HII - Earnings call transcript Q2 2019 | Huntington Ingalls Industries, Inc.

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Operator

Good day, ladies and gentlemen, and welcome to the Q2 2019 Huntington Ingalls Industries Inc. Earnings 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. Dwayne Blake, Vice President of Investor Relations. begin. may you Sir,

Dwayne Blake

Chris morning XXXX to us earnings President Officer. Officer; Mike Good Management President, Industries' Chief and today Huntington second Petters, Financial and Executive Chief quarter conference and Executive and Jimmy. Vice the Business welcome Ingalls are Kastner, Thanks, call. With

differ. As Actual provisions and the refer are pursuant are of Please historical a to in results of are filings facts, the description vary cause results. that statements from call made Harbor materially federal factors actual made law. securities considered may reminder, Safe SEC anticipated a our today’s not forward-looking may to to that statements results for of some

these in and during posted measures the today, comments. release. Mike huntingtoningalls.com metrics We will the in on the the of presentation remarks posted Chris are to website. our our comparable link is to earnings well appendix slides GAAP that plan presentation at to website call earnings presentation certain our view of as our included refer address as Also to and to on Investor access Relations our the non-GAAP Reconciliations supplement the the click measures. Please

President turn With over that, and the CEO, Mike? to I’ll Petters. our Mike call

Mike Petters

Thanks call. joining today’s Dwayne. Good Thanks, morning, everyone. for us on

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

funded. resulting backlog at end of the New billion which quarter, contract quarter billion $XX awards of of approximately $X the approximately is in during were the billion $XX

XXXX are Defense of Senate to recently conference. now the Authorization House bill activities Regarding fiscal their passed and they the respective both posture begin and in versions National year Washington

bills to leverage ships. to the are the Both production strong Navy the enables and authorized lines in and purchase of in encouraged destroyers, Flight very by for XXXX and best supply both XX procurement LPD II amphibious the of submarines, measures, warships. carriers also chains accelerate which support continue aircraft shipbuilding We for high LPD

we’re and legislation other respective fiscal the we years XXXX that appropriations as and quickly defense bipartisan August bills look non-defense last so forward defense the House cash markup week final Senate’s the appropriations on the raised as of appropriations measures, pleased the for and of need budget approval process, and a passed followed Regarding await very to discretionary by and which the budget recess, conference to after continuing possible spending the resolution. for minimize XXXX, agreement as for

analysis that the in of our And refueling encouraged forward arrive to also USS next that look to Harry decade. complex with ship administration intention and proceed overhaul Newport News at Truman. the We CVN having XX, we S. shipyard

the interior Midgett damage delivery the of resulting review, under the is as the segments. and it’s activities. June. of DDG Delbert Ingalls, next now, completion year completing So after our points of team The testing repairs, to of but for focused end scheduled be likely Delivery drydock half still new originally March. as is in now well the team floating year. of in this on integration ship first repairs was a provide in from relaunched will I occurred business at the interest that XXX and sailed D. the exterior delivered ship At NSC April X structural on few during incident contractor away in Black

pricing with timeframe. the in proposals the And to received is mid-July. focused this now finally, LHA submission later acceptance technical Tripoli early their focus final preparing Frigate XXXX late for in completed trials schedule. coming with delivery builder’s The RFP trials team the accordance customer XXXX team on X its the in and year into prescribed is and

to superlift and month. last remain completed overall. and News, ship’s complete support Washington team milestone primary and on for plan the section CVN complete the approximately This the complete on do is CVN Kennedy bow last structurally quarter. during XX% approximately the XX completes is the and hull. Outfitting Kennedy on erected XX% XX% Newport be unit the upper At achieved activities with year. second track USS launch quarter and painting undocking XX planned George of the this quarter fourth track this is

the team the test transitioning the into undocking, and Following be RCOH. will reinstallation phase of

delivery planned SSN is program, achieve this hull track to delivery submarine later V quarter. year. Block on And first this also the expected finally Block late On planned remains Montana, with year this later with award pressure contract next Delaware the complete IV track is our SSN-XXX delivery for XXX on year.

also results Solutions by cost maintenance loss the during the the were process repair consistent that aluminum Diego that EAC was price of issue CG required our San work XX Chosin. making on operational segment, USS superstructure availability discovered was our the additional unanticipated at complete a $XX ship. team work For the and forward topside fixed in loss primarily for quarter This progress process the remaining the on not scope The a was and to the impacted the revealed Technical due quarterly shipyard with for million to ship. cruiser area

discovered most a send the work. in the to execute shipbuilders manage and we So of to some review deficit the and our experienced situation capabilities we

and to the that we execution review, and with the a ship program are we the forward performed, order returned is possible. to work in and fleet highest soon the as restructuring teams quality and As the talent is that to of adding the recognize result as loss our ensure

as initiatives of the program which example, its across continue The partner fronts. move business to Technical we a support will achieve construction market for believe change undersea on unmanned their to vehicles. five first dramatically In key for success Boeing teaming systems, continues XLUUVs, Solutions team unmanned we the several on forward growth and

Our acquisitions integrated starting from businesses. are capabilities GX and existing operationally see been benefits new Fulcrum adding we our already to and have these to

as going And growth our new in engaged integrated several this proposals and division, begun Services of on continues to In Nuclear entity, pursuits business well space. and Energy submitting actively we which our very translate additional will large remain developing believe an in fact, forward. we opportunities Department perform we business have into already

summary, focused to later supported through year half and key our initiatives work and portfolio programs value continue across VCS help several around Solutions to contract achieving return well levels. the the and of of are appropriations and the their Block capturing X% future backlog that poised bills be in to V XX% And team in Ingalls margins Washington our Award on We continue growth business is employees. year. will way accomplish further expand XXXX. for insulate XXXX. our in News, foundation these Congress. business to to X% margins the shipbuilding their X% from debate the I customers set and as long-term any confident sustainable objectives will In this authorization of producing At and we in our the defense our achieve shareholders, for spending second am milestones our Newport team Technical

now, the on the call to Chris for I will So over financials. Kastner turn Chris? some remarks

Chris Kastner

and good morning. Thanks, Mike

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

and year, the to carriers increased of period division nuclear billion Fulcrum quarter to Newport Our due $X.X aircraft same to at compared support Solutions and revenues volumes acquisitions last X.X% of and GX the in services due News. our growth primarily second higher navy Technical in

of Performance recognition were These Operating million unfavorable contracted prior change decreased decreases of News VCS of operating XXXX the and $XX FAS/CAS XXX Technical income Solutions. loss in adjustment, or the year. an program to forward $XXX on Newport quarter points. a X% compared on million a quarter the from of in basis and the at by the primarily margin decreased second XX.X% operating driven

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

were benefit qualified contributions which we to pension discretionary plans. During contributed post-retirement our to the million quarter, and of $X $XX plans, million our

We to end our at approximately million cost of of share million. $X.XX paid per a repurchased balance also quarter $XX or dividends bringing million, XXX,XXX cash $XX shares and $XX

drawn we cash million $XXX delayed quarter The early third into a end, simply generation function was on our had lower in of revolving quarter. some received credit facility. the quarter At with timing

we look of expect north As full for year, year’s last of free $XXX we the flow be to forward cash just cash million. free flow

agreement quarter operating income $X LPD the as Moving in on risk was program, last year. of million decreased the second margin same were XX.X% quarter XXXX, recoveries Ingalls $XX million Ingalls the mainly to a of in related million the presentation. settlement six and $XXX on to quarter of due retirement period revenues from Slide well as from the in XXXX. to lower down

Turning to the of seven Slide presentation.

X.X% of same the year, in construction, revenues services. and $X.X aircraft the News carrier nuclear Newport volumes carrier billion last quarter mostly aircraft programs from RCOH higher due Navy to increased support in period

to News VCS and in boats. the and V on quarter million X.X% program margin were of of primarily for performance year-over-year actions Newport income Block lower operating $XX pending down due the contract

gas, growth Slide acquisitions revenues the from $XX Fulcrum, XX.X% last collectively the loss on support of related compares year, in of earlier. of contributed same and the quarter services. XXXX. $X fleet in Technical of Now million the due Technical income Mike and revenue quarter, the to contract of to in of as in primarily to GX Solutions fleet oil the presentation. and is as well decline support the to increased the in Technical the mainly second and eight discussed quarter environmental Solutions Solutions of quarter, period which $XXX million operating million The nuclear that forward a operating million loss result $X of

our the margins achieve improve year. year-over-year growth Technical XXXX, our approximately XXXX for on in of provide is for as expect revenue, to $X.X X% between to of revenue shipbuilding revenue business Lastly, billion. billion me developing. XXXX. we full X% $X.X in X% With this how some the to XX% third fourth we Solutions in and will and we sales ramp start expect thoughts expect margin shipbuilding on return quarters regard, approximately In strong to and year Also, we expect the the shipbuilding year sequentially let of

year towards achievement milestones As with this outlined ramp-up on will key be fourth of significant the retirement the program later risk the quarter. X, supported weighted Slide margin by shipbuilding

expect continue For and we in X% between Technical X% Solutions, margins to XXXX.

now which and expect now Technical includes recent be million, to we million. approximately be amortization XXXX, we expense $XX and the to Solutions acquisitions for approximately $XXX depreciation Finally expect interest

remarks. for call Q&A. the back my turn I’ll concludes to That over Dwayne

Dwayne Blake

Chris. Thanks,

manage to yourselves many I’ll as people we get Q&A. As question through and one it call, a queue over to can turn everyone to you possible. so one initial limit the the the on Jimmy, to please reminder as follow-up,

Operator

question Thank you. first with Walton [Operator Instructions] UBS. Our from comes Myles

Your open. line now is

Myles Walton

good and a Mike, to the shipbuilding was view to is at morning. it’s vernacular. off this that we going lead more race looks take the business Can you trajectory take are on the be Hi, – I clusteration point? now going take place from to going of budget to deal constructive growth a like ready – the with

And is actually again which I that sales gave remarks, know, guys year, you the you the guidance Chris said been X%, you obviously talking in about. above have for the

outlook are So a from the given budget positively? heads Mike, deforming you at more seems now growth in where your that perspective,

Mike Petters

very, very number this together. has guess, deal that we’re come one, I Well, happy

the up and We’re it the take hopeful become of we and any impact will process appropriations C.R. for that framework it will minimize an can Senate

on shipbuilding way work As the far business. really flows the mean based the the as I growth is through the Myles,

here backlog. today sitting billion $XX We’re with a

three years. frigate work out it’s of a of is us give to Block have CAGAR We going flow a all business that is competition There The five a through the still V next through – that the X% volume way going on. is to going there. to

turn think lower quarter, the process think that, if to there bit the that’s got the goes I thing end that’s main so up, it’s then a we’re right higher budget be going so a it’s that in, but where is than year in after under we’ve it contract. and there is XXXX about the or contracts work may I budget process locking where that Wherever – our or little and already a

I’m change growth is budget we’re going deal. business really based that’s for the rate and So the thinking us the to way, on the about not

Myles Walton

growth rate, to just of above X% you’re years expecting deceleration couple the implied? of So and obviously, now X% mean XX% pretty sharp clarify that last I a

Chris Kastner

X% the is growth look Well, for to at over first, a the obviously the second yeah, first with we what half there the growth the year could and Chris, getting this going the half a be of over forward. deceleration year,

X% to is good pretty that use. a baseline think I

the the in deal being that the Block of year. and Mike backlog forward, said, second Going indicated negotiated with in budget half V as the get hopefully with

and going baseline I We that, year think that it’s to think to year, but and the be at will then our we of using a north could if set the that’s point. then the planning good end X% this beyond this X% pretty process, update at we probably of

Myles Walton

All leave I’ll there. right. it it. Thanks. Got

Mike Petters

Sure.

Operator

you. Thank comes from Melius next question And Carter with our Copeland Research.

line is now open. Your

Carter Copeland

Hey. Good guys. morning,

Chris Kastner

Good morning.

Mike Petters

morning, Good Carter.

Carter Copeland

Mike. could I wondered just kind question if execution. of I a ask about overarching

VCS the importance of of the that on in there some expectations delays out. some called you at laid targets or have and on couple you the the public the that’s to performance? execution the going of given performance lower out then domain the years, look stuff on that is Just you or just When next margin

I TS, again in in this you guys some be of of the of mindful one-offs be that you a back quarter, a challenges just in if look of of? take albeit and performance, wonder you’ve you at terms – groove small if have the And or hit is we couple before we systematic where Thanks. – is step something come should should there in kind had your

Mike Petters

I’ve today actually seen have couple career The we my you’re high in the we’re that spending really of, that a execution, the time higher and had been step backlog, the historically, us. at the Carter, shipbuilding ever And way the career the we’ve ever on let’s we before. today back Having and across couple go now to of been past right, been we’re business. in that’s all, have we at able great here. a And my to that have as something done as activity have largest first a task in The and better said question. business, to of along or in hiccups is where concerning some capture go that, level executing than because is we’ve that we’re exactly a a of of execute now able to front go had. us place result, than of

and that as backlog asked it our execute and turn that by business To ensure executed. going to extension leaders to execution that take I’ve be end, business to their management risk you, another in on can we’re make as to that us well

we more have this maybe is one go And we’ve the the that for of an so we in have now that in execute visibility opportunity even horizon value than have I we front opportunities us. opportunity actually robust the actually because greatest think in seen us have this We the in the past. backlog now this to and of way

way. little piece of we’ve first is refinements eliminating the that and these along So had the business hiccups

tighten we records to Diego But turn And set in just I’m team that so that’s need confident that going about San you’re where why talking to and that’s quarter the had and indication the will issue our some up forward. this another of what that performance. we

Carter Copeland

just there each a commonality that, as there is – or in any the to follow-up Is they hiccup idiosyncratic? quick

Mike Petters

each think its one I stands Yes, on own.

we’ve I we’ve the ourselves of particular is usually The the challenge things business think something is are hiccup not these in that root that given before. cause that seen new. any

standard places the the do a excellently the where have and energy take be. going for of business our make one where things lot to to So that’s is and of is we executing that’s sure we’re the whole

Carter Copeland

Okay. Mike. Thanks for the color,

Mike Petters

bet. You

Operator

Doug our And question with Harned next from Thank Bernstein. you. comes

is now open. Your line

Doug Harned

morning. Good

Mike Petters

Good morning.

Doug Harned

parallel, a happened different, Potentially And very a he’s very sort mean a LSDs far from take LPDs, as one in in now, you like that’s away but say different a the so of I for to is when these guidance new where about that, that’s got there his planning you Could we’ve force. your shifts see about moving and you something Mike, forth. or around the think budget, talked talked things the would going then in off quite is I structure the talk Marine. something the also thoughts really about obviously while, future? of LHAs, and this and that Navy need evolution things about you the emphasis

Mike Petters

Well, – think Navy Navy and but changing we effort a the are the UUVs, are ourselves I changing space in overall world forward. of primarily support changing, unmanned in really to that to in in thanks. fundamentally guess now question change we we putting the we into space Navy. point that is unmanned everyday, the ask response to is the going going would support the right that is just response to the I

intent The to. we’re Navy the to paying standpoint make close more lethal from is that to something ships try attention

today think but the spend Ford-class this the about be contract evolve two thinking a late with don’t engaged that to be too it the comes that we to if ship you’ll of version to now late. have contract, will time about then. time like, We’re it Navy is think look to It what what’s new go next a should ship when to contract, you great about

same sort of We thing rethink plan plan the way they support them of with to nation’s what and engage Marines they on how And be their of as happens do. behalf. with need there the right to they to the and

have all it support It’s and over And concept future. do hard need business look turn, may left business and the not are You’re out from down laid commandant right, to a perspective, to kind a actively and or to way from we’ve there then evolve I and be that think operational to these that are to going in not and things the training then have light they that’s engaged technology way has where right not horizon the course platform everybody perspective, hard I the But in you’re these done to think an switch of way true changes. for change we the go of, very we and that. a kind always perspective. the said, trying recruiting

Doug Harned

the the Just as Navy that priorities obviously at, mean a in a I ones. been follow-on the in is, big looked readiness has

the part look short which is a mean the you When Los benefited you’ve here, ships, the lot doing the on you’ve business. of Angeles-class shorter been on cycle from this end mean revenue. has I helped of So forward, work I a

repair think So that it forward, fleet that, plays going is Los focus Is how And for see something an see this Angeles-class expect area I work we would given and the from this depending readiness? do episodic on it continue outlook this X%, out. build? or work with event you that you is from upside give some could – could how an the support to to you here

Mike Petters

limited right in compared it’s you’re get the and businesses, readiness that There have Well, how what a and construction to that short no doubt is today we more dollar. to that we visibility is approach for do business. overall significantly its business the that rethinking cycle the they in readiness have the Navy

be efficient, contract but, bringing a They’re type I not ways price I our looking to contract again, slow more and that mean, at a part San up to government’s that little to back keep team to fixed on would was that. respond a move the was Diego to to change point to

and respond be it. to pursuing agile have readiness to space, they’re efficiency enough we to And as so the

is is sector. know The of a history pushed lot in gets variability to of out and Doug, you there most of private that it that as the space it though, probably

middle source more means that there moves sector not dynamics and how that yards would for that are the private in that the it efficiency. creating or which in beyond readiness So are of Navy readiness mean general. predictability private when providing try there’s know then capacity addressing I something fluctuates address to the that to that that’s out. opportunities We and believe overflow government think that primary lot in go through that some and more is issue, sector there government private create I trying and a budgets a they than is that, we’re to fix that the I more plays the see support of the that we process, sector, activities to that the where that

make News, that sorted how we��ve part of and visibility And submarine result, if extent to what’s got more to a Newport become it space. going our out, more As that’s predictable great into don’t some the repair doing been good gets have that predictable out. but and we’ve play it work a can out business we will at there we

Doug Harned

Very good. Thank you.

Operator

question from Spingarn Credit Thank with you. Robert comes our And next Suisse.

now is line Your open.

Robert Spingarn

morning. Good

Chris Kastner

morning. Good

Robert Spingarn

to some on wanted I about ask the of these you Mike, timing deliveries.

So you XXX. talked DDG about

from but they to going a previously right? pushed now from then, early move wanted the think does you’ve being cluster XXXX also And that into that XX%, showed retirements I on, year you, X, benefit ships into it of the I XXXX that out Tripoli, XXXX, LHA to that’s on to pushed margin in expectation that meaning is Why or it extent is ask what or the with deliveries? risk ship. to your next you to high late X% sustainable of margin year. get you a or from what’s

Mike Petters

Well.

in the we’re ship, be about, we or design of the a first really around there are resolved, life the the issues question they we before because is working is systems we will So the Navy Builders are of deliver working couple need very ship. is just today Where and whether are with these ship we of to ship are a work we life deliver the the that that and is, of the for is resolved that issues we’re good X trials and a LHA had in discussing shape. LHA issues successful ship working on through question technical X,

the – fairly but the a with resolution of it’s resolve any want the of They’re don’t way. extra that. end want We the So next this sort is, of that end put we of we will year right sort complicated in discussion come that think pressure whether and that or we’re to around the – year to to Navy. year of the predicting on and beginning

moving second mean I significant question work XXXX to of of XXXX. things we XX. to the into in actually launch go before Relative Delaware, XXXX, pretty The launch your delivery The about the we’ve on the of we’re beginning track ceremony process fact, a the planning quarter us. of in XX that’s fourth the is the year. of christening event in big before and for end And got

that, So that. positive very feel we about

move we things back, always out we XXXX, As to into of as that’s talked normal happens about however, end get healthy. year X. with blend shake the we What XXXX, that we’ve at in LHA the pretty start to get back that

backlog a but is XX% work, to We work sustain now we where we have mature the now we will moved year, really new large we Fitzgerald. X% think range become can next drive believe of for will have We But that level Ingalls into business the healthy the persistent including have going to across do think deliveries four forward. I the a business. at that’s going

feel or things XXXX XXXX to to moving The think make expense are better the XXXX. better. XXXX going make into we at move So things feel not I that don’t that of into XXXX

place have is range pretty contract. in given I under that this run in pretty sustained think good a the a work the we’re of business healthy to

Robert Spingarn

Thank you. wanted I then there. deliberately, helpful all timing you’re Okay. just and And you these milestones. for thank you wasn’t here particularly Well, also I but color extra really doing that’s you maybe the that suggesting very the it to provided got

Mike Petters

be to can we will we obviously this to we year if but the right done done and be when it seven not go impact about. range confident we’ve but talking will, with get will go the be ready right go it to the ships they – everybody need it’s that can work and that’s Whatever way. and we’re that And way going going been done Thanks. Navy, be happen, will we the to doesn’t

of range. the to X% confident XX% We’re

that execute have we confident We’re backlog it. in teams go place the have we the and to given that of

Robert Spingarn

again. Thanks Okay.

Operator

Thank you. And from from next comes Raviv Citi. John our question

Your open. line is now

John Raviv

good Thank you and morning.

Mike Petters

Good morning.

John Raviv

kind a double here. flow, cash partner just of On

year, second assume modest will up like cash only one if up then target, a said what ratchet where limited of half continue XXXX to free is pick And You all, message the also, the of that the that’s after first so operating seems weak you or growth this And is pretty this you drives shortfall growth flow down? capex half. year. it

So year? confidence next from do coming where is and we pick that weakness it up

Mike Petters

Thanks that. Yes. for

Chris Kastner

Unfortunately, slip NSC we into some delivery John, QX. largest from a $XX had is, the Probably X simply it’s example to from invoices moved really invoice QX. that timing. we million had QX

So, it’s had that half specifically it on the the stronger. much simply modes obviously News. year, Newport of back are at contract timing, will waiting some We be

as year. the unfortunate year back timing. but the So the over us it’s first half of started recover it did, half the to fully it’s expect simply I of

John Raviv

is sense I the level numbers picture XXXX business a pension, But mean, Chris, place, XX setups, of pension with But I over down. given continue I this target. and moving of assume to in this flow, just without about six really tailwind opportunity of capital pieces. month? generation can lot forward without working the can question of bigger because more a deal what just a a that’s can is backlog you budget so given organic there’s month having capital I free think the to year, you with to going you just and melt down bit – just – speak the XXXX mean, basically give flat cash with last in year-over-year, huge flow

Chris Kastner

the level, XXXX, I working think at. it’s question, really think at have was a we’ve lowest did John. where We QX this excellent capital been pretty I ever good

we flow normalized that’s when So conversion. it mid complete don’t and I flow bit. to a XXX% XXXX, our pension and free normalizes until impacting cash capital back back a to program cash think you get free is get

of So flow. I to a we XXXX normalized place of to when best get look is think more cash the really level kind

John Raviv

Thanks. right. All

Mike Petters

cash fair had think a XXXX I we QX talking year. through that bit of in do, about it’s excellent that to I the a for created been we’ve the say headwind and

John Raviv

I’ll the queue. in hop Mike. Thanks, back

Operator

with comes from our And Gautam Company. next and you. Khanna Thank Cowen question

line Your is now open.

Gautam Khanna

Good morning. guys. Thanks,

Chris Kastner

Good morning.

Chris Kastner

morning. Good

Gautam Khanna

questions. Two

did as move effect happened, the the that one that in elision to on not? the forward productivity assess the there if Just we knock in quarter on Mike, if on the comp? wondering drag it have knock as QX, will it, was was, move teams on was wondering what you would I First, or any damage? and

Chris Kastner

Yes.

insurance us to is that to insurance related an insurance, deductible So we that we have immaterial protect with Gautam. but there have protect against deal that to to we have

Gautam Khanna

Okay.

terms up or is cume there in of of impact insurance? So no a anything catch that

Chris Kastner

now. the deductible Other than

Gautam Khanna

what they segment? were? by us And then actually could skewed Okay. adjustments the -- How give you cume the profit

Chris Kastner

Sure.

growth favorable $XX those TS and million, News, XX% $XX were and Ingalls. So XX% Newport of The Newport XX% Ingalls. million, News were was the XX% unfavorable XX%

Gautam Khanna

And question or the any about, behind Okay. on you get related an program. just program to once earlier VCS

up. Just we to once obviously the behind. behind the word curious I fall curve stay is or mean about catch

could give you curious what gives to your Just confidence recovering on you and as confident? about any if just us color

Chris Kastner

I are you’re mean, we with in especially the Yes. when like serial a production line a Virginia-class.

fab to to start this been the year, start hard synchronization units IV started where working given that. you If issue that made last progress out year a This of great of production. We’ve affect and fourth of quarter through steel that facility on into is working we’re and does pretty we schedule have reset the the issues to our with to line. Block get kind we really it

be go making We’ve team of we changed leadership created teams some created engaged tools have We’ve the digital process to construction we we’re sites for our we thing wake again, where And more The is that We’ve that taking the fixed, we’ve of we’re good you space. advantage towards on. And – that, new advantage day productivity. that optimistic to progress are to a need say to one we drive but about that. back have. not in we’ve to getting everything work the light switch up have. the tools of and seen kind say schedule you of taken pretty and

that we it Beyond the set that, schedule informs for the Block V. way

get that coming we factored to to contract Block be as belt so, V. And the our will that into are under

team right we team and that – work made. all We we’re in the place optimistic doing the do, progress. and progress I’m of in the the about making So right still but the all, things to kind we’ve right they’re is got got

Gautam Khanna

Thank you.

Operator

question comes And you. of Bank Thank America. with our from Ronald Epstein next

Your line is now open.

Ronald Epstein

Yes. morning. Good

Mike Petters

morning. Good

Ronald Epstein

bolt-ons one returning When M&A, thing? there deployment any are how about out just shareholders? you like there, picture about you’re big capital sort adjacencies just that you thinking question. is Are focused to now, on of stuff Maybe thinking capital

Ronald Epstein

five capital to coming we’ve we’ve the Well, – that. three we’re been four business our strategy core that want last our years, invest or for Ron towards we about the projects with in talking end of is and or

our free of shareholders, we’re We’re business. return to our that ways to flow substantially some us grow cash to invest with but services going you’ve our acquisitions. in going to do all seen And

division If those at really businesses we’re you today at look Solutions and businesses. like Technical you the our look I in, that

for is there opportunities in I unmanned think further the space expansion.

I think of years that the business and the last work prime five amount in become energy is there DOE a in space. we’ve department that of contractor significant a

for opportunity areas those think always critical Those to customers goes? – it where they and two are capabilities do expand plays, and that in how are The about Intel be footprint we where us prosecuting. cyber as need. there, out to is and our so And what

are opportunity, we to we so this, and continue. engaged we’re if and engage that going And and I the expect will have right we see opportunistic on

Ronald Epstein

Okay. because like you a a And on it in then where us stand there? seem quarter, the can Virginia-class, you or something update maybe quick charge took give we

Chris Kastner

of QX year add in me the majority reduction earnings the on is Virginia-class, reduced script took. then vast from let in release. booking we to in and charge the Ron, last the the that the rate the language related The

EACs fine on but that the the booking the So that base was was reduction just in as quarter-over-quarter, tuning can level we most there of do mention, material rate the always nothing, we nothing in program.

Ronald Epstein

Okay, but nothing new?

Mike Petters

No.

Chris Kastner

I as before, really said up IV good the for set Again, some progress now making get to Virginia-class on Block the is program team right success.

Ronald Epstein

much. very you Thank Great. Okay.

Operator

Morgan. Seth Thank you. comes our next And question from with Seifman JP

Your line is open. now

Seth Seifman

making very out? a pension that, early predictions or the what year sensitivities Thanks Definitely for next sense it’s much. about to but that give to be just too Good year guess us of are around shake in assume I some and anything are interest the cash which helps asset If year like morning. appreciate does the and that rates, and then how good today, flow performance statement. negative for FAS/CAS you I ended which P&L, all so the on had the

Mike Petters

Yeah.

while, to question. are would rate I question, indicated expect before points. got returns discount through you pension as about that took – asset asset for a you It the basis XX a and thanks but as Seth, returns XX% down So, over and up of end QX

calculation, you calculate the cash differently. So opposing FAS/CAS in those are and unfortunately forces

to answer. get to real it’s So tough a

I it’s and to early the think, in into calculation forecast do XXXX and XXXX. year that right, you’re

The in So are it in a year-end makes sensitivities bit. sense I the think K, wait K. the to

try it. bit right, help a So find think and to move so help there, performance it. But discount that out it can I when and out asset and so what the you and them was, tend performance early about a together, cash that cash you you the estimate to the a you’re standpoint, CAS year should should what bit. in indicated was rate is From

Seth Seifman

out – Just of where, on a number? an When And we to got came earlier. just can about in the John’s years. capital to flow performance Thanks. question of where considerably working where single-digit so, a a of capital flow of of maybe working up we’ve high on for – cash a sales, from in good percentage business, for We X% as terms the can just very go saw this down more basis outlook Great. and for years? go number be should about it is capital business, think consistently a the we make working thinking assumption about forward think follow cash sales

Chris Kastner

Yeah.

a over last kind but last the capital, from should have the year down few of X% on at something performance makes to an where I X% outstanding so rate working more lot and definitely to come think Remember, was X% was out. then years we fall we in did closer the run basis end performance a that sense outlier. there, tend of on or restructuring it

Seth Seifman

much. Great. Thanks very

Operator

Shapiro And our Thank you. next with question Research. comes from George Shapiro

is line open. Your now

George Shapiro

the morning. is for for at a the a X% to or in going primarily Chris at? and Ingalls be year The look simple is Hi, Mike. back then businesses? for two of guys. for Newport implication Good it under between News One we growth probably that one or how One one. the revenue the you half, X% little splits should is How you,

Chris Kastner

Yeah, I think it’s primarily Newport News.

George Shapiro

number do see just pretty Okay. And some we And thoughts a from of you’ve of now you record some up. forecast, you started What a I been impeccable last then of has that’s what In now and those issues years business the sudden, think seeing for occur, execution, over Mike. your would wanted but that? general, notoriously all had an we’re risky. but so to crop of changed executing years, terrific in admittedly this on you, of

Mike Petters

go clean Thanks, take we to are putting but lot as it’s right are we energy high mean this edges, executing that the now, we and to my that I another time a because I is and experience Yeah. very George. and believe on turn – fraying said before, a we’re now of are up. into at level, we

new people, we And got leadership. so we’ve some some new got

in we that for type didn’t executing We kind but a instance, contract San fast new lead not ship work. It’s of react Diego change too are enough. into had we getting work,

have that put not superior front in that of to today, business team just needs of is we the pockets the challenge have. the Across we I pockets be that the The and execution. standard

program a has I the some and future. and taken that’s to up the about Block we IV were year. back a If talking in today. the XX bit evidence that, of see in set across that, I XXXX. – launch for success. years, and about turn business benefit And so we of today, that before us see IV, end do Clearly, go the as things I team already a going launch the talked happening get see I couple in the Block do We the go that on of of to of rectify piece little a we XX the how that look of spring

an of place launched, at which the indication is going how has now, be launching the that going ship it’s team be pre-outfitting is the well here how well and where the ever to We’re running. ship program they’ve gone a well XXXX how we’re and end ship, heaviest outfitted management of the have at we to

a in we’ve well, the – we we’ve of got clean but main, areas. couple executing little got, you’re So right, are up

task we attention to, to it. and us make the go we get that where this to to got superior it’s go of ready our front pay it, and to we execution, have in need need So make we’re and we that’s standard

George Shapiro

of But to they years, seem change I for till you that caused issues, some always but have now? to themselves had number what’s didn’t guess must because potential surface

Mike Petters

of but to almost macro thing case-by-case It’s is. a on say, step I the back basis, were if what’s kind and the

all years back put programs seven, our As expanded, leaders that pretty eight had they we some have have knew people places you haven’t senior and whereas supportive business. And the we – the places we’ve ago, new well. may go leadership had in ins of six, if outs into of very them and

where take standard for and into time success a is. structure support that we’re in around be is on of challenge the certainly short been going first going. we that program How that the and they tight as the the that’s but have that that’s we over to last should so walking And set our think I will sure something a put will fix don’t of make them can someone around we been, do And couple years, order. arms who that we for for have pretty as

George Shapiro

Thanks very much. Very helpful.

Operator

Thank you.

David comes Strauss Barclays. from question next with Our

is open. Your line now

David Strauss

we of of coming half to the or us half that you flow up what expect gave of do Would free cash most in should do implies, delever towards first obviously Thanks. levered the having that? buyback? plan you going up the Chris, lot step with guidance you or some a second help in The the cash a year from year. of

Chris Kastner

Yeah.

We do think but remains. cash free our commitment flow to are our strategy. with deleverage shareholders flow return stay commitment it expect some shareholders, back return of substantially to our we’ll XXXX So of all substantially the a free through that to it’s out to revolver I will so be make good cash sense,

to keep to it. going We’re

David Strauss

that Are Okay. that or back going out can are watch specific and And margins milestones ramp to we there or achieve XX% being then really this just shipbuilding Mike XXXX. monitor to X% to then to programs here able for? in stand

Mike Petters

Yeah.

we on obviously, attention I to ones a this deal for pay track out big are and for about milestones of financial talked hadn’t the that Delaware the also is of pretty obviously there. had that think the do is to be to already XX getting to were in XXX, we’ve XXX impact the line for production resetting next then planned year important. getting year program the out while in the insurance the launch The we’ve getting rework And had back the going we’ve VCS the destroyers laid us.

success back Getting in the will face, impacted getting that get destroyer the that the line work is up is Ingalls so in that XXXX. that set by purpose the and into doesn’t back sequence that, now for on us right of

front The well the very in that year to So us that I get done need think we things set have next for the between milestones up the you us. and end of now here of year.

David Strauss

much. very Thanks

Operator

you. Thank

with Josh Sullivan Global. from comes question Seaport next Our

is now line open. Your

Josh Sullivan

you the Question detail relating then to on, but it, touched efficiency how any with shipbuilding initiatives are pilot that these working appear to any on these area threat Can or success be initiatives technology maybe morning. would early progressing? you’re benefit. and you programs Good Hi. execution could an

Mike Petters

little across of excited in they than number But go are better it to that a lots build better. the used ability we’ve have kinds technology, visual for younger is of and instructions, ways bring a digital of and there tools, could that a these put working how empowered think the with workforce we business, sort and tools any looking that volume to because to things engaged very a on leadership while extrapolate to do programs across work you are had to eye and pilot I’m things is talk is digital the number about business the going reluctant watering. who team We in about to becomes any put you it of particular

and yards. seeing in that both improvements we both we’re seeing and cost are schedule And in in the pilots

last the us And we’re all the next seeing to benefits of we so should today goes generational talked from capital – capital matter is of into – in we that that we’ve be years The significant And confidence improvement. business by investment of fact year. efficiencies. are given five where of that made that’s the about that going business investments range accelerate a over normal the into the is in terms the those

that’s about all So that’s I I it. kind think really – about of would to want say

have at We today. a Newport young workforce News fairly

experienced they the after when in we the three industry XX XX they being from industry, Katrina the remember major still young most I deliver caused ago later, a the change workforce had youngest disruption in Three days the ships. And went they some were years were very at Ingalls. contracts, years Ingalls in in And tough but years, but workforce youngest at the a workforce. because

ways is a News productive creates I Newport excitement of I it today through got and they’ve work they’ve very terms success in think they leadership constructive a and workforce sort team, walk in every engaging of are under they’ve that – front just the time young sitting got got contract, in and of young yard.

Josh Sullivan

design supply the that point? are Appreciate update What hurdle program chain factors gears, switching the Columbia this that. any And then there Is major is progress. just in on side a program. there the at gating the of remains or anything

Mike Petters

Yeah.

For on our is track. our – work work

in that Dynamics General program. supporting We’re

that need we’re those capture capturing using efficiencies there. put in we’re track to Virginia-class on work the and for are of in support efficiencies we facilities program actually already, capital that to projects some create the Our that we and we’re place and

get really is on I getting – our we front where in where a standpoint, stay the from to got We��re interesting. lead construction, the gets think So really the to good be going it’s program schedule. point design of essentially the track. ships Can

on and that, really partners time at up a good Electric go have think but it’s got perform. I schedule to leg our good really Boat

Josh Sullivan

Thank it. you. Got

Operator

with follow Suisse. Thank a next you. up question from our comes And from Credit Robert Spingarn

now open. is line Your

Robert Spingarn

Navy the just able was if public I follow-up. Ford-class carriers. different Yeah. service to opportunity might this this sure, was wondering, the that taking versus Nimitz? the and wasn’t case somewhere yards they this be to Thanks outfitted class. for reading that sustainment to I the are accommodate just I able present was weren’t if

Mike Petters

a and be clearly that requirements, will I but good are between be there government think all Rob, think those shipyards. things, can kinds Ford those and addressed are it’s things power by the differences question, of Nimitz the addressed, I

things Remember that major a don’t shipyard the and is the from have and on early fundamental we’re do things it. that – peers but bit It’s receive way docks, much see do a of going get of they is matter some everybody to but have don’t same, really that, like to kinds those little support that’s things in know so supported Ford-class to industry. I a change to the to be of Ford. so knows haul those the and you it upgraded that we’ll need physical the And some doing will the a to just to be the of I able what be and change ready just

Robert Spingarn

about topic ships we’re surface or seen else the this talking have whether this opportunity fleet, submarines? on you Just across anywhere

Mike Petters

In the trying to terms of expand –

Robert Spingarn

changing it creates scope what is and service you words, which does, in opportunity The peers? opportunities for itself Navy the maybe other yeah, your where of the

Mike Petters

do led for Navy secretary’s This get sorted no the we’ve a the they’re been lot perspective a kidding about And looking taken do this predictability how out, in the really, office. it of And to that to that readiness from business. in said that to had My more the they’re pushed that try community variability way, ship space translate they’ve my I’ve aviation hard I in on history and mean try to that effort into they’re a more there. on, to success career a think working has in and repair figure private go some Well, is, is it it that’s create looking to readiness before, the is has is sector. long turn I being the out. efficient I talked a think to time. you hard

And of from think price Predictability a standpoint of type scope, and are considering things of bundling of ideas predictability good contracts standpoint contract the things all out. of need a performance play and on from we’re those I and those all that, and front see to like we’ve create want And toe the kind got with certainly and actually that that whether Virginia-class to opportunities there. end other to far, more We in in we’ll what water so our we can of efficiency participate support. presents. see the it

for So try shake to little early all us to out. predict that’s going to how

Robert Spingarn

Mike. Thanks,

Operator

comes question Noah Poponak from Thank Sachs. And you. Goldman next our with

Your is now open. line

Noah Poponak

like full everyone. then quarter, or year in a statement just Ingalls out a for for the more the half third net broad you cumulative where shake just tell catch-ups capital is us month of more question kind for XQ, XQ? Good up or second you versus sense flows Hey. the you’re directionally you my change cash capital at in on working shaping the Could I working were wondered of assuming And for XQ how to if the your into morning, cash flow the back on either topic. what statement had if strokes year? even like expect

Chris Kastner

Yeah.

risk the think absolutely retirement I towards No, thanks. are events tailored QX. So, more

Ingalls give such will better. won’t News be sequentially I QX, separately. QX to and So better, position QX, get or Newport absolutely that It’s QX

don’t up guess point. where year, relative we last thinking finished will but to that’s could probably have the we are do north at specific standpoint, you capital of this working target. I a where we the the math, end For just

Noah Poponak

All right. Thank you.

Chris Kastner

Okay.

Operator

remarks. at Thank Petters, like call the you. time, queue to in the to And I’m showing I’d no back for closing any further Mike questions CEO turn this

Mike Petters

thank today. us the Well, I just for joining want to everybody on call

we better well and needs very to business can really division execute executing we next across that Solutions the us like our those of year opportunity milestones As we’re and across set year, and have the performing board businesses the and things are you in. for performing, pretty those are, the be rest the to division of value somewhat shipbuilding to even is where well see up and is and well the shipbuilding for Technical be all Technical Solutions business

look thanks see So your with around And the us. to we forward being for street.

Operator

you thank and for your conclude day. your And This a Ladies Everyone, gentlemen, conference. today’s have may all great program. disconnect. participation you does on

Huntington Ingalls Industries (HII) 1 Aug 192019 Q2 Earnings call transcript