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spk00: 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. Jason, I don't know if you recall those numbers, but it was a lot of revenue that carried no earnings.
spk03: About $150 million in the quarter.
spk00: 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%. 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.
spk04: 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?
spk00: 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 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.
spk04: That's great. Thank you very much.
spk01: And our next question today comes from Carter Copeland with Milius Research. Please go ahead. Hi, Carter.
spk02: 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, those come through, 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.
spk00: 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. I expect their performance to continue. As I noted in my remarks, with all of that top line growth, we're going to push for margin expansion. We're going to see bottom line growth, but the more that we can accelerate that bottom line growth, the better. That's all about productivity and efficiency at Electric Boat. They've done a superb job in the last four quarters, even within this environment of driving productivity improvements. 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, adding 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.
spk03: Okay, great. Thank you for the color.
spk01: And our next question today comes from Richard Sathran with Seaport Global. Please go ahead.
spk12: Phoebe, Jason, Howard, good morning. How are you?
spk00: Good. You?
spk12: 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.
spk00: 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.
spk12: 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.
spk00: These are really within our core that we've had continuing investments Contract wins. And 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. 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.
spk12: Thanks very much.
spk01: Our next question today comes from Doug Harted with Bernstein. Please go ahead.
spk05: Good morning. Hi, Doug. Phoebe, you mentioned earlier about leveraging the breadth of GD 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?
spk00: 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 to augment that value creation through partnerships across the units. We've done so. We've done so for 20 years.
spk05: Now, 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?
spk00: 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.
spk05: Okay, thank you.
spk01: Okay, our next question today comes from David Strauss with Barclays. Please go ahead.
spk06: Thanks. Good morning, Phoebe.
spk00: Good morning, David.
spk06: 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?
spk00: Well, look, let us continue to work fast. But, you know, 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-term or mid-size cabin. So I think that's all we can say in the moment about any specificity around the future.
spk06: 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?
spk03: I don't want to say anything's out of the question, David. I think what we're focused on is growing free cash flow year over year. And 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. And that is on a trajectory. It's sort of 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. 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. 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.
spk01: And our next question today comes from Robert Springhorn with Credit Suisse. Please go ahead.
spk10: 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.
spk00: 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 international pickup is nice, and high net worth individuals continue to be in the market. As the economies recover with the diminution in infection rates, we'll see a pickup in all of that.
spk10: 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?
spk00: 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.
spk10: 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?
spk03: 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. So, that has an uplift effect as well. So, 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.
spk01: Thank you. And our next question today comes from George Shapiro with Shapiro Research. Please go ahead.
spk07: Hi, George. Hi, how are you? A couple of quick questions. Was the book to bill of the 650 in the quarter above one?
spk00: 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.
spk07: 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 know 410 million dollars worse with receivables and unveiled receivables and etc and so i'm just trying to reconcile what the actual impact on the cash in a quarter was from your earlier comment yeah no 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
spk03: 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 for 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, uh in excess of 1.7 billion dollars to those suppliers so you got to kind of reconcile that with the in the quarter what was the net build of owc which 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 and our next question today comes from joseph bernardy with steeple please go ahead
spk11: 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?
spk00: 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. Do you understand? There is 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. And 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. And let's not forget also, we've got over 450 G650s out in the fleet. It's pretty impressive, if you ask me.
spk11: 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.
spk00: I think it's quite nice.
spk11: Okay, so that's what you expect from that business going forward? There's not an expectation that book-to-bill improves materially there?
spk00: You're going to have some variances over the quarter. But, you know, look, I wouldn't say that we don't expect Book 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.
spk09: Thank you. Operator, we'll take one more question, please.
spk01: Absolutely. And our final question today will come from Seth Seekman with J.P. Morgan. Please go ahead.
spk08: Thanks very much, and good morning, everyone. Hi. Phoebe, I wonder if you could talk a little bit. I know you don't give multi-year guidance, but maybe in kind of a qualitative way, thinking about the growth in marine that's going to be driven by Columbia, just so we have 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.
spk00: 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 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 facilitize 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, if we really get into full-rate production on Columbia, you'll get an awful lot of clarity on what the future looks like.
spk08: That's all from me today. Thanks very much.
spk01: Thank you.
spk09: 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.
spk01: 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.
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