Huntington Ingalls Industries Q4 2024 Earnings Report

Gentex EPS Results

• Actual EPS: $3.15
• Consensus EPS: $3.28
• Beat/Miss: Missed by -$0.13
• One Year Ago EPS: N/A

Gentex Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $3.06 billion
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Gentex Announcement Details

• Quarter: Q4 2024
• Date: 2/6/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, February 6, 2025
• Conference Call Time: 9:00AM ET

Gentex (NASDAQ:GNTX) designs, develops, manufactures, markets, and supplies digital vision, connected car, dimmable glass, and fire protection products in the United States, Germany, Japan, Mexico, Republic of Korea, and internationally. It operates through Automotive Products and Other segments. The company offers automotive products, including interior and exterior electrochromic automatic-dimming rearview mirrors, automotive electronics, and non-automatic-dimming rearview mirrors for automotive passenger cars, light trucks, pick-up trucks, sport utility vehicles, and vans for original equipment manufacturers, automotive suppliers, and various aftermarket and accessory customers. It also provides variable dimmable windows to aircraft manufacturers and airline operators. In addition, the company offers photoelectric smoke detectors and alarms, electrochemical carbon monoxide alarms and detectors, audible and visual signaling alarms, and bells and speakers used in fire detection systems in office buildings, hotels, and other commercial and residential buildings, as well as researches and develops nanofiber chemical sensing products. It sells its fire protection products directly, as well as through sales managers and manufacturer representative organizations to fire protection and security product distributors, electrical wholesale houses, and original equipment manufacturers of fire protection systems. Gentex Corporation was incorporated in 1974 and is headquartered in Zeeland, Michigan.

Huntington Ingalls Industries Q4 2024 Earnings Call Transcript

Presentation

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to the Fourth Quarter twenty twenty four HII Earnings Conference Call. At this time, all participants are in a listen only mode. Please be advised that today's conference is being recorded. I would now like to hand the call over to Christie Thomas, Vice President of Investor Relations. Mrs.

[Operator]

Thomas, you may begin.

[Christie Thomas, VP of IR at Huntington Ingalls Industries]

Thank you, operator, and good morning, everyone. Welcome to the HII fourth quarter twenty twenty four 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.

[Christie Thomas, VP of IR at Huntington Ingalls Industries]

We will also 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.

[Christopher Kastner, President & CEO at Huntington Ingalls Industries]

Thanks, Christy. Good morning, everyone, and thank you for joining us on our fourth quarter twenty twenty four earnings call. Last year, HII employees remained steadfast in their commitment to our mission of delivering the world's most powerful ships and all domain solutions in service of the nation. I thank them for these efforts, which contributed to HII reaching critical milestones last year. We remain focused on meeting our commitments to the Navy and all our customers.

[Christopher Kastner, President & CEO at Huntington Ingalls Industries]

Before I discuss the 2024 results, operational initiatives and guidance, I would like to put in context where we are and give you a perspective on the next twenty four months as well as the mid to long term outlook. Over the next twenty four months, we expect to secure over $50,000,000,000 of contract awards. These contracts are being and will be negotiated with current performance and economic conditions in our estimates. They are expected to have a more balanced risk equation, be predictable in cost and schedules for our customers and provide an opportunity to achieve margins more consistent with historical norms. At the same time, we are achieving key milestones on ships contracted prior to COVID.

[Christopher Kastner, President & CEO at Huntington Ingalls Industries]

And as our progress continues, these contracts are becoming an increasingly smaller portion of our portfolio and less of a drag on our financial results. By 2027, the majority of pre COVID contracts will be behind us. In addition, our focus on increasing throughput and cost reductions are expected to lead to improved operational execution across the business. With these operational initiatives and the significant demand for our products and services, we expect improved financial performance over the mid to long term. We anticipate growing to $15,000,000,000 of annual revenue by 02/1930 with associated margin expansion, opportunity and free cash flow growth.

[Christopher Kastner, President & CEO at Huntington Ingalls Industries]

Now turning to our 2024 results, we generated sales of $11,500,000,000 and earnings per share of $13.96 All three of our divisions hit key milestones and won significant new business during the year. 2024 awards totaled $12,000,000,000 and our year end backlog was $49,000,000,000 of which $27,000,000,000 is funded. Now I'll provide some highlights from each of our divisions. First, Mission Technologies had another strong year. It achieved awards of more than $12,000,000,000 in potential total contract value, a 2024 book to bill of 1.339 revenue growth year over year.

[Christopher Kastner, President & CEO at Huntington Ingalls Industries]

This positive performance reflects Mission Technologies' continued alignment with our country's and our allies' national security strategies. For example, in 2024, Mission Technologies achieved its largest win ever, a $6,700,000,000 contract to provide electronic warfare engineering and technical services support for the U. S. Air Force, as well as a $3,000,000,000 LOGICS task order to provide logistics services, ISR operations and next gen technology. And in Australia, Mission Technologies was awarded an initial five year contract to provide global supply chain services to the Australian Government's Department of Defense.

[Christopher Kastner, President & CEO at Huntington Ingalls Industries]

In summary, the Mission Technologies team is executing well and we are confident in its ongoing success, particularly given how closely its portfolio maps to our defense customers' needs. In 2024, at Ingalls Shipbuilding, we were awarded a 9,600,000,000 multi ship procurement contract for the construction of LPD 33, 30 four and 30 five and large deck amphibious ship LHA 10, which secures amphib production backlog well into the next decade. Also, we delivered LPD 29 USS Richard M. McCool Jr. And launched LPD 30 Harrisburg and we continued to make progress on the DDG program with six destroyers in production, authenticating the keel of DDG 133 Sam Nunn in the fourth quarter.

[Christopher Kastner, President & CEO at Huntington Ingalls Industries]

Finally, we completed drydock work and undocked USS Zumwalt DDG 1,000 in December. In 2024 at Newport News Shipbuilding in the Virginia class submarine program, we floated off SSN seven ninety eight Massachusetts, delivered SSN seven ninety six USS New Jersey, shipped the final module of SSN eight zero one Utah and in December we christened SSN 800 Arkansas. As for aircraft carriers, we completed drydock work for the RCOH of CVN 74, USS John C. Stennis, and were awarded the advanced planning contract for the RCOH of CVN 75, USS Harry S. Truman.

[Christopher Kastner, President & CEO at Huntington Ingalls Industries]

Also, 94% of CVN 79 Kennedy compartments have been turned over to the Navy and all combat systems have been turned over to the test team. And CVN 80 Enterprise was moved for the first time, enabling construction of two aircraft carriers at once in the same drydock. Looking ahead to 2025, at Ingalls, we expect to launch DDG 129, Jeremiah Denton and complete sea trials for DDG 1,000. And at Newport News, we plan to deliver SSN seven ninety eight and float off SSN 800. Also, the team is focused on completing CVN 79.

[Christopher Kastner, President & CEO at Huntington Ingalls Industries]

CVN 79 is scheduled to deliver in 2025 and the program team is evaluating options for optimizing combat capability additions and readiness for Navy workups. In 2026, we expect to deliver DDG 128 Ted Stevens and LHA eight Bougainville at Ingalls. And at Newport News, we expect to deliver SSN 800 and lay the keel for CVN 81 Dorey Miller. In 2025, we are also doubling down on operational improvement actions to address the residual COVID related labor, productivity and supply chain challenges that we have been facing. Starting with labor and enhancing throughput, in 2024, we exceeded our hiring goal of over 6,000 craft personnel, but attrition remains stubbornly high.

[Christopher Kastner, President & CEO at Huntington Ingalls Industries]

Our data shows that additional investment in wages in coordination with our Navy partner will provide needed workforce stability. These increases also allow us to attract highly skilled first class shipbuilders and the proficiency they bring. Additionally, we continue to deploy our enterprise operating system across all our shipbuilding programs to ensure consistency. On labor and throughput, we have acquired the assets of an existing advanced metal fabricator W International in Charleston, South Carolina. This acquisition increased our workforce by approximately 500 highly trained personnel and we plan by 2027 to increase employment significantly at this site a 480,000 square foot facility.

[Christopher Kastner, President & CEO at Huntington Ingalls Industries]

HII Charleston operations is already working on aircraft carrier units for Newport News and in the next few weeks we expect to start submarine unit construction. Similarly, we plan to increase our outsourcing by 30% in 2025 and in source contract labor to address critical skill gaps within our shipyards. As a result of these workforce strategies, we expect to achieve a 20% year over year improvement in shipbuilding production throughput. Our second operational initiative is an annualized enterprise wide cost reduction target of approximately $250,000,000 per year. Several actions have already been taken to achieve this target, including the realignment of Mission Technologies segment from six business units to four and the implementation of a new payroll system at the beginning of 2025.

[Christopher Kastner, President & CEO at Huntington Ingalls Industries]

Further cost efficiency plans around optimizing cost structures, decreasing overhead and service and support costs and reducing third party services are under development and are expected to be executed throughout 2025. Our third operational initiative for 2025 is ensuring our new contract awards reflect the current economic and production environment. Regarding the FY twenty twenty four Block V submarine contract agreement, negotiations are continuing and we continue to be confident that an agreement will be reached, although we do not have certainty today on the timing of that agreement. These three items, meeting our throughput improvement goals, executing our cost reductions and achieving new contract awards that reflect the current economic and production environment underpin our guidance and are expected to bring more predictability to our contract cost estimates, delivery schedules, financial performance and guidance. In terms of our financial outlook, more specifically for 2025, we expect shipbuilding revenues between $8,900,000,000 and $9,100,000,000 and shipbuilding margins in the range of 5.5% to 6.5%.

[Christopher Kastner, President & CEO at Huntington Ingalls Industries]

For Mission Technologies, we expect revenues between 2,900,000,000 and $3,100,000,000 and margins between 44.5% with EBITDA margins between 88.5%. Our free cash flow outlook for 2025 is between $300,000,000 and $500,000,000 The 2025 shipbuilding margin and free cash flow outlook is predicated on meeting our throughput and cost reduction objectives. It also assumes appropriate resolution on the last two VCS Block V boats, the Block VI and Columbia Build II contracts consistent with the continuing resolution anomaly language that was passed by Congress. Turning to activities in Washington for a moment, we are pleased with the passage and enactment of the Defense Authorization Act for fiscal year 2025. The FY 2025 NDAA strongly supports our shipbuilding programs In addition to authorizing funding for three Arleigh Burke class surface combatants, one Virginia class submarine and one San Antonio class amphibious warship, the NDAA authorizes the refueling and overhaul of CVN 75, additional incremental funding for the second Virginia class attack submarine in FY 2025, and continued support for Gerald R.

[Christopher Kastner, President & CEO at Huntington Ingalls Industries]

Ford class aircraft carriers in the LHA and LPD amphibious warship bundle. The NDIA also recommends the Navy optimize aircraft carrier acquisition strategy and procure CVN 82 in FY '28. We applaud Congress for including anomalies in the CR that provide additional support for nuclear powered vessel programs and we look forward to Congress finalizing FY 2025 appropriation bills. In summary, we continue to make progress on our programs with impactful operational initiatives that we believe will lead to meaningful improvements in productivity and throughput. Demand for our products and services is strong and we continue our focus on executing for our key customer, the U.

[Christopher Kastner, President & CEO at Huntington Ingalls Industries]

S. Navy, with five deliveries over the next two years. We have a line of sight for generating approximately $15,000,000,000 in annual revenue by decade's end with incrementally improving operating margins over that period, which will facilitate improved results for all stakeholders. So with that, I will turn the call over to Tom for some remarks on our financial results and guidance. Tom?

[Thomas Stiehle, Executive VP & CFO at Huntington Ingalls Industries]

Thanks, Chris, and good morning. Today, I'll review our fourth quarter and full year results and also provide some additional color regarding outlook for 2025. For more detail on the segment results, please refer to the earnings release issued this morning and posted to our website. Beginning with our consolidated fourth quarter results on Slide six, our fourth quarter revenues of $3,000,000,000 decreased approximately 5% compared to the same period last year. This decline was driven by lower year over year revenue at all three segments.

[Thomas Stiehle, Executive VP & CFO at Huntington Ingalls Industries]

Ingalls revenues of $736,000,000 decreased $64,000,000 or 8% compared to the fourth quarter of twenty twenty three, driven primarily by lower volumes on amphibious assault chips, partially offset by higher surface patent revenues. At Newport News, revenues of $1,600,000,000 declined $77,000,000 or 4.6% from the fourth quarter of twenty twenty three, primarily due to lower RCOH volumes, unfavorable cumulative adjustments on the Virginia class and aircraft carrier construction programs, partially offset by higher Columbia class volumes. At Mission Technologies, fourth quarter twenty twenty four revenues of $713,000,000 decreased $32,000,000 or 4.3% from the fourth quarter of twenty twenty three, primarily driven by lower volumes in C5ISR due to non recurring product revenue in the fourth quarter of twenty twenty three. Moving to Slide seven, segment operating income for the quarter was $103,000,000 and segment operating margin was 3.4%. This compares to $330,000,000 and 10.4% respectively in the fourth quarter of twenty twenty three.

[Thomas Stiehle, Executive VP & CFO at Huntington Ingalls Industries]

Fourth quarter '20 '20 '3 results included two non recurring favorable items that make for a difficult year over year comparison. The first item was a $70,500,000 sale of a court judgment at Ingalls. The second was a $49,500,000 insurance claim settlement at Mission Technologies. Ingalls operating income of $46,000,000 and margin of 6.3% compares to $169,000,000 and 21.1% respectively in the fourth quarter of twenty twenty three. The prior year period included both the favorable sale of a court judgment that I noted as well as a surface combatant related contract incentive.

[Thomas Stiehle, Executive VP & CFO at Huntington Ingalls Industries]

Newport News Fourth Quarter Twenty Twenty Four operating income of $38,000,000 and margin of 2.4% compares to 100 and 10,000,000 and six point six percent respectively in the fourth quarter of twenty twenty three. The declines were driven by lower performance on Virginia class submarine and new carrier construction, partially offset by contract incentives on the Columbia class program. Shipbuilding margin for the fourth quarter of twenty twenty four was 3.6%. Mission Technologies' fourth quarter operating income of $19,000,000 and segment operating margin of 2.7% compares to $51,000,000 and 6.8%, respectively, in the fourth quarter of twenty twenty three. The declines were primarily driven by favorable insurance claim settlement that occurred in the fourth quarter of twenty twenty three.

[Thomas Stiehle, Executive VP & CFO at Huntington Ingalls Industries]

Net earnings in the quarter were $123,000,000 compared to $274,000,000 in the fourth quarter of last year. Diluted earnings per share in the quarter were $3.15 compared to $6.9 in the fourth quarter of the previous year. Moving on to consolidated results for 2024 on Slide eight. Revenues of $11,500,000,000 increased $81,000,000 or approximately 1% compared to 2023. Growth was driven primarily by higher volumes at Mission Technologies, partially offset by lower volumes at Newport News Shipbuilding.

[Thomas Stiehle, Executive VP & CFO at Huntington Ingalls Industries]

Ingalls revenues of $2,800,000,000 in 2024 increased $15,000,000 or 0.5% from 2023, driven primarily by higher volumes in surface combatants, largely offset by lower amphibious assault ship and NSE program revenues. At Newport News, twenty twenty four revenue of $6,000,000,000 decreased by $164,000,000 or 2.7% from 2023, primarily due to unfavorable Virginia class cumulative adjustments as well as lower volumes in aircraft carriers and nuclear support services, partially offset by higher volume on the Columbia program. At Mission Technologies, twenty twenty four revenues of $2,900,000,000 increased $238,000,000 or 8.8% from 2023, primarily driven by higher volumes in cyber, electronic warfare and space as well as C5ISR contracts. Moving to Slide nine, segment operating income for the year was $573,000,000 and segment operating margin was 5%. This compares to $842,000,000 and 7.4% respectively in 2023.

[Thomas Stiehle, Executive VP & CFO at Huntington Ingalls Industries]

Ingalls operating income of $211,000,000 and margin of 7.6% in 2024, compares to $362,000,000 dollars and 13.2% respectively in 2023. The declines were primarily driven by the sale of the court judgment in 2023 as well as lower performance on amphibious assault ships and surface combatants. Newport News Twenty Twenty Four operating income of $246,000,000 had margin of 4.1% compared to March and 6.2% respectively in 2023. The decreases were primarily driven by lower Virginia class and aircraft carrier performance, partially offset by Columbia class contract incentives. Shipbuilding margin for 2024 was 5.2% within the revised guidance range we provided for the year.

[Thomas Stiehle, Executive VP & CFO at Huntington Ingalls Industries]

Net cumulative adjustments for the year were negative $126,000,000 Newport News' net cumulative adjustment was negative $154,000,000 partially offset by positive net cumulative adjustments at both Ingalls and Mission Technologies of approximately $14,000,000 Mission Technologies 20 20 4 operating income of $116,000,000 and segment operating margin of 3.9% both improved from $101,000,000 and 3.7% respectively in 2023. The improvement was driven primarily by volume and performance in cyber, electronic warfare and space contracts, stronger performance in fleet sustainment as well as higher equity income. Again, the Mission Technologies twenty twenty three results included a favorable $49,500,000 insurance claim. So we are lapping that difficult comparison and we believe our results still show strong absolute income growth and margin expansion for the year. Mission Technologies twenty twenty four results included approximately $99,000,000 of amortization and purchase intangible assets compared to approximately $109,000,000 in 2023.

[Thomas Stiehle, Executive VP & CFO at Huntington Ingalls Industries]

Mission Technologies' EBITDA margin for 2024 was 7.9%. Company net earnings in 2024 were $550,000,000 compared to $681,000,000 in 2023. Diluted earnings per share in 2024 was $13.96 compared to $17.07 in 2023. Turning to cash and capital deployment on Slide ten, 2024 free cash flow was $40,000,000 consistent with our most recent guidance and reflecting factors previously discussed. During the year, the company invested $353,000,000 in capital expenditures or 3.1 of sales as we continue to prioritize higher throughput in our shipyards.

[Thomas Stiehle, Executive VP & CFO at Huntington Ingalls Industries]

We paid $2.00 $6,000,000 in dividends while ending 2024 with $831,000,000 in cash and cash equivalents on hand and liquidity of approximately $2,500,000,000 Cash contributions to our pension and other post retirement benefit plans totaled $47,000,000 in 2024. Our pension outlook for 2025 has modestly improved from the update that we provided in November, giving this increase in discount rates partially offset by 2024 asset returns that was slightly below our expectations. Actual asset returns for 2024 were 7.7%. Our five year pension outlook has been updated and is available in the appendix of today's presentation on Slide 13. Turning to Slide 11 and our financial outlook.

[Thomas Stiehle, Executive VP & CFO at Huntington Ingalls Industries]

First, we are reaffirming our medium to long term growth targets for both shipbuilding and mission technologies. As Chris noted, we see a clear path to $15,000,000,000 in annual revenue by the end of the decade given our robust backlog and very strong demand across the portfolio. Regarding twenty twenty five expectations, Chris provided our operational guidance, but let me provide a bit more color on our cash flow outlook. We expect 2025 free cash flow of between $300,000,000 and $500,000,000 dollars Performance on contracts entered into prior to the commencement of the COVID pandemic has impacted our ability to achieve program milestones and corresponding cash receipts. We expect this headwind will continue in 2025, which along with elevated capital expenditures and cash taxes is impacting our overall cash generation.

[Thomas Stiehle, Executive VP & CFO at Huntington Ingalls Industries]

We expect 2025 capital expenditures to be approximately 4% of sales as we continue to thoughtfully invest in increasing our shipbuilding efficiency and throughput. Additionally, we expect our 2025 cash taxes will total approximately $220,000,000 Regarding our expectations for the first quarter in twenty twenty five, we expect approximately 2,100,000,000 for shipbuilding revenues and $680,000,000 of Mission Technologies revenues with shipbuilding margin near 5.5% and Mission Technologies operating margin of approximately 3%. Consistent with normal cash flow cadence, we expect first quarter free cash flow to be negative, representing a use of between $300,000,000 and $500,000,000 and working as working capital continues to build through mid year before we are able to reach program milestones and contract awards. Turning for a moment to capital allocation. As we have highlighted today, we will continue to invest in our business to maintain and grow the capacity of our shipyards.

[Thomas Stiehle, Executive VP & CFO at Huntington Ingalls Industries]

Our approach to dividends and returning excess cash to shareholders remains unchanged. Our focus now of cost is working through challenged contracts and returning free cash flow to more normalized levels. To close my remarks, achieving the throughput, cost reduction and contract award initiatives that we have outlined are critical to stabilizing shipbuilding performance in 2025 and achieving the outlook we have provided. Similar to 2024, we expect that about 70% of the shipbuilding revenue generated in 2025 will be derived from pre COVID contracts. We forecast approximately 60% of 2026 shipbuilding revenue will be derived from pre COVID contracts.

[Thomas Stiehle, Executive VP & CFO at Huntington Ingalls Industries]

Finally, we expect that in 2027, a majority of the shipbuilding revenue will be derived from contracts that reflect the current operating environment and we will set the foundation for margin improvement and returns towards historical margin levels. With that, I'll turn the call back over to Christy for Q and A.

[Christie Thomas, VP of IR at Huntington Ingalls Industries]

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

[Operator]

Thank you very much. Our first question comes from Doug Harned with Bernstein. Doug, your line is now open. Please go ahead.

[Douglas Harned, Managing Director at Bernstein]

Very good. Good morning. Thank you.

[Christopher Kastner, President & CEO at Huntington Ingalls Industries]

Good morning, Doug. Sorry for the background noise. We're going through a thunderstorm outside right now, but just bear with us a little bit.

[Douglas Harned, Managing Director at Bernstein]

Okay. I've got a snowstorm here too. So, if I go back a few years, there was a margin outlook that had always been talked about in the 9% to 10% level. And knowing that, I mean, the CPI is hardly a good indicator for inflation for you all. But can you give us a sense first, when you look at the margin gap that you have now, how much of that would you attribute to inflation versus other operational challenges if you're looking back at that 9% to 10% type projected level?

[Christopher Kastner, President & CEO at Huntington Ingalls Industries]

Yes. So that's a very interesting question and I don't have a specific number for you, Doug. We do have some EPA protection on our and inflation protection on our Ingalls contracts and limited EPA protection on material on our aircraft carrier contracts. But it's not just directly inflation that impacts you. It's a little bit more nefarious than that because you have inflation that adjusts very quickly on some products and services that can be passed along very quickly to a customer where we have long term contracts that we have to perform against the baseline that was negotiated where you really can't adjust as quickly, which leads to less experienced workforce and performance challenges.

[Christopher Kastner, President & CEO at Huntington Ingalls Industries]

So I hate to say that I hate to not give you a number related to that, but it's a broader question than just the calculation of the inflation impact on our ship programs. As related to that is in the supply chain, it's even if we have protection for it, they're just the performance of the supply chain because of inflation is not as efficient. So it's a very broad answer and I apologize for not giving you a precise answer, but inflation kind of seeps into various elements of our cost structure, not just pay people

[Christopher Kastner, President & CEO at Huntington Ingalls Industries]

more.

[Douglas Harned, Managing Director at Bernstein]

Well, just to follow on that, if you look outside of shipbuilding, I mean, the Pentagon has frankly not been very helpful at all in providing equitable price adjustments and that's across many types of programs. And even though you have some, it appears you've been facing a lot of the same problem and everyone I think there's universal acceptance of the importance of the Virginia class, the Columbia class. But when you're negotiating new contracts now in what has been a tough funding environment, do you still see it as possible to get back to those 9% to 10% type margin levels that have been more traditional? Or are we living in a different world now where you may have to sort of give in in a sense to lower financial performance?

[Christopher Kastner, President & CEO at Huntington Ingalls Industries]

Well, yes, interesting. I absolutely believe that 9% is possible moving forward. The $50,000,000,000 of contracts that we've negotiated some of those with the bundle, the ANFIB bundle down in Mississippi and we're negotiating the FY 2024 Block five-two boat contract now. The customer has been very receptive to understanding the current economic environment. And we will get inflation protection in those new contracts.

[Christopher Kastner, President & CEO at Huntington Ingalls Industries]

I think you saw Congress put the additional $5,700,000,000 in the anomaly for those FY 2024 boats. There's a recognition that we need to rebuild this industrial base. And there's also a recognition, I believe, that shipbuilders need to earn fair margins. And so we're taking that to the table and we're going to make sure that that happens. But I absolutely believe that 9% is something that we can achieve.

[Christopher Kastner, President & CEO at Huntington Ingalls Industries]

And the reason I believe it, Doug, is simply because I've done it before. Down at Ingalls, we're in the exact same position. We had to negotiate performance post Katrina into the new data set of ships. We got that done and they had a very good run where there was predictable cost and schedule performance because ultimately it doesn't do anybody any favor to agree to cost estimates or schedules that are unrealistic. So we're going to make sure that that happens.

[Christopher Kastner, President & CEO at Huntington Ingalls Industries]

I think the customer is on board with that. They want realistic achievable schedules as well. And so I firmly believe that's going to happen.

[Douglas Harned, Managing Director at Bernstein]

Okay. Very good. Thank you.

[Christopher Kastner, President & CEO at Huntington Ingalls Industries]

Thanks, Doug.

[Operator]

Our next question comes from Seth Seifman with JPMorgan. Seth, your line is now open. Please go ahead.

[Seth Seifman, Executive Director at JP Morgan]

Hey, thanks very much. Good morning.

[Christopher Kastner, President & CEO at Huntington Ingalls Industries]

Good morning.

[Seth Seifman, Executive Director at JP Morgan]

I wanted to ask about good morning. In the prepared remarks, I think, you talked about the guidance, what underpins the guidance, I think expects for more predictability. Are you basically what contract awards are you assuming that the company will get this year in the guidance?

[Christopher Kastner, President & CEO at Huntington Ingalls Industries]

Yes, the submarine contracts, the 17 boats contemplated by FY twenty four.

[Seth Seifman, Executive Director at JP Morgan]

Yes, the full laws kind of plan that you've been advocating is assumed in this guidance.

[Christopher Kastner, President & CEO at Huntington Ingalls Industries]

No, let me correct you there. It's not a full SOLUS plan. We're negotiating FY 2024, two boats consistent with the acquisition approach that was set forth by Congress and supported by the anomaly. Block six and Columbia Bill two, we're going to have to see the acquisition approach for those boats as they develop. SAWs or a derivative of SAWs is positive.

[Christopher Kastner, President & CEO at Huntington Ingalls Industries]

Anything that brings additional investment into the industrial base that accelerates shipbuilding production is positive, but we're going to take this one step at a time.

[Seth Seifman, Executive Director at JP Morgan]

So the guidance doesn't assume the 17 boats get under contract?

[Christopher Kastner, President & CEO at Huntington Ingalls Industries]

It does. It does. It assumes FY twenty four two boats and then assumes the negotiation of Deep Lock six contracts and the Columbia Bill two contract. Yes.

[Seth Seifman, Executive Director at JP Morgan]

Okay. Okay. And do you I guess what gives you have you had communications with the new administration? What kind of gives you confidence that that's going to happen during this year?

[Christopher Kastner, President & CEO at Huntington Ingalls Industries]

Yes. So interesting. I have high confidence in the FY twenty twenty two votes that will happen first part of the year. I have had limited conversations with elements of the new administration and they've assured me that shipbuilding is one of their top priorities. And that's welcome.

[Christopher Kastner, President & CEO at Huntington Ingalls Industries]

That makes perfect sense based upon the threat environment. So I believe we'll step right into Block six after we negotiate the last two Block five boats.

[Seth Seifman, Executive Director at JP Morgan]

Okay. Okay. Thanks. I'll leave it there for now.

[Christopher Kastner, President & CEO at Huntington Ingalls Industries]

Sure.

[Operator]

Thank you very much. Our next question comes from Scott Micas with Melius Research. Scott, your line is now open. Please go ahead.

[Scott Mikus, Director – Aerospace, Defense & Space Research at Melius Research LLC]

Good morning. Chris, I kind of want to follow-up on your answer to Doug's question. When I think about post Katrina, Northrop had a lot of struggles with the shipbuilding business before spinning it off to form HII. Shipbuilding margins initially weren't that great post spin, but come 2013, there was a meaningful pickup in favorable EAC adjustments and your stock more than doubled that year. So just curious,

[Scott Mikus, Director – Aerospace, Defense & Space Research at Melius Research LLC]

what

[Scott Mikus, Director – Aerospace, Defense & Space Research at Melius Research LLC]

lessons did you learn from the late 2000s and early 2010s that are still relevant and could be applied today? And when do you think investors will see EACs flip from unfavorable to favorable?

[Christopher Kastner, President & CEO at Huntington Ingalls Industries]

Thank you. I'll start this answer and then I'll kick it over to Tom for some timing related issues. But I have confidence that we can get this done because I've done it before as you said. And the key is making sure that you're very transparent and disclose current performance and ensure that you're resolute at the negotiation table and there's achievable and predictable cost and schedule estimates, when you do those negotiations. As I said previously, it doesn't do anybody for any favors to miss schedules or miss cost estimates.

[Christopher Kastner, President & CEO at Huntington Ingalls Industries]

So, we just need to make sure that we estimate them correctly and negotiate them correctly. And that can be done. And there's $50,000,000,000 of work that's going to be negotiated here. It's just getting through the pre COVID contracts is what's important. So I'll let Tom talk about the timing a little bit.

[Thomas Stiehle, Executive VP & CFO at Huntington Ingalls Industries]

Thanks, Chris. Yes, as Chris mentioned, both him and myself were down there. I spent ten years from 2011 to 2021, so I saw that march up. And it's really about making sure, one, we get good contracts and have a good cost equilibrium balance between us and our customer. We've been hit now with COVID and inflation and things of that nature.

[Thomas Stiehle, Executive VP & CFO at Huntington Ingalls Industries]

It's really causing a draw on our production lines. These long term contracts are being impacted by inflation. The number of heads experienced in the yard and the supportability of the material right now. So one is any of the new awards we get like the bundled down in Ingalls that we have, the FY 2023 award for destroyers that we received and now going forward the plethora of 17 boats between VCS five, six and Columbia Bill two. Getting balanced contracts that we have appropriate, our performance is appropriately aligned, our schedules that we see right now are rolled in the investments both from ourselves and from our Navy partner will have a positive benefit.

[Thomas Stiehle, Executive VP & CFO at Huntington Ingalls Industries]

But ensuring we have a solid program plan and we're putting good commitments on contract. And then obviously, we've got to execute on our commitments on that front. So it's maintaining our budgets, holding schedules, making progress weekly, monthly, quarterly. And we have a track record of doing that. I'm confident we have the processes and the facilities.

[Thomas Stiehle, Executive VP & CFO at Huntington Ingalls Industries]

For the most part, we need more throughput, but the processes and the tools and the facilities are in place right now. It's about building out the workforce we have, strengthening and more consistent supply chain that we have against our schedules, and then us kind of hitting the mark on cost and schedule on a regular rhythm. That's what we did down at Ingalls. I think we have the pieces in place and where we are short on people, the cost reduction initiatives that we have right now and we've talked about the contracts and contract equity going forward here. I think we understand what's causing us a delay in our production programs, specifically on VCS and some headwinds they have down at Ingalls on the Destroy program.

[Thomas Stiehle, Executive VP & CFO at Huntington Ingalls Industries]

And I think we're working hard putting the dollars and the pressure in the right areas, to find the rhythm that we saw in the Ingalls March up post Katrina.

[Christopher Kastner, President & CEO at Huntington Ingalls Industries]

So we don't have a specific date for you on when we get back to those, sort of profitability estimates. But as Tom mentioned in his script, we are transitioning over the next couple of years out of these pre COVID contracts into the new contracts. And as we transition, there should be an uplift in profitability.

[Scott Mikus, Director – Aerospace, Defense & Space Research at Melius Research LLC]

Okay. And then one quick follow-up. The midpoint of the guidance implies about $540,000,000 of shipbuilding operating income. I'm just curious, is there any assumption baked in there for what net EACs will be for this year?

[Thomas Stiehle, Executive VP & CFO at Huntington Ingalls Industries]

Yes. So, obviously, we run our EAC process on a quarterly basis. We don't provide the profitability by ship or by class like that, even by division. So, we are always baking in EAC. The estimate to complete in EAC is aligned with our performance that we have right now with risks and opportunities kind of hedged against that, right?

[Thomas Stiehle, Executive VP & CFO at Huntington Ingalls Industries]

We know we're throwing additional investment dollars in it and efforts and improvements of our production lines. We balance that with the risks and opportunities we see in front of us, so that sets the trajectory and how we expect to perform kind of going forward. And again, that ETC estimate to complete on these EACs gets reevaluated on every 90 days when we get another set of actuals. So I'm not going to get into the specific details that we have in there, but we do expect a stabilization and an improvement as we go forward.

[Scott Mikus, Director – Aerospace, Defense & Space Research at Melius Research LLC]

Okay. Got it.

[Scott Mikus, Director – Aerospace, Defense & Space Research at Melius Research LLC]

Thanks for taking the question.

[Christopher Kastner, President & CEO at Huntington Ingalls Industries]

Sure.

[Operator]

Thank you. Our next question is from Pete Gubitski with Alembic Olympic Global. Pete, your line is now open. Please go ahead.

[Pete Skibitski, Director - Aerospace & Defense Equity Research at Alembic Global]

I guess just sticking to the shipbuilding margin questions, it sounds like maybe you'd recommend we assume sort of gradual improvement on shipbuilding margin through kind of to the end of the decade, maybe hitting that 9% mark. And I don't know if we should think about a step change improvement in 2027 or just keeping it gradual. And then, I just wonder if you could talk about the it sounds like you could potentially get a contract change on CBN seventy nine. I wasn't sure if that if you did get a contract change if that would impact margin one way or another. Thanks.

[Christopher Kastner, President & CEO at Huntington Ingalls Industries]

Yes. So let me start and I'll let Tom chip in. Maybe let me ask let me answer the $79,000,000 question first and then I'll kick the margin timing question over to Tom. On $79,000,000 yes, we do expect a contract change related to some additional capabilities that may be put in the ship. The program team is working on that and with the objective of getting the ship delivered with the most capability and deployed as soon as possible.

[Christopher Kastner, President & CEO at Huntington Ingalls Industries]

The program teams are working on that and there would be a change related to that, but I don't think it's positive or negative. It's just an equitable adjustment related to the capabilities that are added. So with that, I'll send it over to Tom on the margin timing.

[Thomas Stiehle, Executive VP & CFO at Huntington Ingalls Industries]

Yes. So specifically, obviously, we don't provide margin guidance for the following year or the out years. Obviously, there is a shape and an expectation we have right here. And as of Q3 last year, we missed the expectation of where we thought we were. You really got to get down to where we've been impacted.

[Thomas Stiehle, Executive VP & CFO at Huntington Ingalls Industries]

And again, it's the less experienced the labor we have, the throughput and the support of supply chain. We see areas and we have initiatives to kind of improve all of that. So going forward, that's going to be a lift against all operations we have. Now for contracts that have run through COVID, the older pre COVID contracts, those contracts have seen increased costs. So there's limited ability to go and get additional profitability on those contracts.

[Thomas Stiehle, Executive VP & CFO at Huntington Ingalls Industries]

As we put the new work, the $50,000,000,000 on here, obviously that didn't run through that. It's going to get the benefit of the current performance and where we stand right now and the opportunity is much greater

[Christopher Kastner, President & CEO at Huntington Ingalls Industries]

to have the profitability

[Thomas Stiehle, Executive VP & CFO at Huntington Ingalls Industries]

bounce back. So I would say the way to model that is follow the revenue. In my remarks, I gave you the mix and how it blends out. And by 2027, the majority of the work will be post COVID work.

[Thomas Stiehle, Executive VP & CFO at Huntington Ingalls Industries]

And I do expect a ramp in profitability as we work ourselves through the

[Thomas Stiehle, Executive VP & CFO at Huntington Ingalls Industries]

decade here.

[Christopher Kastner, President & CEO at Huntington Ingalls Industries]

But always remember, we're pretty conservative when we start out ships. So I do agree it's going to increase, but I wouldn't anticipate a step change.

[Pete Skibitski, Director - Aerospace & Defense Equity Research at Alembic Global]

Okay. Thanks for the color

[Pete Skibitski, Director - Aerospace & Defense Equity Research at Alembic Global]

guys.

[Operator]

Yes.

[Operator]

Our next question is from David Strauss with Barclays. David, your line is now open. Please go ahead.

[David Strauss, Managing Director - Aerospace & Defense Equity Research at Barclays]

Thanks. Good morning.

[Douglas Harned, Managing Director at Bernstein]

Good morning.

[David Strauss, Managing Director - Aerospace & Defense Equity Research at Barclays]

Hey, Chris. Could you maybe talk about the opportunity to buy additional chipyard capacity? I think you've made some comments recently in the press around that. Can you kind of size that opportunity? And if I miss, I apologize on the call or in your prepared remarks.

[David Strauss, Managing Director - Aerospace & Defense Equity Research at Barclays]

What are your hiring plans in 2025 relative to 2024?

[Christopher Kastner, President & CEO at Huntington Ingalls Industries]

Yes. So we'll hire about the same amount. We've repositioned our hiring a bit as I said in a previous earnings call from kind of broadly hiring, including entry level to hiring more experienced people. We've actually made some progress in that regard. And specifically in Newport News, we had been hiring out of the pipeline, which is really the regional development centers.

[Christopher Kastner, President & CEO at Huntington Ingalls Industries]

These are people that have chosen shipbuilding as a career. They've been at the 5% to 10% rate. That's increased to 35% at the back half of the year, which is really positive. And we would like it to get to 60% this year. And that's really thanks to the State of Virginia and the federal government for increasing the funding for those regional development centers.

[Christopher Kastner, President & CEO at Huntington Ingalls Industries]

We're also targeting additional experience down at Ingalls where they like to hire 80 experienced people. So while the number is the same, we would we're repositioning it repositioning a bit. Now your question about buying another shipyard, I'm really not interested in that. W International was an opportunity that came along and they're a quality builder or manufacturer that has been in the shipbuilding industry and we were concerned they were going to move out of the shipbuilding industry and that is a problem. So we have a lot of outsourced partners and I'd rather develop outsourced partners and have an arms like relationship.

[Christopher Kastner, President & CEO at Huntington Ingalls Industries]

I really don't want to vertically integrate, but this opportunity showed up and we got 500 world class shipbuilders with Newport News management team managing them. So it's really was really a layup for us. It's going to increase our throughput immediately. But I have no plans to right now unless something very interesting came along to buy additional manufacturing facilities.

[David Strauss, Managing Director - Aerospace & Defense Equity Research at Barclays]

Okay. Thanks. And Tom, a follow-up on free cash flow and capital deployment. In terms of your free cash flow progression beyond this year, I think about 2627 as the pre COVID work runs off. Would you expect the free cash flow progression given the CapEx and working capital investments you've had to make here?

[David Strauss, Managing Director - Aerospace & Defense Equity Research at Barclays]

Would you expect that free cash flow progression back to normal to maybe be faster relative to kind of what we're going to see in terms of the runoff of the pre COVID work? And then just how you're thinking about capital deployment given the cash burn in Q1 and the debt maturity in, I think, the beginning of Q2? Thanks.

[Thomas Stiehle, Executive VP & CFO at Huntington Ingalls Industries]

Yes. So I would expect as we work through, as Chris said, the chop in the water for next twelve to eighteen months, the cash flow would ramp up and we would get back to more normalized levels as we work ourselves through the pre COVID contracts that we have here. And you can time that as well as with the margin, the cash flow will follow that in the out year. So that's how that works. From the capital deployment, there's no change.

[Thomas Stiehle, Executive VP & CFO at Huntington Ingalls Industries]

We're still using the same process and the model that we have here. We'll continue to have a we'll invest in the yards. We'll have a capital we'll have a dividend that we have annually here. And any excess free cash flow, which we've been doing since 02/2001, will go back to the shareholders as that materializes. So no change in that policy right now.

[Thomas Stiehle, Executive VP & CFO at Huntington Ingalls Industries]

We did not provide any guidance for share buybacks in 2025 And if something changes in that front, we'll update you on a quarterly earning.

[Christopher Kastner, President & CEO at Huntington Ingalls Industries]

I would add, it's an interesting question on projecting free cash flow right now. And I've spoken of this previously. I don't know if it's been picked up, but the incentive laden nature of some of these contracts that are being let really lend itself to be difficult to project free cash flow timing. It's always been a challenge for us to project free cash flow timing because of the lumpy the limited amount of projects, large invoices can move across the period. But with these large incentives and the timing of these centers and some of them not even being negotiated yet, it makes it a bit of a challenge.

[Christopher Kastner, President & CEO at Huntington Ingalls Industries]

So we're going to continue to be lumpy going forward, but I agree with Tom, 100% it should incrementally improve over the long term.

[David Strauss, Managing Director - Aerospace & Defense Equity Research at Barclays]

Thanks very much.

[Christopher Kastner, President & CEO at Huntington Ingalls Industries]

Sure.

[Operator]

Our next question comes from Scott Deutschler with Deutsche Bank. Scott, your line is now open. Please go ahead.

[Scott Deuschle, Director - Aerospace & Defense Equity Research at Deutsche Bank]

Thanks. Tom, were the Virginia class negative EACs on the Block IV boats, the Block V boats or both?

[Thomas Stiehle, Executive VP & CFO at Huntington Ingalls Industries]

A mix of both.

[Scott Deuschle, Director - Aerospace & Defense Equity Research at Deutsche Bank]

Okay. And I think the Block five boats are post COVID boats. So why should we only be focused on

[Scott Deuschle, Director - Aerospace & Defense Equity Research at Deutsche Bank]

the pre COVID ship?

[Christopher Kastner, President & CEO at Huntington Ingalls Industries]

They were negotiated in 2019. Those were negotiated in 2019.

[Thomas Stiehle, Executive VP & CFO at Huntington Ingalls Industries]

Yes. They were in 2019. Yes.

[Scott Deuschle, Director - Aerospace & Defense Equity Research at Deutsche Bank]

Okay. And then Chris, will the contract change on CVN79 result in the change in the delivery timeline for that ship?

[Christopher Kastner, President & CEO at Huntington Ingalls Industries]

Potentially. We're working through that with the customer right now.

[Scott Deuschle, Director - Aerospace & Defense Equity Research at Deutsche Bank]

Okay. Can you remind me why the ship was originally delayed from 2024 to 2025? I thought it was something similar to what you're now saying may cause it to go into Well,

[Christopher Kastner, President & CEO at Huntington Ingalls Industries]

there's a yes, no. So sorry for the confusion. There's actually a couple changes, large changes that took place on CVN 79. The first one was related to some significant combat system work that the Navy asked us to do. I think what you're referring to is moving PSA into the baseline work.

[Christopher Kastner, President & CEO at Huntington Ingalls Industries]

That was the schedule change previously, where we were going to deliver it, do a significant amount of PSA work, and then get it deployed. They moved that into the baseline, which caused a schedule change. This is additional capability that they've developed based on CDN 70 eight's performance in deployment. And so you always want to get that as you learn, this is the second ship of the class. As you learn, you want to make sure that all the capabilities are in that ship when it gets deployed.

[Scott Deuschle, Director - Aerospace & Defense Equity Research at Deutsche Bank]

Okay. And did you book a negative EAC on CVN 79 this quarter?

[Christopher Kastner, President & CEO at Huntington Ingalls Industries]

It wasn't material. Yes, I think there's a modest negative adjustment there.

[Scott Deuschle, Director - Aerospace & Defense Equity Research at Deutsche Bank]

Okay. Thanks guys. I'll leave it there.

[Operator]

Sure. Our next question comes from Myles Walton with Wolfe Research. Myles, your line is now open. Please go ahead.

[Myles Walton, Managing Director at Wolfe Research LLC]

Thanks. Good morning. I was curious

[Myles Walton, Managing Director at Wolfe Research LLC]

on the shipbuilding margin guidance for 25, five point five percent to 6.5%. In the first quarter, you're already at 5.5%. But I think the full year is predicated on material increases in throughput and cost reduction as well as the contract award assumptions. So the question is how much are you assuming is going to happen in the booking rate versus when those things happen the margins will progress higher?

[Christopher Kastner, President & CEO at Huntington Ingalls Industries]

Yes. So all of that is included in the guide, right? The new ships, meeting our throughput and our cost reduction initiatives, the timing of the new ships and incentive assumption on those new ships. So it's kind of all in the mix. And then we do have a bit of a it's a bit of a conservative guide related to we've just been had a couple of quarters of negative adjustments here.

[Christopher Kastner, President & CEO at Huntington Ingalls Industries]

So we thought it was prudent to make it a bit conservative. So it's all in the mix. I'd like to say I could time it out for you. We'll give you the information every quarter on how we think the next quarter is going to be. But all of that factors into the guide.

[Myles Walton, Managing Director at Wolfe Research LLC]

I guess the way I was going at it is first quarter, you obviously wouldn't have the contract, you wouldn't have a lot of these cost improvements. So that 5.5%, is that low end pretty much reflective of your current situation, ignoring the improvements you're talking about on throughput and cost improvement?

[Christopher Kastner, President & CEO at Huntington Ingalls Industries]

I think that's probably fair, but we're working hard to get that contract done.

[Thomas Stiehle, Executive VP & CFO at Huntington Ingalls Industries]

Hey, Miles, it's Tom. We give the quarter guide, so we're really close to that and that's how we see it's going to play out. I mean, obviously, there's a timing of the new contract award. There's the lift that we expect to get from the initiatives that we have on the objectives page, the operational objectives page. But then there's just the run rate opportunities and risks that we see, performance, the CCIs and SPIs most closest to the slide here.

[Thomas Stiehle, Executive VP & CFO at Huntington Ingalls Industries]

So I mean, it's in the mix there. Obviously, it's on the bottom end of the range here, the beginning of the year, but there'll be buy hopefully there'll be buy it against the contract awards, the initiatives we have. And then as the programs mature going forward, we could realize the medium or the top end of that range.

[Myles Walton, Managing Director at Wolfe Research LLC]

Okay. And then, Chris, maybe a higher level question. This move towards outsourcing, obviously, there's benefits to that. You could maybe control your cost or have a little bit more visibility on cost, but you're relinquishing some control and quality control in particular.

[Christopher Kastner, President & CEO at Huntington Ingalls Industries]

Yes.

[Myles Walton, Managing Director at Wolfe Research LLC]

How do you weigh that and a move to increase it as much as you're talking about 35%? I don't know what the base level is. So that could be a material number or it could be an immaterial number.

[Christopher Kastner, President & CEO at Huntington Ingalls Industries]

Yes, it's a material number. And the good news is, we're outsourcing with partners that we already do outsource work with. So we're very familiar with them. We don't do this lightly. We do pilot projects so that the partners can demonstrate their cost and schedule and quality capability before we do it.

[Christopher Kastner, President & CEO at Huntington Ingalls Industries]

So it's a good question because we've been burned by outsourcing before. I think a lot of people in the industry have and we just need to make sure we do it right. So it's a risk that we understand and we mitigate because we've done it before.

[Thomas Stiehle, Executive VP & CFO at Huntington Ingalls Industries]

I would add on the back of that like an acquisition like W International upbringing in house with Newport News people, leadership processes, throughput, a proven workforce that's there that was up and running. There's work going on down there right now and having 500 heads ready and moving forward operationally is a big plus there. So we're doing it really smartly. We're ensuring who we the insource to outsource, putting the bumpers around to make sure we get the performance and expectations. And we anticipate that we'll be able to execute that work and be a significant piece of the lift that we talk about, about 20% more earn throughput.

[Myles Walton, Managing Director at Wolfe Research LLC]

Okay. All right. Thank you.

[Christopher Kastner, President & CEO at Huntington Ingalls Industries]

Thanks.

[Operator]

Our next question is from Ron Epstein with Bank of America. Rob, Ron, your line is now open. Please go ahead.

[Jordan Lyonnais, Equity Research Associate at Bank of America]

Hey, good morning. This is Jordan on for Ron.

[Christopher Kastner, President & CEO at Huntington Ingalls Industries]

Hey, good morning, Jordan.

[Jordan Lyonnais, Equity Research Associate at Bank of America]

On the initiatives that you guys are working on for hiring, what's changed versus what you guys have been doing, for the past couple of years? And also to how do you think HII and Mission Tech specifically too, is there any impact from Doge?

[Christopher Kastner, President & CEO at Huntington Ingalls Industries]

Okay. Yes. So first, what changes? I previously spoke about it's not only hiring, we've refocused that to target more experienced shipbuilders. Wages are going to help that.

[Christopher Kastner, President & CEO at Huntington Ingalls Industries]

The anomaly has workforce development support. And so that will help that process to hire more experienced shipbuilders and will assist in retention as well. Doge is it's the new administration. It's good that one of their top priorities is shipbuilding. We're all for reduced regulation.

[Christopher Kastner, President & CEO at Huntington Ingalls Industries]

So we'll work with that team to ensure that we have the appropriate level of regulations. And we're and trust me no one wants less cost and better delivery schedules than I do. So we welcome the initiatives that could be put in place and we would participate in that going forward.

[Jordan Lyonnais, Equity Research Associate at Bank of America]

Great. Thank you.

[Christopher Kastner, President & CEO at Huntington Ingalls Industries]

Thank you.

[Operator]

Our next question comes from Gautam Khanna with TD Cowen. Gautam, your line is now open. Please go ahead.

[Gautam Khanna, Managing Director at TD Cowen]

Hey, good morning guys.

[Christopher Kastner, President & CEO at Huntington Ingalls Industries]

Good morning, Gautam.

[Gautam Khanna, Managing Director at TD Cowen]

So

[Gautam Khanna, Managing Director at TD Cowen]

I have two questions. One, on previously you guys had thought about a cash inflow associated with signing the 17 submarine contracts. I think it was a release of contract assets receivable. Is that still true? And if you could quantify how much would be could be invoiced upon signing that?

[Gautam Khanna, Managing Director at TD Cowen]

And then I had a follow-up.

[Christopher Kastner, President & CEO at Huntington Ingalls Industries]

Yes. There is some cash upside to executing those contracts. We risk adjust all of that and we so we haven't broken that out, Gottem. But that's included in our guide and there's a there will be some cash receipts related to that.

[Gautam Khanna, Managing Director at TD Cowen]

Because if I recall a quarter ago, a lot of the free cash reduction was in the guidance for 2024. Was that those contracts moving out to signing? So is it about $500,000,000 and can you ballpark it for us?

[Christopher Kastner, President & CEO at Huntington Ingalls Industries]

I'd really rather not got them at this point. There's a lot of moving parts in the cash guide as Tom mentioned previously. But, yes, I'd really rather not ballpark that. We're still in discussions with the government on that contract. We need to negotiate that really holistically.

[Christopher Kastner, President & CEO at Huntington Ingalls Industries]

So I'd rather not give you specifics on the cash impact.

[Thomas Stiehle, Executive VP & CFO at Huntington Ingalls Industries]

I'll probably just like a little color there because I think as you referenced back to the Q3 call, your questions kind of getting your head around, hey, that was near the back half of the year that the omnibus approach for 17 subs being put on contract was a pathway for us to still make our guide last year, right? And we had the early question on saws right now. So although that's viable and that's still out there, the industry still believes that's a very efficient way to get the most ships on contract built fastest. Right now, as you know, the CR just has an anomaly in there for the first two of the 17 boats. And we're working very closely with our Navy partner to get those on contract near term.

[Thomas Stiehle, Executive VP & CFO at Huntington Ingalls Industries]

So the difference between where we were, say, last quarter and this quarter is just the contracting approach, the mechanisms. Is it an omnibus at all 17, which would impact additional contracts? Or is it just two boats for FY 2024, an incremental approach, which maybe saw still an opportunity set behind it, but it brings us a little bit of uncertainty of what was the cash perspective and outlook back in Q3 versus how we're going forward here. All these boats will get on contract, right? We'll find a good risk equilibrium between us and our Navy partner, right?

[Thomas Stiehle, Executive VP & CFO at Huntington Ingalls Industries]

And a balance between affordability and profitability. And we'll ensure that the deal on our side obviously meets the requirements and the expectations of our customer while being true to bearing home a contract that we can go execute the cost and the schedule is aligned with our profitability expectations. I hope that provides a little bit more insight as far as how that relates to cash

[Thomas Stiehle, Executive VP & CFO at Huntington Ingalls Industries]

going forward.

[Gautam Khanna, Managing Director at TD Cowen]

Thanks, Tom. And just one last one. In President Trump's first term, we all remember the whole FSA discussion going to more unmanned, lighter ships. Is there any movement afoot?

[Gautam Khanna, Managing Director at TD Cowen]

Have you heard anything from the new administration about their inclinations to revisit some of the recommendations back then?

[Christopher Kastner, President & CEO at Huntington Ingalls Industries]

Not yet, but it's early. The leadership is still getting confirmed. We support obviously with our unmanned business, we support both. We think there's a high low argument and actually a fact that it's going to have to be executed. But no, we've not had those conversations with the new administration yet because they just aren't there yet.

[Gautam Khanna, Managing Director at TD Cowen]

All right, fair enough. Thank you guys.

[Christopher Kastner, President & CEO at Huntington Ingalls Industries]

Thanks, Gavin.

[Operator]

Thank you very much. I'm 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.

[Christopher Kastner, President & CEO at Huntington Ingalls Industries]

All right. Thank you for joining the call today. I appreciate everyone's participation. Thank you.

[Operator]

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

Participants

Analysts

• Christie Thomas, VP of IR at Huntington Ingalls Industries
• Christopher Kastner, President & CEO at Huntington Ingalls Industries
• Thomas Stiehle, Executive VP & CFO at Huntington Ingalls Industries
• Douglas Harned, Managing Director at Bernstein
• Seth Seifman, Executive Director at JP Morgan
• Scott Mikus, Director – Aerospace, Defense & Space Research at Melius Research LLC
• Pete Skibitski, Director - Aerospace & Defense Equity Research at Alembic Global
• David Strauss, Managing Director - Aerospace & Defense Equity Research at Barclays
• Scott Deuschle, Director - Aerospace & Defense Equity Research at Deutsche Bank
• Myles Walton, Managing Director at Wolfe Research LLC
• Jordan Lyonnais, Equity Research Associate at Bank of America
• Gautam Khanna, Managing Director at TD Cowen