter.
Speaker Change: At Newport News segment operating income improved by $3 million or three 7% compared to the first quarter of 2024.
Christopher Kastner: I will now turn the call over to Chris. Thanks, Christie. Good morning, everyone, and thank you for joining the call. I'll start by providing an update on our 2025 operational initiative. which include enhancing shipbuilding throughput, reducing costs, Securing New Contract Award In the first quarter, we made progress against our goal of improving shipbuilding throughput by 20% year over year. Ingalls is largely on plan and their production milestones remain unchanged. Newport News is modestly behind plan. Half of this variance is driven by the atypical weather we experienced in January and February. The most significant variance in Newport News resides with CVN 80.
Tom Kelly: Turning to slide seven cash used in operations was $395 million in the quarter.
Speaker Change: Results in the quarter included unfavorable performance related adjustments, where C. D. N 80 enterprise as well as block four in block five of the Virginia class program, which will offset by contract incentives.
Tom Kelly: Net capital expenditures were $67 million or two 5% of revenues.
Tom Kelly: Free cash flow in the quarter was negative $462 million.
Tom Kelly: This was within our free cash flow guidance range for the quarter. So at the low end of the range due to timing of incentives and normal fluctuations in program receipts and disbursements.
Speaker Change: Consolidated operating income for the quarter of $161 million increased by $7 million or four 5% from the first quarter of 2024 and operating margin of five 9% in the quarter compared to five 5% in the same period last year.
Tom Kelly: During the quarter, we did not repurchase any shares we did pay a cash dividend of $1 35 per share or <unk> $53 million in aggregate.
Speaker Change: The improvement was driven by a more favorable operating fast Cas adjustment as well as the favorable segment's results I've noted.
Tom Kelly: Turning to liquidity and the balance sheet, we ended the quarter with a cash balance of $167 million and liquidity of approximately $1 5 billion.
Christopher Kastner: This is directly related to the late major equipment that is to be installed in the hull of the ship. These delays directly impact the construction approach and have limited the progress we can make on the ship. Once this equipment is received from our suppliers, which is scheduled throughout the summer, we anticipate an acceleration of progress. Additionally, for both shipyards, our outsourcing efforts continue. and we expect this to ramp throughout the year to support our throughput goals. Our South Carolina production facility is online and has already completed the first carrier unit for Newport News. The team remains focused on meeting our delivery schedules and is working with the Navy to identify additional initiatives that will accelerate schedule performance.
Speaker Change: Net earnings in the quarter were $149 million compared to $153 million in the first quarter of 2024.
Tom Kelly: Today, we are repaying a $500 million note and plan to utilize our revolving credit facility and commercial paper program to support interim liquidity as free cash flow generation ramps through the year.
Speaker Change: Diluted earnings per share in the quarter with $3 79 compared to $3 87 in.
Tom Kelly: This is in line with our prior expectations and was contemplated in the interest expense guidance that we had previously provided and are reiterating today.
In the same period last year.
Speaker Change: Our contractual commitments increased by approximately $2 1 billion in the period, bringing backlog to 48 billion at the end of the quarter.
Tom Kelly: Our capital allocation priorities are unchanged, we value our investment grade credit rating, we will continue to strategically invest in our shipyards thoughtfully grow our dividend and return excess cash through share repurchases.
Speaker Change: Turning to slide seven cash used in operations was $395 million in the quarter net.
Speaker Change: Net capital expenditures were $67 million or two 5% of revenues.
Tom Kelly: Moving onto our outlook on slide eight we are reiterating all elements of the 2025 guidance and there is no change to our medium to long term thinking in terms of growth and profitability expectations.
Speaker Change: Free cash flow in the quarter was negative $462 million.
Speaker Change: This was within our free cash flow guidance range for the quarter. So at the low end of the range due to timing of incentives and normal fluctuations in program receipts and disbursements.
Christopher Kastner: Turning to our cost reduction efforts, plans are in place and we intend to reach our goal of $250 million in annualized cost reduction by year's end. We have an agreement on the Block 5 FY24 two-boat contract, and we'll now turn our focus to the Block 6 and Columbia Bill 2 contracts. Also, I want to highlight how our strategic focus in 2025 aligns nicely with the administration's defense priorities. On April 9th, the Trump administration released two executive orders modernizing defense acquisitions and spurring innovation in the defense industrial base and restoring America's maritime dominance. We are working with our customers on strengthening the industrial base and accelerating the transition of new capabilities to the warfighter.
Tom Kelly: Our guidance is predicated on achieving the operational initiatives, we have laid out for 2025.
Speaker Change: During the quarter, we did not repurchase any shares we did pay a cash dividend of $1 35 per share or <unk> $53 million in aggregate.
Tom Kelly: As Chris noted we are progressing on each of these items and we expect to achieve a meaningful improvement in throughput over the course of the year.
Speaker Change: Turning to liquidity and the balance sheet, we ended the quarter with a cash balance of $167 million and liquidity of approximately $1 5 billion. Today, we are repaying $500 million note and plan to utilize our revolving credit facility and commercial paper program to support interim liquidity as free cash flow generation ramps through the year.
Tom Kelly: For Shipbuilding, we expect second quarter sales of approximately $2 2 billion and margins near the low end of our annual guidance range for.
Tom Kelly: Emission technologies, we expect second quarter sales that are relatively flat sequentially and margins of three to three 5%.
Tom Kelly: We expect second quarter free cash flow to be between 200 $300 million.
Speaker Change: This is in line with our prior expectations and was contemplated in the interest expense guidance that we had previously provided and are reiterating today.
To close I will echo chris's positive sentiment regarding the companys mid to long term outlook, we see incredible demand for critical products and services that we provide and are heartened by the administration's clear focus on growing our domestic shipbuilding capability and supporting a strong maritime industrial base with that I'll turn the call back over to Christina <unk>.
Christopher Kastner: We are leaning into the use of other transaction authorities and are working with the Rapid Capabilities Office as a means to leverage new technology. For example, in April, we delivered the first two Lionfish, small uncrewed undersea vehicles, to the U.S. Navy under a program that could scale to 200 vehicles. The program was developed in partnership with the U.S. Navy and Defense Innovation Unit to accelerate adoption of dual-use commercial technologies into U.S. Department of Defense programs. This quarter, we also announced that our Mission Technologies Division was selected to develop an open-architecture, high-energy laser counter-drone system for the U.S.
Speaker Change: Our capital allocation priorities are unchanged, we value our investment grade credit rating, we will continue to strategically invest in our shipyards thoughtfully grow our dividend and return excess cash through share repurchases move.
Tom Kelly: Q&A.
Moving onto our outlook on slide eight we are reiterating all elements of the 2025 guidance and there is no change to our medium to long term thinking in terms of growth and profitability expectations.
Thanks, Tom as a reminder to everyone on the call. Please limit yourself to one initial question and one follow up so we can get as many people through the queue as possible.
Speaker Change: Operator, I will turn it over to you to manage the Q&A.
Speaker Change: Our guidance is predicated on achieving the operational initiatives, we have laid out for 2025.
Speaker Change: Thank you very much Christie if he would like to ask a question. Please press star followed by one.
Speaker Change: As Chris noted we are progressing on each of these items and we expect to achieve a meaningful improvement in throughput over the course of the year.
Speaker Change: One on your telephone keypad now please.
Speaker Change: Please ensure your devices and muted Lucky if you change your mind or your question has already been answered. Please press star followed by two.
Christopher Kastner: Army's Rapid Capabilities and Critical Technologies Office. HII will develop and test a high-energy laser prototype to acquire, track, and destroy small-to-medium-sized unmanned aircraft. On the shipbuilding side of the business, we established an MOU with HD Hyundai Heavy Industries. The MOU provides a framework for us to jointly explore opportunities to collaborate on accelerating ship production in support of defense and commercial shipbuilding projects. Like our existing strategic relationship with UK-based Babcock International, we believe international partnerships are crucial to strengthening the allied industrial base. Given our core business, these strategic relationships position us to support initiatives that may result from the Maritime Executive Order.
Speaker Change: For Shipbuilding, we expect second quarter sales of approximately $2 2 billion and margins near the low end of our annual guidance range.
Speaker Change: Our first question comes from Doug Harned Bernstein. Thank you.
Speaker Change: <unk> technologies, we expect second quarter sales that are relatively flat sequentially and margins of 3% to three 5%.
Speaker Change: Your line is now open. Please go ahead.
Speaker Change: We expect second quarter free cash flow to be between 200 and $300 million.
Speaker Change: Good morning, Thank you.
Speaker Change: Doug.
Speaker Change: We've seen.
Speaker Change: We've seen them.
Speaker Change: To close I will echo chris's positive sentiment regarding the companys mid to long term outlook, we see incredible demand for critical products and services that we provide and are heartened by the administration's clear focus on growing our domestic shipbuilding capability and supporting a strong maritime industrial base with that I'll turn the call back over to Christie to manage the queue.
Speaker Change: With the CR with additional money for shipbuilding infrastructure and then this.
Speaker Change: Big authorization proposal.
Speaker Change: It came up on the weekend.
Speaker Change: And when you look at all of this.
Speaker Change: So to be more money, there, but the thing that.
Speaker Change: Hey.
Speaker Change: I have sort of struggled with here is how to take that money and converted into a plan that can address what you.
Christie: Thanks, Tom as a reminder to everyone on the call. Please limit yourself to one initial question and one follow up so we can get as many people through the queue as possible.
Christopher Kastner: Turning to the results, first quarter revenue was $2.7 billion and earnings per share was $3.79. We ended the first quarter with backlog of $48 billion, of which approximately $28 billion is currently funded. Now let me share a few first quarter highlights. During the quarter, at Ingalls Shipbuilding, we launched DDG 129 Jeremiah Denton, christened as LPD-30 Harrisburg, and started fabrication of LPD-32 Philadelphia. At Newport News, CBN's 79 Kennedy continued catapult testing and achieved 95% of compartments turned over to the Navy. and on the Virginia Class Program, we completed a major test event on the first boat of Block 5, SSN 802 Oklahoma.
Speaker Change: Say on the Virginia class you electric boat.
Speaker Change: Operator, I will turn it over to you to manage the Q&A.
Speaker Change: And the whole infrastructure needs to happen to really get throughput up.
Speaker Change: Thank you very much Christie if he would like to ask a question. Please press star followed by one on your telephone keypad now please enjoy your devices and you could lucky if you change your mind or your question has already been answered. Please press star followed by two.
Speaker Change: Can you comment on.
Speaker Change: Where are the responsibilities lie with the Navy is actually doing so that we can have confidence that not just the money is there.
Speaker Change: But the real actions are there to change the way things have been going over the last few years.
Speaker Change: Yeah.
Doug Harned: Our first question comes from Doug Harned.
Bernstein: Bernstein. Thank you. Your line is now open. Please go ahead.
Doug: Sure Doug.
Doug: Let me give that a shot that's a that's a big question and it's not only the budget.
Doug Harned: Yeah.
Speaker Change: Good morning, Thank you.
Doug Harned: Good morning, Doug.
Doug: $400000 to boat.
Doug Harned: We've seen it.
Doug: The executive orders.
Christopher Kastner: Also, in our recently acquired Newport News Charleston operations, we retained 99% of the transitioning workforce, and these new shipbuilding team members are working on submarine and carrier units to help increase throughput at Newport News. We also celebrated the graduation of 115 apprentices during the Apprentice School graduations at both shipyards. These graduates started the Apprentice Program during COVID, and we look forward to higher numbers of graduates in upcoming years following the expanded enrollment we've recently experienced. Turning to mission technologies, in addition to delivering the initial line to small UUVs I mentioned earlier, we surpassed 700 Remus uncrewed underwater vehicles sold and delivered to 30 countries.
Doug Harned: We've seen now with the CR with additional money for ship building infrastructure and then this big authorization proposal.
Doug: Related to commercial shipbuilding and then reconciliation.
Doug: Just a lot of tailwind.
Doug: Now related to shipbuilding that we need to participate in.
Doug Harned: It came up on the weekend.
Doug: Now the first step.
Doug Harned: Bill.
Doug Harned: When you look at all of this.
Doug: And seeing what the investments are in that regard is this FY 'twenty <unk> contract that was a product of.
Doug Harned: <unk>.
Doug Harned: This should be more money there, but the thing that that I have sort of struggled with here is how to take that money and convert it into a plan that can address what you.
Doug: Really a couple of years of effort by the Navy in the ship builders to evaluate the investments that were required to get accelerating throughput.
Doug Harned: Say on the Virginia class you electric boat.
Doug: You see that in the award of that contract, but it was very thoughtfully put together.
Doug Harned: And the whole infrastructure needs to happen to really get throughput up.
Doug: It's a wage support and workforce development support it's very targeted investments to increase the submarine build rate.
Doug Harned: Can you comment on where.
Doug Harned: Where are the responsibilities lie with the Navy is actually doing so that we can have confidence that not just the money is there.
Christopher Kastner: Key winds emission technologies in the quarter, in addition to the high-energy laser weapons system, included a contract to expand shipboard and shore-based training support for the U.S. Navy and coalition forces. This is a pilot training contract to support the nation's combat-ready force, an award from the U.S. Air Force to protect systems and software, and a task order to support global air and space operations. Turning to activities in Washington for a moment, while a full-year continuing resolution for defense is unprecedented, we are pleased with the support provided for our shipbuilding programs, which supports our target of achieving more than $50 billion in new awards across 2025 and 2026.
Doug: So that's all very positive and then when you look at the SIB and the mid funding that has been applied to the supplier base. That's also very positive and you'll see a buildup of the infrastructure.
Doug Harned: But the real actions are there.
Doug Harned: <unk> the way things have been going over the last few years.
Doug Harned: Yeah.
Doug: In shipbuilding that will support the growth that we think is ahead of us so it's really a <unk>.
Doug Harned: Sure Doug.
Doug Harned: Let me, let me give that a shot that's a that's a big question and it's not only the budget the FY 'twenty two boat.
Doug: <unk>.
Doug: Would think an industry wide area all hands on deck effort to identify a build out of that industrial base now it is not easy. It takes time. These are heavy manufacturing facilities and equipment. This is building a workforce.
Doug Harned: The executive orders.
Doug Harned: Related to commercial shipbuilding and then reconciliation.
Doug Harned: Theres, just a lot of tailwind right.
Doug Harned: Right now related to shipbuilding that we need to participate in.
Doug: In a challenging environment.
Doug Harned: The first step.
Doug: But I think it's the only positive for HII and positive for shipbuilding.
Doug Harned: And seeing what the investments are in that regard is this FY 'twenty <unk> contract that was a product of really a couple of years of effort by the Navy in the ship builders to evaluate the investments that were required to get at accelerating throughput.
Christopher Kastner: The full year Continuing Appropriations and Extensions Act 2025 included funding for three Arleigh Burke-class surface combatants, one Virginia-class submarine, one San Antonio-class amphibious ship, and the RCOH for CVN 75. All note that we do not expect a material impact related to tariffs. We purchase the vast majority of our material domestically. We have long-term purchase agreements in place for material that may be impacted by tariffs.
Doug: And then.
Doug: I guess the challenge here is that Theres been a lot of discussion about this over the last few years.
Doug: And just are there some specific things like if you started to look at what you need to get to get to that rate of two Virginia class per year.
Doug Harned: See that in the award of that contract.
Doug Harned: It was very thoughtfully put together.
Doug Harned: It's a wage support and workforce development support it's very targeted investments to increase the submarine build rate.
Doug: What's the trajectory for this what other specific things that that will enable you.
Christopher Kastner: In summary, I'm encouraged by the results to date and the progress our team has made against the operational initiatives we've laid out, but I also know there's significant work to be done as we continue to execute for our customers and create value for our shareholders. Our outlook is unchanged, and over the next few years, as we execute on the pre-COVID contracts and transition into the post-COVID contracts, we will continue to reduce risk and align our portfolio baselines with the current environment. I fully expect top-line growth with a forecast of $15 billion of revenue by 2030, as well as margin of free cash flow normalization in the years ahead.
Doug Harned: That's all very positive and then when you look at the SIB and the mid funding that has been applied to the <unk>.
Doug: And your your partner to get there.
Doug: Absolutely and in really the first step of that.
Doug Harned: That's also very positive and you see a buildup of the infrastructure.
Doug: This FY 'twenty two both contract targeted investments in.
Doug Harned: In shipbuilding that will support the growth that we think is ahead of us so it's really a really.
Doug: And workforce.
Doug: Equipment facilities training that will accelerate the throughput we have a lot of confidence that when these investments take hold it is going to start to.
Doug Harned: Really.
Doug Harned: I would think an industry wide are all hands on deck effort to identify a build out of that industrial base now it's not easy. It takes time these are heavy manufacturing facilities and equipment.
Doug: To wrap throughput for the submarine program and this shouldn't and here, we're going to negotiate block six of the Columbia Bill two contracts, we've identified additional investments that could potentially be applied.
Doug Harned: This is building a workforce and a challenging environment.
Doug: To further accelerate so it's going to.
Doug Harned: But I think it's the only positive for.
Thomas Stiehle: And now I'll turn the call over to Tom for some remarks on our financial performance. Thanks, Chris, and good morning. Let me start by briefly discussing our first quarter results, and then I will address our reaffirmed outlook for the year.
Doug Harned: For HII and positive for shipbuilding.
Doug: As I've said before it's going to take a while it you just don't build a building overnight you don't build the workforce overnight, but I absolutely think that these are the right investments to get at the build rate.
Doug Harned: But I guess the challenge here is that there's been a lot of discussion about this over the last few years and just are there. Some specific things like if you started to look at what you need to get to get to that rate of two Virginia.
Thomas Stiehle: For more detail, please refer to the earnings release issued this morning and post it to our website. Beginning with our consolidated results on slide 5 of the presentation, our first quarter of revenues of approximately $2.7 billion decreased 2.5% compared to the same period last year. This decreased revenue was attributable to declines at Newport News Shipbuilding, Ingalls Shipbuilding, and Mission Technologies. Ingalls revenues of $637 million decreased by 2.7% compared to the first quarter of 2024, driven primarily by lower volume on amphibious assault ships. Newport News revenues of $1.4 billion decreased by 2.6% compared to the first quarter of 2024, driven primarily by lower volumes in aircraft carriers and naval nuclear support services, partially offset by higher volumes in the Colombian-class submarine program.
Doug: Thank you.
Speaker Change: Our next question comes from David Strauss with Barclays. David Your line is now open. Please go ahead.
Doug Harned: Class per year.
Doug Harned: What's the trajectory for this what other specific things that that will enable you and your.
Doug: Hi, good morning.
Speaker Change: Good morning.
Speaker Change: Chris following up on the <unk>.
Doug Harned: Your partner to get there.
Speaker Change: Your money.
Doug Harned: Absolutely and in really the first step of that is this FY 'twenty two both contract targeted investments.
For two contract that was announced yesterday it looks like it cost them. Some form of cost contract. How is that although we were operating under a fixed price on Virginia class. So how.
And workforce.
Doug Harned: Equipment facilities training that will accelerate the throughput we have a lot of confidence that when these investments take hold it is going to start to.
Speaker Change: How is that.
Speaker Change: <unk> defer them, what does that contract contemplate differently I guess on prior contract.
Tom Kelly: It's a bit of a hybrid but I'll kick it over to Tom you can answer that.
Doug Harned: The ramp throughput for the submarine program and this shouldn't in here, we're going to negotiate block six of the Columbia Bill two contracts, we've identified additional investments that could potentially be applied.
Yes.
Tom Kelly: A cost type contract. It covers both parties then avian ourselves concerns as far as what wants to pay for a contract.
Doug Harned: To further accelerate so it's going to.
Thomas Stiehle: Mission Technology revenues of $735 million decreased by 2% compared to the first quarter of 2024, driven primarily by lower volume in C5ISR. Results for the quarter exceeded our guidance. The year-over-year decline was expected and related to non-recurring sales in the first quarter 2024. Moving on to slide 6, segment operating income of $171 million in the first quarter of 2025 increased less than 1% compared to the first quarter of 2024, driven by improved performance at mission technologies in cyber, electronic warfare in space, and uncrewed systems. which was largely offset by lower amphibious assault ship risk, retirement, and At Newport News, segment operating income improved by $3 million or 3.7% compared to the first quarter of 2024.
Tom Kelly: Mix and blend between affordability and profitability and it covers a business environment that we find ourselves operating in.
Doug Harned: As I said before it's going to take a while and you just don't build a building overnight you don't build a workforce overnight, but I absolutely think that these are the right investments to get at the build rate.
Tom Kelly: So it's a <unk> and it has some constraints as far as.
Tom Kelly: Some parameters around the outskirts of warehouse can land, but we're happy that we were able to get that done.
Doug Harned: Okay very good thank you.
Doug Harned: Thank you.
Tom Kelly: We've worked hard with the Navy and it was approved through the government channels and as you saw it was awarded last night. So we're excited about that to get going on that contract.
David Strauss: Our next question comes from David Strauss with Barclays. David Your line is now open. Please go ahead.
Doug Harned: Yeah.
Tom Kelly: Okay and.
Doug Harned: Hi, good morning.
Speaker Change: Any more detail on you know obviously the shipbuilding margins in total came through better than what you had guided to Newport News got got a fair amount better Ingalls kind of continue to step back can you just.
Doug Harned: Good morning.
Doug Harned: Chris following up on the <unk>.
Speaker Change: Your money the 24 to a contract that was announced yesterday it looks like it's caught some form of cost contract. How is that although we were operating under a fixed price on Virginia class. So how how is that.
Speaker Change: Little bit more detail on exactly what's going what's going on and why you are forecasting.
Speaker Change: Kind of a margin step down again in Q2 and I also wanted to talk about what eac's or in the quarter.
Speaker Change: <unk> defer them, what does that contract contemplate differently I guess on prior contract.
Thomas Stiehle: Results in the quarter included unfavorable performance-related adjustments for CVN 80 Enterprise as well as Block 4 and Block 5 of the Virginia Class Program, which were offset by contract incentives. Consolidated operating income for the quarter of $161 million increased by $7 million, or 4.5% from the first quarter of 2024. An operating margin of 5.9% in the quarter compares to 5.5% in the same period last year. The improvement was driven by a more favorable operating fast cast adjustment, as well as the favorable segments results I've noted. Net earnings in the quarter were $149 million, compared to $153 million in the first quarter of 2024.
Speaker Change: Yeah sure.
Speaker Change: We guided 505 for the quarter. So we're happy with where we landed we landed.
Speaker Change: Yeah, it's a bit of a hybrid but I'll kick it over to Tom you can answer that.
Speaker Change: That's about.
Speaker Change: So it's a cost type contract covers both parties, then avian ourselves concerns as far as what it wants to put on contract.
Speaker Change: About 90 bps above that Ingalls came in at 72.
Speaker Change: And it was a pacing quarter for them.
Speaker Change: I guess I can start with the EAC adjustments, we had 80, often 80 down for a net of zero. So there's no there's no breakout.
Speaker Change: Mix and blend between affordability and profitability and it covers a business environment that we find ourselves operating in.
Speaker Change: So.
Speaker Change: So there was no.
Speaker Change: <unk> has some constraints as far as.
Speaker Change: Adjustments across the company at a net.
Speaker Change: Some parameters around the outskirts of where costs in line, but we're happy that we were able to get that done.
Speaker Change: Ingalls.
Speaker Change: <unk>, what I would say right now we're watching how and ships are performing show low pressure on sales on the sales front.
Speaker Change: We've worked hard with the Navy and it was approved through the government channels and as you saw it was awarded last night. So we're excited about that to get going on that contract.
Speaker Change: Kind of working ourselves through the heart of those programs down there from a Newport news perspective. It was a good quarter I think it came in at six 1% on the margin side.
Speaker Change: Okay and any.
Speaker Change: It was a mix of.
Thomas Stiehle: Diluted earnings per share in the quarter were $3.79, compared to $3.87 in the same period last year. Our contractual commitments increased by approximately $2.1 billion in the period, bringing backlog to $48 billion at the end of the quarter. Turning to slide 7, cash used in operations was $395 million in the quarter. Net capital expenditures were $67 million or 2.5% of revenue. free cash flow in the quarter was negative $462 million. This was within our free cash flow guidance range for the quarter, though at the low end of the range, due to timing of incentives and normal fluctuations in program receipts and dispersion.
Speaker Change: Any more detail on you know obviously the shipbuilding margins in total came through better than what you had guided to Newport News got got a fair amount better Ingalls kind of continued to step back can you just.
Speaker Change: Some pressures that we've seen on CV and ADP that Chris talked about in his remarks that youre waiting for parts of the pop in exercising a little bit of a draw on the EAC and schedule on that front and on the Vcs program management work and people and parts to make sure. We have enough people talented people to wages and wage element of this recent award will help that and.
Speaker Change: Little bit more detail on exactly what's going what's going on and why you are forecasting.
Speaker Change: And on the parts side, just making sure we can feed that production line as that production ramps up and wants to get to the one plus two that we've talked about earlier here. So.
Speaker Change: Kind of a margin step down again in Q2 and that you also want to talk about what eac's where in the quarter.
Speaker Change: Yeah sure so hey.
Speaker Change: The New award associated with that with some incentives that helped to offset that but as I said overall it was a net neutral for EAC adjustments across the Corporation. David This is Chris I think youre seeing.
Speaker Change: We guided five five for the quarter. So we're happy with where we landed and landed.
Speaker Change: That's about a 90.
Speaker Change: <unk> 90 bps above that Ingalls came in at seven two.
Speaker Change: And it was a pacing quarter for them.
Speaker Change: A bit of frustration regarding the timing of incentives kind of across the portfolio I talk spoken previously that we just have more incentives on our contracts now and the timing is variable at some point so.
Speaker Change: I guess I can start with the EAC adjustments, we had 80 off an 80 down for a net of zero. So there's no there's no break out that.
Thomas Stiehle: During the quarter, we did not repurchase any shares. We did pay a cash dividend of $1.35 per share, or $53 million in aggregate. Turning to liquidity and the balance sheet, we ended the quarter with a cash balance of $167 million and liquidity of approximately $1.5 billion. Today, we are repaying a $500 million note and plan to utilize a revolving credit facility and commercial paper program to support interim liquidity as free cash flow generation ramps through the year. This is in line with our prior expectations and was contemplated in the interest expense guidance that we had previously provided and are reiterating today.
Speaker Change: So there was no cumulative adjustments across the company as a net.
Speaker Change: We tried to guide based on what we see in front of us.
Speaker Change: Ingalls Ah patient cohort I would say right now we're watching how an chips are performing show low pressure on sales on the sales front.
Speaker Change: And if we if incentives fall before after then.
Speaker Change: Jeff side of that but we're comfortable with our guidance.
Speaker Change: Working ourselves through the heart of them down.
Speaker Change: Empty perspective, we saw that they had a very.
Speaker Change: Down there from a Newport news perspective, it was a good quarter I think it came in at six 1% on the margin side.
Speaker Change: Strong quarter.
Speaker Change: EW business unit performed well against the contracts they had.
Speaker Change: It was a mix of.
Speaker Change: On crude.
Speaker Change: Some pressures that we've seen on television 80 that Chris talked about in his remarks that you're waiting for parts of the pop and Thats, just adding a little bit of a draw on the EAC and schedule on that front and on the Vcs program management work and people and parts to make sure. We have enough people talented people the wages wage element of this recent award will help that.
Speaker Change: Business unit that we have there is performing well right now so there's a couple of dollars of margin accretive on that front. The guide for Q2 that you asked about I think we're just being conservative right now as Chris said, there's a lot a lot of work to do although we're on pace and where we want to be on cost reductions and throughput.
Thomas Stiehle: Our capital allocation parties are unchanged. We value our investment grade credit rating. We will continue to strategically invest in our shipyards, thoughtfully grow our dividend, and return excess cash through share repurchase.
Speaker Change: And on the parts side I'm, just making sure we can feed that production line as that production ramps up and wants to get to the one plus two that we've talked about earlier here. So.
Speaker Change: The contract award so we got the first increment of this one here in the spring and then we have some vcs block six in Colombia until towards the back half of the year, but I think it's just conservatism and prudence in our side that we went back to the low end of the range.
Speaker Change: The New award assisted with that with some incentives that helped to offset that but as I said overall it was a net neutral for EAC adjustments across the Corporation. David This is Chris I think youre seeing.
Thomas Stiehle: Moving on to our Outlook on slide A, we are reiterating all elements of the 2025 guidance, and there is no change to our medium to long-term thinking in terms of growth and profitability expectations. Our guidance is predicated on achieving the operational initiatives we have laid out for 2025. As Chris noted, we are progressing on each of these items and we expect to achieve a meaningful improvement in throughput over the course of the year. For shipbuilding, we expect second quarter sales of approximately $2.2 billion and margins near the low end of our annual guidance rate. From Mission Technologies, we expect second quarter sales that are relatively flat sequentially in margins of 3 to 3.5 percent.
Speaker Change: Alright, thanks very much.
Speaker Change: Thanks.
Speaker Change: Our next question comes from Scott <unk>.
David Strauss: A bit of frustration regarding the timing of incentives kind of across the.
Speaker Change: With <unk> research. Your line is now open. Please go ahead.
David Strauss: I've talked spoken previously that we just have more incentives on our contracts now and the timing is variable at some point. So we tried to guide based on what we see in front of us.
Speaker Change: Good morning, Christian Tom I.
Speaker Change: I wanted to frontline on Davids question with the Virginia contract.
David Strauss: And if we are if incentives fall before after then.
Speaker Change: It was surprising to see that it was cost plus but obviously there is funding in there for workforce development Electric boat has an ongoing labor negotiation I think Newport news is three collective bargaining agreements expiring in 2007. So until those negotiations are wrapped up should we expect a greater share of shipbuilding.
David Strauss: Just set a bit but we're comfortable with our guidance.
David Strauss: Perspective, we saw that they had a very.
David Strauss: Strong quarter.
David Strauss: E W business unit performed well against the contracts they had.
David Strauss: On crude.
David Strauss: Business unit that we have there is performing well right now so there's a couple of dollars of margin accretive on that front. The guide for Q2 that you asked about I think we just think.
Thomas Stiehle: We expect second quarter free cash flow to be between $200 and $300 million. To close, I will echo Chris's positive sentiment regarding the company's mid- to long-term outlook. We've seen credible demand for critical products and services that we provide and are heartened by the administration's clear focus on growing our domestic shipbuilding capability and supporting a strong maritime industrial base.
Speaker Change: Orders over the remainder of this year and next year to be more cost plus incentive fee type structures.
David Strauss: Conservative right now as Chris said, there's a lot a lot of work to do although we're on pace and where we want to be on cost reductions and throughput.
Speaker Change: Yes, I wouldn't necessarily.
Speaker Change: Assume that.
Speaker Change: We need to really get the wage support that is provided in the <unk>.
David Strauss: The contract awards, we've got the first increment of Oh. This one here in the spring and then we have from Vcs block six and Hanmi adult toward the back half of the year, but I think it's just conservatism and prudence in our side that we went back to the low end of the range.
Speaker Change: Our to our workforce as quickly as we can and I'm not going to get into dates or commitments about when that happens.
Christie Thomas: With that, I'll turn the call back over to Christie to manage the Q&A. Thanks, Tom. As a reminder to everyone on the call, please limit yourself to one initial question and one follow up so we can get as many people through the queue as possible.
Speaker Change: Because we do have to discuss that with our labor unions.
Alright, thanks very much.
Speaker Change: But we believe that when we get the workforce the support the wage support to our to our workforce.
David Strauss: Thanks.
David Strauss: Our next question comes from Scott <unk>.
Operator: Operator, I will turn it over to you to manage the Q&A. Thank you very much, Christie. If you would like to ask a question, please press star followed by one on your telephone keypad now. Please ensure your device is unmuted locally. If you change your mind or your question has already been answered, please press star followed by two.
Speaker Change: As with <unk> Research. Your line is now open. Please go ahead.
Speaker Change: Our retention will improve in productivity will improve and we will be able to meet our make our throughput in our scheduled commitments. So I wouldn't necessarily think that.
Speaker Change: Good morning, Christian Tom I wondered a front running on David's question up.
Speaker Change: That would dictate the contract types and we're going to evaluate the appropriate contract highs based on the situation at hand, when we negotiate the contracts.
Speaker Change: Two the Virginia contract.
Speaker Change: It was surprising to see that it was cost plus but obviously theres funding in there for workforce development Electric boat has an ongoing labor negotiation I think Newport news just three collective bargaining agreements expiring in 2007, so until those negotiations are wrapped up should we expect a greater share of shipbuilding.
Speaker Change: So we're just going to have to.
Speaker Change: Kind of move ahead from here on block six and Columbia Bill too.
Doug Harned: Our first question comes from Doug Harned with Bernstein. Doug, your line is now open. Please go ahead. Good morning. Thank you. Good morning, Doug. Good morning. We've seen...
Speaker Change: The hybrid approach that essentially was put in place.
Speaker Change: With the two both contract forms and interesting basis to roll into those discussions, but where do you where are you going to have to establish those contract types as we as.
Speaker Change: There's over the remainder of this year and next year to be more cost plus incentive fee type structures.
Doug Harned: You know, we've seen, you know, now with the CR with additional money for shipbuilding infrastructure, and then this big authorization proposal that came up on the weekend. Now, you know, when you look at all of this, This should be more money there.
Speaker Change: As we engage with the customer and our partner.
Yeah.
Speaker Change: Yeah, I wouldn't necessarily.
Speaker Change: Okay and then the Golden Doom There was also a big priority for the administration.
Speaker Change: Assume that.
Speaker Change: We need to really get the wage support that's provided in a two boat.
Speaker Change: It's going to require a lot of equipment, especially radars and potentially the aegis ashore system lead times. When radars are also very long. So has there been communication between shipbuilding and the administration about how to produce enough radars for both the Golden boom.
Speaker Change: Outdoor workforce as quickly as we can I'm not going to get into dates or commitments about when that happens.
Christopher Kastner: But the thing that that I've sort of struggled with here is how to take that money and convert it into a plan that can address what you say on the Virginia class, you electric boat, and the whole infrastructure needs to happen to really get throughput up. Can you comment on Where the responsibilities lie, what the Navy is actually doing so that we can have confidence that not just the money is there. But the real actions are there to change the way things have been going over the last few Sure, Doug. Let me let me give that a shot.
Speaker Change: Because we do have to discuss that with with our labor unions, but we believe that when we get the work force to support the waste support to our to our workforce that our retention will improve productivity will improve and will be able to meet our make our throughput in our schedule commitments. So I wouldn't necessarily think that.
Speaker Change: And what the navy needs for shipbuilding priorities.
Speaker Change: Yeah. So we've done a bit we have not been involved in those and those discussions to date.
Speaker Change: I'm unaware of any discussions with the navy and potential suppliers for that so I will say our DDG 51 program is.
Speaker Change: That would dictate the contract types and we're going to evaluate the appropriate contract highs based on the situation at hand, when we negotiate the contracts.
Speaker Change: This program is going well, we saw 129 go on the water 128.
Speaker Change: Get to its first trials this year, so we're making progress on our milestones there but realm.
Speaker Change: So we're just going to have to.
Speaker Change: <unk> kind of move ahead from Hereon block six and Columbia Bill too.
Speaker Change: Relative to those those shifts with those those new radars, but I'm unaware of any discussions relative to Golden Dawn.
Speaker Change: The hybrid approach that essentially was put in place.
Speaker Change: With the two both contract forms and interesting basis to to roll into those discussions, but where do you where are you going to have to establish those contract types as we as.
Speaker Change: On our with our product.
Christopher Kastner: That's a that's a big question. And it's not only the budget, the FY 24-2 vote, the executive orders related to commercial shipbuilding, and then reconciliation. There's just a lot of tailwinds right now related to shipbuilding that we need to participate in. Now, the first step in seeing what the investments are in that regard, is this FY 24-2 vote contract, you know, that was a product of really a couple years of effort by the Navy and the shipbuilders to evaluate the investments that were required to get at accelerating throughput. You see that in the award of that contract, it was very thoughtfully put together.
Speaker Change: Alright, thanks for taking the questions.
Speaker Change: Sure.
Speaker Change: Thank you very much. Our next question is from peak Kubicki with Alembic Global Your line is now open. Please go ahead.
Speaker Change: As we engage with the customer and our partner.
Speaker Change: Okay, and then the Golden do them and there was also a big priority for the administration.
Speaker Change: It's going to require a lot of equipment, especially radars and potentially the aegis ashore system lead times. When radars are also very long. So has there been communication between shipbuilding and the administration about how to produce enough radars for both the Golden Dome and what the navy needs for shipbuilding priorities.
Peak Kubicki: Hey, good morning, guys.
Speaker Change: I guess, Chris or Tom I'm, not sure but.
Speaker Change: Kind of a complicated situation, but you guys have nearly $50 billion in total backlog right now and Youre talking about an incremental 50 billion in new awards in the relative.
Speaker Change: Near term how can we not think that there is upward pressure on that 4%.
Speaker Change: Yeah. So we've done a bit we have not been involved in those and those discussions to date.
Speaker Change: Shipbuilding revenue growth guide.
Speaker Change: I'm unaware of any discussions with the navy and potential suppliers for that so I will say our DDG 51 program is.
Speaker Change: This type of backdrop.
Speaker Change: Backdrop as it is.
Christopher Kastner: It's a wage support and workforce development support. It's very targeted investments to increase the submarine build rate. So that's all very positive. And then when you look at the CIB and the MIB funding that have been applied to the supplier base, that's also very positive. And you see a buildup of the infrastructure in shipbuilding that will support the growth that we think is ahead of us. So it's really a really a, I would think an industry wide, all hands on deck effort to identify a build out of that industrial base. Now, it's not easy, it takes time.
Speaker Change: Is it still just early or labor situation that confounding I assumed a 4% doesn't include you know the $150 billion in defense assets potentially coming down the pike as well.
Speaker Change: This program is going well, we saw 129 go on the water 128 will.
Speaker Change: It gets what's first trials this year so.
Speaker Change: We're making progress on our milestones there, but relative to those those shifts with those those new radars, but I'm unaware of any discussions relative to Golden dome.
Speaker Change: So just wanted to hear your thoughts on that.
Speaker Change: Yes.
Speaker Change: 50 billion of New awards includes.
Speaker Change: Therefore, 2004 to both contract block six.
Speaker Change: On our with our product.
Speaker Change: The Columbia.
Speaker Change: Alright, thanks for taking the questions.
Speaker Change: Second build it.
Speaker Change: Sure.
Speaker Change: Thank you very much. Our next question is from peak Kubicki with Alembic Global Your line is now open. Please go ahead.
Speaker Change: It also includes the <unk> bundle down.
Speaker Change: Down in Ingalls, so I wouldn't necessarily correlate it to a $50 billion add in backlog from our current backlog levels.
Christopher Kastner: These are heavy manufacturing facilities. And equipment. This is building a workforce in a challenging environment. But I think it's only positive for HII and positive for shipbuilding.
Speaker Change: Hey, good morning, guys.
Speaker Change: Now <unk>.
Speaker Change: Okay.
Speaker Change: Tailwind related to the 4%.
Speaker Change: I guess, Chris or Tom I'm, not sure, but I'm kind of a complicated situation, but you guys have nearly $50 billion in total backlog right now and Youre talking about an incremental 50 billion in new awards in the relative near.
Speaker Change: Absolutely could happen I don't im not going to go there from a guidance standpoint at all right now, but the tailwind between reconciliation the executive order.
Christopher Kastner: But if I guess the the challenge here is that there's been a lot of discussion about this over the last few years. And just are there some specific things like if you start to look at what you need to get to get to that rate of two Virginia class per year? You know, what's the trajectory for this? What other specific things that will enable you and your partner to get there? Absolutely. And really, the first step of that is this FY 24 two boat contract targeted investments in workforce, equipment, facilities, training, that will accelerate the throughput.
Speaker Change: The contracts being put under contract.
Speaker Change: Near term how can we not think that there is upward pressure on that 4%.
Speaker Change: Investments that are being made in the industrial base and the shipyards theres, absolutely medium term upside related to that top line growth number.
Speaker Change: Shipbuilding revenue growth guide.
Speaker Change: Type of backdrop.
Speaker Change: Backdrop as it.
Speaker Change: So we just need to take advantage of it and that's where we're going to work work to do over the next couple of years.
Speaker Change: Is it still just early or labor situation that confounding and I assumed a 4% doesn't include you know the 150 billion in defense as its potentially coming down the pipe as well.
Speaker Change: Okay I appreciate it just one last one for me on Ingalls margin used to be kind of reliably in the double digits.
Speaker Change: You know kind of progressed over the past five quarters or so what time frame is reasonable for us to think about you know the current environment changing to one where positive EAC adjustments or more.
Speaker Change: I want to hear your thoughts on that.
Speaker Change: Yes, so let's say the 50 billion of New awards includes.
Speaker Change: 24 to both contract.
Speaker Change: Six.
Christopher Kastner: We have a lot of confidence that when these investments take hold, it's going to start to ramp throughput for the submarine program. And this shouldn't end here, we're going to negotiate block six of the additional investments that could potentially be applied to further accelerate. So it's gonna, as I said before, it's going to take a while, you just don't build a building overnight, you don't build a workforce overnight. But I absolutely think that these are the right investments to get at the build rate.
Speaker Change: On the Colombia.
Speaker Change: Maybe more likely than not.
Speaker Change: Second build.
Speaker Change: It also includes the <unk> bundle.
Speaker Change: Yes, I think you've been able to add the culprit.
Speaker Change: Down in Ingalls, so I wouldn't necessarily correlate it to a $50 billion add in backlog from our current backlog levels.
Speaker Change: Positive EAC adjustments, it's not so much that we're realizing kind of kind of negative adjustments, but were staying on a run rate and we're neutral that all three of those programs are in our production volume at the engineering works the facilities up and running we've come through the shipyard in the future.
Speaker Change: Now <unk>.
Speaker Change: Tailwind related to the 4%.
Speaker Change: Absolutely could happen I'm not going to go there from a guidance standpoint at all right now, but the tailwind between reconciliation the executive order.
Speaker Change: Because it's really just about people and parts being able to hire enough to keep the retention and as we go forward with that to make sure that we feed the factory to running production environment. There. So I'm comfortable with the leadership down there and that we understand our ships.
Doug Harned: Okay, very good. Thank you.
Speaker Change: These contracts being put under contract. This the investments that are being made in the industrial base and the shipyards, there's absolutely a medium term upside related to that top line growth number.
David Strauss: Thank Our next question comes from David Strauss with Barclays.
Speaker Change: It's just coming post COVID-19.
David Strauss: David, your line is now open. Please go ahead. Hi, good morning. Morning. Chris, following up on the CR money, the 24-2 contract that was announced yesterday, it looks like it's a cost, some form of cost contract. How is that? I thought we were operating under a fixed price on Virginia class, so how is that potentially different? What does that contract contemplate differently, I guess, than prior contracts?
Speaker Change: Getting the sand out of the gears and having the production flow run as fast as possible. We are down probably a couple of years and hours of experience down there that just works itself through maybe not as cost efficient to realize upside so maybe a little bit more rework from time to time, maybe piece of material whether it's <unk>.
Speaker Change: So we just need to take advantage of it and that's where we're going to work our.
Speaker Change: Work to do over the next couple of years.
Speaker Change: Okay I appreciate it just one last one for me on on Ingalls margin you used to be kind of reliably in the double digits.
Speaker Change: You know kind of progressed over the past five quarters or so what time frame is reasonable for us to think about you know the current environment changing to one where positive EAC adjustments or more.
Speaker Change: Just all conspire to maybe not have <unk>.
The two earliest schedule or an EAC reduction that we just kind of finished on par, but all comparable with where they are right now I mean, I'd love to see upsides every quarter, but.
Speaker Change: More likely than not.
Thomas Stiehle: It's a bit of a hybrid, but I'll kick it over to Tom, he can answer that. Yeah, so it's a cost-type contract. It covers both parties, the Navy and ourselves, concerns as far as what wants to be put on contract. It's a good mix and blend between affordability and profitability, and it covers the business environment that we find ourselves operating in. So it's a CTIF, and it has some constraints as far as some parameters around the outskirts of where costs can land, but we're happy that we were able to get that done. We worked hard with the Navy, and it was approved through the government channels, and as you saw, it was awarded last night, so we're excited about that to get going on that contract.
Speaker Change: Yes, I think you nailed it that paid a culprit is positive.
Speaker Change: We have not seen like major setbacks down there. So I think they understand whats in front of them.
Speaker Change: Positive EAC adjustments, it's not so much that we're realizing kind of kind of negative adjustments.
Speaker Change: Throughput, we've talked about more cost efficiency and keep the factories had with parts and that that.
Speaker Change: Hang on a run rate and when neutral Theyre now all three of those programs and a production volume at the engineering works the facilities up and running we've come through the shipyard in the future.
Speaker Change: At shipyards, but that portfolio has a has a legacy of performance I think that I will turn the corner, we haven't give me the timeframe yet and we will keep you informed quarterly as we watched I proceed forward.
Speaker Change: It's really just about people and parts being able to hire enough and keep the retention and as we go forward with that to make sure that we see the faster you to running production environment. There. So I'm comfortable with the leadership down there and that we understand those ships.
Speaker Change: Okay I appreciate it guys.
Speaker Change: Okay.
Myles Walton: Our next question comes from Myles Walton with Wolfe Research. Your line is now open. Please go ahead.
Speaker Change: I think it's just coming post COVID-19 and getting the sand out of the gears and having the production flow.
Speaker Change: Thanks.
Speaker Change: Maybe Chris could you start by talking a little bit about the workforce and how it trended in the first quarter. Thank.
Speaker Change: Run as fast as possible, we are down probably a couple of years and hours of experience down there that just works itself through maybe not as cost efficient to realize was upsized it might be a little bit more rework from time to time, maybe piece of material whether it's cfe.
Thomas Stiehle: Okay, and any more detail on, you know, obviously, the Tripoli marches in total came through better than what you had guided to, you know, Newport News got got a fair amount better. Ingalls kind of continued to step back. Can you just little bit more detail on exactly what's going what's going on and why you're forecasting you know kind of a margin step down again in Q2 and if you also want to talk about what EACs were in the quarter. Thanks. Yeah, sure. So, hey, we got it 5.5 for the quarter, so we're happy with where we landed.
Speaker Change: Thank you probably picked up about 500 employees with double your international and.
Speaker Change: Yes releases still talking about 44000 employees. So was there much of a movement in the hiring and how has attrition doing.
Speaker Change: Yes, so interesting and good question Myles.
Speaker Change: It just all conspire to maybe not have Martha too early and schedule or an EAC reduction that we just kind of finished on a possible with where they are right now.
Speaker Change: We hired 1000 people.
Speaker Change: In the first quarter.
Speaker Change: Craftsmen and women.
Speaker Change: The that's directly related to the change in the strategy in both shipyards to hire more experienced personnel.
Speaker Change: Love to see upsides every quarter, but.
Speaker Change: Have not seen like major setbacks down there. So I think they understand whats in front of them.
Thomas Stiehle: We landed about 90 bps above that. Ingalls came in at 7.2, and it was a pacing quarter for them. I guess I can start with the EAC adjustments. We had 80 up and 80 down for a net of zero, so there's no break at that for you, so there was no cumulative adjustments across the company at a net. Ingalls pacing quarter, I would say right now, we're watching how Antibes are performing. We show a little pressure on sales, on the sales front, and it's kind of working ourselves through the heart of those programs down there.
Speaker Change: And improve the mix of experience versus new hires we think that strategy makes sense, we're going to continue.
Speaker Change: Throughput, we've talked about more cost efficiency I keep the factories shed with arch and that that's a ship.
Speaker Change: To execute on that the good news is attrition is down in both shipyards not materially down not not back to pre COVID-19 levels, but it is definitely moving in the right direction. So yes.
Speaker Change: Shipyard, but that portfolio has a has a legacy of performance I think that I will turn the call them Havent, giving you the timeframe yet.
Speaker Change: I'll keep you informed quarterly as we watched I proceed forward.
Speaker Change: <unk> hired 1000, which is a bit south of where we wanted to be but it's consistent with our strategy and attrition is a bit better than both shipyards, which is which is very positive.
Speaker Change: Okay I appreciate it guys.
Speaker Change: Okay.
Speaker Change: Our next question comes from Myles Walton with rules.
Speaker Change: Okay.
Speaker Change: And regarding the 35%.
Speaker Change: Research. Your line is now open. Please go ahead.
Thomas Stiehle: From a Newport News perspective, it was a good quarter as they came in at 6.1% on the margin side. It was a mix of some pressures that we've seen on CV and 80 that Chris talked about in his remarks. But as I said, overall, it was net neutral for EAC team adjustments across the corporation.
Speaker Change: Increase in outsourcing.
Speaker Change: Thanks.
Speaker Change: Can you comment on where you are with respect to that and sort of how the.
Speaker Change: Maybe Chris could you start by talking a little bit about the workforce and how it trended in the first quarter.
Speaker Change: The performance quality is looking from what's your outsourcing.
Speaker Change: Thank you probably picked up about 500 employees with double your international and.
Speaker Change: Actually the way we've executed on our outsourcing program has been very positive we have some tough lessons learned.
Speaker Change: Yes releases still talking about 44000 employees. So was there much of a movement in the hiring and how has attrition doing.
Speaker Change: Back at Ingalls and outsourcing.
Speaker Change: In the early two thousands.
Speaker Change: Yeah, So interesting and good question Myles.
Speaker Change: And we've used those lessons learned and apply them at both shipyards. So the quality is pretty good we do pilots.
Speaker Change: We hired 1000 people in the first quarter of 1000 craftsmen and women.
Speaker Change: The that's directly related to the change in the strategy at both shipyards to hire more experienced personnel and improve the mix of experience versus <unk>.
Speaker Change: These manufacturing hours before they actually execute work at scale.
Speaker Change: And we learned through that process or they've done that.
Speaker Change: We're on schedule in both the origin and outsourcing for the year and the quality looks looks good. So we're going to continue it and we need to the industrial base is expanding we need to take advantage of it but we need to make sure that it's always high quality because if it's not you have to redo it and that doesn't help us at all so yes.
Speaker Change: New hires we think that strategy makes sense, we're going to continue.
Christopher Kastner: David, this is Chris. I think you're seeing a bit of frustration regarding the timing of incentives kind of across the portfolio. I've spoken previously that we just have more incentives on our contracts now and the timing is variable at some point. So we try to guide based on what we see in front of us. And if incentives fall before or after, then it adjusts that a bit. But we're comfortable with our guidance. From an M&T perspective, we saw that they had a very strong quarter. The CEW business unit performed well against the contracts they had.
Speaker Change: To execute on that the good news is attrition is down in both shipyards not materially down not not back to pre COVID-19 levels, but it is definitely moving in the right direction. So yeah.
Speaker Change: <unk> hired 1000, which is a bit south of where we want it to be but it's consistent with our strategy and attrition is a bit better than both shipyards, which is which is very positive.
Speaker Change: Yes, it's very positive right now.
Speaker Change: Okay and last one on the stars program is there a direct benefit to the carrier programs or is it more of an indirect benefit.
Speaker Change: Okay.
Speaker Change: And regarding the 35% increase.
Speaker Change: The.
Speaker Change: The increase in outsourcing.
Speaker Change: Marine screen via the direct beneficiaries.
Speaker Change: Can you comment on where you are with respect to that and sort of how the.
Speaker Change: Yeah. It supports the entire nuclear.
Thomas Stiehle: And the uncrewed business unit that we have there is performing well right now. So there's a couple of dollars of margin created on that front. The guide for Q2 that you asked about, I think we're just being conservative right now. As Chris said, there's a lot of work to do, although we're on pace and where we want to be on cost reductions and throughput and the contract awards. We've got the first increment of this one here in the spring. And then we have VCS Block 6 and Columbia Build 2 at the back half of the year.
Speaker Change: The performance quality is looking from what's your outsourcing.
Speaker Change: Industrial base.
Speaker Change: So and nuclear infrastructure, so aircraft carriers could support.
Speaker Change: Actually the way we've executed on our outsourcing program has been very positive we have some tough lessons learned.
Speaker Change: That as well.
Speaker Change: Alright, thank you.
Speaker Change: Back at Ingalls and outsourcing.
Speaker Change: Sure.
Speaker Change: In the early two thousands.
Speaker Change: Our next question comes from that.
Speaker Change: And we use those lessons learned and apply them at both shipyards. So the quality is pretty good we do pilots in these manufacturing hours before they actually execute work at scale.
Speaker Change: And J P. Morgan your.
Speaker Change: <unk> is now open. Please go ahead.
Thomas Stiehle: But I think it's just conservatism and prudence on our side that we went back to the lower end of the range. All right, thanks very much.
Speaker Change: Hey, Thanks, very much good morning.
Speaker Change: And we learned through that process or they've done that we are on schedule in both yards in an outsourcing for the year and the quality looks looks good. So we're going to continue it and we need to the industrial base is expanding we need to take advantage of it but we need to make sure that it's always high quality because if it's not you have to redo it and that does.
Speaker Change: <unk>.
Speaker Change: Good morning.
Speaker Change: When we think about kind of the direct impact of the contract that was announced last night.
Scott Mikus: Our next question comes from Scott Mikus with Mellius Research. Scott, your line is now open. Please go ahead.
Speaker Change: Is there kind of a.
Speaker Change: Sizable.
Speaker Change: Cash advance associated with it and is that part of the cash guidance for Q2.
Scott Mikus: Morning Chris and Tom. I wanted to follow up on David's Tuba, Virginia. It was surprising to see that it was cost-plus. Obviously, there's funding in there for workforce development, electric boat has an ongoing Newport News. bargaining agreements expiring in So until those negotiations are a greater share. and next year to be more cost plus incentive fee type Yeah, I wouldn't necessarily assume that. We need to really get the wage support that's provided in the two boat out to our workforce as quickly as we can. I'm not going to get into dates or commitments about when that happens, because we do have to discuss that with with our labor unions.
Speaker Change: And does it enable signing the contract.
Speaker Change: Can help us at all so yeah.
Speaker Change: It's very positive right now.
Speaker Change: Give you opportunity to change.
Speaker Change: Okay and last one on the stars program is there a direct benefit to the carrier programs or is it more of an indirect benefit.
Speaker Change: Some of the assumptions on across the board.
Speaker Change: Across the different work at Newport News beyond just the two subs that were contracted.
Speaker Change: The sub.
Speaker Change: Submarines being the the direct beneficiaries.
Speaker Change: Let me, let me start with that guidance assumed.
Speaker Change: Yeah. It it supports the entire nuclear industrial.
Speaker Change: Execution of the block five to book contracted.
Speaker Change: Industrial base, so and and nuclear infrastructure, so aircraft carriers get support.
Speaker Change: It has all year.
Speaker Change: And we assume incentives.
Speaker Change: And that as well.
Speaker Change: Alright, thank you.
Speaker Change: Capital incentives.
Speaker Change: Sure.
Speaker Change: And all of our guidance so.
Speaker Change: There are some incentives in Q2 related to that contract as well as other contracts. So.
Speaker Change: Our next question comes from that.
Speaker Change: And then with J P Morgan.
Speaker Change: Your line is now open. Please go ahead.
Tom Kelly: It's all it's all in the mix when we when we come through our guidance for free cash flow for Q2 as well as the end of the year and love Tom If you want to add anything in regard to that to really hit it.
Speaker Change: Yeah, Thanks, very much good morning.
Speaker Change: Morning.
Speaker Change: Wanted to when what do we think about kind of the direct impact of the contract that was announced last night.
Christopher Kastner: But we believe that when we get the workforce, the support, the wage support to our to our workforce, that that retention will improve, and productivity will improve and we'll be able to make our throughput in our schedule commitments. So I wouldn't necessarily think that that would dictate the contract types. And we're going to evaluate the appropriate contract types based on the situation at hand when we negotiate the contracts. So we're just going to have to kind of move ahead from here on block six and Columbia build to the hybrid approach that essentially was put in place with the two boat contract forms an interesting basis to roll into those discussions.
Tom Kelly: Was incorporated into the guide that we gave you for Q2, we mentioned at the very beginning of the year expectation to have fun with that award.
Speaker Change: Is there kind of a.
Speaker Change: Sizeable cash.
Tom Kelly: Half of the year Vcs block fixing Columbia Bill too.
Speaker Change: Cash advance associated with it and it is that part of the cash guidance for Q2.
Tom Kelly: We're really happy.
Tom Kelly: We got that done here.
Speaker Change: And does it enable signing a contract.
Tom Kelly: Cash comes from margin and margin can come from operational performance capital incentives performance incentives.
Speaker Change: Give you opportunity to change.
Tom Kelly: With the new contract at helps out incrementally.
Speaker Change: Some of the assumptions on across the board.
Tom Kelly: In the mix and it was in line with what we expect in here so.
Speaker Change: Across the different work at Newport News beyond just the two subs that were contracted.
Tom Kelly: Comfortable with both the guide that we've given you now for Q2 of two to 300 supports the three to 500 for the entire year with no change.
Let me, let me start with the guidance assumed.
Tom Kelly: <unk> way to get there so.
Christopher Kastner: But we're going to have to establish those contract types as we as we engage with the customer and our partners.
Speaker Change: Execution of the block five to book contracted.
Tom Kelly: The question.
Speaker Change: It has all year.
Tom Kelly: Okay.
Tom Kelly: On the.
Speaker Change: And we assume incentives.
Tom Kelly: On the assumed and the booking rate part of that.
Christopher Kastner: Okay, and then the Golden Dome is also a big priority for the administration. and that's gonna require a lot of. radars, and potentially the Aegis Ashore. Lead times on radars are also very low. Urban Communication Shipbuilding and the administration about how to produce enough radars. and What the Navy Needs for Shipbuilding Priorities. Yeah, so we've done a bit we have not been involved in those in those discussions to date. I'm unaware of any discussions with the Navy and and potential suppliers for that. So I will say our DDG 51 program is Aegis program is going well, we saw 129 go on the water 128 will get to its first trial this year.
Speaker Change: Capital incentives.
Speaker Change: And all of our guidance. So there are some incentives in Q2 related to that contract is as well as other contracts. So.
Well, it's all included in our.
Tom Kelly: And our guide and in our accounting.
Tom Kelly: So its some we had always assumed this contract is going to get done.
Speaker Change: It's all it's all in the mix and we when we come through our guidance for free cash flow for Q2 as well as the end of the year and love Tom If you want to add anything in regard to that to really hit it.
Tom Kelly: This year.
Tom Kelly: And all of our and are counting on in our guidance.
Tom Kelly: Okay, and then just a little bit bigger picture.
Speaker Change: It was incorporated into the guide that we gave you for Q2, we mentioned at the very beginning of the year expectation to have both that award and then.
Tom Kelly: And with that I think with Hyundai during the quarter and one of the.
Tom Kelly: One of the topics that.
Bill: Back half of the year is just walk in Colombia Bill too.
Tom Kelly: Some people in Washington are discussing in terms of ways to accelerate shipbuilding is through.
Speaker Change: We're really happy.
Bill: Happy we got that done here.
Speaker Change: Cash comes from margin and margin can come from operational performance capital incentive performance incentives.
Tom Kelly: Partnership with other countries. It seems like a pretty early effort based on what was in the press release, but.
Speaker Change: With the new contract and helps out incrementally, but within the mix and it was in line with what we expect in here. So.
Tom Kelly: How do you think about where that could go and where international partners might actually be able to fit in.
Scott Mikus: So we're making progress on our milestones there. But relative to those, those ships with those those new radars, but I'm unaware of any discussions relative to Golden Dome on our with our product. All right, thanks for taking the question. Sure. Thank you very much.
Speaker Change: Optimal with both the guide that we've given you now for Q2 of two to 300 supports the three to 500 for the entire year with no change we have pathways to get there. So.
Tom Kelly: Yes. Thank you for that question, yes. It is early on.
Tom Kelly: Our strategic relationship that's very broad in nature, and it's going to apply to commercial shipbuilding of potentially taking advantage of the.
Speaker Change: I appreciate the question.
Tom Kelly: Economic.
Speaker Change: And on the.
Tom Kelly: Situation arising out of the executive order on commercial shipbuilding to see if there is an economic model that makes sense for expanding the commercial shipbuilding based in the United States and then.
Speaker Change: On the.
Pete Skibitski: Our next question is from Pete Skibitski with Alembic Global. Pete, your line is now open. Please go ahead. Hey, good morning, guys.
Speaker Change: On the assumed from the booking rate part of that.
Speaker Change: Well, it's all included in our.
Tom Kelly: Best practices and in defense.
Speaker Change: And our guide and in our accounting so it's some because we had always assumed this contract is going to get done.
Pete Skibitski: I guess Chris or Tom, I'm not sure, but I'm kind of a complicated situation. But you guys have, you know, nearly 50 billion in total backlog right now. And you're talking about an incremental 50 billion new awards in the relative new, you know, near term. How can we not think that there's upward pressure on that 4% Shipbuilding, you know, Revenue Growth Guide in this type of backdrop is it now? It is still just early or labor situation that confounding and I assume the 4% doesn't include, you know, the 150 billion in defense ads, it's, you know, potentially coming down the pike as well.
Tom Kelly: And military shipbuilding, we have been in their shipyard they've been in our shipyard there are great shipbuilder, where great shipbuilder and we can learn from each other so it's very broad in its nature right now I think it's.
Speaker Change: This year.
Speaker Change: And all of our and are counting on in our guidance.
Speaker Change: Okay, and then just a little bit bigger picture you know you have this.
Tom Kelly: And when you think about having allies participate in shipbuilding that only makes sense.
Speaker Change: And with I think with Hyundai during the quarter and one of the one of the topics that.
Tom Kelly: An expansion of the capacity only makes sense in bringing the best people to the table to to execute against this is only the right thing to do so.
Speaker Change: Some people in Washington are discussing in terms of ways to accelerate shipbuilding is through.
Speaker Change: Partnership with other countries. It seems like a pretty early upward based on what was in the press release, but.
Tom Kelly: We don't know where it's exactly going to take us at this point.
Tom Kelly: It's an initial talks.
Tom Kelly: But we need its part of taking advantage of what we see is a pretty significant tailwind at shipbuilding.
Speaker Change: How do you think about where that could go and where international partners might might actually be able to fit in.
Thomas Stiehle: So just wanted to hear your thoughts on that. Yeah, so the $50 billion in new awards includes the FY24 two boat contract, Block 6, and the Columbia second build. It also includes the AmFib bundle down in Ingalls.
Tom Kelly: Yes.
Very interesting thanks.
Yeah. Thank you for that question, yes. It is early on in our strategic relationship that's very broad in nature, and it's going to apply to <unk>.
Tom Kelly: Yes.
Speaker Change: Our next question comes from Jason Gursky with Citigroup, Jason Your line is now open. Please go ahead.
Speaker Change: Commercial shipbuilding of potentially taking advantage of the.
Speaker Change: Economic.
Speaker Change: Situation arising out of the executive order on commercial shipbuilding to see if theres, an economic model that makes sense for expanding the commercial shipbuilding based in the United States and then.
Jason Gursky: Great. Thanks, good morning, everybody.
Thomas Stiehle: So I wouldn't necessarily correlate it to a $50 billion add in backlog from our current backlog levels. Now, tailwinds related to the 4%. absolutely could happen. I don't I'm not going to go there from a guidance standpoint at all right now. But the tailwinds between reconciliation, the executive order, the contracts being put under contract this the investments that are being made in the industrial base, and the shipyards, there's absolutely medium term upside related that top line growth number. So we just need to take advantage of it.
Tom Kelly: Okay.
Tom Kelly: We've talked about this kind of bits and pieces throughout the call today and I think in prior calls, but I'd like to just ask.
Speaker Change: Our best practices and in defense.
Tom Kelly: Bigger picture question.
Speaker Change: And and military shipbuilding, we've been and their shipyard they've been in our shipyard Theyre a great shipbuilder were great shipbuilder and we can learn from each other so it's very broad in its nature right now I think it's a when you think about having allies.
Tom Kelly: About.
Tom Kelly: The timing of the transition from <unk>.
Tom Kelly: Pre COVID-19 to post Covid chips. So maybe you can give you an opportunity to kind of update us on any changes to the timing and maybe the major risks and opportunities in that timeline I think you announced today some.
Speaker Change: Participate in shipbuilding that only makes sense and expansion of the capacity only makes sense in bringing the best people to the table to to execute against this is only the right thing to do so.
Tom Kelly: Modest delays.
Tom Kelly: On the carrier side, so I just want to make sure we're kind of baseline rebased blind here on on the expectations on timing of that transition.
Thomas Stiehle: And that's where we're going to work, work to do over the next couple of years. Okay, I appreciate it.
Speaker Change: We don't know where it's exactly going to take us at this point.
Tom Kelly: And I think we said that 50% was going to we're going to hit the 50% mark or beyond 50% Mark in 27, 27 Thats correct.
Thomas Stiehle: Just one last one for me on on Ingalls margin. It used to be kind of reliably in the double digits. And it's, you know, kind of regressed over the past five quarters or so. What timeframe is reasonable for us to think about, you know, the current environment changing to one where positive EAC adjustments are more, you know, maybe more likely than not? Yeah, I think you nailed it there, Pete. The culprit is the positive EC adjustments. It's not so much that we're realizing kind of negative adjustments, but we're staying on our run rate and we're neutral there.
Speaker Change: And the initial talks but.
Speaker Change: But we need its part of taking advantage of what we see is a pretty significant tailwind at shipbuilding.
Tom Kelly: You're correct to pick up on.
Speaker Change: Yeah.
Tom Kelly: The 80 issues with <unk> related to the.
Speaker Change: Very interesting thanks.
Speaker Change: Yeah.
The equipment that slate.
Speaker Change: Our next question comes from Jason Gursky with Citigroup, Jason Your line is now open. Please go ahead.
Tom Kelly: And the bottom of the ship, we expect to get that get that over the summer and then when that gets in we will start to make more progress but there.
Tom Kelly: There is no change.
Speaker Change: Great. Thanks, Good morning, everybody Hey, Okay.
Tom Kelly: And the balance of our milestones we're in a pretty good place there. So I still expect that transition to be to be on schedule.
Speaker Change: Okay. Thanks, Chris we've talked about this kind of a bits and pieces throughout the call today and I think in prior calls, but I'd like to just ask.
Tom Kelly: Okay great.
Thomas Stiehle: You know, all three of those programs are in a production environment. The engineering works, the facility's up and running. We've come through the shipyard of the future and we're facilitized. It's really just about people and parts, being able to hire enough and keep the retention. And as we go forward with that, to make sure that we feed the factory to run in its production environment there. So I'm comfortable with the leadership down there and that we understand those ships. I think it's just coming post-COVID and getting the stand out of the gears there and having the production flow run as fast as possible.
Tom Kelly: And then.
Speaker Change: Step back bigger picture question.
Tom Kelly: Christie's.
Speaker Change: Restricting us the one follow up question this might be like a couple of three parts here.
Speaker Change: <unk>.
Speaker Change: The timing of the transition from.
Speaker Change: Pre COVID-19 to post Covid.
Speaker Change: Just kind of curious on the all the reform and the executive orders that are had been coming our way.
Speaker Change: So maybe you can give you an opportunity to kind of update us on any changes to the timing and maybe the major risks and opportunities in that timeline, because I think you announced today some.
Speaker Change: It gets your thoughts on a couple of different things first on.
Speaker Change: Shipbuilding.
Speaker Change: Assistance and the investment that might go into the shipbuilding industrial base.
Speaker Change: Modest delays.
Speaker Change: On the carrier side, so I just want to make sure we were kind of baseline rebased volumes here on on the expectations on timing of that transition.
Speaker Change: What kind of what strings might be attached to it.
Do you need to invest ahead of getting the funds and does that change the potential cash flow profile ahead.
Thomas Stiehle: You know, we are down probably a couple of years and hours of experience down there. That just works itself through maybe not as cost efficient to realize those upsides and maybe a little bit more rework from time to time. Maybe a piece of ultimate material, whether it's... I think that they'll turn the corner.
Speaker Change: And I think we said that 50% was going to we're going to hit the 50% mark or beyond 50% Mark in 27 27, that's correct.
Speaker Change: For you and then you mentioned the Otas in your prepared remarks in the script.
Speaker Change: You're correct to pick up on that.
Speaker Change: The 80 issues with <unk> related to the equipment that slate.
Speaker Change: Tied up and the potential for.
Speaker Change: The acquisition reform acquisition reform for <unk>, specifically, so I'm kind of.
Speaker Change: And the bottom of the ship, we expect to get that get that over the summer and then when that gets in we will start to make more progress, but that's there's no change.
Curious is that something that is going to impact.
Speaker Change: Those kinds of mechanisms will impact the mission systems business more than a ship.
Speaker Change: And the balance of our milestones we're in a pretty good place there. So I still expect that transition to be to be on schedule.
Speaker Change: Shipbuilding per se.
Speaker Change: What do you think is the long term impact on.
Speaker Change: Okay great.
Speaker Change: The mission systems business from a risk and opportunities and margins. Thanks.
Speaker Change: Then.
Christie's.
Speaker Change: Restricting us the one follow up question since it might be like a couple of three parts here.
Speaker Change: Okay.
Jason Gursky: Thanks, Jason So first things first the reformed executive orders and cash flow profile look I think it's too early for that right. Now there is a lot of work going into.
Speaker Change: I'm just kind of curious from all of the reform and the executive orders that are had been coming our way.
Thomas Stiehle: We haven't given you the time frame yet. We'll keep you informed quarterly as we watch that proceed forward.
Pete Skibitski: Okay, appreciate it guys.
Speaker Change: It gets your thoughts on a couple of different things first of all of them.
Speaker Change: Making recommendations on how those are rolled out.
Myles Walton: Our next question comes from Myles Walton with Wolfe Research.
Speaker Change: Shipbuilding.
Speaker Change: As if you read the executive order a significant amount of activity.
Speaker Change: And the investment that might go into the shipbuilding industrial base.
Myles Walton: Myles, your line is now open, please go ahead. Thanks. Maybe Chris, could you start by talking a little bit about the workforce and how it trended in the first quarter? probably picked up about five. much of a movement in net hiring. Yeah, so interesting.
Speaker Change: That we need to participate to participate in quite quite actually.
Speaker Change: Kind of what strings might be attached to it and what do you need to invest ahead of getting our funds and does that change the potential cash flow profile ahead.
Speaker Change: Because we think we can add a lot of.
Speaker Change: Provide a lot of input to them.
Speaker Change: So we can kind of get at the right answer, but so yeah, a lot of work by the team.
For you and then you mentioned the Otas in your.
Speaker Change: The government team in the Shipbuilding office over the next 30 60 90 days to further define what those mean, what the economics, meaning what the investments mean.
Speaker Change: <unk> remarks, and the like because I think it's kind of tied up in the potential for acquisition reform acquisitions are reforming far D. For us specifically, so I'm kind of curious is that something that is going to impact those kinds of mechanisms will impact the mission systems business more ban.
Christopher Kastner: Good question, Myles. We hired 1000 people in the first quarter, 1000 craftsmen and women. That's directly related to the change in the strategy in both shipyards to hire more experienced personnel and improve the mix of experience versus new hires. We think that strategy makes sense. We're going to continue to execute on that. The good news is attrition is down in both shipyards. Not materially down, not back to pre-COVID levels, but it is definitely moving in the right direction. So yeah, I hired 1000, which is a bit south of where we wanted to be, but it's consistent with our strategy and attrition is a bit better in both shipyards, which is very positive.
Speaker Change: And we'll know more but I don't I don't see.
Speaker Change: A definitely a cash flow drain by us related to that at this point, but more to come on the Otas are those the only positive things happened faster than an OTA environment, we're pretty good at them we are on crude.
Speaker Change: And shipbuilding per Se and what would what do you think is the long term impact on.
Speaker Change: Small unto't vehicle wasn't otas that was converted to a program of record and very positively.
Speaker Change: The mission systems business from a risk and opportunities and margins. Thanks.
Speaker Change: So we only see upside related to that we're comfortable with it we're going to lean into it.
Speaker Change: Yeah.
Jason Gursky: Thanks, Jason So first things first the reformed executive orders.
Speaker Change: So there is potential upside within mission technologies related to that activities and the rapid capability office sort of activities with our.
Speaker Change: Cash flow profile look I think it's too early for that right now there's a lot of work going into may.
Speaker Change: Making recommendations on how those are rolled out.
Speaker Change: High energy laser that were.
Speaker Change: As if you read the executive order soon at significant amount of activity.
Christopher Kastner: and regarding the 35 where you are. Actually, the way we've executed on our outsourcing program has been very positive. You know, we have some tough lessons learned back at Ingalls and outsourcing in the early 2000s. And we've used those lessons learned and applied them at both shipyards. So the quality is pretty good. We do pilots in these manufacturing yards before they actually execute work at scale. And we learn through that process. They've done that. We are on schedule in both yards in outsourcing for the year. And the quality looks good. So we're going to continue it.
Speaker Change: Providing for the Army is also positive. So I think you have to lean into this stuff here.
Speaker Change: That we need to participate to participate in quite quite actually.
Speaker Change: Historically, our mission technologies Division has been very good at applying commercial technologies to some of the biggest problems.
Speaker Change: Because we think we can add a lot of provide a lot of input to them. So we can kind of get at the right answer but.
Speaker Change: Is that the Doj has we're going to continue to do that we have a team that can do that with emission technologies. So as I said before we're going to lean into it and I see potential upside related to it.
Speaker Change: So yeah, a lot of work by the team.
Speaker Change: The government team in the Shipbuilding office over the next 30 60 90 days further define what those mean not the economics I mean, what the investments made.
Speaker Change: Awesome. Thank you.
Speaker Change: And we'll know more but I don't I don't see a definitely a cash flow drain of by us related to that at this point, but more to come on the Otas are those the only positive things happen faster than an O T. A environment, we're pretty good at them we are on crude.
Speaker Change: Thanks.
Speaker Change: Our next question comes.
Speaker Change: Our next question comes from Noah <unk>.
Speaker Change: <unk> with Goldman Sachs your.
Speaker Change: Your line is now open. Please go ahead.
Speaker Change: Hey, good morning, everyone.
Speaker Change: Small unto't vehicle wasn't otas that was converted to a program of record in a very positively.
Speaker Change: No.
Speaker Change: Hey, yes. Thanks.
Christopher Kastner: We need to. The industrial base is expanding. We need to take advantage of it, but we need to make sure that it's always high quality. Because if it's not, you have to redo it, and that doesn't help us at all. So, yeah, it's very positive right now.
Speaker Change: So we only see upside related to that we're comfortable with it we're going to lean into it.
Speaker Change: It was reported in the press and I think you discussed.
Speaker Change: There was a draft of maritime executive order that included the <unk> language.
Speaker Change: So there is potential upside within mission technologies related to that activities and the the rapid capability office sort of activities with our high energy laser.
Speaker Change: And then we now have the executive order it doesn't include it.
Christopher Kastner: And the last one on the SAWS program, is there a direct Yeah, it supports the entire nuclear industrial base. So and nuclear infrastructure, so aircraft carriers get support in that as well. All right.
Speaker Change: And we have kind of a.
Speaker Change: I know, it's a very long cycle business, but I'll put a long planning process to sort out where to go from here.
Speaker Change: That we're prepared.
Speaker Change: Providing for the Army is also positive. So I think you have to lean into this stuff.
Speaker Change: I was curious what your sense is for.
Speaker Change: Historically, our mission technologies Division has been very good at applying commercial technologies to some of the biggest problems that the D. O. D has we're going to continue to do that we have a team that can do that with emission technologies.
Why that changed in the process.
Speaker Change: And how likely or unlikely it is that you.
Speaker Change: Eventually see sauce.
Speaker Change: Yes, so it's probably not important to how it did.
Speaker Change: So as I said before we're going to lean into it and I see potential upside related to it.
Seth Seifman: Thank you. Sure.
Speaker Change: Did not.
Speaker Change: And up in the final.
Speaker Change: Decorative order.
Seth Seifman: Our next question comes from Seth Seifman with J.P. Morgan. Seth, your line is now open. Please go ahead. Thanks very much. Good morning.
Speaker Change: Awesome. Thank you.
Speaker Change: I'm sure that those are that's why they're drafts that go through review with the different elements of the government and ultimately it wasn't included.
Speaker Change: Thanks.
Speaker Change: Our next question comes.
Speaker Change: So all this will happen in the future look.
Speaker Change: Our next question comes from Noah Whatnot.
Speaker Change: <unk> did a lot of really interesting things was very innovative that accelerated investment.
Speaker Change: And in snacks.
Seth Seifman: When we think about the direct impact of the contract that was announced last night, is there a sizable cash advance associated with it? Is that part of the cash guidance for Q2? Does it enable signing the contract, give you opportunity to change some of the assumptions across the across the different work at Newport News beyond just the two subs that we're contracting. Let me let me start with that. So guidance assumed execution of the block five two boat contract that it has all year. And we we assume incentives and capital incentives in all of our guidance.
Speaker Change: <unk> is now open. Please go ahead.
Speaker Change: Into the shipyards to get at the submarine production rate.
Speaker Change: Hey, good morning, everyone.
Speaker Change: No.
Speaker Change: But right now our baseline is.
Speaker Change: Hey, yes. Thanks.
Speaker Change: The block five contracted block six contract.
Speaker Change: It was reported in the press and I think you discussed.
Speaker Change: And Colombia Bill too.
Speaker Change: There was a draft of the maritime executive order that included the <unk> language.
Speaker Change: We're working with our customer to March for ticket those under contract now.
Speaker Change: And then we now have the executive order it doesn't include it.
Speaker Change: Really good part about <unk> is it identified in detail the investments we thought we needed to get this done.
Speaker Change: And we have kind of a.
Speaker Change: You see those investments show up in.
Speaker Change: I know, it's a very long cycle business, but I've got a long planning process to sort out where to go from here.
Speaker Change: In the block five contract and as we move through block six and Columbia Bill too they should they should show up there as well so saws called another name.
Speaker Change: I was curious what your sense is for.
Speaker Change: Why that changed in the process.
Speaker Change: But the investments are required.
Speaker Change: And how likely or unlikely it is that we eventually see sauce.
Speaker Change: The team knows that they put them they put those investments together.
Speaker Change: As a team.
Speaker Change: Yeah, So it's probably not important to how it did.
Speaker Change: Need to make sure that we continue to make those investments to get to the build rate.
Speaker Change: Did not.
Thomas Stiehle: So there are some incentives in q2 related to that contract as well as other contracts. So it's all it's all in the mix. And we when we come through our guidance for pre cash flow for q2, as well as the end of the year, I'd love Tom, if you want to add anything in regard to that really hit it, you know, I mean, it was incorporated into the the guide that we gave you for q2. We mentioned at the very beginning of the year expectation to have both that award and then in the back half of the year, BCS block six and Columbia bill two.
Speaker Change: And up in the final.
Speaker Change: So it's.
Speaker Change: Decorative water I'm sure that those are that's why they're drafts. They go through review with the different elements of the government and then ultimately it wasn't included.
Speaker Change: <unk> is something that is a name at this point.
Speaker Change: That could or could not happen in the future, but the investments have to happen in order to get to get to the build rate.
Speaker Change: Do I think sales will happen in the future look Sars did a lot of really interesting things was very innovative that accelerated investment.
Speaker Change: Okay.
Speaker Change: Chris how much have you been able to raise wages in recent periods to get the attrition improvement that you referenced and how much more do you have to raise wages to to make much more significant strides on that front.
Speaker Change: Into the shipyards to get at the submarine production rate.
Speaker Change: But right now our baseline is.
Speaker Change: The block five contract block six contract.
Speaker Change: And Colombia, Bill too and we're working with our customer to March for ticket those under contract now.
So I think the I think attrition improvement has really been a.
Thomas Stiehle: So we're really happy we got that done here. You know, cash comes from margin and margin can come from operational performance, capital incentives, performance incentives. And with the new contract, add it helps out incrementally, but it was in the mix. And it was in line with what we expected here. So I'm comfortable with both the guide that we've given you now for q2 at two to 300 supports the three to 500 for the entire year with no change. We have pathways to get there. So appreciate the question. and on the on the on the assumed on the booking rate part of that.
Speaker Change: Result of the targeted hiring of more experienced labor.
Speaker Change: Really good part about sources it identified in detail the investments we thought we needed to get this done.
Speaker Change: We have.
Speaker Change: Addressed wages.
Speaker Change: Very tactically.
Speaker Change: You see those investments show up in.
Speaker Change: At Ingalls and Newport News, but we do have labor arrangements. So we haven't been able to do broad.
Speaker Change: In the block five contract.
Speaker Change: And as we moved through block six and Columbia Bill too they should they should show up there as well so saws called another name.
Speaker Change: Labor adjustments, so, but I think the the attrition improvement is more directly related.
Speaker Change: But the investments are required.
Speaker Change: Two our hiring strategy is to focus on.
Speaker Change: The team knows that they put them they put those investments together.
Speaker Change: More experienced people.
Speaker Change: Okay.
As a team.
Speaker Change: And then lastly, Tom can you just give us the the very specifics on.
Speaker Change: So we need to make sure that we continue to make those investments to get to the build rate.
So it's.
Speaker Change: Why both the shipbuilding margin.
Speaker Change: Solids as something that is a name at this point that could or could not happen in the future, but the investments have to happen in order to get to get to the build rate.
Thomas Stiehle: Well, it's all included in our, in our, in our guide and in our accounting. So it's, um, we'd always assumed this contract was going to get done, uh, this year, uh, in all of our, in our accounting and in our guidance.
Speaker Change: Our down a decent amount sequentially in the second quarter.
Speaker Change: Yes. So you said earlier just the guidance, we're giving is on on the conservative side, we saw from empty crew and on crude and UW do well for the quarters as we booked up.
Speaker Change: Okay.
Chris: Chris how much have you been able to.
Christopher Kastner: And then just a little bit bigger picture, you know, you have this announcement with, I think, with Hyundai during the quarter. And, you know, one of the, you know, one of the topics that some people in Washington are discussing in terms of ways to accelerate shipbuilding is through partnership with other countries. This seems like a pretty early effort based on what was in the press release. But, you know, how do you think about where that could go and where international partners might actually be able to fit in? Thank you for that question. Yeah, it is early on in a strategic relationship that's very broad in nature, and it's going to apply to commercial shipbuilding and potentially taking advantage of the economic situation arising out of the executive order on commercial shipbuilding, to see if there's an economic model that makes sense for expanding the commercial shipbuilding base in the United States.
Chris: Raise wages in recent periods to get the attrition improvement that you referenced and how much more do you have to raise wages to to make much more significant strides on that front.
Speaker Change: Is that some projects.
Speaker Change: We don't want to get ahead of ourselves and then from a shipbuilding side I think we're just being conservative.
Speaker Change: Some risks to burn down through the year and the initiatives that we've talked about more progress and the cost reductions I want to see them kind of play out we do have plans in place for that to occur.
So I think the I think the attrition improvement has really been.
Chris: A result of the targeted hiring of more experienced labor.
Speaker Change: The risk and variability.
Chris: Have addressed wages are very tactically, both at Ingalls and Newport News, but we do have labor arrangements. So we haven't been able to do broad.
Speaker Change: Staying in guiding closer to the low end of the range there.
Speaker Change: Comfortable with the guide that we have from five five to six five it was a good first quarter out of the gate and we will adjust kind of going forward as we see.
Chris: Labor adjustments, so, but I think the the attrition improvement is more directly related to.
Successive quarters too well.
Chris: Our hiring strategy is to focus on March.
Speaker Change: Okay. Thank you.
Chris: The more experienced people.
Speaker Change: Sure.
Moderator: Our next question comes from Ron Epstein with Bank of America. Ron Your line is now open. Please go ahead.
Speaker Change: Okay, and then lastly, Tom can you just give us the very specifics on.
Tom: Why there's both the shipbuilding in the empty margin are down a decent amount sequentially in the second quarter.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Good morning, guys.
Christopher Kastner: And then best practices in defense and military shipbuilding. We've been in their shipyard, they've been in our shipyard. They're a great shipbuilder, we're a great shipbuilder, and we can learn from each other. So it's very broad in its nature right now. I think it's when you think about having allies participate in shipbuilding, that only makes sense. An expansion of the capacity only makes sense and bringing the best people to the table to execute against this is only the right thing to do. So we don't know where it's exactly going to take us at this point.
Maybe going back to.
Speaker Change: A couple of questions for you.
Tom: Yeah. So Oh, you said earlier, just the guy that where we're giving is on on the conservative side, we saw from empty crew and on crude and EW don't do well for the quarters as they booked up and they called out some projects.
Speaker Change: Before maybe doug's earlier.
Speaker Change: What has to happen in the shipyards to really.
Speaker Change: The manufacturing process right I mean, when you look at how the Korean through their commercial operations. It seems like there's more automation they build ships differently.
Tom: We don't want to get ahead of ourselves and then from a shipbuilding side I think we're just being conservative we have some risks to burn down through the year and the initiatives that we've talked about more progress and the cost reductions I want to see them kind of play out we do have plans in place for that to occur.
Speaker Change: Realistically how much of that can be deployed in our military shipyards to improve throughput.
Speaker Change: All nine yards.
Speaker Change: Yeah, and I would like to distinction, you're making between the commercial manufacturing process and the defense process. They are different when you. When you are getting at a rate on a fairly simple ships to build that arent as Dan said, it's just a different process. So.
Tom: With the risk and variability.
Christopher Kastner: It's in the initial talks, but it's part of taking advantage of what we see as a pretty significant tailwind in shipbuilding.
Tom: Staying in guiding closer to the low end of the range there.
Tom: I'm still comfortable with the guide that we have from five five to six five it was a good first quarter out of the gate and we'll adjust kind of going forward our species.
Jason Gursky: Very interesting. Thanks.
Speaker Change: Whats it going to take.
Speaker Change: Fortunately, we've been doing this work for a while now.
Jason Gursky: Our next question comes from Jason Gursky with Citigroup. Jason, your line is now open. Please go ahead. Great, thanks. Good morning, everybody.
Tom: Successive quarters too well.
Speaker Change: Identifying what's it going to take to increase increases submarine throughput.
Tom: Okay. Thank you.
Speaker Change: And it shows it is going to show up on that FY 'twenty two BOE contract. These are targeted investments.
Tom: Sure.
Speaker Change: Our next question comes from Ron Epstein with Bank of America. Ron Your line is now open. Please go ahead.
Jason Gursky: Hey, Chris, we've talked about this kind of in bits and pieces throughout the call today, and I think in prior calls, but I'd like to just ask, you know, a step back, bigger picture question about the timing of the transition from pre-COVID to post-COVID shifts, and maybe give you an opportunity to kind of update us on any changes to the timing and maybe the major risks and opportunities in that timeline. So I think you announced today some modest delays on the carrier side. So I just want to make sure we're kind of baselined, re-baselined here on the expectations on timing of that.
Speaker Change: To create capacity.
Speaker Change: Increase the efficiency.
Doug Harned: Yeah, Hey, Doug.
Speaker Change: On how the shifts in how the manufacturing works through the process.
Speaker Change: Good morning, guys maybe.
Speaker Change: Maybe going back to.
Speaker Change: We've been working very hard at it we know where the constraints are once they get implemented I'm very confident that things are going to improve.
Speaker Change: A couple of questions for you referred before maybe doug's earlier.
Speaker Change: What has to happen in the shipyards to really up the manufacturing process right. I mean, when you look at how the Korean if there were no other commercial operations. It seems like there's more automation they build ships differently.
Speaker Change: I mean is it more automation I mean things like that that you can do to take out variability or.
Speaker Change: It's more about it's more about streamlining theres some automation that can take place at the beginning at the front end of the process.
Speaker Change: Realistically how much of that can be deployed in our military shipyards to improve throughput.
Speaker Change: We have AI pilots going on in both shipyards, where we can be more efficient in analysis of <unk>.
Speaker Change: The whole nine yards.
Speaker Change: Yeah, and I liked the distinction you're making between the commercial manufacturing process and the defense process. They are different when you. When you are getting at a rate on a fairly simple ships to build that arent as Dan said, it's just a different process. So.
Speaker Change: Scheduling per se or quality.
Speaker Change: But this is more about efficiency of the manufacturing process.
Christopher Kastner: I think we said that 50% was going to, we're going to hit the 50% mark or beyond 50% mark in 27, 27, that's correct. You're correct to pick up on the 80, the issues with CBN 80 related to the equipment that's late in the bottom of the ship. We expect to get that over the summer and then when that gets in, we'll start to make more progress. But that's, there's no change in the balance of our milestones. We're in a pretty good place there. So I still expect that transition to be, to be on schedule.
Speaker Change: Eliminating road roadblocks or ensuring that critical path that squared away.
Speaker Change: It's not real automation when you get to the back half of the process.
Speaker Change: What's it going to take.
Speaker Change: This is all about throughput and efficiency and throughput.
Speaker Change: Fortunately, we've been doing this work for a while now identifying what's it going to take to increase increases submarine throughput.
Speaker Change: Got it got it and then maybe just one more what are you seeing in terms of demand for.
Speaker Change: Unmanned product for.
Speaker Change: <unk>.
Speaker Change: And it show that it's going to show up on that FY 'twenty two boat contract. These are targeted investments.
Speaker Change: Autonomous stuff.
Speaker Change: Yes, so really good in the crude space not only in our as I said in my remarks, we have really a couple of hundred.
Speaker Change: To create capacity and increase the efficiency.
Speaker Change: In backlog, we could have significant.
Christopher Kastner: Okay, great.
Speaker Change: On how the shifts in how the manufacturing works through the process.
Christopher Kastner: And then Christie's restricting us to one follow up question. So this might be like a couple three parts here. I'm just kind of curious on all the reform and the executive orders that are have been coming our way. Get your thoughts on a couple of different things. First on shipbuilding, you know, assistance and investment that might go into the shipbuilding industrial base. kind of what strings might be attached to it and what the, do you need to invest ahead of getting funds and does that change the potential cash flow profile ahead for you? And then you mentioned OTAs in your prepared remarks and I think it's kind of tied up in the potential for acquisition reform, acquisition reform of FAR and DFARs specifically.
Speaker Change: Ramp this year.
Speaker Change: We've been working very hard at it we know where the constraints are.
Speaker Change: Executing on that small on crude underwater vehicle space. So demand is only improving.
Speaker Change: But once they get implemented I'm very confident that things are going to improve.
Speaker Change: On crude space underwater on crude space, not only for that product, but derivatives of that product both domestically and internationally. So some very positive developments in the crude space.
Speaker Change: I mean is it more automation I mean are there things like that that you can do to take out variability or.
Speaker Change: It's more about it's more about streamlining theres some automation that can take place at the beginning at the front end of the process with.
Speaker Change: Got it alright, thank you.
Speaker Change: We have AI pilots going on in both shipyards, where we can be more efficient in analysis of.
Speaker Change: Sure.
Speaker Change: Thank you very much.
Speaker Change: Scheduling per se or quality.
Speaker Change: Showing any further questions at this time I would now like to hand, the call back over to Mr Test.
But this is more about efficiency of the manufacturing process and eliminating road roadblocks or ensuring that your critical path that squared away.
Mr Test: <unk> for any closing remarks.
Speaker Change: It's not real automation when you get to the back half of the process.
Speaker Change: Thanks again for your interest and participation today, and I look forward to providing updates as we progress throughout the year.
Speaker Change: This is all about throughput and efficiency and throughput.
Speaker Change: Got it got it and then maybe just one more what are you seeing in terms of demand for their.
Speaker Change: Yeah.
Christopher Kastner: So I'm kind of curious, is that something that is going to impact, those kinds of mechanisms will impact emissions systems business more than shipbuilding per se and what do you think is the long-term impact on the emissions systems business from a risk in opportunities and margins? Thanks. Thank you. Thanks, Jason.
Speaker Change: Unmanned product for the other.
Speaker Change: Autonomous stuff.
Speaker Change: Yeah, so really good and and Jan crude space not only in our as I said in my remarks, we have really a couple of hundred in backlog.
Speaker Change: We could have significant.
Speaker Change: A ramp this year executing on that small on crude underwater vehicles space. So demand is only improving our in the <unk> space underwater on crude space not only for that product, but derivatives of that product both domestically and internationally. So some very positive developments in the crude space.
Christopher Kastner: So first things first, the reform, executive orders, and cash flow profile. Look, I think it's too early for that right now. There's a lot of work going into making recommendations on how those are rolled out. If you read the executive order, a significant amount of activity that we need to participate in quite actually, because we think we can add a lot of, provide a lot of input to them. So we can kind of get at the right lean into this stuff. You know, historically, our mission technologies division has been very good at applying commercial technologies to some of the biggest problems that the DoD has, we're going to continue to do that.
Speaker Change: Got it alright, thank you.
Speaker Change: Sure.
Mr Test: Thank you very much I am not showing any further questions. At this time I would now like to hand, the call back over to Mr Test.
Speaker Change: For any closing remarks.
Mr Test: Thanks again for your interest and participation today, and I look forward to providing updates as we progress throughout the year.
Speaker Change: Okay.
Speaker Change: Thank you very much everyone for joining that concludes today's call you may now disconnect your lines.
Yeah.
Speaker Change: [music].
Speaker Change: Yeah.
Christopher Kastner: We have a team that can do that within mission technologies. So as I said before, we're going to lean into it, and I see potential upside related to it.
Jason Gursky: Awesome. Thank you. Thanks.
Noah Poponak: Our next question comes Our next question comes from Noah Poponak with Goldman Sachs. Noah, your line is now open. Please go ahead. Hey, good morning, everyone. It's a never ending vegetable farm. Hey, yes, thanks.
Noah Poponak: It was reported in the press, and I think you discussed that there was a draft of the maritime executive order that included the SARS language. And then, you know, we now have the executive order, it doesn't include it. And, you know, we have kind of a, I mean, I know, it's a very long cycle business, but a long planning process to sort out where to go from I was curious what your sense is for why that changed in the process, and how likely or unlikely it is that you eventually see SARS. Yeah, so that's probably not important to how it did not end up in the final executive order.
Christopher Kastner: I'm sure that those are that's why their drafts they go through review with the different elements of the government and ultimately wasn't included. Do I think SAWS will happen in the future? Look, SAWS did a lot of really interesting things. It was very innovative. It accelerated investment into the shipyards to get at the submarine production rate. But right now our baseline is the Block 5 contract, the Block 6 contract, and Columbia Bill 2. And we're working with our customer to March 4 to get those under contract. Now, the really good part about SAWS is it identified in detail the investments we thought we needed to get this done.
Christopher Kastner: You see those investments show up in the Block 5 contract. And as we move through Block 6 and Columbia Bill 2, they should they should show up there as well. So SAWS called another name. But the investments are required. The team knows that they put them, they put those investments together as a team.
Christopher Kastner: So we need to make sure that we continue to make those investments to get to the SAUS is something that is a name at this point that could or could not happen in the future, but the investments have to happen in order to get to the build rate.
Christopher Kastner: Chris, how much have you been able to raise wages in recent periods to get the attrition improvement that you referenced? And how much more do you have to raise wages to to make much more significant strides on that front? So I think the attrition improvement's really been a result of the targeted hiring of more experienced labor. We have addressed wages very tactically, both at Ingalls and Newport News, but we do have labor arrangements, so we haven't been able to do broad labor adjustments, but I think the attrition improvement is more directly related to our hiring strategies to focus on more experienced people.
Thomas Stiehle: Okay.
Thomas Stiehle: And then lastly, Tom, can you just give us the very specifics on why both the shipbuilding and the MT margin are down a decent amount sequentially in the second quarter? Yeah, so as we said earlier, just the guy that we're giving is on the conservative side. We saw from MT, you know, crew and uncrewed and CEW do well for the quarters as they booked up and they closed out some projects. We don't want to get ahead of ourselves. And then from a shipbuilding side, I think we're just being conservative. We have some risks to burn down through the year and the initiatives that we've talked about, more progress and the cost reductions, I want to see them kind of play out.
Thomas Stiehle: We do have plans in place for that to occur. But with risk and variability, I © The Bulletproof Executive 2013 Still comfortable with the guide that we have from 5.5 to 6.5. It was a good first quarter out of the gate. And we'll adjust kind of going forward as we see. WikiLeaks Okay, thank you.
Ron Epstein: Our next question comes from Ron Epstein with Bank of America. Ron, your line is now open. Please go ahead. Hey, good morning, guys. I'm going back to a couple of questions we've we've heard before maybe Doug's earlier.
Christopher Kastner: What has to happen in the shipyards to really update the manufacturing process, right? I mean, when you look at how the Koreans do it and their commercial operations, it seems like there's more automation. They build ships differently. I mean, realistically, how much of that can be deployed in our military shipyards to improve throughput and the whole nine yards? I like the distinction you're making between the commercial manufacturing process and the defense process. They are different. When you're getting at a rate on fairly simple ships to build that aren't as dense, it's just a different process.
Christopher Kastner: So what's it going to take? Fortunately, we've been doing this work for a while now, identifying what's it going to take to increase the submarine throughput. and it's going to show up on that FY24 two boat contract. These are targeted investments to create capacity and increase the efficiency on how the ships and how the manufacturing works through the process. We've been working very hard at it. We know where the constraints are. Once they get implemented, I'm very confident that things are going to improve.
Christopher Kastner: And I mean, is it more automation? I mean, are there things like that that you can do to take out variability or? It's more about streamlining. There's some automation that can take place at the front end of the process. We have AI pilots going on in both shipyards where we can be more efficient in analysis of scheduling per se or quality, but this is more about efficiency of the manufacturing process and eliminating roadblocks or ensuring that your critical path is squared away. It's not real automation when you get to the back half of the process.
Christopher Kastner: This is all about throughput and efficiency and throughput. Got it, got it.
Christopher Kastner: And then maybe just one more. What do you think in terms of demand for your, you know, unmanned product for the autonomous? Yeah, so really good in the in the uncrewed space, not only in our, as I said, in my remarks, we have really a couple hundred in backlog, we could have significant ramp this year, executing on that small uncrewed underwater vehicle space. So some very positive developments in the uncrewed space. Thank you. Sure. Thank you very much.
Operator: I am not showing any further questions at this time.
Christopher Kastner: I would now like to hand the call back over to Mr. Kastner. © The Bulletproof Executive 2013 Thanks again for your interest and participation today. I look forward to providing updates as we progress throughout the year.