Q2 2019 Earnings Call

Because our experience in the marketplace is very different from others.

So we continued to have a good order activity throughout each of the months in the quarter.

That's great that's very helpful.

No no question 'cause run a upstream Oh <unk>.

Yeah <unk> good morning.

The fall onto robs question I mean can you go to walk through that the demand and <unk> <unk>, you're seeing across the different products you have their golf stream you know 650.

600, 502 80.

Sure. So they're 650 continues to have very solid demand it.

By the end of this quarter when 370 in service. It continues to have performance characteristics unmatched by anyone else.

Any other aircraft and it continues to enjoy some very nice solid demand. The 600 has had very good demand we suspect as we saw with the 500 that when we start delivering these airplanes that is a catalyst for incremental demand increases and I have every confidence that that will that will also increase 500.

Continues nicely and and the 280.

Has had good sales, but a little bit episodic that end of the market tends to be that way, but on our big key platforms airplanes. We've continued to have a good activity.

And then as the the following question mm have you seen any blow back in the Chinese market regarding the potential sale Abrams to to Taiwan, because there was some stuff in the Chinese press about it and I just care. If it's if it's just you know kind of press noise or if there's some reality there.

As far as I've no no.

Tag sales have actually occurred, but but let me remind everyone. How this works. This is an F.M.S. case or any F.M.S. case, the U.S. army buys our tanks and sells them.

To.

Other foreign nations in this case potentially <unk> Taiwan.

I'd say that.

That we've had fairly muted.

Ah demand in in that in that the market for a while now.

And I suspect that terrace, just had some dampening effect, but the pipeline is increasingly active.

And.

And.

We've been quite comfortable where we are.

Great. Thank you very much.

In our next question comes from David's Charles Berkeley's Frisco Huh.

Thanks.

Good morning.

Hey.

Phoebe sauna.

The G. 500, and look sleek deliveries in the corridor based on the 21 that you should have been delivered so far looks like deliveries were pretty late in the corridor on G. 500.

Maybe what I expected the margin to be better because that can you just talk about that and if you're through the first you know the first block that's the low margin G. 500 deliveries at this point.

So <unk>.

So we had a bit of catch up and and Q1 right. After you know the.

After the 2018 certification and frankly this is simply a timing issue.

And.

Whereas we're continuing to come down our learning curves.

Our margin performances better on each and every airplane that comes down that.

And down online. So this is simply a mom and a timing issue, except we had a bit of a a backlog in Q1, and we're through that and number.

Entering into really steady state.

Okay and is my follow up on a on G.D.I.T. It looks like based on your updated guy and you're still expecting.

No organically extra divestitures relatively flat in the second half of the year when when do we start to see this you know this strong booking rate than you've highlighted come through in terms of actual organic growth all that business. Thanks.

2020.

<unk> said before and this is you know sort of a transition year for us the N.A. positioning for growth here and all of the indicators of girls are there. So we're.

Pretty confident that mixtures.

Going to realize some of those.

Increase backlog.

Yeah.

Like in the middle.

And the win in May and the resultant win rate you need to have very very strong management team undergirded by the culture and the people.

That I, just talked about and I'm very pleased with where we are right now.

We are doing very well at TD LTE.

Appreciate all the color thanks Phebe.

And our next question comes from Carvana mover of Cowen and company. Please go ahead.

Just thank you very much so phebe could you give us some color in terms of the lead times at Gulfstream, particularly for the G 650 into 80.

So and as we've been as we've been transitioning to new.

New aircraft, we're no longer following individual playing.

Wait times, but let me tell you all of our wait times are comfortably within the range of.

No one year to 18 months and that's across our portfolio. So I'm good with that I think that's the way you think about it and Ah and we've continued to perform quite nicely and hit our.

Get comfortable and.

Wait time in each of our legacy airplanes as well as our new ones. So.

We really just managing to the to the order to the orders and the demand.

Well I think <unk> great. Thank you and then a G.D.I.T. you've given us the bids submitted can you tell us.

You know at mid year, how much of what what's the the number for bids awaiting decision over the remainder of the year and.

No maybe give us some color.

You know some of the potential pursuits, like GE us ammo and.

Nexgen.

So I don't actually know the timing of award decisions given all the input into that is really idiosyncratic to the individual customer.

But I think one of the reasons I wanted to share with you that velocity of contracts and then enormity of there's a lot a proposal in the enormity of the proposals as they give you a sense that we.

We do not track.

And I don't think about this business in terms of any particular pursuit.

And many of the proceed to patent dimension aren't and a competitive space. So we're certainly not going to talk about that but I think that.

Both the size the velocity of the submissions give you a real sense of.

This is a big business with a lot of moving parts and frankly, I don't worry about any one particular.

Program.

Terrific. Thank you very much.

And our next question comes from Missouri Movius. Please go ahead.

Okay.

Myles.

Sorry about that good morning, Jason I was wondering if you could first maybe clarify on the payment expected next month just to.

Kind of give a rough size the burden. The hand, you have there would you get to full conversion.

For the year, if that one came through.

Well I think listen these are very.

I think we've said all were going to say about where we are right now on that program.

As you can well imagine these are sensitive tripartite conversations and.

We've told you where we are we're making nice progress and let's just leave it at that.

Okay.

Maybe as a follow up then the Murray how do I have you you mentioned on the Marine group that you weren't change the guidance, but your bias was nominally lower just wanted to clarify was that lower on the margin or on the topline.

I think I said very.

Nominally lower [laughter], so, let's say I am in a in a big business that has a number of moving parts I'm very sensitive, particularly when we have new starts and we have a number of new starts.

Primarily at our West Coast shipyard.

And Matt that plus we may see.

Depending on on on the Navy need we may see additional material common and in this year and that tends to carry a lower margin. So I'm I'm just at the absolutely you know as I say very nominally I want to.

Condition that there's those two things that we don't have as much clarity about as we typically do in any given quarter.

And Ah So that's why I gave you that.

Ever so miles Patty.

Yeah, No I was just a clarifying it could it looked like revenue you're running ahead, so that makes sense on the margin Thanksgiving.

And our next question today comes from Pete.

Skibitski.

Oh. Please go ahead.

Hey, good morning, guys.

What's your view as you look at the two year budget deal, it's kind of shake up this week for 2021, how do you think about the Navy's ability to afford the Columbia class or for the potential for that program to crowd out other priorities or other programs.

If they're going to go into a flattening kind of.

Well it was certainly very good news.

That oh, it looks like we've got some clarity.

And.

Uh huh.

And our political landscape at the moment listen lets talk about Colombia for a moment, Colombia is a national priority and.

And I have no doubt that as a national priority funding will be made available for it or there are a lot of different ways to do that from a budget perspective.

And I think that the U.S. Congress and our customers talking about various avenues.

Ah ways to ensure a healthy budgeting I'll tie it back when we did the Ohio I'm in the eighties Ah a separate account was set up that's a potential option.

So I don't worry too much about Colombia, crowding others other programs out.

There's an imperative for the navy to recapitalize, it ships and build more and more ships.

There is a consensus in Washington across the political spectrum.

Our lease political party leadership.

In the major political parties, but understand that a we need ships and and we need to replace the undersea <unk>.

A lack of a deterrent and saw I'm comfortable that.

The department of defense working with the Congress will find appropriate funding mechanism to address.

What you have right.

Got it and just as a follow up.

There's some reason to be behind the at a higher pre owned volumes. This year downstream is as you know just a really after me. Okay. Maybe this is just an anomaly in terms of.

Initial 600 customers or something like that.

There's nothing in particular on occasion will have a bit more pre owned.

But it signifies nothing.

Thanks, guys.

Our next question comes from quarter, one I'm really is research. Please go ahead.

Hey, Good morning, guys I Carter, let me just just a quick clarification and a question I had in my notes and maximize was like $900 million.

Impact on me the organic calculation, but I think you said 250 plus fees I just wonder if you could clarify that for US and then just wondering you know now that we've gotten certification.

At aerospace on on the two new airplanes, if you expect R&D to be a little bit more stable I know you had the comparison in the quarter that that caused a little bit of year over year variability, but should we expect that to be a little bit more steady and in the future than we've seen in the last several quarters.

So let me, let the answer that in the inverse order as we.

Moved the test airplanes.

From the test program and the customers that you'll see some reduction in R&D and <unk> as you all know Oh, we keep a a nice a level loaded.

Amount of R&D and our business.

Think if that's appropriate.

And Ah.

So I think we'll see some decline but.

We continue to have an active R&D.

A series of active.

R&D activities in that and Gulfstream.

And then Carter on your.

First half of your question I think your inference was correct on the scale of the business that we divested to maximum there were however in the last 12 months or so a couple of other smaller divestitures. We did in the IP portfolio, we had a.

The small commercial healthcare divestiture, we had a next generation 911 supported business. When you add all those up the total annualized revenues were somewhere slightly in excess of 1 billion. So that was to to feed these point of roughly 250 million a quarter impact.

Okay. That's great. Thanks for the clarification and then Rocco this will be our last question coming up now. Please absolutely are front of course comes from Johnson <unk> from Citigroup. Please go ahead.

Hi, Thank you for the time and good morning.

Good morning.

Hey, Steve in terms of supporting the G.D.A.T. ramp into 2020 can you give us some color on how the how the person on the recruiting side is going I know, it's a very important part of the.

The people business.

So.

Those management teams have have jailed we took leaders from both legacy businesses and they have really delved into one team one fight.

Throughout the first three quarters, and then you're into the acquisition and integration we have kept almost every single.

Key a leader that we wanted to keep in fact I believe every leader we wanted to keep and we are reducing our staff turnover. So all of that to me is very wholesome fine, but we are building a cohesive.

Team that it at G.D., I tee up and down there a leadership change that can maintain a very long term robust and successful business.

Very pleased with what I've seen there both in terms of the energy level, the cohesion and the culture that they have established it's really quite impressive.

Great. Thanks, and then just thinking about that pick up I mean or is from peers in the market tend to talk about mid single digit organic growth.

I know market share is not as important to you guys, but is that how we should think about.

Pick up potential and should EBITDA growth accelerate in line with sales growth into 2020.

Well I think that we're growing about 3% this year and and and we'll see some nice growth and 2020, but beyond that we're not going to piece meal plenty plenty at this point.

Well give you or give you are 2020.

I asked them that and outlook and and detailed view of the business as we always do on the fourth quarter call. After fall review or we do in depth.

On analyses and and bottom up operations reviews of each one of our businesses and and we'll let you know then.

Fair enough, but.

I tried. Thank you you did thank you [laughter].

And thank you for joining our call today as a reminder.

Please refer to the general dynamics website for the second quarter earnings release, and highlights presentation, which will now contain our earnings outlook for the balance of the year do you have any additional questions I come to reached at 700 38763117. Thank you very much.