Q2 2025 Huntington Ingalls Industries Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the second quarter. 2025 H II earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, the there will be a question and answer session to ask a question during the session, please.
Press star, followed by 1 on your telephone keypad, and if you change your mind, please press star followed by 2. Please be advised, that today's conference is being recorded if you need further assistance, please press star followed by zero. I would now, like, to hand the call over to Christy Thomas vice. President of investor relations, this is Thomas. You may begin.
Thank you, operator. And good morning everyone. Welcome to the hii second quarter 2025 conference call.
Matters discussed on today's call constitute forward-looking statements, including our estimates regarding the company's outlook. These statements 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 filings. We will also refer to certain non-gaap Financial measures for additional disclosures about these non-gaap measures including reconciliations to comparable. Gaap measures, please see the slides that accompany this webcast, which are available on the investor relations page of our website at IR hii.com.
On the call today are Chris Kastner, president and chief executive officer and Tom Steely Executive, Vice President and Chief Financial Officer. I will now turn the call over to Chris
Thanks Christie. Good morning, everyone, and thank you for joining us on today's call.
I'll start by providing a high level summary of our financial performance, highlighting key achievements and then I'll provide an update on our operational initiatives
2025 Outlook and more depth.
This morning, we reported second quarter sales of 3.1 billion and earnings per share of 3.86 cents with backlog, reaching 56.9 billion.
Contract Awards of 11.9, billion, included, ddg, 145, and 146 LPD 33 and 2 block, 5, submarines with Associated Investments and ship Builder, wages, Workforce Development, infrastructure and Technology insertion.
Free cash flow with 733 million and we invested 93 million in capex.
At Newport News. In the second quarter, we floated off SSN, 800 Arkansas and are on track to deliver SSN. 798 Massachusetts later, this year,
New carrier construction is also progressing on CVN 79, Kennedy. We are working with our customer to deliver the most complete and combat-ready ship to the Navy as early as possible, and we are scheduled to go to sea for our first trials toward the end of the year.
CVN 80 Enterprise has received several of the late engine room components that I discussed previously.
With the remaining equipment, scheduled to come in over the next few months.
Receipt of the remaining sequence. Critical components enables progress acceleration as our ship Builders integrate. The equipment into the shift and unlock Associated delayed progress.
Moving to Engels in the second quarter. We completed main engine light off on ddg 128, Ted Stevens and Christen, ddg 129 Jeremiah Denton.
and we continue to make progress on anib programs as we completed fuel load, on LPD, 30, Harrisburg and generator light off on lha 8, fugen,
Admission Technologies, we had another quarter of strong sales of 791 million.
Key wins included a contract to provide live training solutions to the U.S. Army's Program Executive Office for Simulation, Training, and Instrumentation.
And in our uncrewed business, we deliver the first 2 lion fish, small uncrewed undersea vehicles to the US. Navy under a program that could scale to 200 vehicles.
We also announced a commercial sale of reuse 300 UVS to Itachi.
Notably, our recent announcement of a technology partnership with C3. AI is a key, strategic highlight, for the quarter.
This partnership enables us to leverage, digital Technologies and AI to accelerate ship building, throughput with a primary focus on schedule, optimization to drive faster delivery.
Now onto the operational update both Engels and Newport News, performance was relatively stable in the quarter as we continue to work through ships that were contracted for prior to Coe.
As I've indicated previously, the next year and a half will be challenging as we transition out of ship's contracted for preco to our new contracts.
For the first operational initiative, increasing throughput Les is on plan. A Newport News continues to be be behind plan. Primarily due to CVN 80 supply chain issues. I previously discussed
Both shipyards increase throughput in the second quarter and I expect further acceleration on the back half of the year.
It's important to note that progress is being made on improving performance, due to the sustained and significant investment by the Navy and Congress, along with our internal Investments leading. Indicators in the labor Pipeline and retention are showing positive trends.
And on the supply chain front, we expect continued stability. The risk remains for some major equipment. Well, these early indicators are encouraging. There are still tremendous work to be done.
We know that it will require sustained Improvement to achieve our long-term targets.
also, the industrial basis of expanding with significant, Outsourcing taking place in the capacity of the ship building industry as a whole
And our technology efforts to increase efficiency are off to a strong start.
The second operational initiative is our 250 million annualized, cost reduction effort and we expect to achieve this by Year's End. Finally regarding the third, operational initiative contract Awards. We announced the award for 2 block, 5, submarines and Associated Investments on April 30th.
This award reflects a significant step solidifying, the investment, our customers, making in the ship building, industrial base and highlighting the critical and urgent need for these submarines the ship building and navy teams have now pivoted to negotiate agreements for Virginia class block, 6, and Columbia build 2. And I expect these agreements to be completed later this year.
Activities in Washington, the reconciliation bill and the FY 26 budget includes significant support for our ship building programs.
Specifically, the reconciliation Bill includes a second FY, 26, Virginia class, submarine to ddg 51. Arleigh Burke destroyers funding for the amphibious, warship bundle.
Funding for expansion of USV UV production and 4.9 billion for the ship building industrial base.
Additionally, the president's budget for fiscal year 2026 is now under consideration by Congress and the proposed budget, reflects continued investment in our ship building programs with funding provided for the Columbia class in Virginia, class submarine programs for cbn's, 80 and 81 construction and CVN, 82 Advanced procurement.
And for the second of 3 years of funding for the refueling and overhaul of CVN 75.
In summary, we had a solid Q2 that was largely consistent with our expectations. As we remain focused on executing our operational, initiatives increasing, throughput, achieving cost, reductions and capturing new contract Awards.
and now, I'll turn the call over to Tom for some remarks on our financial performance, Tom
Thanks Chris and good morning. Let me start by briefly discussing our second quarter results and then I'll address our outlook for the year. For more detail. Please refer to the earnings release issue this morning and post it to our website.
Beginning with our Consolidated results and flight 6 of the presentation, our second quarter revenues are approximately 3.1 billion increased 3.5% compared to the same period last year.
The higher Revenue was attributable to year-over-year. Growth at all. 3 divisions.
Angles revenues of 700 and 724 million increased by 1.7% compared to the second quarter of 2024.
Driven primarily by higher volume on the guided missile destroyer program, partially offset by lower volume on the lha, and LPD programs.
Newport News revenues of 1.6 billion increased by 4.4% compared to the second quarter of 2024.
Driven primarily by higher volumes on both Columbia and Virginia class submarine programs.
Partially offset by unfavorable cumulative adjustments on aircraft carriers.
Mission Technologies revenues of 791 million increased by 3.4% compared to the second quarter of 2024 driven primarily by a non-recurring favorable resolution related to a C5, ISR contract as well as high a live virtual and constructive training volume.
Excluding the impact of the noted resolution, Mission Technologies results were generally in line with our prior expectations and the guidance we provided on the first quarter call.
Moving on to slide 7 segment, operating income of 172 million and segment, operating margin of 5.6% in the second quarter of 2025 were both down from prior results, but were consistent with our expectations for the quarter.
At Newport News segment. Operating income was 82, million and operating margin was 5.1% compared to 111 million and 7.2% in the second quarter of 2024.
The decreases were driven by a performance of the Virginia class submarine program and aircraft carrier Construction.
Partially offset by a favorable contract incentives of those programs, as well as a higher risk, retirement, on the Columbia class submarine program.
Additionally, prior year results. Benefited from favorable contract adjustments and incentives on the aircraft carrier refueling and complex, overhaul program.
For the second quarter of 2025 Newport News ship buildings. Net cumulative, adjustment was -7 million. This includes a negative adjustment on CV and 80 as well as other performance adjustments.
At Angles segment, operating income is 54 million. And operating margin was 7.5% compared to 56 million and 7.9% in the second quarter of last year.
The decreases which driven by lower performance and lower contract incentives. On the amphibious assault ship programs, which was largely offset by favorable contract adjustments related to the guided missile destroyer program.
Prior results included its favorable impact related to the delivery of LPD 29.
The second quarter, net cumulative adjustment, at Ingles was a positive, 4 million and included positive adjustments related to The Destroyer program that will largely offset by an unfavorable adjustment related to lh8.
Mission Technologies operating income and margin were largely consistent. Year-over-year with changes in contract, mix offsetting the impacts of higher volume
.3%, compared to 189 million and 6.3%, and the same period last year.
The variance was driven by the segments results. I just noted along with a more favorable operating fast cast adjustment compared to Prior year period.
Net earnings in the quarter were 152 million compared to 173 million in the second quarter of 2024 diluted earnings per share in the quarter were $3.86 compared to $4.38 in the same period last year.
Turning to slide 8. Cash provided by operations was 823 million in the quarter. Net capital expenditures were 93 million or 3% of revenues free. Cash flow in the quarter was 730 million.
Free cash flow results in the quarter were 480 million better than the midpoint of the guidance. We provided on the first quarter call.
The overall performance is due to a number of factors including the timing of incentives, some of which were received earlier than previously anticipated. Normal quarterly timing of cash, receipts, and disbursements and Improvement in quarterly, taxes and capital expenditure timing.
I'll discuss our updated 2025 free, cash flow guidance in a moment.
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 343 million and liquidity of approximately 2 billion.
Our Capital allocation priorities on change. We value our investment grade credit rating and will continue to prioritize prudent debt levels while strategically investing in our shipyards and thoughtfully growing. Our dividend while continuing to use excess free cash for share repurchases.
Moving on to our outlook on slide 9, we are reiterating our segment, revenue and operating margin guidance for the year.
We expect ship building revenue between 8.9 and 9.1 billion and margins between 5.5 and 6.5%.
For Mission Technologies. We expect revenue between 2.9 and 3.1 billion. Operating margins between 4 and 4.5% and ibida margins between 8 and 8.5%.
Our 2025 guidance is predicated on achieving the operational. Initiatives, we have laid out as Chris noted. We are progressing on each of these items, but we expect to achieve a meaningful Improvement in throughput over the course of the year.
Regarding our assumption related to the award of Virginia, Class Block 6 in Columbia Bill 2 Submarines, we continue to expect that award to occur this year.
If the award were to push into 2026, it would be a headwind. However, we believe we have accounted for a range of timing considerations within our guidance.
For 2025 free cash flow. We are updating our guidance to between 500 and 600 million.
At the midpoint, this is an increase of 150 million compared to our prior guidance range.
The majority of this growth is related to updated cash tax expectations, given the recent change in tax law, including R&D expensing and bonus depreciation changes.
We will also updating a number of discrete income statement guidance elements.
We are revising our operating fast cast adjustment from $43 million to $40 million.
our non-current state income tax expense for the year is now, estimated to be approximately 15 million with approximately 10 million of that expense falling in the third quarter,
This update reflects the state impact of recently, enacted federal tax law, changes that benefit our cash flow expectations and may be further impacted depending on how individual states conform to the recent federal tax law changes.
Our interest expense guidance, has declined by 20 million from our pry Outlook given the strong second Corner, cash flow, and resulting low of commercial paper, usage.
Moving on to a preview for the third quarter for ship building. We expect third quarter sales of approximately 2.2 billion and margins near the low end of our annual guidance range. This does imply, a stronger fourth quarter, which is consistent with our expectations and timing of milestones.
For Mission Technologies, we expect third quarter sales of approximately $700.3 million and an operating margin of approximately 3.5%. This does imply a sequential decline in revenue. However, the second quarter results did include a non-recurring favorable contract resolution that was previously discussed.
Finally, we expect third quarter of free cash flow to be approximately negative 150 million, as a result of normal business operations, and the strong Q2 cash generation.
25 operational initiatives securing new contracts. Aligned to the current environment, driving higher, throughput and thoughtfully managing cost with that. I'll turn the call back over to Christie to manage Q&A.
Thanks, Tom. As a reminder to everyone on the call, please limit yourself to one initial question and one follow-up, so that we can get as many people through the queue as possible.
Operator, I will turn it over to you, to manage the Q&A.
Thank you very much if you would like to ask a question, please press star for 1 on your telephone keypad now and please ensure your devices are unmuted locally, if you change your mind or your question, has already been answered. Please. Press star for, like 2.
Our first question comes from Doug Hornet with Bernstein. Your line is now open. Please go ahead.
Uh, good morning. Thank you.
Um, morning. Doug.
Because you had a had a big quarter for ship building in Q2 revenues um and and you're looking at 20% better throughput this year. Um, you're getting, um,
Should be getting some money from the Block 5 award but your guide for ship building revenue is only up 3%. I mean how how should we reconcile those things?
Yeah. It's a it's a good question. Doug, thank you. Our throughput increase, uh, and our Revenue forecasts all takes into consideration, uh, wages getting Incorporated, um, in both shipyards that's already happened in Newport News. We expect that to happen, over the back, half of the year at Engles, uh, Outsourcing, uh, improving, uh, which uh, actually Outsourcing this year, should should get up to 2 million hours, which is over a million our increase from, from last year and then the, um, our Charleston operations, uh, also comes online and provides additional throughput. So, you take all that into consideration, most of that happens in the back half of the year.
Uh and if we're able to achieve that we should achieve. Uh I'm confident we'll achieve our 20% Improvement on throughput which lead us should lead us to our to our guidance estimate. You always have to take into consideration, uh, material timing.
Uh, when you take it, when you're doing your sales forecast, uh, but I'm I'm pretty comfortable uh, that our guidance is appropriate. There's there's potentially some upside there. If we may make all our our throughput commitments. Uh if we are able to continue to hire experienced people uh and our attrition Trends continue but all that works together and conspires together uh uh to protect towards our our sales guidance.
I guess what, what I'm trying to understand is, and we're looking at this situation where a lot of money is coming in to ship building, right now and proposed budgets current budgets.
um, and you're looking at the higher throughput, just trying to to figure out and I know that
It's not easy to change ship building revenues in a short period of time. But I'm just trying to understand how
We get the, we kind of triangulate between the funding trajekt trajectories the throughput, and what this Revenue Outlook would likely be over the at least the coming years.
Right? Well, so I'm still comfortable with the 4%, uh, growth Revenue Outlook. And I'm very comfortable that this ship building industrial base is getting rebuilt. Uh, I think labor is being addressed through through increase in salary, uh, and, and positioning towards more experienced, people, and attracting more people into the industry. I'm, I'm very confident. The industrial basis expanding, uh, led by uh, the prime contractors that are doing that effort, uh, including uh, the acquisition of Charleston. So so it's going to happen. Uh, the industrial base is growing. The supply chain is becoming more stable, I can't predict when that volume, um, will show up. Uh, but it's it's occurring. Um, as we're moving through this year, I don't want to get ahead of ourselves from a guidance.
Standpoint of the sales standpoint, um, but I'm still comfortable with the 4% growth rate. Uh, and it's, it's incumbent upon us to execute.
Okay, very good. Thank you.
Thanks Doug.
Our next question comes from school. Because with Melia's research, your line is now open. Please go ahead.
Now back on the table but just from 2025 through 2029.
Yeah, we pulled up.
We raised a focused and fixated on showing that we provide guidance. A guidance going forward that we can hit right now. We have the annual guidance you saw from my remarks up front and the the released uh
information that that we provided that we've raised at from 3 to 500 to 5 to 600 in free cash flow. But we're going to stick to an annual guidance right now and um as we get a consistent and we have quarter over quarter meeting or exceeding. The the guides will address that in, uh, in, in, in future discussions. But, um, we we, we don't have a 5 year guide on the table right now.
Okay, and then Chris the secretary in Navy commented, that it might be preferable to have Newport News and Electric Code. Each build Virginia's separately rather than teaming of the Navy where to pursue that route, just curious how much Capital, would you? And the Navy need to invest to make that happen. And would you have enough skilled labor or optionality to Outsource to support 1 Virginia by itself at Newport News?
Yeah, I think it's always important to evaluate Alternatives. Uh, right now, we're we're happy with the teaming Arrangement, uh, that we have with, uh, General Dynamics on the Virginia class program. It would take additional capital. I don't, uh, and it would be significant capital and we've communicated that uh, uh, to the Navy. Um, we would have enough skilled labor to execute on on any job like that. And, and we're talking about a time Horizon. It's a pretty far out in front of us. So, um, that's probably all I want to say on that, it's always good to look at options. Look at Alternatives, we would have needed additional significantly, uh, more Capital to execute on that. Um, but we'll support the Navy and and and these initiatives as they work through how they want to proceed.
All right, thanks for taking the questions.
Sure.
Our next question comes from Gotham Cana with TV Cohen. Your line is now open. Please go ahead.
Yes. Uh I'm sorry if you covered this little late but uh on CBN 79 in the timing slip to 2027. Could you characterize any economic impact from that? And was there a negative EAC or could there be because of that schedule?
Change. Yeah. So we've already taken that, uh, that schedule, uh, consideration, uh, into, um, our guidance. And that was understood when we did the financials, there was no material impact related to that. Uh, it should be noted, uh, that the CBA CBN 79th, progressing very well. There's only 90 90 compartments left on that. That shift. We're going to go to go to see this year. There's just a couple systems uh that are taking a little bit longer and we need to add some uh capability as well. So 79th progression, very well. There's no Financial or no material Financial impact. Um and we're going to deliver a great shift when it gets finally delivered.
Thank you guys.
Sure. Got it.
All, our next question comes from David.
Schools with bright leaves. Your line is now open. Please go ahead.
Hi, good morning. This is Josh corn on for David.
What I should have follow up on. Hi wanted to follow up on the uh the reconciliation funding for for ship building. I guess both on the ship building and on man's side. Um, you know exactly how how you see that flowing through uh to you timeline. And um you know, any any kind of quantification. Thanks.
Yeah. So we uh we tend to look at that together with the FY 26 budget. If you if you look at them together, all of our programs are are supported and all of that is included uh, in our, in our 4%. Uh mid to long-term guidance relative to to ship, building sales. Um, so we think it's all. It's all very positive. I think the unmanned stuff is very interesting. Obviously, we have the premier, uh, uncrewed underwater vehicle program, uh, up in our Boston organization within in Mission Technologies and then some very interesting uh programs we're evaluating participating in uh from a surface standpoint. Uh so uh we think that's positive as well. And that could be some um, some Tailwinds, if we're successful in that regard. So, uh, we look at them together. It's it's significant Tailwinds and ship building and we're going to take advantage of them.
Okay, thanks. And then, uh, on mission technologies, have you had any, uh, impact or discussions around Doge, uh, at this time?
25, uh, guidance still there has been um, some minor restructuring of contracts which would potentially impact 26. Uh, we're looking for ways to offset that. As of this point we're still comfortable, uh, with our, uh, Revenue growth, uh, Within mission Technologies. Uh, but that there has been a slowing of of awards and activity, uh, although the, the pipeline still looks very strong at over 90 billion dollars. So, um,
We're going to watch it. We're we're we're following it uh every day uh and we're offsetting impacts um where we can. But as of right now, we're comfortable with our guidance.
Okay, thank you.
Sure.
Thank you very much. Just as a reminder, if you would like to ask a question, please press star. Followed by 1 on your telephone keypad now.
Our next question comes from sethman of JP Morgan. Your line is now open. Please go ahead.
Okay. Um, thanks very much and, uh, good morning. Um, I I think you mentioned, um, morning. I think you mentioned earlier Christy. Um, this, you know, the the timing, um, of of the contracts, uh, you know, or, or maybe Tom, you mentioned the timing of the, the contracts for, um, box, 6 and build 2, you know, could affect this year's results. Maybe, you know, if you could tell us a little bit more about that based on the margin forecast for Q3, it seems like
Your you know, expecting those results in those contracts in Q4, are they do you expect them to come together? Do you think they could come separately? Um, if you could give us an update on sort of where things stand and and kind of the the magnitude of that, you know, within the, uh, within the Outlook
Sure. I'll I'll start and then I'll then I'll kick it over to Tom from the details on how I think about it from an Outlook standpoint. We uh, we quickly repositioned uh, From the Block 5 contract into the block 6 and the Columbus build 2 contracts. Uh, and we're actively engaged with uh, with the Navy in our partners to to get that done. Um, the good news is that we had a construct that was put together under block 5, that we can that we can follow us. We as we move into block 6 now, it's going to take some time. Uh, we're working at a very detailed level with them to get these Stacks is because they're very important, uh, but it could slip into it could slip into Q4 and we'll do them incrementally. Uh, and as Tom indicated in his, uh, in his prepared remarks. Um, well, we do expect them to be done this year um and and uh we but we also factored it when we think through um the balance of the year. So it could potentially provide some upside uh if it gets done or or potentially a minor downside. If it doesn't based on those factors but I'll let Tom talked about
Uh, details. Yeah, in February, we had mentioned about the 3 Awards. We're happy to get to fy24 the anomaly done in the springtime. Those other 2 awards were playing for the back half of the year. As, as we mentioned, there is a factoring of, you know, opportunities and risks and how things play out. So that's why we give ranges on on revenue and margin and cash those Awards. Really, uh, would would, you know, we wouldn't have any cost to sales or they wouldn't overly impact the margin if they got, awarded the back half of the year. It really just it's a function of
Incentives and advancements in the infrastructure for Capital Investments, um, you know, that could either provide Tailwinds or headwinds. Um, that's been factored into the guidance right now, you know, so it doesn't impact the current ECS and profitability that I have today and the range of outcomes. I see right now, we feel really comfortable with the 5 to 600 million dollars in free cash flow and it is so so we'll keep you informed, we do anticipate, we're working actively with the Navy right now on those those requirements. Uh and those offerings and we'll we'll see how the the back half of the Year plays out.
Okay. Okay, great thanks and and then just to follow up just to understand kind of how some of the stuff works. The you know, the wage increases that you talked about um for for Newport News or did those go into productivity assumptions on existing contracts and and you know thus led to some higher booking rates on on contracts for or at least you know in the mix. Some upward pressure on on booking rates for existing programs and that when that comes to Engels,
Uh, we'll see something similar or is that not the right way to think about it?
That's, that's not necessarily the right, right? Way to think about it. Um,
Up there, but it's not necessarily direct link as you as you indicated in your, uh, in your statement, right?
Okay, no that's helpful to have that clarity. Thank you.
Sure.
Our next question comes from Ron Epstein.
A Bank of America.
Your line is now open. Please go ahead.
Hey, good. Good. Good morning guys. Um,
What uh impact. If any, you know you guys expecting on the business from you know the the changes in uh R&D in the tax code is that you know for you up to do um some stuff that you might not have done before.
Works itself through rather than advertising the RDS expense, it gets period expense. So there's there's a there's there's Tailwind for that you see about 159 dollars of increase and that's why we took the free cash flow from
A midpoint of 450 now to uh, from 3 to 500, which was 400 of a midpoint up to now, 550 midpoint between 5 and 600, so we'll get some favoritism on that. Yeah, as you know, it's it's now period expense. Plus, you can do that retroactively since the beginning of this year and then there's a catch up between 22 and 24 on the amortization. So, a lot of moving Parts just on the tax front alone. And that's on the federal side on the, on the state on the non-current state taxes that actually provides just a slight.
Kind of headwind. And that's why we adjusted that for the guidance to be $150 million expense this year, as opposed to being neutral. And $10 million of that $15 million will show up in Q3 in the guidance I gave you. So, um,
Realistically it provides a couple of more dollars to kind of run the business and invest in the business here. And as you see, we finished up the quarter with positive cash flow of 343 million.
Going forward as we say, uh, we don't think uh, with 147 million of 150 million of tax benefits here.
Will, uh, have a credit or will forgo paying paying taxes for the rest of the year?
Got it, got it, got it, got it. And then, and then maybe just as a follow-up with um, on the unmanned under to see business that you guys have. I mean, how large is that product line today? And you know, if you could frame maybe the kind of growth you could see there
Yeah, so we haven't we haven't a specifically identified uh how large they are uh externally Ron. They're they're
Just uh, not not significant in the material to the mission Technologies portfolio. But we do uh, expect
Outside's growth, uh, beyond the beyond the 5% growth rate. Uh, and when you look at the opportunities that are presenting themselves in the space, uh, we um, have an opportunity, as I indicated, my, my remarks for, uh, over 200 vehicles on that small uncrewed vehicle, uh, contract with the Navy. And there are some upcoming competitions, both in
Uh, undersea and surface that are very interesting to us that we're going to evaluate. So, uh, while it's small, now, we do expect it to grow, uh, an outsized rate, uh, Within mission Technologies. Uh, and there's some, there's there's some really opport good opportunities there that are absolutely funded, uh, within the reconciliation bill.
Got it. All right. Thank you very much.
Sure.
Our next question comes from Mi Walton with Wolf Research. Miles, your line is now open. Please go ahead.
Thanks, good morning.
I think Chris, I was wondering if you could touch on, um, your views of of August and its trajectory. It seems like it may be getting a, a re look, but it's never quite clear as to what's what is, and what isn't, um, actually occurring. And then as well, if you can just, um, touch on where you think the role of Partnerships with International ship, Builders would be most impactful in a positive way, uh, to the business.
Into getting the output of the overall industry up.
Sure great. Uh,
Thank you, Mel. Yeah, the August is still broadly supported. Uh,
Belt uh and we're competing for uh some also very interesting wins that should show up over the back half of the year. So it's positive for us, we're going to continue to grow. Uh we're going to continue to have a presence down there with our partner. Um and I'm still very bullish on August uh from uh other International ship. Builders um we have taken the steps because we saw this coming. We we had developed a strategic strategic relationship with hhi out of Korea. To evaluate, uh, both the fence opportunities and Commercial opportunities, could they help? Uh, with investments in, in our current Shipyard or other shipyards to increase throughput for the industrial base? Absolutely. Uh, we're just going to have to see how that develops over the next, next couple quarters. Uh, but I but I think there I'm, I'm pretty bullish on that as well. Uh, they're, they're committing, uh, dollars, uh, to increase the industrial base which will increase throughput. So um, I think that's only positive and just adds to the tail.
Winds, uh, that we see in ship building?
Okay, that's great. And then just continue to touch on how many employees were hired in the, uh, in the quarter.
uh, more experience and uh, you know, I didn't,
Specifically, uh, talk about uh, retention, but we've seen month-over-month Improvement uh, in in our retention and attrition metrics. And since we implemented the uh, wage adjustment in Newport News, there's been a very good uh, trend for the first few weeks, uh, from a nutrition standpoint and we're not going to claim victory yet because it's just a few data points. Uh, but our initial assumption seem to be uh proving out positively and we think that's a really good. Um, really good uh, sign for the future.
All right. That is good news, thanks.
Sure.
Our next question comes from Nawa, okay? With Goodman Sachs your line is now open. Please go ahead.
Hey, good morning everybody.
Good morning.
Um,
I guess it feels like there's a little bit of a, um, chasm between...
The very significant.
Uh, change in funding and treatment of your business and the Navy overall by the government in the budgets.
And you know what you're doing here with guidance and sort of your tone on the pace of improvement.
Um, recognizing it's a very long cycle of business and a lot of these things will take time.
I'm trying to sort out how much of that is.
Um it just will take time and in 2025 and 2026 still have the pre-covid contracts. And you know, it's not till beyond that that we see significant Improvement in in Revenue growth and margin.
Versus I I'm wondering if does the block 6 block 2?
Waiting for that award this year, make this year just is that a very binary thing where you can't really, um, call for much improvement this year until you know, that's in this year and not not sliding into into early 26.
Yeah, I think your first uh your first assumption is correct. Noah you? Uh I think you've got it. It's it does. Take time we have preco contracts we're working through we've assessed the block 6 and build 2 contracts uh and fed them into the indicated final. So if it happens things could potentially uh get a bit better. Uh if it doesn't it could be maybe slightly worse but we're comfortable uh with with how we factor that. Um, so I think you've got it, right? It's just it just takes time. We need to get through these preco contracts, uh, but the Tailwinds are real. The demand is real. The actions we're taking.
To, uh, expand the industrial base are happening, uh, the the maritime industrial based funding that have been floated. The supply chain have. Absolutely, uh, improved the supply chain the technology Investments that are taking place with, uh, AI with C3 Ai, and the Newport New Shipyard is going to yield positive results. So it's going to happen. We just need to come through uh uh these these pre-covid ships to transition to the other side.
Okay.
Chris, can you give us a sense of the split on the labor front? The split between...
The need to improve new hiring versus the need to improve attrition. Because I would think the former you know would take a while and have a, a long learning curve. Whereas I would think the latter would maybe flow to the business much more quickly.
Efficiency is going to get better, um, very quickly, um, and you can afford to not hire as many people because you're not losing as many. So it's, they're directly related, uh, and and they move together, and if we're successful in hiring
Uh, uh, then uh, our, our Traditions should get better as well.
Okay, and then just Tom um in the cash flow build up. Um,
The 150 million approximately of cash tax Tailwind.
Um, does that recur for a while or, or does it get smaller Beyond 25 and then on capex? Um, how long are you in the
3 and a half to 4% of sales range before that starts to come down and become a Tailwind.
The guide for this year does have some Tailwinds in the out years too. We're working on ourselves to do that. The bit complicated because 1 is the timing uh, on the FED on the FED side since it was enacted. We kind of understand that the states, obviously, hit the different dates. How they enacted when they enacted it, we're working on ourselves through the math of that. So we haven't guided anything, uh, for 26 and on, there are some dollar savings on in in, in those years as well and we'll provide more guidance.
On the back half of the show on that front. All right. Um yeah, your part 2 was
Capex, capex. So capex. We finished 2 5 and q1 3% in Q2 with 28, through the first half of the year. We got it. 4%, haven't provided guidance after this year, I know last year when we thought we were going to put all the subs on contract immediately, it was about 5% for 3 years. I do Envision it to be elevated. Over the normal, what we, what we term medium to long term of 2 and a half percent. I do Envision us being higher than that, and the next couple of years. But we haven't provided a, a specific number that will be a function as we come through the Columbia Bill too. And the, the, the VCS block 6, you know, the timing and Pace, uh, the number of votes and the the level of infrastructure and investment that goes into the Newport News yard will dictate. Um, but I'm comfortable like we have in the recent past, we'll continue to get participation meaningful participation from our Navy customer, uh, as we invest for more throughput and uh, High revenues and input news.
Okay, thank you.
Thank you. I am not showing any further questions at this time. I would now like to hand the call back over to Mr. Kastner or any closing remarks
Sure, thanks for joining the call today and you're interested in. Hi, we are focused on building on these results and driving value for all of our stakeholders. We look forward to providing further updates as we progress throughout the year. Thank you.
Thank you very much that concludes today's conference call. You may now disconnect