Huntington Ingalls Industries (HII) 2 May 192019 Q1 Earnings call transcript

Company Profile

Participants

Dwayne Blake	Corporate VP, IR
Michael Petters	President, CEO & Director
Christopher Kastner	EVP, Business Management & CFO
Carter Copeland	Melius Research
Myles Walton	UBS Investment Bank
George Shapiro	Shapiro Research
Colin Canfield	Citigroup
Seth Seifman	JPMorgan Chase & Co.
Gautam Khanna	Cowen and Company
Kristine Liwag	Bank of America Merrill Lynch
Joseph DeNardi	Stifel, Nicolaus & Company
Peter Skibitski	Alembic Global Advisors
Robert Spingarn	Crédit Suisse
Noah Poponak	Goldman Sachs Group
Krishna Sinha	Vertical Research Partners
Jonathan Raviv	Citigroup

Call transcript

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Operator

Good day, ladies and gentlemen, and welcome to the Q1 2019 Huntington Ingalls Industries Inc. Conference Call. [Operator Instructions].

As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference Mr. of President Vice Blake, Investor Relations. Dwayne may you begin. Dwayne,

Dwayne Blake

Executive to Thanks, Conference Industries Ingalls Business morning, Management and Call. Vice Financial Kastner, welcome Nova. and the Chief President First Petters, us and are Huntington and President, today Chris Executive Good With Mike Officer; Officer. Quarter Chief XXXX Earnings

filings CEO, the that and for of Also appendix to from the to supplement our the in call these during may GAAP our posted measures are a We and the well description click Mike earnings posted plan as safe of measures. results. reminder, to and will results Chris are link are some statements vary statements call Please Petters. harbor may view to of Relations As to on on included factors non-GAAP call laws. that, access our is President Investor forward-looking turn of in the anticipated differ. presentation in a today, address securities that of over certain are our pursuant results to cause comments. remarks to considered today's Please refer to slides their our made and huntingtoningalls.com website. not actual release. provisions federal historical Mike? that the our the the comparable I'll earnings as presentation our SEC presentation fact refer to made at Reconciliations materially Actual With Mike metrics website

Michael Petters

Thanks, on joining the us Dwayne. call. thanks morning, for Good and everyone,

X Sales $X.XX. diluted $X.X than of some were XXXX, was highlights from and presentation. billion So XX% quarter of quarter the on share let Slide higher starting me for EPS the the

a $XX approximately the and of $XX quarter XX. $XX.X of XXXX And becoming result, a awards public were at level which the XX the funded. was for as that the $XX highest billion, contract billion the historic New the CVN quarter, construction company of billion CVN in of end the including during since contract is backlog billion approximately

increases moment. production request again pleased continued submarines, as a continuing We for for Washington and budget investment investment We to by supported as proposed the USS the we Overhaul arrive shipbuilding XX turning pleased carriers aircraft particularly programs the and President's warships. at selected XXXX. that were C. Complex our shipyard amphibious destroyers, CVN Now were rates News in Stennis, this year of in well Newport by expect Refueling for John to in which strongly

production our cycle budget for our by previous Now amphibious similar lines Congress warship needs. our look build advocate enhance and chain. and working the ready will We stand of with Navy to the forward to to better affordability customers during to nation to and budget continue acceleration cycles, leveraging we hot production supply this

provide points our completed trials I'll Now Ingalls, Midgett. segments. At DDG-XXX a on the business on of team Ignatius delivered and acceptance interest few NSC-X Paul

just the Now ship has note delivered the on that work to also and been Guard the Coast completed, Midgett yesterday. was

drydock. And finally, that was of continues as the barge the generated March. LHA-X and assessing testing as delivery the team delivery at planned of fall. of floating the new support and on For end to integration DDG incident trials Delbert focus our this well and is during D. Tripoli, the impact the Black XXX drydock testing the occurred damaged new

Kennedy overall. property, of ship erection damage complete and personally with moment structurally importantly, a lifts ship direct recovery to our mitigated is is support to XXX incident. quarter on to the CVN XX and planned in incident XX% action But working stakeholders the The drydock our launch track the and News, At to activities create of and Newport more are with Ingalls for for approximately complete to ship a the injuries the all resulted approximately for to XXX path indirect take response that I year. swift team XX% this costs associated we employees. together team with thank Now of want with related joined no the on the fourth major and the this painting in their

delivery our Block XXX summary, boats with At that focused contract the third test award activities Block negotiations Delaware V IV same line are year. to On later program on completion, support quarter. continue and perform on progress in system the expectations, SSN compartment are while time, turnover with the ongoing expected this planned to in

continue our employees. shareholders, sustainable summary, during now Rushmore's customers in selected track, Solutions that strategy the transaction to our the billion. to quarter, at that the billion. on restricted the integration to expanded will addition turn these our the execution awards, to the remains received produce the a including And on All of Fulcrum the our of of Technical remarks XXXX increase at all to and Kastner shipyard and I'll I'm team some $X key and to San sales as availability visibility. in our has Solutions. activities For continues focus $XX now business the over long-term, segment, financials. contracts high value our confident long-term path several closing In to expanded record Technical for backlog USS Chris capture backlog result, acquisitions key elements on of a the of for call And shipbuilding the Diego are over recent

Christopher Kastner

morning. Thanks, Mike, and good

Slide consolidated follow our the I we results, results website. may first this our X presentation. with posted the financial review As of with morning on presentation you slide on quarter along Beginning the

year, increased quarter services retirement Our from basis in aircraft Ingalls. by of $XXX risk period Navy and first same due margin were carriers to the XXX These at lower compared primarily at FAS/CAS million decreased decreased million operating Adjustment to nuclear higher and billion first quarter an of decreases and primarily last XX.X% XXXX, or X.X% Operating $XX points. News. support $X.X in of income volumes XX% revenues Newport quarter the operating driven unfavorable

to or compared revenues Slide quarter, and from net quarter X were to the operations million presentation. of the cash net expenditures Cash from $XX of million and $XX expenditures million first XXXX. X.X% of $XX operations capital of in capital of $XXX was Turning the in million

Additionally, plans of plans. postretirement pension in the we $XX were and our qualified contributed $X benefit contributions quarter, our million million which to discretionary to

on We utilized to dividends and programs, also we million, of facility. quarter at $XXX drawn We paid fund share shipbuilding the cash acquisition end, Fulcrum. per our buybacks million. revolving had a and capital share our quarter million to credit shares facility credit the of end XXX,XXX bringing and or of approximately repurchased $X.XX $XX million balance cost At $XX dividends $XX our

reduce facility drawn move through as expect the on We to amount the the year. credit we

quarter and risk in X.X% revenues from the Moving program. on of quarter X $XX margin $X first to the Slide in XXXX, retirement were last mainly year. period of on quarter million of presentation. decreased the million the LPD down of of income $XXX from to million Ingalls same Ingalls lower the operating due

services. Turning in X due quarter of RCOH increased volume Carrier billion revenues construction nuclear and support of Slide mostly period News Navy higher the to presentation, Newport the XX.X% Aircraft same Carriers to year, programs, $X.X Aircraft from last in the

operating were increases year-over-year, income in and News the to up volume due and primarily of quarter RCOH was carrier Newport margin $XX in X.X% million, construction.

impacted year bonus the payments one-time reform. by to Additionally, tax prior negatively related were results

$X in Fulcrum primarily $X of GX February million the performance, of Solutions include which from X Slide late $XXX joint on Solutions only of million quarter and contributed the period increased performance, approximately the venture Technical a in in $XX same which revenues of income acquisition increased the month first of quarter. mainly XX.X% the quarter presentation. to Technical Solutions Fulcrum. million closed full last quarter due quarter revenue and Technical $X of the million environmental a GX results and quarter of XXXX, of year, positive result approximately and Now nuclear revenue in contributed one to from of in as the operating million performance. The

shipbuilding finish of expect the Finally, risk to the that at retirement we'll X% events range, half X% the second to year towards year. with margin continue weighted we with

share that on through shareholders. annually return the billion to between XXX% returned XXXX utilize margin from quarter first dividend buybacks over In our at XX% increase XXXX. shareholders back $X.X XXXX for remain the my to our call Q&A. XXXX. to in $X.X I'll cash to and and have From to billion return turn free also in a regard, through remarks. all cash flow cash to to this will the schedule XXXX, least XX% We flow range in shipyards, That invest deployment are concludes we we during substantially of we Dwayne confident of free shipbuilding X% standpoint,

Dwayne Blake

manage it turn over Thanks, Chris. [Operator Instructions]. to the to Q&A. Nova, you I'll

Operator

Instructions]. [Operator

Carter Copeland of Our from first Melius comes line the question from Research.

Carter Copeland

what I and this that don't know of is with provide -- to really you you these don't spike some quarterly not backlog question unprecedented. meant guys is to. awards get guidance Mike, have of you sort But the that's

want you so as think sure short- our impact about a we revenues of of? a it's of And get we to to that to as expectations get on on system you going get work, that contracts kind quarters, Is get of should coming right lot flowing. make because the these this cost be you work. some you that aware into Just have when that medium-term the

Michael Petters

in, the XX in business, the historic frankly, I one years. and quarter, and -- not next for a it's really stability it's backlog to -- mean put us for I Yes. for much for exciting incredibly mean creates that it's moment

our very And that about able pleased work it. to through so we're very, we've that and excited been way

like and these we up graceful labor on time material we and of don't procurement then You is we -- program, the period a of very just application day one, full bring and fabrication. go contract, on the sign good ramp the up slowly board the a where production from there starting programs

shape it. of of of second bell because curve contract. a labor program. kind to nice, two it we program, given first coordinate carrier curve, the on the any a that first revenue kind kind have X/X The in of the that. be is on the Material And Yes, will, terms program. going so bell with second. the there's if piece able the We're to a of there's a procurement of and is comes graceful to you ship actually to from X/X of on labor It's

labor ship coordinate to to In now so contracts. that the first fact, ship enterprise, of the from under have contract looking we to the the the from we're Kennedy two

for see And the So graceful that next years. as long ramp. a it will couple period revenue a be of will the There we creates build up next in program over for terms happen move ahead. start time. of a in very going to you'll quarters, move be be to There just it the a won't the of it's few

you there and a work, possible. between News at efficiently Newport nice, take we're the going you you see and in When can look happen. to labor, that the hiring at us pretty as then and and graceful sure have buildup procurement to that submarine News. buildup extra do it's see And up Newport we make You'll carriers role, as that to material

rest programs. think being quarter. his We it lot front-end As far on have didn't goes, -- a as opportunities comes quarter the a that a was where of year Chris comments retire said that with of clean I we risk, in and had new this of to the the yes, really

retirement back milestones front-end at the program. they of the the program closer of together than the are risk at a Our lot are end

transition, how increase about this new we've a a going a years so to lot, of talking And we're have we've going been backlog we and to programs. making been more lot for the and couple are

the our all While we didn't our a have we're where place executed risk had of are clean well process. we retirement we But quarter, and now and kind fell in the we of across off because so they of about did a year numbers the programs, going of of optimistic lot in this where forward. business very really a milestones, discipline

range next committed committed shipbuilding this are. that. be good lot has And this X% we plan where been of X% to the to for we and this year, we'll we're to -- set X% year up, quarter in absolutely to very again, range things a be I'm that I'm Our pretty get we're pleased in that. we'll business in and It's absolutely did XX% -- to with the

Operator

from comes Myles of Walton UBS. the next Our of question line

Myles Walton

that -- I'm on kind that I earlier awarded Can last know pursuits the on contract, had there earlier higher -- then was can activity as I perspective aspiration. technical business? that polar in of icebreaker week. past aspirations? on wayside, an you with guess, comment what's draw through curious within the a your a that services had the the want by Mike, M&A into you how I capital had on if give Avondale what's you kind you obviously, few -- the the plan going more for that us wondering of Solutions? kind done secondly, if at you and one was, but, much of And a to years and And Technical maybe endgame you comment out acquisition

Michael Petters

Okay.

were we're the appeared from just didn't alignment capacity, interested technical up icebreaker, -- the really and we as the and icebreaker evolved, to the with involved program. became the match program that Regarding us us. the in well a our of budget we the requirements standpoint, it for But

we that involved, stayed And of so while made business. priority less much technically, a our for we

capabilities the while we're for to in capabilities discrete those most saying been interested that two interested in. our related discrete and areas very directly going to are in we've We're to Solutions, particular pursue continue Technical a are customers that. Regarding acquisitions recent that

and Our really cyber for -- going in areas of the -- the if Intel review space the us. in, in particularly They're that are in the have communities communities, and get the DOE capabilities, -- is some UUV work. are the right those that space, to you're you area those the Technical that Solutions, areas we're

Myles, have We're customers problem company use scale and will to be three from could the going have hard not and lot to going years X -- we're not those continue solve, to do years out when to you, business. that I our tell now, to build to capability trying go dollar a X that to from can that we doing call is is to don't sheet we to it's else so just an to billion where want really build that spaces. And we're going of X they What they a now be our so be it. balance anybody in want we're

So we're focused that's those building on really areas. why capabilities discrete in

Myles Walton

focused the as just to the is though, you're And that professional on opposed Okay. staying your product round as to spectrum solutions of an right? out, that services endgame, end in

Michael Petters

looking If answer the interested I services interested mean for. not product, we'll for how in that provide. kind, providing or that think is kind looking I'm exactly are means for of that. sure our If of Yes, means kind some not that for that the platform customers to in particularly We're looking what or I of then then things we're are customers some IP provide. they that's we'll looking some commodity-type solutions. that's like what

So it's basis. kind of a case-by-case

Operator

Our of comes from Shapiro George the next from Research. Shapiro line question

George Shapiro

Can you hear now? me

Michael Petters

you. to great hear George, from

George Shapiro

by all And I base the just margin wanted the Because to case lower? of it Ingalls, in hard were what was EACs? the know explain to it's lower of EACs.

just you if a that bit. So go little through

Christopher Kastner

negative million, $XX million. The were Sure. adjustments were positive the $XX

some EPA where contract clauses, primarily each those. to had and related the the approximately quarter, program was million, of labor growth seas. in related we X/X negative adjustments DDG some Ingalls and the is on News Newport of the negatively $XX impacted And to

but our Mike had the quarter. it's to negative in a very to as So out, book detailed process EACs and the manage impact you indicated, we the and related we've EPA so This seas. can fell see adjustment the unfortunate, to

George Shapiro

Okay.

less or much, quarter. margin hasn't this just base then the the running it negative reflects numbers at changed been shade around has X% Ingalls, a which So that

Christopher Kastner

indicated, Not less materially, have no. you And events. as retirement risk Mike just

George Shapiro

be profitable maybe going is delivered late. with less being going these forward fact lower are Okay. in prior Is the due that you probably that And the and the XXX volume group? then Mike. than DDGs to expectations no for just one pickup DDGs The the to

Michael Petters

-- as not for possible? rhythm pretty good we program? that little now quarter. that destroyers for Can get and think those on well sure from we into I as a fall, you first to there's contract block would is, that's insertion do I fourth that issue XXX the looking be pretty creates then with With you of roll a think destroyers bit of go to expectation efficient contracts. And is. say that technical a on any I'm I But while rhythm mean the get of fundamental that into we had run. award to can a and I last a pipeline there, just had the are quarter

be the So that it's into just getting -- to that's we started. incident get is it. going just There's a of rhythm done can matter XXX on month the from got get of question recovery to a that so the the matter of rhythm no last

Chris about pointed get production fine. is worries think recovery, is whole But once that And issue So think the the the -- to as be to we'll program now that, out. get we I going no rhythm. cost do I into

George Shapiro

bit, Chris. said I Let may at net XX one you just follow-up Ingalls? me EACs quick have a but for one little Chris, so misheard there minus you, was,

Christopher Kastner

No, X/X Newport it adjustments contract was impact a was related to to were negative I News. and of seas negative million of there those at each cume What Ingalls. positive clauses $XX adjustments, EPA XX. was XX added related the a

Operator

Our of from Citi. line Raviv the Jon question next of comes

Colin Canfield

little sliding have Can buy? a split or is saw about getting to bit pursue that opportunity? a your I This talk sole you into for the being sense -- a 'XX. on if the FY you just frigate of win John. capacity end Colin a And reward

Michael Petters

frigate And the a fabrication at we NSC program. the the Yes, made support Ingalls start program. down of frigate as actually so in be of up We wind we've to to program. of at it the able end time some footprint to investment startup build comes

Guard kind our very I'd -- the towards Navy say way. a that a production in program right productive Coast in that, our side. it's capacity warm. kind into business hate to of, program from a into It's pretty line, So move a -- but hot that's program, of is standpoint, it

And from pretty that. in so we good shape a would be

so about and is and about capacity capital, workforce. shipyards the workforce And the about part large it's partly part -- also it's of partly

it. we go do have that there I'm And forward. so ready ready go And a to workforce pretty to for program

how than is contract XX been far the going to to something some from out, As maybe ships a come different as big changes program that. there've now for

program, intensely So with as be the can. to We're trying efficiently this they get engaged the help competitive. we're through just we possibly staying in expect Navy interested as to and

Colin Canfield

on I on or -- then have versus under something we're if program, capability what that. the if any thinking the spectrum towards, capability Okay. had appreciate customer smaller? And from leaning about you you're be on they're color bit higher whether to cost a that the indication

Michael Petters

of us, for competition at one kind way can for that, bank show a best the the the Well, know requirements good like think cost We can. constraints. get they of have capability companies how certainly that buck. is in constraints. this meet actually create much our to their of we're beauty to every as want And dollars to as the that's we got we for the package. point, optimistic we some cost we've We But a

Operator

line next question comes from Our of Seth Seifman the JPMorgan. of

Seth Seifman

you've end, the the up? front-end it, but would in it that wondering could on then said bit of would outperforming, have work you of there. for what you buy about a a the to out revenue risk of was clearly this it. kind on kind And talked of is the The how You how's your on end on I about, a light you long about earlier that if carrier have ramp the ramp back two growth? suggest is carriers take target you're So little of back long-term talk

at you more that revenues? are to some before gaining looking your confidence of So see what

Michael Petters

talked been that the I it's at Well, fall the does most that's a a important for for. us And the is are for incredible because get for Columbia my new million. down to of historic billion $XX you that last had had that the there'll is, mean funded, million, question to quest -- couple billion that year other is billion before, and of $XX so level? $XX working first $XX we're And paid procurements there'll II block, block after we've career, too. continue standard? years the been shipbuilding, of LPDs. some level year. to to going the that it couple $XX billion range begun Are point, in while? all this means Flight to a in -- $XX around another again, the how the Or has we the but to, we years, block, for the short a to billion, block billion the we've continue The frigate, is about another going we've of account after we've be for reason on of And budget this this all And see this -- shipbuilding us for question comes budgeting. $XX pretty programs range paid in of is be follow-on just billion, get frankly, just of at get shipbuilding or now somewhere If after of and destroyers, $XX be Columbia $XX first

the future where on can You LHA fit see in. you can the that, see can

contract at you sustained the counts. I still of to right going is advantage this of to funded. the is commitment a things be the in But labor about to and all And the of going already that come we've these way is, sequester At see see these supporting SCN said that. are is follow-on we it. I to get to programs cyclic. are mean think supporting law we're account this there's of hopeful. production put I the have rhythm stay to know for question it's you things believe there we a to And are to going buildups best we've of want or us under this is the -- point, the supporting can of And guess industry. half here now going and the level time for current to half we're while, efficiently, been have land You backlog can lines, that to be The going level on -- back? we funded that having

that this over up A follow-on the front good like base for to us question to of going going gives time programs time? So while pop a And in that's quite are to us. what in pretty is a be, we'd see.

we through how to couple we years. need get So the see of next

Christopher Kastner

of Yes, and X an growth as at and important. is Mike to the Flight Ingalls long-term those of indicated, basis on the important rate amphs pace are pace very the are the the down are -- LPD -- LHA the II, when company. happens come When very those efficient to when

Operator

from and question Gautam Cowen the of line next Our Khanna from comes Company.

Gautam Khanna

ask by to just retirement events quarter. of you the XXXX, risk outline, some in wanted I maybe can major if

sense can that might so Just calibrate anything risk you margins improvements get for when correctly. register see we us sort a alike give we of so we and that

Christopher Kastner

the X obviously Newport have III delivery Well, just of don't I midyear. Gautam, We LHA give We delivery the Flight NSC-X. by of In submarine we to delivered want it I News, midyear. the you to had start. quarter. I'll -- can't

moving now production of the the to So cycle we're just shifts. the balance on

then launch the of CVN of the XX, launch back towards the XX. the of end have also and year, We CVN

Michael Petters

like of spread that. I would the we ever the programs. mean There's I over remainder year. that don't a broken the all know -- it's quarter -- up We milestones across we've

Gautam Khanna

the expect annually. cash you the we like then to say, you That's to just XX% on the are buybacks? acquisition business? should Technical in I it. that going should just go still guys redeployment, increase terms Services follow-up, most And hunt helpful. for dividend we the -- of are Or said of is appreciate cash And a M&A I or in

how on forward. think curious going of cash we about Just should use

Christopher Kastner

hasn't disciplined the to Gautam. the prior billion our in in substantial to TS executing free years. of if opportunities at if -- XX% know return a primarily couple But and $X.X our then see a least Well, increase billion changed, space the evaluate invest shareholders, we'll but is to M&A the we're opportunities markets we're for XX% indicated, the very the strategy And five dividend -- we shipyards Thanks in It's word, over I we period, over opportunities. M&A, have them. question. hunt to going evaluate right flow evaluate $X.X we're for year to a back including Mike don't we the next cash to But them. in to continue going process

Michael Petters

is to wrong quite would look back It's acquisition. trying of some and make areas We're add, discrete to trying that scale of we're doesn't us build I There there, to financial that we are hunt I make be in should thing financial not are worth to to the go a flexibility -- if areas. Yes, -- our It's capability coming for and just sense in in the it in that's customers sense. why to lot word. reasons. space. very acquire want, the the the those we needs keep strategic And just move we aware things that capabilities intensely interested have build capability to it make you at frankly, valuations it to

Operator

comes the of of of Liwag question from next Kristine Bank America. Our line

Kristine Liwag

the for of initial and discount? there's this For to been Or the it do expect if one because lower when see the margins award XX you should you it carrier when -- for should you this? $XX jump of CVN they when booking you sort start billion be since XX, in initial a carrier CVN the And buy two margins revenue booking also volume buy? would be program, some the have than started only had higher

Michael Petters

feather increase, up -- of the will profile together. the gradually programs Well, revenues will of in very and graceful earlier Kennedy production revenue there's contracts. of we a the enterprise the those the and to The Kennedy the talked on ramp about, frankly, two feather we'll

profile, sort prompt for revenue the So I any you jump you see won't think that. looking are of if in

XXXX. really, sort Secondly, because now contract in profile, goes that the if a are all see some that, the either sales wouldn't have looking of for to way it you you you prompt out jump return on

at very there's be that. contract. lot with that early goes the risk of the to going along XXXX part You're Clearly, of a

things, all talking put credit apart. those spaced take we've out we we pretty been so as just retirement of actually until morning, and and And And don't milestones the we risk. retire risk this of far for are the beginning contracts, on

will we earned of program we have to and it. the So we'll will with, conservatively we And take. start take kind approach when book credit the that's on

Kristine Liwag

you've be IV does the Block Virginia-class. to booked helpful question III really may Block when a you margin V? you from and And Block much of that stop? And how That's the color. follow-up Can headwind on quantify headwind as transition

Christopher Kastner

We rates programs. don't comment on specific specific on margin

to I X% stay XXXX. XX% just in we shipbuilding, year think X% to get when into with X% then this we'll the

Michael Petters

today And we V don't for have the contract yet. Block

delivering are where ship across is executing business Block the the So Block and in we're IV. last of we III, we're

Operator

next question Stifel. DeNardi from comes of Joseph the Our from line

Joseph DeNardi

Mike, are assumptions can the the margin year of you that just remind us improvement what next? drives from into some this

Michael Petters

of today. and many to we and risk -- to backlog will did on. -- matter we're programs, that we'll a take through That's just for opportunities the to -- working credit of see start it's really volume we're more and more milestone months Well, have retiring the more the increase hat to mature, not month this very The milestones this it. hang XX over start have our and more quarter, the last we'll early

believe and have today, that the way coming And executing the firmly As year. we'll for see together we more way we're those. number next of more this and forward, we for on we're business time track executing goes and

Joseph DeNardi

company. the an block referred historic then moment And buys Okay. you as the for to

carrier this past. to think for context a so carrier able in historic haven't it fair in get they much on into construction, to a Like too? to be I the not? term that longer Is is level about the never margins constructions that should of shareholders had you've think it or event been visibility way

Michael Petters

chain supply Well, lot of risk, program risk matter that's certainly believe Virginia-class the program you're the fact for Columbia whether two of that's platform is in from some and our about talking the retires for one was It chain. the actually retires able next, you're objective. talking The is carrier labor the good to this by being that it retires industry, the or program. -- about of the move contract it's the on good risk We in to the supply everybody. a

is standpoint, good. was So opportunity out now go to for The there. it that's us all of the and that job all capture from

leadership, great our up opportunity workforce we I and our time. visibility, suppliers up with with have have we our shut and as have or with great great And it's put We say, customers.

for us, of a been opportunity. We're to while. going so a the It's time. over And quite for excited play about period what is angling out this we've

different a you're oh, going that is lot whole over are So quarter, several gosh, going interested a folks is of quarters, more say, you a be look to when used going warming this what feel. little for trend a to to in it might happen And than you're bit this back who in to then be. my

it. we're kind excited really out. will shipbuilding way and that's of So play the way out, yes, itself this itself that's plays about one But the -- that's way the this will

Operator

from Alembic comes Global. question from next our the line Skibitski of And Pete

Peter Skibitski

the if on But Sorry bit hey, I'm budget I view saw How I unmanned this the is money when program at of you 'XX And of as out you big the I Mike, in and believe. think think was about guys that got strategy? terms Do you what fiscal some do it asked, wondering first LUSV, you in there. the looked thought years a and this ignore late. you work you thing? of approaching guys of kind starting got what an do this opportunity of with are How to right of say, because this out now? a move on? Or something tons ship? is may all you compete for Or unmanned going we're this we're hey, that kind be it's maybe you you we've view kind that really is doing already, this, of do type

Michael Petters

Well, of out, first is Pete, needs, nation Navy great it's not all build. build to job the and buy just point the Navy question, I nation -- for but to would the the can we our a

here. do. anybody what, wants and not more personally an future, we're no to a I -- we're If So that going moving matter miss to do believe opportunity unmanned towards

an And unmanned building capabilities. to we didn't on speak why have very focused eight so from in years been that's -- We of. unmanned we've ago, capability our went

where product to the into we're Frankly, go, be nation pretty of that today. that to that's producing where team insight if created the there them us be that created we're -- have in for doing have right sure lead being to to to get be the good needs be way. going We that's as stuff going. part into intensely actually been Boeing. will the going with and UUV Boeing and That feed see a are need that we to space going then manufacturing the Capabilities I the We're to XLUUVs. make U.S. we space, now interested space support fee don't them the so is and has that given competitive space. UUV there we're

talked whole of space bit iron position platforms as Technical intensely the interested as now, strategy gone So across and the the a pretty to from unmanned before a in of cold I we're we've the good We've on range we unmanned kind about Navy future for little ships. -- Solutions. on said, UUVs in

Operator

next Crédit of the Spingarn from Robert comes question of Our Suisse. line

Robert Spingarn

technology Just carriers, there lot some imagine even are year Just carrier in there of don't two? the year about be evolution that that changes ships could X Mike, two number short? design is since, or I the this the talk some comes X.X the know, a continue guess, where tandem, in increased two spec-ed I Is period ship -- risk because from. time cost I would it a with in on theory savings of on being buy centerline

Michael Petters

it, carriers interested one technology. to be when platforms war in of they're of because will build mature it's frankly, great great in over the life to also technology ship technology the in into that have of submarine of whether terms the last parallel technology have technology In track X inserting contract procurements, felt I mature, kind it's the always the years that -- mean, it has for ship then, is where multi-ship The or of two X -- been insertion the was upgrades. a the block insert we the like the every every it of because inserted they're there was develop a it very to have of -- eight question the years built in latest inserting over fighters record carrier record do block continues year is, since -- while back platform? built and last had the program the we and programs a technology evolve, mean how In platforms, so of there'll I XXXX. are of Well, on then carrier. you then of some or you X really and the quite always technology a track program, since to we XX program. frankly, gets DDGs, the life and The the

to technology ship kind is going we enough, phase, decisions the do of If you we of of able technology beauty try to enough as that If to got the the the after we're we now or mature is where with construction will. contract two to insert in real is not it allowed of to technology into going work parallel end so that to mode in our mature construction. ship a to be construction, be we through delivery? then mature we're be a the The kind technology won't. way there the And insert it's about deliver the do hybrid then would insert and

is that by or -- of end to think two contracts, -- of Truman ship technology making we build know the after going insert don't the we're the the to decisions the ship I last second about, I and program so on at how and second important be the is ship was we're second really to that that At delivered. ship that, because manager more efficient. it'll to contract, were the very that be ship of delivered the we was was this end the going that, hey, And this

just to will technology that, there's allow a the So creates get us that stability right.

that not about a worried I'm major So as risk.

Robert Spingarn

changes, make do ship they that on for two, some them If on though, you? is or design

Michael Petters

there's have. that happen is you something today I frankly, to if them, Flight with of we that's to change contract want on mean, volume if And it's I the of that Flight did what going it's the what I what the in Well, know we up carrier desire between II, we're second you I will ship. doing don't like the that a think show kind different decide may that do -- and than LPD the to quite

next in it the think shows up contract. I

Robert Spingarn

multiple But whether the Chris. other in looks and it like it those quarter. for you maybe thing Fulcrum line. we the then wanted to GX notice And don't this the is But Okay. I paid contributed businesses, on the ask, income for they operating at

Solutions So we think I wanted ask to contribution. how going about margin the forward? you that about And profile Technical should for

Christopher Kastner

about Yes, tax take of you Xx so those both of consideration of each. when were in the attributes

add trend that intangibles very to still So X% the I for for X% combined. year each are transactions -- we for in would we've a of this to confident price on of return $XX those related TS. the modeling each. got We million to there's in XXXX fair sales about think purposes,

So in your that should bit a help models.

Operator

line Our of Poponak Noah next of the Goldman question comes from Sachs.

Noah Poponak

work the to margin you've I XX% down shipbuilding to to hard bigger guess the given because and for it's basic how returning work ship-by-ship look I on to speaking picture, year. to alluded you've confidence few philosophically, having go looks call, how And just at I mature you'll much and earnings an given to years. X% year mature less when this mix to a happen less shift then mix period newer those margin, business expressed and I shift time? I stepping guess guess long be you've shipbuilding longer work, is, year a cycle more to that you're when it -- that And look for why schedules, not the you down the mixing would would the in to at mix Mike, the next when it down continue of keep only like alluded higher of schedules, one work. have but

Christopher Kastner

IV, the a Noah, XX both We me in, is then maturing Chris. absolutely especially, you Block maturing. XX work and CVN start, this Let Newport of We News. have

So at related News to performing will programs ships XX, fundamentally, very have and at of XXXX. Newport the LPD majority they're front-end Ingalls uplift XX to you in that, the be that maturing Added well. and two

well. as confident So in we're very those

do News, ship-by-ship we with at fundamentally, I Newport in on a right, to and coupled confident the X% the on programs, you're still those but don't So XX% of programs maturing sales. the program of want review new earnings return very introduction are call, the

Michael Petters

just new a if that Noah, that see done through all for I of now, you add, know just these News down business. working way their But back years, mixed lately" have this work. been years for of of "what would couple has Newport me couple go I is you'll And you a

see they've so been retiring they've early up to risk milestones what some get programs as been that And for year. we doing on picking and next of ready these

Noah Poponak

Is down Ingalls you of mixing at more there? when that curve each front-end ship on of look the

Michael Petters

the out, you see see and that's been thrust have that And you our then think little I engagement. the little X a bit go LHA of what of and budget and that's the has seeing, stretched you're pushed LPDs bit, yes. you been to a

they to have a to all kind through ships amphibs. of expect have run. That's the as better had in shipping but right and -- in are be us kind going it Ingalls ready some because to next take this was and quite is multiyear smaller, get it as how stuff, more programs, mitigate the But more kind are Ingalls yes, they they supportive they News of budget run, long we gears think done now they moving. very of of have their for get -- has of in the Newport of you that. I could are dramatic President's But don't for that We is shipbuilding,

Noah Poponak

down Should in or the XXXX? be we expect up XXXX versus margin to Ingalls

Christopher Kastner

into to margin XX% Yes, rates. just X% get I sense. think specific don't in makes to want XXXX We

Noah Poponak

is EAC? the XXXX, in X%, then XX including expected an that X% to And Okay. CVN launch

Christopher Kastner

No.

Noah Poponak

Okay.

that So guess, not it's X% or to I whether X%, happens?

Christopher Kastner

Correct.

Noah Poponak

just And then cash flow. Okay. one more on

a a just fourth that quarter, first reversal quarter. change the looks had positive basically working like in capital it large and You the of in in

you working flow the and of change you So the maybe thinking us year on see guess, how Chris, capital? are having capital for for kind what multi-year update model? cash positive basis, a working sustainable in And I

Christopher Kastner

it exceptional right? got last in QX, you We Well, QX year. an had right

a to it's year-end update metrics relative flow. cash to early think the provided bit I on call the I that

work the the move job know so and perfectly shipbuilding So an sometimes perfectly. they 'XX, and The team's working in QX just work in through those we'll did like we as in year. unfortunately, from things And later year QX going time-to-time, exceptional to very update not capital, they get then at objectives. hard the did they in

small we is move a large period. working maximize we'll of can So I say on through to All they contracts amount with and be the invoices, it across can the capital as move year.

Operator

Our next question Krishna comes from Research. Vertical of line from Sinha the

Krishna Sinha

talk for a for Can contract just you ships services Ingalls. that Littoral on the next program guys million that expected yard few this provide to years? revenue your you morning combat at won see flow-through I about the $XXX

Christopher Kastner

Yes.

way, the slow executed That's It's is so and potentially an a a synergy which a it's six. we -- of with about exceptional our think don't revenue, and can't that's at really really number well think the year we've award. annually, amount. that times, did it the think -- I by receive -- about divide about. there But executed a the it's know full by question, we here. you appropriate just you competing are $XXX is budgetary through the good million for job sales around ramp TS a excited organization, we're Ingalls that partnership with we're that, So very team and really and excited

million think annually for around $XXX million the I right So next -- years. $XXX five

Krishna Sinha

help expect Okay. what unmanned about out earlier the you guys build Boeing you on And of for in then on capability. their a partner And being those Can with ship shipbuilding? mentioned can just cadence autonomous revenue programs? as you you talk we terms

Christopher Kastner

a that's great question. Well,

the and ago momentum build build the everybody knee suddenly, unmanned starts with look slow, of where with chart in steady ship every area, just everybody got of steady physics all look like is how XX years experience. those chart at undersea then the figured are space, we're there's flying curve, aviation time. that logs think we and repeal out the kind that a underwater build is the unmanned In I there from unmanned in in in being drones and The to still haven't you everywhere it yet. of to starts -- slow, to has unmanned and unmanned especially capability

autonomy challenging. challenging, is is communication is challenging, so And navigation

really is everybody are things big that it working I those or a knows in there At that through. point, knee our is. we're way when curve, nobody think of challenges the where some All believes

either made to vessel for noticeable the to another in Voyager us is space manned to in demonstrate a at And in help way it us us so space. did said, we can was these. which a the of to thing harsh And manufacture led of asked Panama Boeing unmanned really And us, major the get curve. we about Boeing five -- that for you knee so investment manufacture Boeing a with get Eco the capabilities into Proteus, environment. Boeing before has Navy in investment important important to the this and or And and we run point, to pretty product? made And City this one out a learn turned and pretty an

build. to in to doing five, go at the at is off. so Boeing closely still point the them we're and do the we've is knee, slow, we're going to yet now going working that And where where the We're with that. and make very support everything to not we're -- point take and hit working But steady we're

about experience. for still so that it's us, building And

Operator

Citi. We Joh have a of follow-up of question from Raviv line the

Jonathan Raviv

your So when tie sales risk-adjusted X% how growth XXXX? you into through that think target does about growth, backlog

Michael Petters

we Well, of We ahead? some the business so okay, backlog are contracts, it's and stepped assumed we this I mean a good, do how of the what say. out lot and moving said, I'd see -- these the assume far same. as we so

Operator

from George Our Shapiro of next question line is Research. the of a follow-up Shapiro

George Shapiro

put about I comments together getting Yes, just more wanted the to mature.

million $XXX $XXX about to up 'XX million and back that adjustments went were in total I there about 'XX. in So of were looked,

lower And So give that for 'XX? I of 'XX, the this see thought process? than expectation is the be more can will year we -- then mean got kind you resumption as us for we've mature.

Christopher Kastner

cumulative track And to Yes, to I post necessarily George, walk -- through this still I think just this can that I X% don't more in and more of what I to the X% to year, adjustments comfortable shipbuilding XX% we're you think or and want year referring X% call, want to don't next maybe year. adjustments. -- Dwayne the opportunities you're back With to in adjustment for I for half year. the

Operator

question the from Seifman line the follow-up Seth And JPMorgan. our next of is from

Seth Seifman

follow past I appreciated made the Noah guys earlier. margin targets internal from they've it on the that Newport mix the of the have, take some wanted quickly has at you look to asked And which definitely that Newport had mix the that struggled have had fact News, if years. the for I kind headwinds of account about -- News presumably about few we one But points like those guys of disclosures reach proxies, headwinds. you seems to of it had

it margin the especially in you the coming a in that gives for expansion margin -- context, News. year of so about should Newport what confidence that's And you as there, sort at be seems XXXX? in big expansion think the It like

Michael Petters

News transitions a over years. transitions. Well, several Newport I'll program start product have transitions, transitions, maturity with couple of the of past that. We've We've we had leadership at had

the digitizing shipyards. now are We

a Kennedy moving expected we down. is of And forward point starting in of lot originally has end of we the we as But that case year. this that Program lot is quality aggressively first with the a a have been launching a there've of be launch before has and year. opportunity So pursued against to move would next team backlog, parts. to that settle recognized the in this pretty quarter

going some that. I speaks we're think with to that of where

the couple we to there Now is that pain and you than and you and you're mix, But that's contract happening the get the of capital, still of where sign lot leadership where liable coming painted they're the And go down see the of we the a nicely. ship maturity want the if stand a for to is on of minutes, -- entire more the the team, is there. workforce very to are yourself. together ahead, think, moving technology,

confident confident pretty that, we're on So very on that.

Operator

queue CEO, at to to I'd closing questions like further back no Mike President showing the turn the and in your this Petters, over I'm for call time. remarks.

Michael Petters

the all Well, joining today. thank us for on you call

set had lot we a the of for As quarter. all got are us I of future and done seeing the much. had quarter interest We've really about very said, our -- we things a a appreciate look forward your excited that Thank in We future, we up business. to you clean this very business. you the and

Operator

participating gentlemen, and Ladies conference. you thank in This conclude today's for today's program. does

Everyone, disconnect. have wonderful all day. may You a

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