Huntington Ingalls Industries, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the third quarter 2024 HII earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, please press star followed by one on your telephone keypad. Please be advised that today's conference is being recorded. If you need further assistance, please press star zero to reach an operator. I would now like to hand the call over to Christy Thomas, Vice President of Investor Relations.

Mrs. Thomas, you may begin. Thank you, operator, and good morning, everyone. Welcome to the HII Third Quarter 2024 Conference Call. Matters discussed on today's call that constitute forward-looking statements, including our estimates regarding the company's outlook, involve risks and uncertainties, and reflect the company's judgment based on information available at the time of this call. These risks and uncertainties may cause our actual results to differ materially. Additional information regarding these factors is contained in today's press release and the company's SEC filings. We also will refer to certain non-GAAP financial measures. For additional disclosures about these non-GAAP measures, including reconciliations to comparable GAAP measures, please see the slides that accompany this webcast which are available on the investor relations page of our website at ir.hii.com. On the call today are Chris Kastner, President and Chief Executive Officer, and Tom Seeley, Executive Vice President and Chief Financial Officer. I will now turn the call over to Chris.

Thanks, Christy, and thank you for joining the call, everyone. Earlier today, we released our third quarter results and announced the updated guidance for the year. Before I get to the results, I want to thank the 44,000 HII employees who build ships in our shipyards and who solve some of the most pressing technical challenges related to our national security within our mission technologies division. At HII, our mission is clear. It is to deliver the most powerful ships and all domain solutions in service of our nation, creating advantage for our customers to protect peace and freedom around the world. Now for the results. Third quarter revenue was $2.7 billion and earnings per share was $2.56 down from $3.70 a year ago. We updated our shipbuilding revenue guidance for the full year to approximately $8.8 billion and our mission technologies revenue guidance to a range of $2.8 to $2.85 billion. We also updated our 2024 shipbuilding margin guidance to 5% to 6%. and revised our 2024 free cash flow guidance to zero to 100 million. I'll provide some operational milestone updates and division highlights prior to providing more detailed discussions surrounding the quarter's performance and guidance changes. During the quarter, Newport News shipped the final module of Virginia-class submarine Utah, SSN 801. And on CVN 79 Kennedy, the ship is progressing into the test and turnover phase. 92% of compartments have been turned over to the Navy, and all 19 of the ship's combat systems are turned over to the government test team. Looking ahead, float off of SSN 800 Arkansas is moved to 2025 due to a customer-driven design change that requires incorporation prior to launch. At Ingalls Shipbuilding, we received the $9.6 billion award of the multi-ship procurement of amphibious warships which provides strong revenue visibility for years to come. Combining this with a series of milestone achievements in the quarter and early October, including the launch of LPD-30 Harrisburg, the loadout of three of four hypersonic missile tubes into the DDG-1000 Zumwalt structure, and Aegis Light-Off on DDG-128 Ted Stevens, the second Ingalls Flight 3 destroyer, some solid progress is being made at Ingalls. Our results also reflect strong performance at Mission Technologies, with 14% revenue growth year-to-date over 2023 and a third quarter funded book-to-bill of 2.2. Mission Technologies had several significant contract wins in the third quarter, totaling $11 billion of potential contract value, including a $6.7 billion contract to provide electronic warfare engineering and technical services support to the U.S. Air Force. The single award, indefinite delivery, indefinite quantity contract is the largest ever awarded HI's Mission Technologies Division. We were also awarded a $3 billion federal government single award task order for national security services and new and emerging technology, a $458 million contract to modernize US government comms and IT networks, and a $209 million contract to support US Air Force weapons systems development, and sustainment. We ended the third quarter with backlog of $49.4 billion, of which approximately $28 billion is currently funded. Further, to results and guidance changes, two issues have impacted our expectations for the year. First, based on constructive discussions with our Navy partner, we expected to reach an agreement for Virginia-class Block 5 and Block 6 and Columbia-class submarines in the second half of 2024. Starting this fall, some uncertainty emerged about the timing of that agreement. Where we're confident an agreement will be reached and discussions continue, we have updated our profitability and cash flow assumptions based on the uncertain timing and structure of that award. We continue to pursue innovative contracting approaches that incentivize greater investments in our workforce, facilities, and technology. These investments are critical to the goal of yielding accelerated program schedules, that meet the urgent needs of the Navy. Second, our assumptions of performance improvement and risk reduction have not been achieved. This is due to late critical material deliveries and reduced experience levels within our teams, both in production touch labor and supervision. The combination of material delivery delays and inexperience leads to labor inefficiency, and in some cases to rework, which affects program schedules. Late supply chain material has necessitated a renewed look at our labor plans and delivery schedules. This alignment of labor and material from the supply chain is critical to mitigating program costs. It bears repeating that nearly all the ships currently under construction were negotiated prior to COVID. These ship contracts, which provide long-term revenue visibility, did not anticipate in their cost targets and risk-limiting clauses the significant disruption of our workforce and supply chain or the subsequent inflation experienced by us and the broader economy. They did not anticipate the significant loss of shipbuilding experience in our yards through early retirements and the training requirements of new shipbuilders. As I said, the terms of these contracts are still governing the majority of the work underway now at Newport News. Let me be clear, delays and cost increases on these ships are unacceptable to me, my team, and all of us at HII. Looking ahead, we continue to take decisive actions to focus on the fundamentals of shipbuilding to ensure that we finish these ships, get them delivered to the Navy, and transition to ships negotiated in the context of our current economic reality. Further, regarding actions to improve performance, I'll focus on three points, starting with workforce. I want to emphasize we have thousands of highly skilled and committed shipbuilders and their example and mentorship are invaluable as we develop a new generation of manufacturing talent to execute on our backlog and the demand ahead of us. We are making significant investments in craft proficiency training and in leadership development so that our deck plate executes safely, efficiently, and with first-time quality. Our innovative craft learning centers, virtual and augmented reality training cells, and form and support strategies are helping to accelerate learning within the teams. In partnership with the Submarine Industrial Base, the Hampton Roads Regional Training Pipeline has grown its capacity, allowing Newport News Shipbuilding to hire 30% of craft new hires from a pre-hire training pipeline, up from only 5% two years ago. also at Newport News, remain focused on deploying and maturing a common operating system across all programs to improve execution. In trades where we first piloted this, we have seen meaningful throughput improvement by enabling our frontline leaders to spend more time on the deck plate with their people and by standardizing and simplifying how they put their teams to work every day. We are also investing in data analytics and pilot projects utilizing AI to find faster solutions to material delivery delays and mitigate their impacts to ship assembly schedules. Scaling the operating system across all production areas is our best near-term opportunity to improve throughput while we pursue long-term structural improvements to our infrastructure, supply base, and workforce. Second, supply chain and supplier development. We are working with the Navy, fueled by submarine industrial base funding, to improve supply chain performance. With the goal of helping to accelerate throughput in the shipyards, we are also investing in new centralized manufacturing centers of excellence for high-risk items to improve cost and schedule predictability for these build sequence critical parts. Third, capacity. We are outsourcing additional work to new suppliers, which helps to rebuild the industrial base. and takes the work to where there is additional workforce and investing in new industry 4.0 technologies, including additive manufacturing and digital engineering. As an example, we're outsourcing over 1 million hours in 2024 and plan to increase that by over 30% in 2025. We are committed to growing the manufacturing ecosystem necessary to build these ships. Additionally, we're reviewing costs across all three divisions to remain competitive and meet our cost objectives. This enterprise-wide review includes a thorough evaluation of our overhead costs and support costs to ensure that each element supports our customer requirements. We're evaluating capital in a similar fashion and ensuring we focus our capital on improving throughput. While our previous cash flow forecast included a capital expenditure target at 5% of sales from 2024 through 2026, We have reduced our plan spent for 2024 and we are thoroughly evaluating our 2025 and 2026 capital plans to reflect the uncertainty of the timing and structure of the future contracting activity. Turning to Washington, while the government operates under a continuing resolution into December, we continue to engage with the Navy on the most appropriate path forward on the submarine contracts. As demonstrated with the recent multi-ship procurement award for amphibious ships, HII has a record of reaching equitable agreement on this type of contract that delivers sustainable returns for the company and savings to the customer. In closing, before I turn the call over to Tom, I want to emphasize these primary points. First, we are confident we are focused on the right things, on the fundamentals to execute on our current backlog. And once we transition to these post-COVID contracts, cost and schedule performance and predictability will improve. Second, on the outstanding contract awards and shipbuilding, we expect agreement at a fair cost and schedule that reflects our current operating environment. And we will continue to work with the Navy until we get this complete. Finally, the long-term value equation for HII has not changed. There's unprecedented demand for our products and services. We remain confident in our mid- to long-term guidance of 9% to 10% shipbuilding margins, and we firmly believe the actions we are taking will enable us to stabilize performance as we continue to work through these ships. And now, Tom. Thanks, Chris, and good morning.

Let me first start by briefly discussing our third quarter results, and then I'll address our updated outlook. For more detail, please refer to the earnings release issued this morning and posted to our website. Beginning with our consolidated results on slide six of the presentation, our third quarter revenues of approximately $2.7 billion decreased 2.4% compared to the same period last year. This decreased revenue was attributable to declines at both Ingalls Shipbuilding and Newport News Shipbuilding, partially offset by growth at Mission Technologies. operating income for the quarter of 82 million decreased by 90 million, or 52.3% from the third quarter of 2023, an operating margin of 3% in the quarter compares to 6.1% in the same period last year. Decreased operating income was largely driven by declines at both Newport News and Ingalls, which I will discuss in more detail in a moment. Net earnings in the quarter were 101 million, compared to 148 million in the third quarter of 2023. Diluted earnings per share in the quarter were $2.56, compared to $3.70 in the third quarter of the prior year. Our contractual commitments increased by approximately 900 million in the period, bringing backlog to 49.4 billion at the end of the quarter, while we did secure the 9.6 billion award in the court at Ingalls for four amphibious ships. including LHA 10, LPD 33, 34, and 35, we recorded just the authorized value to date, approximately $565 million in the quarter. We will see the awarded values of those ships grow over time as authorizations expand. Moving to slide 7, Ingalls revenues of $664 million in the quarter decreased $47 million, or 6.6% from the same period last year. driven primarily by lower volumes in the amphibious assault ships and the National Security Cutter Program, partially offset by higher surface combatant value. Ingalls' operating income in the corridor was $49 million, and operating margin was 7.4%, compared to $73 million and 10.3%, respectively, from the same period last year. The decreases were primarily due to lower performance on amphibious assault ships and surface combatants. At Newport News, revenues of $1.4 billion in the quarter were down $41 million or 2.8% from the same period last year, driven primarily by lower volumes in naval nuclear support services, as well as the cumulative adjustments on the Virginia-class submarine program and aircraft carriers, partially offset by higher volumes in the Columbia-class submarine program. Newport News operating income in the quarter was $15 million, an operating margin of 1.1%. compared to $90 million and 6.2% respectively in the prior year period. Newport News results included net unfavorable cumulative adjustments totaling $78 million, including $34 million on Block 4 of the Virginia-class submarine program, $16 million on the Enterprise CVN-80 and Doris Miller CVN-81 two-carrier contract, and $14 million on the refueling and complex overhaul of the USS John C. Stennis CVN-74. As Chris described, these unfavorable adjustments were driven by both the change in our assumption around contract awards, as well as program performance challenges, as we have not achieved planned performance improvements. During the quarter, some welder issues were reported publicly that we had previously disclosed to our customer. An initial assessment at Newport News Shipbuilding determined that fewer than two dozen welders did not consistently follow procedures in their weld process. we continued to work alongside with the Navy through a comprehensive investigation and analysis to determine the extent of any financial impact. At Mission Technologies, revenues of $709 million increased $24 million, or 3.5% compared to the third quarter of 2023, primarily due to higher volumes in cyber, electronic warfare, and space. Mission Technologies' operating income for the quarter was $33 million, An operating margin was 4.7%, compared to $24 million and 3.5%, respectively, in the third quarter of last year. The increases were primarily driven by higher cyber electronic warfare and space volumes, as well as equity income from nuclear and environmental joint ventures. Third quarter results for mission technologies included approximately $25 million of amortization of purchased intangible assets. Mission Technologies EBITDA margin in the third quarter was 8.9% compared to 8.2% in the third quarter of 2023 and 8.5% last quarter. As Chris noted, Mission Technologies performance in 2024 has been very strong with year-to-date sales growth of 14%. This follows 2023 revenue growth of 13.1% over 2022. Mission Technologies third quarter contract awards which entail new work and re-compete wins across the service branches and multi-domain operations, represent nearly $11 billion in total potential contract value, a record for Mission Technologies. Turning to slide eight, cash generated by operations was $213 million in the quarter. Net capital expenditures were $77 million, or 2.8% of revenues. Free cash flow in the quarter was $136 million. Cash contributions to our pension and other post-retirement benefit plans were $12 million in the quarter. We have provided an update to our 2024 and 2025 pension outlook in the appendix of today's slides. The cash flow impacts related to the updated forecast are quite minimal. Pension-related numbers are subject to year-end performance and measurement criteria. As usual, we plan to provide a multi-year update of pension estimates on our fourth quarter call in January. During the quarter, we repurchased approximately 134,000 shares at a cost of approximately $35 million, bringing the year-to-date total to 608,000 shares at a cost of $162 million. With cash from operations now below our initial expectations, consistent with our capital allocation priorities, we have throttle repurchases for the remainder of the year. Also, during the quarter, we paid cash dividends of $1.30 per share, or $52 million in aggregate. Yesterday, we were pleased to announce an increase to our quarterly dividend to $1.35 per share, or an increase of approximately 3.8%. Moving on to our updated outlook, which we have summarized in slide 9, we've increased Mission Technologies revenue by $50 million for the year, now to $2.8 to $2.85 billion. and increased their margin outlook to 3.75%. For shipbuilding, we have centered on revenue guidance to the lower end of the range at $8.8 billion. Our prior shipbuilding revenue and margin guidance anticipated receiving an omnibus of submarine contract awards and contract modifications, incorporating opportunities to address key shipbuilding structural challenges across the Newport News enterprise, focusing on investments in our workforce, aiding attrition and training, and investments in our infrastructure for additional throughput and capacity across the Newport News portfolio. While we remain confident that we will ultimately receive the new contract awards, we are now uncertain of the timing and whether the overall contracting construct of those awards will enable full pursuit of near-term key investments needed to accelerate performance, rate, and volume of the Newport News portfolio of contracts. Our initial guidance for 2024 also assumed incremental program performance improvement, consistent with normal expectations to capture learning curve improvements and production efficiencies over time. Performance has not improved at the forecasted rate due to workforce inexperience and delays with the supply chain, which, along with our updated contracting expectation, has a near-term impact on our ability to achieve progress milestones burn down working capital, and collect associated cash. The results and updated outlook announced today reflect a reduced performance trajectory aligned to current conditions. Our updated shipbuilding operating margin expectation for the year is now 5% to 6%. Our updated free cash flow is between 0 and 100 million. And our capital expenditure outlay for the year has been reduced from 5.3% to 3.4% of sales. Prior guidance anticipated contract structures that would have allowed us to capture additional progress milestones, as well as the inclusion of incentives related to the new contract awards. We expect to return to more normal free cash flow levels once we are able to work through the challenging portions of our current contracts and have a better understanding of the new submarine awards. In light of this dynamic, we are withdrawing our five-year free cash flow target. Beyond our operational guidance, we have also made modest updates to our outlook for pension-related items, interest expense, and our expected tax rate for the year, which has declined to 17%. The lower annual forecasted tax rate is driven by third quarter results that include an increase in the research and development tax credits for current and prior years, resulting in an effective tax rate of approximately 10% for Q3. Turning to the balance sheet, we ended the quarter with liquidity of approximately $1.3 billion and modest leverage of approximately 2.1 times net debt to trailing 12-month EBITDA. Our capital allocation priorities are unchanged, including our commitment to investment-grade credit rating, thoughtful investment in our shipyards, continued dividend growth, and the return of excess cash through share repurchases. Within the third quarter, we expanded our revolver from $1.5 to $1.7 billion and raised our commercial paper program from $1 billion to $1.7 billion. Consistent with our normal cost of business and given the more favorable interest rate environment, we are considering a new debt issuance in the coming months. Proceeds would be used in part to support the redemption of the $500 million senior notes due in May 2025 and for other general corporate purposes. This plan is still under evaluation. Further to Chris's comments on our focus on cost efficiency ongoing across the corporation, we recently announced the consolidation of Mission Technologies into four groups down from the previous six business units, simplifying the division structure around key growth initiatives while enhancing competitors by reducing operational costs. This more efficient alignment of the portfolio, talent, and resources will support continued long-term business growth. To close, I will reiterate that while our updated guidance removes the assumption of a near-term omnibus contract agreement for the next increment of VCS and Columbia submarines, we continue to advocate for innovative and sensible solutions to address the urgent shipbuilding industry challenges we have discussed. We are confident in our ability to work through the current challenges, and we will continue to focus on aggressively driving performance improvement in our shipyards, expanding capacity and throughput, and securing equitable contract solutions that address the business realities of the current operating environment. With that, I'll turn the call back over to Christy to manage Q&A.

Thanks, Tom. As a reminder to everyone on the call, please limit yourself to one initial question and one follow-up so that we can get as many people through the queue as possible. Operator, I will turn it over to you to manage the Q&A. Thank you.

We will now begin the Q&A session. As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. If for any reason you would like to remove your question or your question has been answered, you may press star 2. If you are using a speakerphone, please remember to pick up your handset before asking your question. The first question is from the line of Gautam Khanna with TD Cowan. Your line is now open. Please go ahead.

Yeah. Hey, guys, a couple questions.

Good morning, Colin.

Good morning. Tom, you mentioned it sounded like contingent on signing these new submarine contracts was an implicit assumption that you'd get relief on existing contracts that are in the yard. And so I'm curious how much of the negative Q catch up at Newport News related to to that, how that impacts the ongoing booking rate. So, I mean, it sounds like you were booking with this assumption in mind already. So I'm curious, like what's the incremental hit was and what was already established, if you will. And then I guess that's my first question. And then the second one is related to the welds rework, you know, how much of the, of the Keem catch up relates to that. And then I'll leave it for someone else. Thanks.

Okay. Got them all. Let me have, this is Chris. I'll handle the first question and then, um, I'll start in on the welds and Tom can answer it, but, um, really in the quarter, uh, we had two issues impacting us. Uh, we had performance and execution on the deck plate, um, really on these pre COVID shifts. And then we had, um, the assumption really for the year, um, uh, the quarter and, and into the guidance actually. relative to this 17-ship contract. I think it helps to get into detail a little bit on what happened in the quarter from a performance standpoint, and the largest impact was related to the Block 4 submarines, and you have 798 and 800 nearing some critical milestones where you're going through the test program and you're buttoning some systems up, and we just encountered rework on systems that we didn't expect, and that impact schedule, and we're having to roll through that, and that's That's really illustrative of what we're finding on these pre-COVID ships is there's unpredictability as you move into buttoning them up and entering into these major milestones, which creates this unpredictability going forward. On the 17-ship contract, we were making good progress, as I said in my script. And when you think about the 17 submarines, it's really a reset of the portfolio in Newport News, this is not business as usual. You can't simply just put that much work into a facility and expect it to be executed, especially in this environment that we're operating in relative to labor and the supply chain and the capacity and the industrial base. So we've been working very hard with the customer to try to get those 17 shifts right. And it's a broad-based sort of contract that we're working on that really unlocks investment in labor and infrastructure and technology across the portfolio. So we're going to keep working on it. We thought we were pretty close to getting it done. It's in review still, and alternatives are being reviewed, and we're supporting that conversation. But it's just created some unpredictability, not only in the quarter and the year, but in our outlook, and we're working through that. But ultimately... I can represent that when that contract is executed, it's going to be a fair and equitable contract. It's going to be broad-based, and it's going to reflect the economic environment in which we're operating. It does none of us any good to agree to cost or schedules on these submarines that are so urgently needed that we can't achieve. So that's kind of what happens in the quarter, in the year, and in guidance. I don't think it's appropriate to parse it between performance and what we thought was going to happen with the 17-ship contract. There was incentives in that contract that we thought we would realize that we just didn't. But I think it's tough to parse it between the two. On the welds, you know, Tom started that conversation a bit, and I'll let him talk about the financials. But really, this is a process issue. This is a small fraction of some of some welders in the yard, and a small fraction of welds that were impacted. We're working very closely with the customer to bound the issue and come through the issue, and we think we'll march through that very smartly. So, Tom, do you want to comment on the financials related to that?

Yeah, so as we proceed through the investigations and eventually close that out, we'll have a finality on the financial front. We have taken an initial booking. It's not material. It's not identified in the queue. It's just for the cost that we think that could be deemed unallowable on that. So we'll get you more information as we close that out. And that's all I have to say about that. On that first part, I would just add, as Chris was commenting, you know, the reason why we wouldn't parse out between performance and the new contract innovative approach, you know, that's still ongoing right now. It's in negotiations. There's optionality against that. We'll have to see how that plays out. So it's just – it's not – appropriate for us to comment at this time as we're trying to work and negotiate ourselves through that with our Navy partners.

Okay. Thank you. Sure.

Thank you. The next question is from the line of Robert Spingarn with Mellius Research. Your line is now open. Please go ahead.

Good morning. This is Scott Micahson for Rob Spingarn.

Good morning, Scott.

Chris. Good morning. Chris, the press release and your opening remarks, you talked about innovative contracting approaches that incentivize greater investments in the workforce, facilities, and technology. Presumably, you're referring to the SAWS funding plan, where the Navy wants to pull funding from boats that haven't started construction to support higher wages and infrastructure build right now. So I'm just wondering if you could talk about your thoughts on the SAWS plan, and then I have another follow-up on that as well.

Well, the SAWS plan has kind of broadly reported. I don't want to get into too much detail. You kind of hit the basics there. We support it. It was an excellent idea. It was a Navy initiative that we supported. I still believe it's the smartest, best way to get at this issue because it unlocks such investment in the workforce, the infrastructure and technology. We're still in discussions on alternatives Um, with the Navy, uh, in, in, and the Congress, uh, in supporting and asking questions on alternatives. Um, but that SALTS plan is a, uh, is it was a very good idea that we think is still, um, under review and potentially could be put under contract. Although we don't forecast that happening, um, over the balance of this year.

Okay. And then there was a letter from a bipartisan group of senators. It was regarding the solids plan, but it also mentioned that there could be a $17 billion shortfall in funding on the Virginia class program over the next six years. I understand shipbuilding costs have increased significantly, but does a $17 billion shortfall sound remotely close to you? And do you think Congress will support plugging that shortfall?

Yeah, so I'm not going to comment on the ability of Congress to obtain additional funding. The beauty of SAL is what you didn't need any more funding. So, and I really don't think it's appropriate for me to comment on the baseline that was used for that increase. But look, the teams are working very hard to come to a contract solution on these 17 shifts. We need to make sure that that solution is equitable and reflects our current macroeconomic environment. and also enables initial investment so that we can get these critical assets to the fleet as soon as possible.

All right, thanks for taking the question. Sure.

Thank you. The next question is from the line of Miles Walton with Wolf Research. Your line is now open. Please go ahead.

Yeah, thanks. I was hoping you could talk and maybe give us a little bit of color on the $800 million cut to operating cash flow for the year. How much of that was specifically tied to the contract slipping out beyond this year and how much was tied to performance? I know you didn't want to do that for the EAC, but given the size of the cash cut, I hope you can do it for this.

So let me start and Tom can step in. As you know, we We really, when we think through guidance, we risk adjust everything. So it's really a combination of both the new contract as well as progress within the yards. So, Tom, I don't know if you want to comment further on that.

Yeah, so we talked a little bit about this in Q1 and Q2 where we had a pathway to make the guide. And obviously at that time you could see on the balance sheet that the working capital was rising right there. We had talked about progress, progress timing, making the major milestones up and out that we show you, the minor milestones, and the incentives, both the capital and performance incentives behind the scenes. And then what we normally have, just the run rate of unadjudicated change, change orders, REAs, and things of that nature, and compositely between the performance and the recoveries of those. I mean, that's how we pick up our margin in cash. The pathway was clearly at the beginning of the year when we laid out the plan, and then in Q1 and Q2. We still had pathways from performance and from the investments that would come about with the 17 votes on that innovative contracting approach to be able to kind of hit our guy here. The backup that we've seen right now, obviously, is twofold. The awards, certainly all 17 votes, do not look eminent by the end of the year. I think we all know that. And then from a performance standpoint, we've been able to make progress, but not enough of the progress or the right progress, and the progress timing is limiting us to be able to Bill all the costs that are on the balance sheet right now, so we thought it was prudent to take the six to $700 million guidance that we've had at the beginning of the year bring that down to zero to 100 million. So again it's a piece of the awards and that's a tiny aspect it's a piece on both the performance, obviously, when we bring the. 76 to 78 and margin for shipbuilding down to five to six this year, you know less margin means less cash. There's a piece of timing where it moves from 24 to 25, and then there's just a piece of the operations here. So it's an exhibit, but we thought it was prudent after the Q2 call when we saw some headwinds on the innovative contracting approach being able to be pushed through and executed by the end of the year, as well as the Q3's performance to bring down guidance on this call.

Yeah, no, and I get the moving parts. I'm just hoping because obviously the timing piece is an important question. If it's timing or if it's performance and the contract, I think we could perceive some of that as timing. And so I would just ask, is it three quarters related to the contract? Is it that high or is it not that high?

Yeah, so, Miles, I understand the question. I understand it's the split that you're asking, but The interesting thing about that 17 ships is the construct of that contract right now, we just don't know. We've been in active discussions on what it's going to look like. I am very confident they're going to order those submarines, but we just don't know the ultimate construct of that. So it's just a challenge to break that out for you.

Okay. Okay. Maybe the following question, and I'll leave it, is going into next year, in terms of normalcy of cash generation of this business, what would be the framework that you'd suggest for thinking about cash generation of the business?

Well, I think it's going to be choppy for a couple of years, quite honestly, Miles. We're taking a hard look at all our expenses, our capital. We're re-looking at that. But it's all going to be... The indicators of cash are all going to be about performance and how that ship, how that contract comes together, how we execute at the deck plate and proceed, and just how we transition into those new contracts. That's going to be the story from a cash flow standpoint for the next couple of years for us.

Okay. Thank you.

Yep.

Thank you. The next question is from the line of Pete Skubitsky with Olympic Global. Your line is now open. Please go ahead.

Yeah, good morning, guys. I guess just on the block, just on the block four charges, did the design change that the Navy requested on the 800, did they kind of, you know, did they pay you guys for that or did that force some of the negative EAC?

Yeah, so it's both boats. backed up in the quarter. Part of that is the design change related to 800. There's probably some upside on that when that gets negotiated. Potentially, it's clearly a class one change for work that needed to get done before we floated off. But that was not the only issue in the quarter for 800. And there could potentially be some upside related to that.

Okay. And then just at Ingalls, it seemed like on the last call, you guys had a feel that things were going to improve imminently at Ingalls. And it seems like they're largely in serial production down there. So I'm just wondering if you can categorize or characterize, is there pretty meaningful net attrition issues at Ingalls as well? Why are things kind of going in the wrong direction there?

Yeah, I wouldn't necessarily say they're going in the wrong direction necessarily. At Ingalls, they do have the same issues that everyone in manufacturing is facing relative to green labor, and they're working very hard to address that. The issue with Ingalls right now is there's just less opportunity for positive adjustments. You don't see significant negative adjustments, but you don't see significant positive either. So they're fighting through the same issues as everyone in manufacturing in the United States is fighting through relative to green labor, a fragile supply chain. But I got a lot of confidence in Engel's team. They're making their milestones and they're proceeding on their programs. And that bundle contract was very positive. It's really representative of the type of contract we need going forward to reflect our current macroeconomic environment, ensuring we protect ourselves against the risk of inflation and a fragile supply chain. So, yeah, I got a lot of confidence in Engel's team.

Okay. Thank you.

Sure.

Thank you. The next question is from the line of David Strauss with Barclays. Your line is now open. Please go ahead.

Morning. Thank you. Morning. Chris, in terms of the submarine industrial base money, all the money that's being thrown at this, where is it going? And are you seeing any evidence that it's actually helping at this point?

Yeah, so the industrial-based funding, really positive developments there from Congress and the Navy to flow that money into the industrial base. It gets distributed primarily in the supply base, but we benefit from it as well. And there will be benefits related to it. The problem is it just doesn't happen very quickly. When you're talking about potentially new tooling, new buildings, it takes a while to get that stuff done and then to reap the benefits from it. So we're actually rebuilding the industrial base related to shipbuilding right now and expanding capacity both through Navy investments as well as our investments. So I think it's a very positive development. I think actually I know there's going to be benefits that come from it. It's just we're going to have to be a bit patient.

Okay. And as a follow-up, I think to Miles' question, Tom, you know, maybe just going after with the working capital side of things, you know, I guess you're about 9% right now on working capital. I'm guessing your guide for the full year implies something like two, four, we get down to around six to seven. Is that right? And, you know, do you still view kind of a normal level of,

working capital around around five percent yes i think obviously you can calculate we are in the upper eights right now and we are going to take a couple of 100 200 basis points out of that by the end of the year there's a range of variability between a zero and a hundred i do think once we get past these shifts here the pre-covid shifts we'll get back to a normal range of cash flow as chris said that could be 12 18 18 months you know by the end of 24 into 25. We're just going to have to work ourselves through that. We're making progress. The cost is there on the balance sheet. We just have to finish these ships up and get paid. The cash will come as we make our deliveries. So it's just a function of us grinding through the current portfolio of ships.

All right. Thank you.

Well done. Thank you. The next question is from the line of Scott Dutschel with Deutsche Bank. Your line is now open.

Hey, good morning.

Morning, Scott.

Tom, the low end of the shipbuilding margin guide seems to imply significantly more negative EACs in the fourth quarter. So I guess you see risk there. So my question is what prevents that risk from crystallizing other than getting the submarine contract And then why not just book those negative EACs now if you're going to guide to them?

So we give you a range for 5% to 6% at the end of the year. Obviously, with the actual thing you have for Q1, Q2, Q3, you can kind of calculate where that lands. There's a little volume against that, but generally speaking, there's still a spread there of about 300 basis points between the low end and the high end, 400 basis points between the low end and the high end. And it just depends on how we proceed. We have Q4 performance, right? We have making progress in milestones, making those incentives I talked about, both the CapEx incentives and performance incentives on that, and then kind of getting paid by the end of the year on the cash side and the margin side. We're watching the EACs and finding a footing against the shifts that we have here right now. So we wanted to make sure we had an appropriate range that had all outcomes. There's upsides to it, too, as you see, between 5% and 6%. Um, and, uh, we'll just, we'll see how the year proceeds as we close out. We did wash out, as we mentioned in the scripts, the, uh, the, um, investment, uh, upside that you'd get as the investment dollars flow through here for, um, the VCS and Columbia bill too. So that's not a factor as far as, uh, the year and close out.

Okay. Thank you. And then Chris, sorry if I missed it, but do you still expect to deliver CVN 79 in 2025? And is that pre-COVID ship seeing any issues or rework requirements in the testing phase like those you referenced on block four of Virginia class?

Yeah, so no change in the milestones other than what I referenced on my script. We're absolutely impacted on all those pre-COVID ships by additional rework and really the fragility of the supply chain. You know, We've talked previously about kind of the variability in the supply chain going down from an inflation and predictability standpoint. But when something breaks, when you're going through the test program, something breaks and you have to go reorder or you have to rebuild it, there's just arthritis in the system related to getting that back, which causes schedule risk. So, yeah, no change to 79 right now, but it's just going to be a challenge completing any shift that was done negotiated pre-COVID. Thank you.

Thank you. The next question is from the line of Jason Gursky with Citi. Your line is now open. Please go ahead.

Thanks, and good morning, everybody. Good morning, Jason. Hey, Chris. Hey, I'm just kind of curious how you go about managing the business with this much uncertainty going on, you know, on the start of new contracts and just kind of how you're going to go about managing through this. And then I can't help but wonder if slowing down here for some period of time might be helpful as you try to convert some of your green labor into more experienced laborers. I'm just kind of curious, could we wake up someday and see that we just hit the pause button, let you guys figure out how to get this work done more methodically, and we kind of restart? Is that a bad idea? I'm just trying to understand how this gets fixed.

Jason, thank you for that question. And first of all, I don't think there's any backup related to the urgency Uh, that's required to get these ships delivered and we're doing all we can to, uh, to get, get these ships delivered to the Navy. Um, but you bring up a very good point, uh, related to green labor. And while we're on our hiring plan for the year, we're actually repositioning, uh, our strategy relative, uh, to hiring where we're reducing our reliance on green labor. We're just gonna hire less. Um, and we're gonna focus on more experienced labor. Because we're just out of alignment or out of balance from an experience level right now, which leads to rework, which leads to inefficiency. And it's not good for anyone. So we're repositioning that a bit, which I don't consider that slowing down. I consider that investing in the workforce so that you're more efficient and really aligning. And that's what we're doing with our capital plans and our cost structure as well, Jason. is we're aligning those investments and that cost structure with what we think the pace of activity will be going forward. As I said previously, it doesn't do anyone any good to meet your hiring plan and not have supply chain material there, right? So I think you bring up a good point. I think we have to be very disciplined in how we do that. I think we have to be really disciplined in how we put these ships under contract as well. We can't sign a contract and hope. We have to do that. We have to do it understanding the current macroeconomic environment, understanding our proficiency of our labor force, the fragility of the supply chain, potential for increased inflation, and all of the work that's happening within the shipyard. So you bring up a good point. We're thoughtful about it. We're thinking about it. We're making sure that we do it responsibly.

Right. Okay. I appreciate that. And then somebody's got to ask a question about mission technologies, right? I mean, that business continues to perform well, nice growth, margin, margins are doing well there. So maybe just talk a little bit about the next few years at mission tech, the pipeline that you have there, you know, the outlook for book to build the, you know, the mix that you have in the current backlog and kind of what you're chasing and Just, you know, the potential for book to bills, growth rates, margins, kind of just give us a mosaic for the next few years to think about that business. Thanks.

Sure, sure. Mission Technologies is doing very well. They've grown at 14% year-to-date over last year. Some really big wins, $11 billion of wins. The outlook for that business couldn't be better, and it's broadly across their portfolio. The team just recently... restructured their business to focus on where they think the higher growth areas are. You think about C5ISR, electronic warfare, unmanned or uncrewed vehicles. So they're doing very well. The pipeline is strong. The team seems to be very focused. And I look forward to them performing over the next few years, consistent with the growth rates or even beyond the growth rates that we communicated at our investor day. So, yeah, very pleased with Mission Technologies. The team is executing very well. Tom, do you have anything to add on Mission Technologies?

No, I mean, just to hop on the back end there on top of the growth rate that we've seen this year at 14%, year-to-date it's been 13% from 22 to 23, so I'm excited by that. The efficiency that Chris talked about from six business units to four, we're leveraging the strongest leaders here, the portfolio, the talent, We're aligning to be even more efficient on new bids there from a rate structure. So I'm excited with what they're doing there as they're honing the business. And the Align acquisition was in 2021. And each year we're finding opportunities to either take more costs out or get some additional synergies within the division and the interfacing within shipbuilding. And the opportunities that continue to grow and how we can leverage mission technologies applications and tech into how we construct and support our shipbuilding. I'm excited about the future. We kind of set that up with a thesis of 7% to 9% growth, 8% to 10% EBITDA. I know that first year was at 4% from 2021 to 2022, but as I said, the last two years have been 13% and 14% higher than the initial hope and the projection that we gave for a 7% to 9% growth. And it's nice to see a couple of quarters here where the EBITDA margins have peaked themselves up. A lot of cost type contracts over that. But as we continue to mature the portfolio and the relationships with our customers and additional contracts, there'll be opportunity sets to kind of build out from just 80% to 85% cost type into other type of contracts and delivery orders against those BOA contracts that will offer opportunity sets for higher returns as well. More products and services. They're just engineering solutions and studies. So I think it's going well right now, and I'm excited that it brings about a new line of customer sets, different avenues of funding. We talked at Invest Today, the opportunity sets we have there to go international, commercial contracting, Australia, over to England, and with the AUKUS opportunity sets in front of us, too. So that's hitting on all cylinders for us.

Right. Okay. I appreciate that, Culler, and let's look at the rest of the questions here. Thanks, Jason.

Thank you. The next question is from the line of Seth Seifman with JPMorgan. Your line is now open. Please go ahead.

Thanks very much, and good morning. Good morning. I wanted to ask you, good morning. You mentioned doing more outsourcing and hiring less. How do we think about how that affects returns and cost estimates when more of the work is done with outsourcing? And when we see all this money going into the submarine industrial base and some of it going into restarting small and medium-sized shipyards elsewhere, should we think about a greater percentage of the work being outsourced going forward and kind of what does that mean for margins?

Yeah, I think there's going to be a greater percentage of our work outsourced going forward. There is a premium related to that. And you're seeing that impact in the profitability of our current portfolio. Now, I don't think it's going to be a significant impact going forward on these ships because we pretty much made most of those decisions. But we will increase the industrial base and increase outsource partners on our future contracting activity, and we make sure we protect those potential increases in those targets. That's what I mean about when I talk about ensuring that our new ships reflect the current macroeconomic environment, which means you're going to outsource more, which means it costs more. So we will outsource more. We need to expand the capacity in shipbuilding. We'll do that. but we need on these new contracts to ensure we protect ourselves.

I hop on the back end of that to you. I wouldn't want you to take away that we're going to significantly reduce hiring. The hiring, the training, working on retention, the backdrop that we've given you is that there's going to be additional growth in shipbuilding from 3% to 4%. So there needs to be more volume and capacity. It's not out of the inability just for us to hire enough, but because of the top line growing. So we'll be outsourcing what makes sense. And, you know, compared to maybe the inefficiency of some things we do inside that we don't have the capacity to do it, all that goes into the business construct as we outsource. We'll insource the teams that we can have pop into the yard, painters and welders at times on ships. They can pop in here for a month or a couple of quarters and help out as well. And, again, if there's maybe a slight premium, a lot of times you don't pay like the benefit end of that. coming in here to offset the inefficiencies that we have, maybe schedule growth or the inefficiencies of the inexperience, some of the inexperience that we have in VR here. All that's rolled into the EAC right here. So I see that as nothing but positive. Also, there's opportunity sets for us to do other things like operating centers, manufacturing operating centers, and that's in the mix. We're always kind of studying that. So we're not flat footed here. We've kind of talked over the last two or three years since COVID about hiring. and we were successful at that. We see the attrition is a draw here, and now we're kind of pivoting to like, hey, the answer to that is more training, more relationships and engagement with our new hires. And then where we need to supplement that, that's where we either outsource, insource, or look at other operating centers that we can team with, team, acquire, things of that nature. So, I mean, all that's in play on how we're trying to manage the business as we see going forward.

All right. TAB, Mark McIntyre:" Okay, and then maybe then to follow up on you know you mentioned kind of that three to 4% annual shipbuilding growth. TAB, Mark McIntyre:" You know that target, I think, was was also based on you know the investments that you guys thought you were making with the. TAB, Mark McIntyre:" You know elevated capex over over three years, you know now this year for sure, and it seems like maybe. TAB, Mark McIntyre:" Going forward, the capital plan is much lighter without the kind of capacity and productivity that that would come from that capital spending. you know, is it still appropriate to be thinking about that sort of 3% to 4% top line over the next few years?

So absolutely, right? I wouldn't want anyone to see the signal of the capex that's reduced for this year. You know, we had guided 5% for the next three years from 24, 25, and 26, with 24 being 5-3. So we prudently kind of hedged that back, and we're managing accordingly because we want to see Is it going to be an incremental approach? Are we still going to do something more globally like an omnibus approach for the 17 boats that we have? But none of that work has moved out. Every year we replan our 10-year annual operating plan, and none of that work has moved out of the plan. So the business, the value equation that we have, the specific skills and the opportunity sets we have, the growing Navy requirement, the 30-year shipbuilding plan, the five-year FIDAP, all that's in place here. As Chris said, we're trying to make sure that we marry the business environment and the headwinds that we see with both the labor needs and the supply chain availability. We're trying to marry home to fair and equitable contracts going forward that protects, you know, finds the right balance between affordability and profitability. So that has not changed the value equation of HI. It does mean that for the remaining part of this year, as we're trying to, you know, get rid of a little bit of the cloudiness and how that's going to play out, and see the footing on performance take hold in Q4 and going forward. We've throttled back just from a capex and cash position to be prudent in the short term. But medium to long term, really nothing changes from what we envisioned and what we walked the industry and street through at Investor Day. That was a medium to long term. We talked about 3 to 5 for medium and 5 to 10 year. The thesis of HI investment and how we see the business playing out has not changed at all.

Thanks very much. Thanks.

Thank you. The next question is from the line of Ron Epstein with Bank of America. Your line is now open. Please go ahead.

Good morning, guys. Good morning. I think we've been kind of through this, but I'm still trying to get my head around back at the investor day when you guys gave your outlook. How could you not see this coming?

Yeah, so it's a good question, Ron. You talk about Investor Day. It was kind of a broad look at the business and a medium to long-term take on growth rates and where we saw performance was going. And consistent with Investor Day, we said we had to get through these pre-COVID contracts. And our assumptions of how we were going to get through them were just a little bit too optimistic. We're having to deal with it. We have a very good accounting process where we roll through our EACs every quarter, and we have to take an issue if it shows up. So it's not grossly inconsistent with the challenges we knew we had on these contracts that were negotiated pre-COVID. We're just going to have to get through them and transition to these new contracts that reflect our current environment.

Got it, got it. And then how should we think about margins in the next year? I mean, can you talk about that?

Yeah, so they're going to be, we're not going to provide guidance until the end of January on that. And it's going to be a reflection of how we execute over the next couple months, our expectations of execution for the balance of the year, those risk and opportunities. And then what we think that 17 shift um, submarine contract looks like, um, whether it gets awarded together, whether it gets awarded, um, separately in the, in the FY 24 boats, um, what that construct looks like and what the incentives are look like on that. So, um, we'll give, we'll give that, uh, that information and out in, uh, for guidance in 2025, um, in January. and those are the factors that will influence it. Tom, I don't know if you have anything you want to add to that.

You kind of hit it. It's just going to be a function of the performance and then these new contract awards that we have going forward. I think it's premature right now for us to kind of guide that. We gave you a range to get out of this year, and then we'll give you a perspective kind of going forward. We understand what's impacting us. We're throwing a lot of horsepower, internal investment on our labor front and on the supply chain, I mentioned to your question on the investment, I mentioned about how to work off the existing ships, the ships that have been during COVID and post-COVID the last three, four years now. I know a lot of people say, hey, COVID's behind us, but the contract value that we brought in here was pre-COVID, and then with the loss of heads and the experience and the fragility of the supply chain, I mean, the impacts are still real today, whether it's impacting the ship at the deck plate parts and labor, or it's just a cumulative effect of higher costs over the performance of the ships and boats as they ran through the three or four years of three years of COVID, nine plus percent inflation for a couple of years, and now tightening of the labor market. Those are real impacts that we're kind of living each day. So if you recall, I broke that down. Hey, we got it every year. We get rid of a couple of boats and ships that went through that. We start some new boats and ships. And then it's about the equity of the new contracts that we bring home with additional backstops on clauses. more alignment on program schedules, and then the cost returns that we see would get cranked into the new bids. And we'd find that overlap between affordability and profitability on the new awards. And there's a transition period of that, the new portfolio, replacing the existing portfolio we have here. But I think that's the color we have on that.

Yeah, and maybe just one more question. I mean, and tell me if I'm just oversimplifying this, but it When you look at the commercial airlines as an example, they had a pilot shortage until they paid their pilots a lot more, and then the shortage went away. I mean, is it as simple in the arts as just paying the shipbuilders more and you'll get more talented people with more experience? Is there a way to work with the Navy to do that?

Yeah, we're working with the Navy to do that now. We've worked with them on some interesting projects relative to increasing the labor, and we're seeing some promising results So, Ron, you're bringing up a good point. It's something we're working very closely with the Navy to address on the 17-ship submarine contract. We've done it at Ingalls already in some areas, and we're seeing some positive results. So it is an oversimplification, but we think that is one lever you can pull to improve retention, improve performance, and improve predictability.

Yeah, it makes sense. All right, thank you. Sure.

Sure.

Thank you. The next question is from the line of Robert Sallard with Vertical Research. Your line is now open. Please go ahead.

Thanks so much. Good morning. Good morning. Chris, I don't want to belabor this 17 ship issue, but I was wondering if you could elaborate on what the potential sticking points are here. Is it very basically that the cost per unit has gone up significantly versus what the Navy's prepared to pay or had budgeted, or that you were trying to get sort of recompense on the older pre-COVID contracts? And what exactly is the issue here?

Yeah, so fundamentally, the budgets that were established for those boats was a few years ago, and it didn't really have our current environment baked into the budget scenario. So that creates a risk. just that creates a risk in getting those under contract. But it also doesn't, if we were to just kind of go business as usual to put those under contract, it doesn't address the significant investment that's required to meet the critical need for these submarine schedules. And so whenever you do something that's somewhat innovative and create an asset that can be used for investment, it just takes longer to get that approved. We still think it's the right approach. So it's a combination of both of the things you mentioned, which the budget was not enough, but it also doesn't unlock all the investment that we need to make in the industrial base to meet our contract schedules. So it's a little bit of budgeting challenge, but also how do we attack this issue kind of holistically so we can accelerate submarine production?

And then just a quick one for Tom. Admission technology is in Q4. It looks like things stepped down. Is there a reason for that?

Yeah. We're being conservative right now on the way that it plays out. A piece of the performance that we see here is timing. But we're still, if you notice, we're raising the guide both on the top line and the bottom line of admission technology. So there's no issue or problem there. We'll just let it play out. um they've they've uh met or exceeded where we thought they landed each court and i'm feeling positive about that but there's still another uh two plus months to kind of play out here and i'm looking forward to providing some good news in february okay thanks tom thank you the next question is from the line of doug barnett with bernstein your line is now open please go ahead

Hey, guys, this is Mike McCormick on for Doug. Hey, Mike. Just a quick question on labor. I know that we've talked about sort of the outsourcing and hiring goals, but can you just touch on attrition in the quarter? I know last quarter kind of said not really improving, but an update there would be helpful and an adequate follow-up.

Yeah, we haven't seen market improvement in attrition. That's why we're kind of repositioning the way we're hiring and focusing on less entry-level and more experienced labor because, again, they tend to stay. So, yeah, no meaningful change in attrition.

Okay, thank you. And then just on CDN 79, I guess as we get through, you know, to 80 and 81, any comments on how we should think about sort of margin profile? Should we expect margin expansion on these ships as it is here, or just any comment on that would be helpful too?

Yeah, I'm sorry, Mike. I have a bit of a trouble understanding what your question is, but I think it was margin profile on aircraft carriers. And You know, we don't give margin by program. So it's just not something we do, but I do. I'm still very confident as a 9 to 10% business. We just need to transition out of these pre COVID contracts. OK, thank you. Thanks.

Thank you. The next question is from the line of Noah Poponek with Goldman Sachs. Your line is now open. Please go ahead.

Hey, good morning. Good morning, Noah. Hey, thanks. Can you frame the timing at which you will no longer have pre-pandemic contracts flowing through your financials?

If someone transitions out, I think between 24 and 28, about 50% to 60% of the work is pre-COVID. And just depending on the pace and tempo of the new awards, you saw we got the – if I break down the new awards post-COVID, FY23 on the destroyers, you saw Ingalls just picked up the bundle in Q3. We're talking about the 17 boats here for the last two on FY24 Block 5 on BCS. the next 10 boats for Block 6, and then the Columbia Bill 2. And then CBN 75, RCOH, we're already on contract for a long lead on that. And that comes in here from a construction standpoint, I believe, at the end of 25, 26. So it's two, three, four years out as it starts to meaningfully ramp. And we switch over in a couple of years that there'll be more post-COVID awarded jobs than there are pre-COVID here. that's in the 27, 28 timeframe where we swing over. Okay. It's more post.

Yeah. Okay. Okay. And Tom, I guess just on the, on you had had a multi-year free cashflow framework for a while and talked about kind of normalized recurring annual levels. Is there any new way you're framing the recurring annualized number? I guess it's, a little surprising you pulled that because you're showing you can toggle the CapEx by an odd and significant amount, and you've referenced timing, although I guess if it's a multi-year window where the margins are just structurally lower from pre-pandemic contracts, then maybe not. So I don't know if there's any additional color you can provide on how you're thinking about the Beyond 24 free cash.

Yeah, I can. We did think about that, but if you think about It's a five-year guide, and here we are at the first of the five years, and we've gone from 600 to 700 to zero to 100. So you can easily do the quick math and just say, hey, the old 3.6 is now like a $3 billion area. But it's so close up front of the five-year run here. We really want to kind of get out of this year with actuals, see what's happening on the new omnibus, incremental, innovative contracting approach, see how that takes hold, the timing and the pace and the investments on that, And we just thought it was better to take it off the table right now and we'll evaluate when we feel good enough that we can give you a number that we can hang on right now. So we could have adjusted it, and then it could either be higher than that or less than that, depending on the pace and tempo of the awards and performance. So we're going to hold that back. I mean, we hold our guides knee and dear. You know, at times, you've been on the call with us for many years. We talk about our ability to meet or exceed our guides. We were on a good run there since we started this cash flow perspective back at the end of 2019 from 20 to 24. Each guide we met or exceeded. And, of course, we're missing it kind of big time here this year. And we thought it was just more prudent for us to take a break, understand what we have here, see how the contracting landscape plays out over the next six to 12 months, and then we can revisit that in the future.

Okay.

I would say to my earlier comments that I still think Yeah, I would say to my earlier comments, that's still, you know, the HII value, investment value has not changed, right? The 30-year shipbuilding plan, the five-year FIDEF are backlogged. It's a pace and tempo piece on performance and throughput on the existing work. And then it's the modification, the new awards, you know, as Chris said, the business as usual, or as we kind of look for additional investments in labor and capacity and throughput and our supply chain, which needs dollars, which will assist us as far as I mentioned in Q1 and Q2 calls, those new contract awards bring equity in terms of margin and cash for investments, and they facilitate unlocking the value of the existing contracts that we have and the funds that are on there. So it's a fairly decent swinger on changing the trajectory of performance, capacity, and throughput, and the recovery and the improvement going forward. And we just have to see how that plays out over the next couple of quarters.

Okay, I appreciate it. Thank you.

Thanks, Noah.

Thank you. I am not showing any further questions at this time. I would now like to hand the call back over to Mr. Kastner for any closing remarks.

Sure, thank you. To wrap it up today, I'd like to summarize that we remain focused on optimizing our operations, improving our cost structure and shipbuilding performance and driving higher throughput. We believe the actions we're taking will enable us to stabilize performance as we continue to work through these shifts. Thanks again for your interest and participation today.

That does conclude today's conference call. You may now disconnect.