- Earnings call transcript Q3 2022

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Christie Thomas

Thank you, operator and good morning, everyone. Welcome to the HII Third Quarter 2022 Earnings Conference Call.

Joining me today on the call are Chris Kastner, our President and CEO; and Tom Stiehle, Executive Vice President and CFO.

As a reminder, any forward-looking statements made today that are not historical facts are considered our company's estimates or expectations and are forward-looking statements made pursuant to the safe harbor provisions of Federal Securities Law.

Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially.

factors expected cause SEC results regarding differ results filings. information from materially refer additional that actual could to For to our to Also, Tom today, remarks certain refer in non-GAAP Chris measures. their will and

the Chris? Investor over these like of Kastner. to I CEO, which comparable please this to For to at and slides on ir.hii.com. Chris reconciliations accompany the metrics that available would call our website GAAP President turn the measures, the see Relations are that, webcast With

Chris Kastner

and Thanks, and everyone I built, joining powerful like Thank work and highlighting morning, defense defense and ships constructing Christy. you our on critical to with us craftsmen capabilities national teams our national the in HII the customers, survivable by for technology Good team. solutions, day developing priorities and entire you and engineers thank all aligned customers' and needs. support out today to mission-driven supporting most ever today's specialists pressing that would call. day naval and the to overhauling HII hard begin women

our diluted on for quarter, Now, which to of down XX% $X.XX billion presentation. XXXX we had results third $X.XX turn Page sales $X.X the X were than in XXXX. higher In EPS let's was the and of quarter, from the

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

quarter, Newport billion Pittsburgh. testing was and in environment, craftsmen ship a fabrication programs. the for combat Ingalls, continue hired on employees. to News, trials DDG market of week, utilize Higbee. Johnson, Denton. we complete third deficit on the construction over notably on contract short-term to product At work enterprise. SSN in commenced CVN the -- is with laid economic We system. Jeremiah Washington, levers the X,XXX experienced USS the Kennedy macroeconomic our conditions. approximately moving the the were DDG SSN And material And Lyndon Zumwalt-class CVN the full year the Sutcliffe no awarded the George year. last design against general and destroyer, B. continue across CVN next program to Jersey to XXX X. and acceptance test the for we the amphibious the LPD Also, of completed was the began LHA detail on $X.X our authenticated to we have electromagnetic installation XXX a recently and our XXXX. further keel make side XX shipyard, system, lines, XXX of third At into keel And progress began DDG launch to In all Lenah we shipbuilding other the and XX activation on program And during progress from track quarter, program redeliver drydock continue with XXX to outside for make challenges most plan of and New RCOH time the tight XX continued of progress over really offset the Virginia-class continues The have Also, leased broader submarine to labor labor persistent Massachusetts deliver on next quarter, we improvement see expect we year. X,XXX. XX Through women of we In

pressure. in In material longer times continue our ecosystem, addition, chain challenges resulting supply supplier across lead inflation and

challenges, underserved shipbuilding mitigation and manage continue our end, very schedules To actively enhanced programs, To reduction to previously a time have women some contractual we expansion use to also to in the expanding in discussed our in aggressively bring workforce on we including our we industry. revised to have shipbuilders, are inflation, pre-apprenticeships focus labor completion and efforts while we supply the and broadened our address our this apprenticeship populations lines, apprenticeships curricula, minimize pipeline. successful production chain and and recruiting we've more skilled we As impacts. on do development

our to Mission Moving Technologies business.

remains capture. pipeline billion Our very strong in $XX evaluation billion with or in $X proposal and

book-to-bill year-to-date. in and following as X.X Integration we was quarter and strong healthy is synergies business already value. complete. systems totaling X.X operations was third contract $XXX awards over of acquisition largely DMATs announced are seeing a the Our recently the And such Alion million and total

see regions technology with year our am gain federal includes commands international and forward. advanced growth years. FY performance. continue and received strong simultaneous fiscal We across joint 'XX. received X River, our proud across in all our DOE resolution the which the in from activities Security and year security our National continuing business Nuclear at for government by major the of sustained positions a we received In option and a consistent complex. the funds also to an wins couple strategy. were significant government venture and years, demand in early These X through all and we we combatant Environmental contract in competition an under exercise the for began spending talent, as extension venture earlier to headwinds momentum to Washington; new our solutions This the site, Despite the bill omnibus support presence option national increasing confident where joint actions year are an Nevada very well presence coupled going of strong domestic a going December. the our with DoD Shifting driven At operations ongoing expanding that for to plus technology that are additional the signal delayed mission of customers both markets, Savannah its into due intense potential I are summary,

and authorization ahead. continue to be remain proceed optimistic appropriations months to expeditiously the completed annual urge We and will that in the defense processes

new additional not amphibious less include outcomes and XX XX shipbuilding and final we see customer for shipbuilding These spanning depend for overhaul DDG I provide requirements backlog [ph], and committee ships. appropriations procurement contract maintenance in shown critical to on our And stability. result While pleased amphibious for our recommendations significant driven continued strong will committees and turn authority, Slide than to defense for warfare financials. now, Tom the over award conference respective support Tom? ships national The and construction, amphibs are negotiations, remarks demand authorization eventual defense will carriers by multiyear needs oversight requirements strong to new driving opportunities and aircraft some including will modernization to as X. destroyers, on call submarines funding on

Tom Stiehle

and Today, Thanks, our third morning. briefly review Chris results. good I'll quarter

website. Slide X. please consolidated our morning with on this release For earnings refer the more and results the detail segment issued to results, to on our posted Beginning

increase more market in driven the third was billion quarter same Shipbuilding. Other on at quarter investments to quarter year volatility revenue third was was quarter. noncurrent improved given XXXX $X.X approximately as compared losses in the compared of increased the was flat increased year. of Our This due prior operating XX% acquisition to $XX in the favorable million taxes revenues expense and period income Alion of last by attributable XXXX well the News or as News as of to third million the Newport quarter of in $XX essentially to the Newport XX% operating income income operating growth X% year Operating from for Shipbuilding. the results at by was from increased margin which of prior equity state quarter million and the well The fast period $XXX primarily primarily period. net cash as adjustment

tax third rate of Our previous XXXX in $X.XX in $XXX tax quarter per research million the $XXX effective share XXXX. in through compared development was quarter XX.X% the X.X% million third last approximately and to of Diluted year the quarter $X.XX years earnings the the tax included quarter year. in were for credits compared quarter was compared in negative in third Net quarter the of XXXX. earnings the to to which

by billion from year in in million revenues partially decreased Ingall's X% Slide revenues last at to submarine of NSE year, risk period to by or than last robust as same compared lower DDG quarter the million declined offset and well a and to million or primarily on driven the partially carrier quarter At of margin retirement due $X same support LPD higher naval Newport as primarily $X.X million year. $XX and by from $XXX program due and offset programs higher Ingall's program, income last previous revenues period on by X% $XX DDG less the from Moving retirement. higher on operating News, the year. of the X. services increased LPD X.X% lower revenues the aircraft on revenues. the risk nuclear to to

third contract by submarine retirement million of due X.X% Newport $XXX program, risk million, margin on year revenues the and News offset of primarily from VCS of support incentives were News last on At the program. up Newport to operating lower to the Columbia increased class related the of the by partially acquisition last compared to results last are construction million Technologies, the growth of income operating incentives XXXX, of to contract $XXX submarine $XXX Mission quarter approximately quarter the income $XX last Technologies' third enterprise. compared million and the Technologies' third in Mission year-to-date. was year. million quarter Alion year. year. quarter third $XX assets compared EBITDA of driven included quarter in of intangible in Mission of of amortization to $XX operating Current margin X.X% in of third of $X X.X% the million Alion-related class Columbia million The continued in of the income purchase

to of used Cash $XX by capital cash free net of and $XXX the million third quarter resulting X.X% capital million. of $XX cash million cash free negative $XXX $XX compares in in revenues of X. operations from XXXX. net and of million, revenues, million to quarter of in $XX million was This Turning expenditures or operations of X.X% or expenditures flow Slide the were flow

flow earnings $XX cash third is tax the call, changes given of R&D that as the probability free this approximately quarter last of projection tax lower timing the a payment third below to our of elected provided function to quarter treatment. make deferral of well in While as a on the simply we delayed was million we

detail flow year are our Cash our to $XX pension discretionary million in pension contributions other we for plan. in benefit free million increasing which contributions fact, to overall a qualified which postretirement plans the than outlook were moment. our quarter, In XXXX and $X discuss I'll were less fiscal cash of more in

During paid the $XX of dividends third or $X.XX million. quarter, share per we

at cost an the XX,XXX million. We $XX aggregate shares approximately approximately quarter of also during repurchased

to on and XXXX for Slide postretirement pension benefits. Moving and and the updated our XXXX X outlook

would has that year-to-date. improved status and funded our remains like First, strong highlight I to

the pension muted. note to Additionally, cash I flow the that impacts will related changes remain

For down given last XXXX. FAS the of negative benefit more update, far XXXX, asset thus considerably returns our immediate the from in experienced recognition has the come

that remember of in asset subject impact Please the the returns returns, offset performance the pension-related to While measurement clearly to are related criteria. the asset magnitude numbers lower does and increase year-end partially of more the is discount rate impact significant.

will a update provide on earnings of estimates call We multiyear quarter in pension February. fourth our

to Turning Slide XX.

prior and the our to Mission guidance third We end are our quarter narrowing environment. operating lower the of ranges, given Shipbuilding guidance results revenue and through XXXX the Technologies current

have start as we as the now be as of Technologies of reflection expectations environment material Technologies We environment. that function between The a of the and well expect shipbuilding the revenue are slower as The timing to guidance our the discussed $X.X frequently year-end. current of revenue near year be billion $X.X to is as approximately for narrowing is well labor $X.X billion. a expecting and Mission billion Mission revenue hiring the we shipbuilding the the revenues challenging of

third indicator remain very noted, the move a ratio and Mission opportunities quarter growth we forward As at about exceeded Chris we enthusiastic positive book-to-bill very as Technologies. X.X,

We shipbuilding range operating are margin to X.X%. X% our guidance of reaffirming

to a largely Mission approximately are X.X% Technologies, of lower which the in we margin volume function is slightly year. work guidance revising For the of our

flow. Moving to cash free

$XXX We [ph]. was in for XXXX. Section prior expected moving most to driver initially midpoint approximately been $XXX are which COVID we current to law, progress increasing of raised repayment R&D our has Under tax which million significant the The now of the guidance that increase million. our XXXX, XXXX XXX guidance is

purposes generation very we tax our strong have the flow Given outlook is And updated cash approximately Slide flow $X.X our treatment in cash that through through XX, given in expectations. we provided adjustment, flow flow cash expecting now assumes free in current place. expectation free free On the our cash quarter, an fourth billion. view quarter. for of This the third R&D are amortization XXXX XXXX free remain

of XXXX the approximately impact the As we through have before, noted the time treatment $XXX is R&D XXXX frame. over million

shareholders We through planned our our are allocation reaffirming to substantially capital cash return commitment XXXX. including all priorities, to repayment flow debt free after

the should note which announced we were after $X.XX, challenging a X% guidance As recently particularly slow to cash noted, increase a significant reached summarize, ranges. we the a also commitment To debt not XXXX our moving is the the prior I environment start to of remains quarterly in pace and designed will that to we end result this increased in in over contracting level. low revenue able increased resulted the prior have to have services share operating amount. overcome and which repurchases, we dividend our have has

our We are pleased increase flow current our cash shipbuilding to expectations guidance as business reaffirm margin aggressively manage free we and conditions. through

through target CAGR expect in shipbuilding plan said, have provide and With fourth as we to XXXX, our XXXX. continue long-term to detailed we with quarter discussed. shipbuilding to a improvement call, Regarding margin our on consistent that I of normally would guidance. fiscal year as flow cash appropriate operating guidance our XXXX, are pleased long-term incremental X% view revenue We reaffirm we normal free

However, given to we current efficiencies risk and out environment, provide before can the to economic close the need assess insight. operational will more retirement we year

as comprehensive turn on update the We on our some the call view questions. execution your With will we we've year finish before focused that, in XXXX to a back and started February. for over provide remarks I'll we'll final Chris more for take just

Chris Kastner

Tom. Thanks,

highlight Before the website. an that coming updated will available our XX to report wrapping be on which release will up, HII's Slide would on days I like sustainability in we

securing structuring building mission, We community our our strategy program resources. are our protecting and and the purpose on our business, the and around alignment our focused of with values

reporting have sustainability enhancements the expect in another and We be released of XXXX. process for update future in to spring

strong customers for long-term and which turning We our Finally, focused shareholders. backlog to remain employees, XX. and successfully our on Slide growth positioning generate value on will executing for

turn Q&A. will to the I for Christie over Now, call

Christie Thomas

Q&A. to [Operator Instructions] Operator, over to will it the you turn I manage

Operator

question of Your from Harned the Instructions] first comes with Bernstein. line [Operator Doug

Doug Harned

on On of but back know around we've that Virginia things I mean this how sense a Newport been does getting progressing are News, I retirement risk in can the of a and -- terms stand time outlook? less had you give trained. that's us Where and talked of class? labor now you about lot importance this your

Chris Kastner

that, for Thanks Yes. Doug.

from be year looking schedule -- in some to stability [indiscernible] some and Virginia which positive delivered, beginning now, the XXX They very, Some very Block [indiscernible] standpoint. definitely right program the get delivered. XX class the the developments to is next and that towards a are of stable

of So in standpoint place very we're Still I'd say efficiency. cost stability in think schedule the from schedule. and I working pretty good hard on a a the fundamentals But there.

Doug Harned

the happy say? so now get that over trying mean you've and so in you really kind trajectory few under seeing trying next -- what control -- point looks at got a I'm guess you're to is terms there of a where like of of yes, is cost I'm just efficiency, everything path in a this is for costs get terms what to that I forth? and picture a you're to Well, if I quarters, clear to

Chris Kastner

Sure. Yes.

fundamentally, when front have and in you, you cost schedules stability a have have your planning and is know you a your chance standpoint. what documentation efficient you're then from So an performance to in in of to going work better stability

and it's X things XXX XXX. their labor. that to and first on getting got just and fully the And on the right. are on milestones. staffed first, they're Block the Block IV schedule down on So test progress They let's work, progressing get We've program now making knocking

stable? is, get But you're that your if making meet program. which get to are, going on Are fight single they you that margins give they're to that a of the that are the team, say, you're hard they they the know lot to indicator are, team I your every in right, there's working going best be If meet to on submarine VCS milestones? working is week they're And I to you of operating within going the your they a will very your not program system. going done. on work the cost successful. I'm schedule very hard on trajectory cost the fundamentals So objectives.

Doug Harned

just I here. to cost. can squeeze more one in related If

Historically, You mentioned been has view handle felt I inflation that in inflation. the you last your quarter. can

we've opportunities short enough more so than with in term in difficult periods. a and because escalators you now to terms defense about when seen in that. of talk got what different deal in may You've this the prior inflation time forth seeing But lot of be that is we're companies

Chris Kastner

in The contracts. be on we contracts we Well, ensure from Yes. and I and for really the supply going bids correct that do our when -- right cost new inflation bid so the the us issue get said for have as is schedule ensuring to and those that our protection. we some previously, is new biggest chain

have for some of I although our in So that, that's previously, risk supply protected. some greatest we But probably under as for didn't the some within do we said piece contract. have us. fully the We those where have chain parts inflation not protection issues

real the to that. we ensure the we're is right bids to our new inflation related contracts on working issue So us very do hard for getting and

Operator

with the Melius The question Robert comes from Research. of next line Spingarn

Robert Spingarn

Tom, how the then third cost-plus quarter a top for inclusion to you have last there? I have in the year quarter? the inflation in growth growth of line know might wage Technologies what Mission has work was And since Alion partial much a the organic but third lot contributed

Tom Stiehle

Yes.

year. closed you look I August last that, We at are right. So when XX of

was last incomplete. So the third quarter year

told Mission the the that [indiscernible] is operational about a revenue top about talked quarter up We've specifically quarter choppy that. But Technologies is would for then organic line a The chain at an for the could stuff or about the quarter slow growth X.X%. about QX sweep line, technologies materialize had I environment, both the and X% is the little it of there. look a fiscal a year, anticipated contracting the for us line the the X%. told MDIS we year. grew at of for and side the overall you didn't bit top for quarter against as we beginning growth was X.X%. Alion issue because So you on see X% the of wins be third Usually QX, light. we emission Mission supply little about Technologies, the whole. the growth legacy we when it that year fourth

As didn't some I as thought said, in have factors the seats about were were that as we open up talked then we -- and didn't hit material hiring just there material some sweep quarter. in much professionals we've and funds and

we So that's where stand with growth.

Chris Kastner

recall just Tom that, we year-to-date I Rob, you said Sorry, think Technologies. pro X% within don't I if Mission growth forma had that of but

and So is Air I'm real in wins X training about very positive We feeling Force business. DMATs book-to-bill positive. had is positive. contract very The the good which

moving that lot So I a 'XX. think has team of into opportunity

Robert Spingarn

Okay. then for mean this about But block opportunity? X-unit what buy talk level potential on Ingalls might just Columbia And a for Huntington Chris. that could you continuity class, and cost savings the a one, labor high as

Chris Kastner

forward the all that class that orderly our and Columbia planning Electric Boat, the based rate. we business planning Well, how received we've from included [indiscernible] on the assume been kind Navy in that's the about growth going think documentations capacity we of and will

ensure bundling the has very procurement they chain. to been how get the ordering think and in relative they the to material Navy they're from best economics material thinking order how supply I thoughtful about Now

stages I part a But a in in do forward. smart We're So going source our definitely it's is talking the it. kind involved smartly rate a will it Newport way growth be initial and of It's working about will growth News team -- I it. think just of to it of think the of it. be on

Robert Spingarn

think to that's fair boats? normal, X visibility it than Is better

Chris Kastner

going amount defense right be visibility into Absolutely. CNO strategy the plan But about we the we're to have and backlog signal next of what from will and a our have very you think pretty shipbuilding, XX good to we the good confidence years be in now about that and -- think in jeez, get standpoint. place think a XX visibility over NAV you the we're going high to demand as and visibility

do sure them. on these to delivered because need focus we get we correct thing ships make the is bids then needs execution, important and Navy the The get

Tom Stiehle

added too, strong for of the a the slide of hit comment, kind I'd on back to end shipbuilding. new We demand that.

You through can which X on there the XXXX. range a Slide at see backlog backlog at shows least billion $XX itself chart that sustained that

excellent next expect we more shipbuilding both tremendous see have of what the We in the from budget the of to 'XX FY have plan term to [ph] the expectations side and the X in awards immediate near X-year the plan, come and then visibility we we years. visibility X

Operator

[indiscernible] question Suisse. with Credit The next the comes from line of

Unidentified Analyst

Columbia Tom, or quantify wondering the help quarters coming just the that maybe something of one-off? the help can you benefit if also business could that's incentives? class And the in that's a

Tom Stiehle

sure. Yes,

the X So quantification see comes over we've or last million in Q our highlighted later incentives. and and The customer calls, the Columbia Virginia that when this we're the how out. closely the as Columbia it X you'll is that working or customer class class like, what with of morning the working And within what both $XX those are program that to requirements here additional Block as as boats and out News. Newport have capability drives far and requirements requirements and both fly boats then the out, we're offices capacity look the closely Block V, VI to to the schedule play

there worked closely that see we in and additional in we've a the for We've quarter. with a and we've have right office now those yard. program position need incentives the capacity the achieved negotiated So we

million. $XX it's So

Unidentified Analyst

service combat, Got it. think last used Ukrainians then and And apparently, Chris, the recently I unmanned vessels Saturday.

you've service past vessels. correctly, something it the -- in some needed still was that recall I on unmanned that work If [ph]. USVs said these were there think I the the

broadly? seen And actually moment now guess for does that's big combat, a mean you've weapon that systems you in do think that -- So what these Huntington? actually we've for a I of class

Chris Kastner

mission. is But assets to for these I the going positive missions multiplier. important thing these be want is capability. impressive a customer the think because the and don't it's I water their can we productive can Scott. in these think demonstrate it's to force do specific comment the get so very how on demonstrate executing getting Yes, service we they And can as in most positive pretty

inflection of standpoint Now there's being from revenue yet and definitely are on as a an missions Subsea I contemplated don't different but momentum know ops of being vessels. point if con surface we've these gained for that's number both the a type of and that hit and

So we only think it's a positive really development and we we and think it will like continue to gain momentum positioned. we're where

Operator

next the David comes from line of The Strauss with question Barclays.

David Strauss

through Tom, in quarter? just could go you rundown the the

Tom Stiehle

Cumulative had that we adjustments then.

So it about Ingalls each of was million for and of was million was a News $XX that Newport a of [ph]. $XX and XX% [ph] $XX favorable, then on that proportionate [ph] unfavorable, half million net

David Strauss

then I how margins? -- And about, opportunity side. an that the shipbuilding margins you Great. to could But for next volume see be relative from improved on obviously 'XX think enhance leverage to for about mean, perspective, we in some what you as year, giving milestone milestones do Chris, there opportunity -- guess, I the 'XX talked you about a potentially the

Chris Kastner

Yes.

well So towards those those deliveries in previously 'XX, those a schedule are But and process update to the the that on holding on we the milestones on next we're as as on call. delivery still you the we'll pacing on milestones indicated schedules give of very X balance ships. and you. And positive are we're comprehensive in

labor opportunity quarter. the going and a but but indicators It's every there's still think yes, is of we're a trend. X don't There's to been opportunity assess points market. risk I data some late necessarily definitely some positive as tight here So

risks we you provide the a 'XX the to hard measured of assets So with assess end team and our be year. the comfortable update then is are and opportunities we holding. with in these milestones very the We're that. how get comprehensive at working delivered do going need that to to very deal we're that, and in But

Operator

with of Shapiro Shapiro the comes The next question George from Research. line

George Shapiro

bad you how this the then next raised wanted if I on it that just pursue, maybe for it? assets And the year affected X%. guess to your on for is year? adjustments some give to -- just the but is contribution, effect what how Yes, I long-term not you color based how that's pension also, -- your it

Tom Stiehle

sure, Yes, I appreciate George. Yes. the question.

So business XXth. of years, target had. When in look Obviously, the down this exceeded a we now the XX we we've full X of did at we X.X% company the as raise that. XX that a is whole year pension this plan here. in And years the highlighted negative we've X Street the against returns we the we peers than the were in to our less we're as as too, where are double-digit quarter. have that

on So we an we do return could that looked that be we expectation think assets it's year, for at least it forward, the going at prudent when X%. next have

XXXX it's is that the X.XX% that updated you parameters X% has changed, we gone that [ph]. So raised table we that rate our from [ph]. Relative to the pension, you can to gave from see

you the was fast can XXX XX%. about million. So see bps. returns that And $XXX gave We we adjustment the up saw down what you year-to-date at through the minus through that's on flows cash

But keep you we'll at headwinds projection X-year and year. next entire the [indiscernible] going forward. next the you call, we on that's So give EPS updated a some

Operator

The with question comes line next the JPMorgan. of from Seifman Seth

Seth Seifman

looking -- I initially, something on little I'd your your it's right you know is actually would there's lower about and squishy. Is a kind bigger whatever, I an figured it But the I be, go apologize and the percentage see website a of but a be position far a question and out no and by XXXX cyber, was a sales domain. on just want like if solider, want about land a you join to it knew question long was like George. When of during ask say you company picture I how this you've if picture question of Chris, and a point than bit for that think soldier or recently that of got different there you site thinking much and asset would there else tenure? where returns gun -- certain is I to did, think someone kind air, see one going the Maybe now? Army I shipbuilding about to term, all ask holding I

Chris Kastner

relate to in about going think cyber, priorities directly directly think when when advanced good you it's in Mission be live forward. investments really Well, [indiscernible] the you growth the and ML, that ISR, because markets percentage we're simply apply we've constructive defense They Technologies. the training synthetic we national AI, to priorities relate virtual to really training. moving and about Those think unmanned, markets technology made

naturally So they grow. will

interesting relative And can serve to better And this, of Navy be missions a the company of mistake, it's your this are additional These than right? naturally their reposition I execute. think will they of less little on the the way to it. And is they'll asking the But be so of customers Navy heart will priorities. make I for based no focused technology. bit the on percentage we're of complicated to shipbuilding at need call think to a kind always and answer no But that more shipbuilding portfolio.

the lot. think So good question. And a -- about making it's these we're It's we investments in we technology appropriate areas. a think one

Operator

of line the from comes question Cowen. with Gautam next The Khanna

Gautam Khanna

the milestones cited 'XX. just ask, next everything those, etcetera? impact on be still couple Wanted year, or Is you Is there any the weight milestones that timing for shortfall the for -- to quarter how QX to the last this does years? labor of clear, 'XX any to of X in

Chris Kastner

program the assess question, quarterly And Chris. the for a basis. and assess labor schedules Gautam, on and is for still And plans situation this we our labor They're 'XX. we our on thanks

year So for seen included program those and this schedules year, that comfortable all we're labor always still expect we with is in milestones. next those situation what of the we've

Gautam Khanna

what -- you this likely the to you to Could whatever between to be delta basis labor year the and an on your And annual be? from is do so the Okay. X,XXX impact what anticipate relative it's hires then X,XXX?

Chris Kastner

of going I'm to comfortable it to that Well, indicators We've on a with pace have to couple still goes. we're get We're to X,XXX. had how good here. see number.

So with we're still comfortable that.

think we give February. 'XX about highlight we'll we better said what you previously a in on As this call, on

Gautam Khanna

Okay. year add you have And terms in do need preliminary a to next on you of... view what

Chris Kastner

We're time. information that We're in this February, we'll coming at Gautam. provide working plans. through that and -- our you on Not now.

Operator

from the [ph] of next Wolfe Myles comes question with The line Research.

Unidentified Analyst

could still X for topic hoping the the DDG-XXX then that was on on I and touch were [indiscernible]. slate milestones, the On 'XX, you of

Chris Kastner

Sure.

installed, schedule So the localized maybe XXX year. They're months on is starting test delivered month, been good down program. was has equipment is trials. that testing, actually initiated. of some really the -- the before And [ph] has X pace end All it in spaces then to doing on ago. I last the get

some positive developments there. So

on So yes, each are schedule. those of

Unidentified Analyst

in Okay, fourth the got was I it. about just quarter. the milestones any, if going I release talked the -- few, off a think

minor So those be reserve must milestone or releases releases?

Chris Kastner

then complete risk the outcomes we'll when they're review each. entire at and and them deal Well, opportunities assess the and with

Unidentified Analyst

Because it reversed Okay, are action I or seeing policy right. suppliers maybe, or you're rule actually going a Or next progress you it's you to year? just change is the favorable it's anticipating rule to legislative as going mean, I'm that, imagining at point? well. all legislative action Chris, that any curious, there And I'm some then but rule suggest would flowing payment are be know change? is your to I indication that Tom, on

Tom Stiehle

it's there how and don't thanks get inserted We'll Does We a or a think this time as over, that there's hill. up there's soon frame, as into loss question. year last plays a interest mid-December have as doesn't it think now. it I $XXX highlighting, not? But cash out. the elections. As the it's on year-end the -- million We been may interest bill the one by we've out. think priority right benefit play the get kind of swings impact, the Yes, for to top it's positive to Tom. see just -- through there's year obviously, a flow. We progresses free impact

how out. that eagerly hopeful but plays we'll awaiting I'm So we're could just to that. see change it that have does

Unidentified Analyst

I that progress it 'XX. Tom, was rule would to referring be Sorry, shifts in thought reversed you the payment

to be reversed in going Now 'XX. it's

statements. actually see inertia do asking, of timing the Just progress I'm you legislative there.

Tom Stiehle

the tell the end now call of right that to it uptick I you. pushed that gave going would at guidance was QX we you to we I in that, that you have of and cash the piece year flow as be free a that's told the believe So our

X.XX frame. to XXXX we payments you So to time it midpoint. the We back have project told was those was [ph] in now pay

back So it's you an the we uptick anticipate in and the in in 'XX. free adjustment -- for the briefing of gave we this year, it's an first quarter flow paying that cash in those bridge

Operator

Ron of line the from comes with of question Epstein America. next Bank The

Ron Epstein

X% margin Mission on you confident that at do still looking X% by target 'XX? Yes, Tech, feel to

Tom Stiehle

Yes.

the we on numbers look given now. we're right now, we the When where previous we've at you year range. the and So X% on finished right cost EBITDA

just the the we X.X% NDA of pressures with comfortable have to we volume that because If but from feel right target you we now. noticed, down that EBITDA X.X% adjusted

in we're getting have, a and the our that We The many itself As comfortable going opportunities technology after have feel robust -- momentum. still portfolio the we this. we're that pipeline. rising we at the

So I do.

for there's stress a just of that. now it's think for that been modeling still we and a that's it right we've XXXX forward. But around good little going for target adjust I highlighting sales the volume on as

Chris Kastner

a remember, think Ron, a There's there'll lot lot that of a of we forward. cost-plus. lot of is rate margin in work the be stability moving Yes.

we're So that. with comfortable still

Ron Epstein

X% at look $XX of it. kind of going maybe Got back was you balance on was there? suggests through the Newport walk that at the million, the out if business Can News and in you And you Columbia, quarter. right, what the then, margin the

Chris Kastner

Yes.

be programs quarter So minor enough we and Columbia that by to within adjustments -- call class on was in the had not News, Newport at the material I'll offset incentives. a mentioned few or it tweaks what here

incentives We in Now a think are incentives way incentives, and normal contracts, performance. to schedule performance. incentivize performance good incentivize our it's to method normal a it's

the fit risk there. adjustments minor So there But assess every a out our opportunities some we on we it's to and was make where we EACs just minor have to programs the and ordinary. quarter, see not adjustments of few of the

Ron Epstein

Can on give programs? more like you color any what

Chris Kastner

enough them. it number not was to mention, material across of a Yes,

Operator

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

Noah Poponak

the you this deck choose from milestone to the Why did quarter? slide exclude

Chris Kastner

Yes.

a So that that inserted of as a convention. only kind twice year. do we We

it them of any So a I year. one done can twice on like. we've that comment you'd

for for previously some year to last this are next the X questions, year on said schedule, are deliveries As of the I on schedule.

you So year in it's just our convention if a been go time. back twice

Noah Poponak

forgotten Okay. that. I had

I forgotten So hey, to be had was here. changed, it I nothing's there. it's doesn't choice that need if milestones just wasn't yes, it something's -- so sure the with or happening it And was,

So...

Chris Kastner

It's something the I'd that's milestones, happening tell with you.

but on -- So they're schedule.

So thanks -- for our just that. convention. that's It's

Noah Poponak

Got it.

With addressing your perfect. noticeable highest to at level in negatively Okay, impact you do medium expect it, actually contracting the any to in inflation the discussion mean, the of do conventions way guess I feel the term? Or margin of it? you inflation, you offset I have

Chris Kastner

Tom Yes, here. it and can could. start I'll chip then in

suppliers could it mitigate So increases of we some a entered impacts unions, do protections, there as with labor you the workforce salary mitigates think And bit into inflation from some right, put well. you arrangements under standpoint that some. under before rates get for extent. the to had it were long-term inventory standpoint. absolutely, that it our EPA But our we're and that of to can't some then Having some impact We about And extent. we've with bit. that fortunate our general this helps a able some to from have when provide us relationship very new an we our then mitigates to a labor contract it which hires, clauses the contract

it modestly of our and I would moving process have say be we we assessed EAC but it to forward. going to think all have So in it. it impacts We've it we're mindful of

Noah Poponak

guess commentary it flattish is possible the saying just margin, possible. still consider to were need the potential also we year's you do about next is then, that that's And Or some I plan was Okay. more year-over-year? shipbuilding down expansion your but

Tom Stiehle

we EPA adjustments inflation. of EPA contracts and is type mix, maintaining a make the think the Chris the burned is that contract risk the said portfolio which We're I there. to what and with on latter we piggyback other the is get, News which down experience this the registers the experience will and come are Newport clauses we the earlier, A of want that process more XX-XX and cost XX-XX the To depending the it's Ingalls on have watching performance the and the handle that price, fixed more being Obviously, through. We're the for progress profile, schedule, and contracts hiring piece quarter, material type of [indiscernible]. yard, cadence. in provisions what fixed risk gets impacted.

So moving and lot material there receipt rates, interest progressing. a performance, around chain, between things of are inflation, supply

incentives. we the So, on half had we get for feel comfortable those we X.X% we came to We we of We be told with We half X% told right that first -- X% a now. about in foreshadowed want X.X% back look really you right where would see with a which shipbuilding. at stand to strong and you still now. kind

do year. the the of back X% can you So the We're math. still holding half at for

think we'll factor run see our us. math see still you to February But a and we on I'd looks QX that, the rate valid then like. going baseline on forward do where I the is So call. land X% what to that, for the endpoint into on can X.X% that like

Operator

line We David now have with of Strauss a follow-up Barclays. the question from

David Strauss

to -- maybe want on if the net expectations capital working now. Just could you Tom, through run

XX%. I I now, think you at about -- right said had think we're

update. I getting basis terms, coming absolute percentage down in down you but at on from could of think there to then give you sales flat would a the say if X% and relatively just this end an year of

Tom Stiehle

Yes. Sure.

left X.X% her that's I in QX. So sales X.X% exactly about right. was yes, -- for the capital working at --

work year we trades, the deliveries down. we've We invoicing, are the QX. next for just with the are XX.X% bit through the then progressing. still little talked of milestones we as ourselves the come here. here will I And anticipated That that. and year which X about XX%, a exit turn of kind corner the in play We'll about as payments

the rate traditional expect run and next range. the years. So I that plan X% back that I would that And over couple we're we see in would of 'XX dropping X% more on that's trajectory. And to to

Operator

line That for back I remarks. will Chris the final now to question-and-answer Kastner, concludes the the management team, session. pass

Chris Kastner

We your engagement Thanks Thank you. welcome -- a in much and continued interest interest HII. in very your lot. Thanks for feedback. continued

Operator

That concludes the conference you for participation. call. Thank your

disconnect You lines. may now your

Huntington Ingalls Industries (HII) 3 Nov 222022 Q3 Earnings call transcript