This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
Operator
Good morning and welcome to the General Dynamics third quarter 2020 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please press star then zero to reach a conference specialist. To ask a question after today's conference, please press star then one. To remove yourself from the queue, please press star then two. We also ask that you limit yourself to one question with a single follow-up. Please also note today's event is being recorded. I would now like to turn the conference over to Howard Rubel, Vice President of Investor Relations. Please go ahead, sir.
Howard Rubel
Thank you, Rocco, and good morning, everyone. Welcome to the General Dynamics Third Quarter 2020 Conference Call. Any forward-looking statements made today represent our estimates regarding the company's outlook. These estimates are subject to some risks and uncertainties. Additional information regarding these factors is contained in the company's 10-K, 10-Q, and 8-K filings. With that complete, it's my pleasure to turn the call over to our Chairman and Chief Executive Officer, Phoebe Novakovic.
Phoebe Novakovic
Thanks, Howard, and good morning. Before I address the company's quite good performance in the quarter, let me briefly update you on COVID-19's continuing impact. As we discussed last quarter, we are working hard to protect our people. We adhere to CDC guidelines, encourage social distancing, and have a mandatory mask policy. We continue to have lower infection rates in our surrounding communities. To date, of our 100,000 employees, we've had about 1,800 cases, 1,500 of whom have fully recovered and are back to work, while many of the others are working from home during their quarantines. In short, the pandemic remains an issue, but we have dealt with the health of our workforce in an effective way and continue to do so. As we turn to our results in the quarter, I'll spend less time on quarter over year-ago quarter and year-to-day comparisons that are well stated in Exhibits A and B to the press release, and instead focus my remarks on operations, the significant sequential improvements, and meaningful developments in the quarter. Regarding the company's third quarter performance, as you can discern from our press release, we reported earnings of $2.90 per diluted share on revenue of $9,430,000,000, operating earnings of $1.08 billion, and net income of $834 million, all very significant improvements over the second quarter. As one would expect, revenue was down $330 million, or 3.4%, against the third quarter last year. Operating earnings were down $132 million, or 10.9%, and net earnings were down $79 million. For the defense businesses alone, the year-to-date revenue is up $98 million, and operating earnings are down only $51 million. All up, the defense business has been seriously impacted, but is holding up and recovering well, as you will see in the details. As you all are aware, most of the revenue and earnings shortfall this year to date has occurred in our aerospace segment, which saw significant write-offs last quarter associated with reductions in force at both Gulfstream and Jet Aviation. However, there is mostly good news for both companies this quarter, which I'll get into shortly. But before I get into the details at the operating level, particularly at aerospace and GDIT, where we experienced significant improvement, I want to spend a moment on the resilience and strength of the company's backlog. Total backlog of $81.5 billion is down $1.1 billion against the end of last quarter. Funded backlog at $60.2 billion is down only $950 million. However, Total estimated contract value of 132 billion is down only 336 million against the end of the last quarter. While these numbers are down slightly, they represent a solid and enduring backlog. We have a good news story at Aerospace this quarter across the board. Aerospace had revenue of 1.98 billion and operating earnings of 283 million. with a 14.3% operating margin. On a sequential basis, this is an operating earnings improvement of $124 million, driven by a 620 basis point improvement in operating margins. Last quarter in my remarks, I told you that we fully expected to be back on track at JET and Gulfstream in the third and fourth quarters, receiving the benefit of the cost reductions made and paid for in the second quarter. That certainly turned out to be correct in the third quarter. Gulfstream led the way with 32 deliveries, 25 large and seven midsize. The largest number of deliveries within that mix was the G650 model. From an order perspective, sales activity in the quarter was a quantum leap better than the second quarter. While we saw pipeline activity improve week by week during the quarter, demand is still dampened by fears of concerning the economy, by an unsettled political climate, and by a wide variety of travel restrictions. Nevertheless, we had a .921 book to bill, once again led by orders for the G650. The G500 and G600 program is progressing quite nicely. As of October 13th, we had 78 customer deliveries in the program and anticipate another 14 for the rest of the quarter. So by year end, we should have over 90 aircraft in this family in customers' hands. The G700 development continues to proceed apace, with the first three flight test airplanes accumulating 750 hours at the end of the quarter, reaching a speed of Mach 0.99 and climbing to an altitude of 54,000 feet. First flight for aircraft number four was the week of October 5th, and number five flew last week. I am frequently asked about production and deliveries for next year. While I dislike giving piecemeal guidance when our plan for next year is not final, it is fair to say that we contemplate fewer deliveries. As you know, the GE550 will go out of production next year. So there will be 13 fewer G550 deliveries. Pre-pandemic, we had planned to make up that shortfall by delivering more of the other large cabin aircraft. It now appears that the marketplace will not support such an increase. So the other three large cabin aircraft will not experience much of a change in production rate or delivery. There will also be a modest reduction in midsize aircraft. However, We will have the opportunity to revisit this in April of 2021 to see if market demand at that point justifies turning up production. We will give you greater specificity on all of this on the fourth quarter call after our planning is complete. Finally, we had previously forecast full-year deliveries for 2020 of 125 to 130. It now appears that we will be right around 130. Turning to combat systems, they had revenue of $1.8 billion, up 3.5% over the year-ago quarter. Operating earnings of $270 million were up $6 million, or 2.3% over the year-ago quarter. Sequentially, revenue was up $47 million, or 2.7%, and operating earnings were up $31 million, or 13%, on a 140 basis point improvement in operating margins. The year-to-date figures show a 4.5% growth in revenue and a 2.8% growth in earnings. Pretty impressive given the COVID-related problems which were incurred early in the year, particularly in Spain. Combat systems had nice order activity in the quarter with over $1.65 billion in funded orders. Funded backlog, total backlog, and total estimated contract value all grew nicely in the quarter. The group had a book-to-bill of 0.9 to 1, together with favorable exchange rates and the acquisition of Medeco. The three taken together result in good growth and backlog. Our European land systems business had a particularly strong order book in the quarter, and OTS has the largest total estimated contract value in their history. Land systems estimated potential contract value also rose in the quarter. Undergirding combat system strengths are several important facts that I am not sure are well understood by investors. First, we are without question the premier integrator of land combat systems worldwide. Second, we are the U.S. Army's leading source of innovation through our rapid prototyping facility in Sterling Heights, Michigan. We have a well-earned reputation with the Army for high quality, on schedule, and on budget performance that is unrivaled in the industry. All of this underscores what we have been talking about for some time, that combat systems will continue to grow into the foreseeable future. As I indicated earlier, information technology, our defense business most directly impacted by COVID-19, had a very good third quarter. They had revenue of over $2 billion in the quarter, operating earnings of $146 million, with an operating margin of 7.2%. There are very nice sequential improvements in revenue, operating earnings, and operating margins. The year-over-year comparisons are reasonably favorable as well. GDIT continued its strong cash performance. It produced free cash flow of 140%. of imputed net income in the quarter, and 149% year-to-date. This is the best cash performance across General Dynamics, both in the quarter and year-to-date. From an order perspective, GDIT's wins in the quarter, a number of which are highlighted in our release, demonstrate that GDIT is gaining traction and expanding their footprint in key technology focus areas. such as cloud computing, cybersecurity, artificial intelligence, and digital modernization. COVID-19 has accelerated trends in technology that began before the pandemic, including the speed with which technology is being developed and deployed to meet emergent mission requirements. We saw strong momentum on the growth front at GDIT with the largest award quarter this year, and significant contract wins across all markets, including over $1.5 billion of awards in our federal civilian and defense divisions. Through the first three quarters of 2020, we have won considerably more new competitive work than in all of 2019. Over 50% of awards in the third quarter are from competitive new businesses. This improved award performance is encouraging and bodes well for the business as it submits a record number of proposals this year. Third quarter was the largest dollar quarter this year for submitted bids, with over $9 billion of proposals submitted. These third quarter submittals are additive to billions of dollars of prior proposal submissions awaiting customer decisions. We are beginning to harness the power of the broader corporation to drive wins, including working even more closely with our tactical communications business at Mission Systems. With respect to Mission Systems, revenue of $1.22 billion is essentially the same quarter over quarter, but up $40 million or 3.4% sequentially. Similarly, earnings of $168 million are up $4 million or 2.4% sequentially. Year-to-date, revenue is down $137 million, or 3.7%, and earnings are down $15 million, or 3%, versus last year. This is not bad, considering the divestiture of our ground-based satellite antenna business in the second quarter and the impact of COVID-19. We saw lighter customer activity, which reduced expected sales of some products, but we expect that to remedy as customers return more fully to work. From an order perspective, Mission Systems had a book-to-bill of 0.821 in the quarter. We have done some portfolio shaping at Mission Systems so we can concentrate on growing our nuclear triad lines of business, cyber defense, intel, and assured navigation and positioning, all of which are critical capabilities that support U.S. defense strategies. Marine systems is yet again a good news story, with quarter, over a year ago, quarter growth in both revenue and earnings. This growth is attributable largely to our submarine program's electric boat. Over half of the 7.6% growth year-to-date is Columbia, with considerably more coming. We've been talking about Columbia for some time, and you're beginning to see the significant growth of this program. On a sequential basis, revenue of $2.41 billion is down modestly, but earnings are up $23 million on a 120 basis point improvement in margin. The 9.3% operating margin is handsome. It is part of our continuing effort in the Marine Group to improve operating margin to go with a very real growth in revenue over time. This is a work in process. But on balance, I am confident that we are on a path to improved operating margins. So with respect to forecasting, I think the guidance we gave you last quarter is still our best view. Let me turn the call over to our CFO, Jason Aiken, for additional remarks, and then we'll turn to your questions.
Jason Aiken
Thank you, Phoebe, and good morning. I'll start with some comments on our cash performance in the quarter and our latest thinking on how the year is shaping up. Cash from operations in the quarter was $1.1 billion, and our free cash flow was $903 million, a 108% conversion rate. We ended the quarter with $1.5 billion of cash on the balance sheet and a net debt position of $11.9 billion, down almost $400 million from the second quarter. As anticipated when we started the year, the cash performance has stepped up markedly in each sequential quarter this year, And consistent with that original expectation, we have a big fourth quarter ahead of us. That said, our forecast for the quarter is right in line with what the fourth quarter has looked like in each of the past three years, so not an unusual task at this point. So with that as backdrop, we continue to target free cash flow for the year to be in the 80% to 85% of net income range. The biggest variables in achieving that mark will be Gulfstream order activity and our ongoing efforts to support our supply chain as we settle on production and delivery rates for next year. You heard Phoebe's remarks on that subject, so assuming things continue to trend favorably as we've seen of late, we've got a path to close on our cash target for the year. On the defense side, our Pentagon customer continues to lean forward with accelerated contract payments to support the industrial base, and we in turn continue to do the same for our supply chain. Through the end of the third quarter, we've received approximately $400 million of accelerated payments from our customers and advanced more than $1.7 billion to our suppliers. To the extent we eventually see additional relief from our U.S. government customer in the form of incremental contract funds to offset the ongoing impact of COVID to our business, we'll include the benefit of that relief in our results only when it's authorized and funds are made available. As I mentioned earlier, our net debt is down to just below $12 billion, and our interest expense in the quarter was $118 million versus $114 million in the third quarter of 2019. That brings the interest expense for the first nine months of the year to $357 million, roughly unchanged from $350 million for the same period in 2019. At this point, we expect interest expense for the year to be approximately $480 million. On the capital deployment front, capital expenditures were $216 million in the quarter, or 2.3% of revenues. We're still targeting CapEx to approach 3% of revenues for the full year before declining over the next couple of years to our more typical 2% range. In the quarter, we paid $315 million in dividends, and we did not repurchase any shares of our stock. Our effective tax rate for the quarter was 14.7%, bringing the rate for the first nine months to 15.2%. The third quarter rate was, as expected, below our full-year target as a result of lower taxes on international income and increased research and development tax credits. So we're right on track to achieve our full-year target in the mid-15% range. Just recall that implies a somewhat higher tax rate in the fourth quarter to get to that full-year rate. And lastly, a little color on the backlog story for the quarter. As Phoebe noted, the backlog held up particularly well given the impacts of COVID so far this year. As of the end of the quarter, our funded backlog, total backlog, and total estimated contract value are all up significantly compared with this point a year ago. Notably, this growth is broad-based with year-over-year increases in four of our five segments, so a solid foundation for resumed growth as we emerge from the pandemic. Howard, that concludes my remarks, so I'll turn it back over to you for the Q&A.
Howard Rubel
Thanks, Jason. As a reminder, we ask participants to ask one question and one follow-up so that everyone has a chance to participate. Rocco, would you please remind participants how to enter the queue?
Operator
Absolutely. If you'd like to ask a question, please press star then 1. If you'd like to remove yourself from the queue, please press star then 2. Today's first question comes from Ron Epstein with B of A. Please go ahead.
Ron Epstein
Hey, good morning. I'm certain there will be a bunch of questions on Gulfstream, so I'll just start with defense. I'll leave those for other folks. In the naval business, there's been some discussions, some whispers about a third Virginia class. What do you think of that? Is that a possibility? What's that mean for you guys if that happens? Then I have one follow-up after that.
Phoebe Novakovic
We've been talking to our Navy customer about the ability of, essentially, the supply chain and the facilities to ramp up production. As you can imagine, we're developing plans to do that as well. You'll note that in all of the recent discussions about U.S. national security strategy, and particularly the Navy's articulation of the criticality of the size of its fleet, submarines figure prominently in all of those conversations because they remain a national competitive advantage for the United States. So, we'll continue to work with our customer. and we'll see where that takes us. At the moment, we are not planning for that increase, but if the nation needs it, we'll accommodate it.
Ron Epstein
And then my follow-up dovetails in one of your comments. When you look at, there's been discussion, I guess Secretary Esper was talking about a 550-ship Navy. A portion of that is unmanned undersea vehicles. What opportunities does that present for General Dynamics?
Phoebe Novakovic
Let's think about it in two parts. In the first instance, it's the job of our shipyards to integrate those capabilities into the existing platforms. We are very good, as you can imagine, about integrating mission payloads into our ships and our submarines. With respect to individual lines of business within the unmanned world, We have, Mission Systems has a number of lines of business that have been very active for quite some time in the undersea domain, an unmanned undersea domain. So I would imagine those continue to grow. It's all going to be about performance, and their performance throughout testing has been outstanding. So I think there's a lot more to come on that.
Ron Epstein
Okay, thank you.
Operator
And our next question today comes from Kai Von Rumer with Cowan. Please go ahead.
Kai Von Rumer
Yes, thanks so much. So, Phoebe, yes, hello. So the aerospace impact, 541 million of COVID, what do you base that on? Is that deliveries you planned to do that you didn't do? And then, you know, given that it looks like the decremental margins on the revenues you missed were 22%, would the profitability, I assume the profitability would have been even better if you'd gotten those deliveries.
Phoebe Novakovic
So think about what we did very quickly in response to COVID. We lowered our production. We did it in two respects. One, to better meet demand, but very importantly, to allow the supply chain to catch up. So that is really what has driven all of the overriding factor that's driven all of the performance at Gulfstream. Now, within that, we have also, quite predictably, and as we told you, right-sized that business and will continue to do so, so that we manage our margins and really push them to be as high as they can. So, I think Gulfstream has done a remarkable job in bringing down its costs, both through restructuring and then cost savings and productivity. With respect to the profitability of Goldstream, I think we've seen really some good, disciplined actions to size the business accordingly and then continue to perform superbly on the manufacturing line.
Kai Von Rumer
And then the last one, Jason mentioned you had $400 million in advances COVID cares related, and yet you advanced $1.7 billion to your supplier. So that's a delta of like $1.3 billion. When do you expect to recover that? When do you expect that to burn down to near zero?
Jason Aiken
Kai, keep in mind, that's a cumulative number that's been building throughout the year. That pays in and then gets phased out and paid in and phased out over time. That said, you'll note, if you look at our cash flow statement and our exhibits, our receivables and unbilled receivables in the in the quarter, as well as payables and on the supply side, continue to be a bit of an OWC headwind for us. And that's really all attributable to a lot of that timing. So, I think you'll see that phased out as this pandemic starts to abate and the customer sort of moves its payment practices back to normal and will in kind sort of move back to a normal cadence from our perspective. In the meantime, our priority is to make sure that our supply chain, which is we're all in a symbiotic relationship here and what's good for one is good for the other. We've got to continue to support the elements of that supply chain that need it, particularly on the smaller business side. And so we're going to continue to do that as the impact of the pandemic continues.
Operator
And our next question today comes from Robert Stallard with Vertical Research. Please go ahead.
Robert Stallard
Thanks so much. Good morning. Good morning. A couple of questions. First of all, perhaps on GDIT, you had quite a few comments there, Phoebe, about the demand environment, the bidding that this business has been doing. Have we finally turned the corner in this division, and can we expect revenues to accelerate from here and to hold on to this operating margin?
Phoebe Novakovic
Well, the operating margin, let's take that in inverse order, was severely decremented last quarter by a loss that we had on a legacy GDIT program, as well as the impact of COVID. And if you recall, we had a significant number of our workforce who were covered under the CARES Act. And I've Jason, I don't know if you recall those numbers, but it was a lot of revenue that carried Noreen.
Jason Aiken
About $150 million in the quarter.
Phoebe Novakovic
So, those are considerable headwinds. GDIT has, from the very get-go, had superior industry leading, and not by a little, but by a lot, EBITDA margins. And I would expect that performance to continue. There's a predicate that we finally turned the corner. We can quibble over the predicate. Let me just give you some idea of what's going on on the order front at GDIT. In the quarter, our overall win rate is in excess of 75%. Our recompete win rate was over 90%. I think it is really a dispositive factor that in the third quarter with our largest quarter over 50% of the awards coming from competitive new work. And so I think that that's an important indicator of this business on a going forward basis. We have a number of nice enduring wins in the quarter. Our performance has been very, very strong on our existing contracts. So I very much like where this business is. And again, They have continued to have outstanding cash performance.
Robert Stallard
Okay. And then on the aerospace division, I was wondering if you could give us any clarity on the order intake in terms of were there any differences by model or by region that were notable in the third quarter?
Phoebe Novakovic
Well, I think I noted in my remarks that the 650 led the order book. That has been an extraordinarily successful airplane and continues to endure successfully. and successfully endure. So internationally, we saw more of a pickup. I was pretty, I think, fulsome in my remarks about the demand environment, but we saw good order activity internationally.
Robert Stallard
That's great. Thank you very much.
Operator
And our next question today comes from Carter Copeland with Milius Research. Please go ahead. Hi, Carter.
Carter
Hi, Phoebe, and hello, Jason and Howard. Phoebe, I wondered if you might talk a little bit about the performance at EB. I'm pretty intrigued by the margins, given the COVID costs that you've outlined year to date. I mean, obviously, you know, those come through, you know, the reimbursement of those, the treatment there. It just implies you guys have found some performance efficiencies there. I wondered if you could speak to that.
Phoebe Novakovic
So Electric Boat has continued to find and will continue to find performance improvements, as well as cost cutting. This is a very efficient yard that's getting better and better and better at what they do. So I expect their performance to continue. And as I noted in my remarks, we are, with all of that top line growth, we're going to push for margin expansion. So you see You know, we're going to see bottom line growth, but the more that we can accelerate that bottom line growth, the better. And that's all about productivity and efficiency at Electric Boat. And they've done a superb job in the last four quarters, even within this environment of driving productivity improvements. And, you know, even if you think about it, and this is just not with respect to the shipyards, but across all of our operating divisions, Now, COVID has amplified the underlying strength of the operations in this business to the extent that they're driven by discipline, continuous improvement. That helps manage any crisis, including this pandemic. So, we are continuing to see each and every one of our businesses improve their bottom-line performance on the operating side. We've long talked about that strong operations are the key to financial success, that and good contract bidding. So, I think you'll continue to see this march toward productivity improvements, and the electric boat is leading the way. More to come.
Carter
Okay, great. Thank you for the color.
Operator
And our next question today comes from Richard Saffran with Seaport Global. Please go ahead.
Richard Saffran
Phoebe, Jason, Howard, good morning. How are you?
Phoebe Novakovic
Good. You?
Richard Saffran
Thanks for taking my question. Phoebe, just a quick, you discussed portfolio shaping in your opening comments, so I wanted to get your thoughts on further portfolio shaping. Are you considering any further divestitures or additions to the portfolio? Do you think that there are any holes in the portfolio right now that you need to fill? Just any color you can provide on just how you're thinking about it right now.
Phoebe Novakovic
Oh, Richard, I know how much you'd like that, but, you know, I think that portfolio shaping is only effectively discussed after the fact. So, we are always looking for opportunities to improve and focus our activities, but it's really no comment in the moment. There's really nothing on our horizon at the moment. sticking to our operations, doing what we do best.
Richard Saffran
Okay. And as a follow-up then, at Mission, you noted expansion into naval, air, and electronic systems. I want to know if you could elaborate on that a bit more. Was this, you know, share gains, new contract wins? Was this expansion into new markets? Just any call you could provide there.
Phoebe Novakovic
These are really within our core that we've had continuing investments contract wins. That is a business where we have done a fair amount of portfolio shaping because they've got some nice growth looking in front of them. I talked about the cyber defense, tactical communications. We have a decades-long history and expertise in the nuclear triad. That will continue to grow. And missile fire control, as well as assured position navigation and timing. You know, in a world where on the battlefield GPS reliability is questionable, that's a key and critical factor that we have developed over quite some time and very strong expertise in. So I think it's important when you see these really critical, important franchises that you divest yourselves of non-core businesses, and that's exactly what we've done.
Richard Saffran
Thanks very much.
Operator
Our next question today comes from Doug Harted with Bernstein. Please go ahead.
Doug Harted
Good morning. Hi, Doug. Phoebe, you mentioned earlier about leveraging the breadth of the corporation for opportunities. And there were some things that really fit right into that, like unmanned undersea. But when I think of General Dynamics over the long history, I've thought of the units as operating very independently, driven by numbers within the unit. Does this suggest that you're thinking differently about how you manage from the corporate center?
Phoebe Novakovic
So, look, I believe in centers of excellence at the business units in which they concentrate on the real value creation levers at their disposal. That said, we have a long history of our units working together, and mission systems in particular. They are heavily embedded in combat systems platforms within the Marine Group and with GDIT. We are moving increasingly, in response to the market, I might add, increasingly working on joint activities between those two businesses. They work well together. They blend well together. There's no fundamental change in how we see our business across our portfolios. I really do think people excel when they stick to what they know, but when we have opportunities to augment that value creation through partnerships across the units. We've done so. We've done so for 20 years.
Doug Harted
One of the opportunities could be in the area of 5G, and you've won contracts both at GDIT and admission systems related to that. Is this something that we should expect to see as a strong growth area, and when might we see it if that's the case?
Phoebe Novakovic
Well, I think the department is still working through how to operationalize 5G. It is an enormous capability advantage for our warfighter. And we have been a part of both their planning and thinking at our customer levels for some time. And look, the way we... define how we operate both in the moment and going forward is how to meet our customer needs. So as their need and the clarity around its use with respect to 5G in this instance gets increasingly clear, we'll be there to work with them.
Doug Harted
Okay, thank you.
Operator
Okay, our next question today comes from David Strauss with Barclays. Please go ahead.
David Strauss
Thanks. Good morning, Phoebe.
Phoebe Novakovic
Good morning, David.
David Strauss
Thanks for the color on Gulfstream as you look out to 2021 deliveries. With regard to that, I think you're forecasting $1.13 billion in EBIT in 2020. Would you still expect some Gulfstream EBIT growth in 2021 despite lower deliveries?
Phoebe Novakovic
Well, look, let us continue to work fast, but in addition to efficiency, the number of airplanes delivered really drive EBIT. So we've got a long way to go in determining what the final plan is, but I tried to be very specific in my remarks about how to think about the – delivery plans that we have, at least at its current notional level. It's really the 550 has gone away, and we're not able in this demand environment to replace it with our new airplane models that we had anticipated. So the production is going to be very similar on our existing fleet. with a little bit of a decrement on the mid-size cabin. So I think that's all we can say at the moment about any specificity around the future.
David Strauss
Okay. And as a follow-up, I guess, Jason, on free cash flows we think about next year, how much potentially could that conversion number bump up? I mean, is 100% conversion next year out of the question at this point?
Jason Aiken
I don't want to say anything out of the question, David. I think what we're focused on is growing free cash flow year over year. Obviously, the two major muscle movers there that have really been all part of the operating working capital side of that story are, on the one hand, the Combat Systems International program. We've told you, I think, a good bit about that throughout this year. That is on a trajectory. It's set on a path with timing to eventually unwind that working capital over the next three years. And then the other side, obviously, is Gulfstream, with the inventory build that really is largely associated with three different aircraft models with test aircraft. The unwinding of that, both those test aircraft as well as just the general inventory build into new aircraft models, is all going to be predicated on the macroeconomic recovery and when that production rate gets back into full stride and starts to unwind that. So, I don't want to put too many caveats around it, but I think the most important takeaway is we expect to see growing free cash flow year over year, and we'll work out the details as to whether we get to or above 100% as we were projecting before the pandemic. Okay, thanks very much.
Operator
And our next question today comes from Robert Springhorn with Credit Suisse. Please go ahead.
Robert Springhorn
Hi, good morning. Two quick ones. Phoebe, for you, I know you talked about Gulfstream demand, but I just wanted to ask from one other angle, has the customer mix lately since COVID changed between the number of high net worth individuals versus corporate buyers? So that's the first question on Gulfstream.
Phoebe Novakovic
Well, let me address that. I talked about that in my remarks, that I think there's a lot of uncertainty with respect to the economy, political uncertainty. And then we still have highly restrictive travel restrictions across the world. So that is an issue that's going to affect corporate buyers. But as I also noted, we are seeing, you know, international pickup is nice, and high net worth individuals continue to be in the market. So, you know, as the economies recover, with the diminution in infection rates, we'll see a pickup and all of that.
Robert Springhorn
But you see what I'm getting at is, is the virus causing people, I guess the high net worth group, to want to travel privately where they might not have before?
Phoebe Novakovic
Well, I think ascribing motive to people is very difficult, but the high net worth individuals have always been an important part of our portfolio, and they remain that. They remain so.
Robert Springhorn
Okay, and I had a quick one for Jason, and that's just on mission systems implied margin. in Q4? It sounds like the guidance holds in the mid 14. So just what's driving that fourth quarter?
Jason Aiken
I think what you're looking at there is mostly a mix issue for that business. As Phoebe talked about as well with Some of that portfolio shaping, some of that is to get out of non-core businesses and by association, in many cases, some less-than-desired margin businesses. That has an uplift effect as well. I think they're expecting to see a little bit of a rebound in some pent-up demand that they've experienced over the past several months that will drive some of that product flow through, which will bring some strong mixed-based incremental margin in the quarter.
Operator
Thank you. And our next question today comes from George Shapiro with Shapiro Research. Please go ahead.
George Shapiro
Hi, George. Hi, how are you? A couple of quick questions. Was the book-to-bill of the 650 in the quarter above one?
Phoebe Novakovic
Well, let's not parse that out for you, but it was quite wholesome. As I said, that's a spectacular airplane that continues to be in demand.
George Shapiro
Okay. And then just one for you, Jason. Can you clarify a little bit the impact on the free cash from the $400 million that you received and you gave out $1.8 billion? I mean, if I look at the balance sheet in the Q3, it looks like between, you know, the working capital would have been, you know, $410 million worse with receivables and unveiled receivables, et cetera. And so I'm just trying to reconcile what the actual impact on the cash in a quarter was from your earlier comment.
Jason Aiken
Yeah, just to clarify, George, I think the numbers you're quoting from the cash flow statement are pretty much on point as it relates to the impact of OWC in the quarter. The numbers on the payment advances and accelerations from our customers and to our suppliers, keep in mind, that's not a cumulative $1.3 billion of implied pent-up cash on the balance sheet as of the end of the quarter. As we are accelerating, this is what I was trying to get into on an earlier question, As we are accelerating cash to suppliers, we're helping keep them going on an ongoing basis from month to month and quarter to quarter. So, if they've got implicit receivables that are due 60 days from now, and we're accelerating that to paying immediately, well, 60 days later, that payment was due. And so, that kind of comes off the balance sheet naturally. But cumulatively, we've been accelerating over time for, call it the past five, six months, in excess of $1.7 billion to those suppliers. So you've got to kind of reconcile that with the in-the-quarter, what was the net build of OWC, which speaks to the numbers you were speaking to coming off the cash flow statement. So that's kind of how you reconcile those two concepts.
Operator
And our next question today comes from Joseph DiNardi with Steeple. Please go ahead. Hi.
Joseph DiNardi
Thanks. Good morning. Phoebe, it wasn't too long ago that you used to provide kind of backlog duration by platform at Gulfstream. Would you be willing to provide that now, just given some of the changes in build rates that you're seeing?
Phoebe Novakovic
Thank you. You know, that was appropriate when we had all existing long-term airplanes that had been in the backlog for some time. This is a whole new fleet. And we're not going to start that until these have been in our production for some time. Okay. Do you understand? I mean, there's a material difference in the kinds of airplanes that we have. These are all new models. And, frankly, as you all know, we are the only airplane manufacturer with truly clean sheets. airplanes. It's best to just focus on how well we're doing in selling those. I think it is an important indicator that by the end of the fourth quarter, we're going to have 90 of these 500s and 600s in customers' hands. Let's not forget also, we've got over 450 G650s out in the fleet. It's pretty impressive, if you ask me.
Joseph DiNardi
Okay, yeah, understood. And then just on GDIT, I think the traditional metric that folks look at to kind of understand growth is book-to-bill, and book-to-bill there for you all is okay. It's one-to-one on growing revenue.
Phoebe Novakovic
I think it's quite nice.
Joseph DiNardi
Okay, so that's what you expect from that business going forward? There's not an expectation that book-to-bill improves materially there?
Phoebe Novakovic
You're going to have some variances over the quarter. But, you know, look, I wouldn't say that we don't expect to stay the same in perpetuity. It's all going to depend on the win rates in any given quarter and when the customers start deciding all of this enormous pent-up backlog of proposals they've got in front of them. And as you can well imagine, the velocity in which these contracting decisions are made on the part of the contractors or the part of the customers has been slowed down by COVID. So we'll get through all of that. And the key here is for us to win more than our fair share. And this business is doing, I think, quite well in that regard.
Howard Rubel
Thank you. Operator, we'll take one more question, please.
spk07
absolutely and our final question today will come from seth siekman with jp morgan please go ahead thanks very much and uh good morning everyone hi um phoebe i wonder if you could talk a little bit i know um you don't give multi-year guidance but maybe in kind of a qualitative way um thinking about the growth in marine uh that's going to be driven by columbia just so we have um maybe some way to size you know, the magnitude of that in the coming years and have, you know, some guardrails around it and, you know, are aware of the, you know, the timing of any kind of occasionally we see hiccups in growth as programs move from development to production and kind of, you know, when those happen and, you know, any additional color around that.
Phoebe Novakovic
So I think the way to think about the future, and while this will be somewhat lumpy on a going forward quarterly basis, the fact that 50% of our growth this year has been in Columbia, I think is a nice indicator of what this is going to mean to us in the future. Electric boats alone's size will double in the next five to six years. It's already quite a large business, and it will continue to grow. This is a... as we've been talking about for some time, an enormous program of critical national importance. We have, and we've geared up to both facilitate to support it, as well as prepared all of our manufacturing processes to support it. I'll give you one little note to give you a sense of what's going to propel this growth. We go into production on Columbia with 80% of the of the construction drawings done compared to 43% on Virginia. And Virginia was one of the most successful programs the department has ever seen. So that tells me that all of the growth that's embedded in those current budget numbers and future year budget numbers within the Department of the Navy are going to be able to be capitalized by us, and nice, nice top-line growth. And then, as I noted, we continue to work on margin expansion. So, we'll give you a sense of what next year looks like. And over time, as we really get into the fourth quarter call, and over time, as we really get into full-rate production on Columbia, you'll get an awful lot of clarity on what the future looks like.
spk07
That's all from me today. Thanks very much.
Operator
Thank you. Go ahead, Rocco.
Howard Rubel
Thank you very much for joining our call today. And as a reminder, please refer to the General Dynamics website for the third quarter earnings release, highlights, presentation, and outlook. If you have any additional questions, I can be reached at 703-876-3117. Thank you very much.
Operator
Thank you, sir. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.
Disclaimer