The operator introduces the First Quarter 2024 HII Earnings Conference Call and hands the call over to the Vice President of Investor Relations, Christie Thomas. She welcomes everyone and introduces the CEO, Chris Kastner, and the CFO, Tom Stiehle. Kastner reminds listeners that statements made today are forward-looking and may differ from actual results due to various factors. He also mentions the use of non-GAAP measures and the company's strong performance in shipbuilding and Mission Technologies, resulting in record first quarter revenues.

The company remains focused on delivering benefits to all stakeholders and had a successful first quarter with record revenue and earnings per share. They also achieved several shipbuilding milestones and made progress in integrating an Australian company into their supply chain. Mission Technologies also saw record revenue and won strategic contracts in the quarter.

The Navy has been successful in securing funding for various shipbuilding programs in the fiscal year 2024 budget cycle and the proposed fiscal year 2025 budget. This includes funding for destroyers, submarines, and amphibious warships. The budget also includes funding for the refueling and overhaul of a nuclear aircraft carrier and continued investment in the submarine industrial base and research and development for future surface combatants and submarines. The Navy is also facing challenges in hiring skilled labor for manufacturing and has hired over 1,700 personnel in the first quarter.

In the first quarter, HII's shipyards held apprentice graduations for over 230 graduates and the company remains focused on workforce retention and development. They also continue to invest in their people and facilities to meet customer demand. The first quarter saw a 4.9% increase in revenues and a record first quarter result for HII. Operating income and net earnings also increased, and backlog ended the quarter at $48.4 billion.

In the first quarter, Ingalls revenues increased by 14% due to higher volumes in surface combatants and amphibious assault ships. Operating income also increased by 9%. At Newport News, revenues decreased by 5% due to lower volumes in aircraft carriers and the Virginia-class submarine program. However, operating income and margin remained relatively flat. Mission Technologies saw a 20% increase in revenues and a significant increase in operating income due to higher volumes in various areas. Cash used in operations was $202 million and free cash flow was negative $274 million.

In the first quarter of 2023, the company had a negative free cash flow of $49 million due to expected use of cash for collections. They reaffirm their free cash flow outlook for 2024 and 5-year outlook of $3.6 billion. They made a debt payment of $145 million and paid dividends of $51 million. They also repurchased shares and expect Newport News volumes to increase throughout the year. They are confident in their financial outlook and thank investors for attending their recent Investor Day. Q&A will now be managed by the operator.

During a conference call, Scott Deuschle from Deutsche Bank asks about the progress of CVN-79, which is currently at 90% completion. Tom Stiehle explains that the shipbuilding margin guide for the second half of the year will need to be 150 basis points above the first half in order to hit the midpoint. Chris Kastner also addresses the issue of labor constraints and delays, which the Navy controller recently stated cannot be solved solely by increasing funding.

Chris Kastner, a representative from a shipbuilding company, discusses the possibility of subsidies to help alleviate the labor shortage in the shipbuilding industry. However, he believes that the primary issue is the lack of manufacturing labor in the United States. The company is working on developing apprenticeships and partnerships with community colleges to address this issue. Additionally, the sales for Mission Technologies exceeded expectations in the first quarter and the company expects this trend to continue for the rest of the year.

In the paragraph, Tom Stiehle and Chris Kastner discuss the company's strong quarter and conservative guidance for the rest of the year. They mention potential opportunities for growth, such as awards and backlog, but also acknowledge the need to let the year play out. They express confidence in the company's pipeline and expect a strong back half of the year. David Strauss asks about the lack of margin improvement despite hitting milestones in Q1 and Q2.

The speaker explains that missing milestones and extending schedules can lead to additional costs. They were able to complete two deliveries in the second quarter, but the VCS milestones for the rest of the year may be a challenge. The speaker also mentions that the company burned cash in the beginning of the year and will continue to do so in the second quarter. They expect a ramp up in CapEx spending in the back half of the year.

Doug Harned from Bernstein asks about the issues with the valve at Newport News for the Columbia-class and the status of the milestones for the Virginia class. Chris Kastner responds that there has been incremental improvement for the VCS program, but more needs to be done. He also mentions the importance of signaling to the supply chain and ensuring there is no risk for them. The budget discussions are ongoing and the issue is expected to be resolved.

Chris Kastner, CEO of General Dynamics, discusses the recent order for steel delivery from an Australian company and how it is the first step in strengthening the Australian submarine supply chain. He also mentions the potential for material revenue in the future and the possibility of South Korea joining the AUKUS trilateral agreement, which could bring further upside to the program. However, he wants to focus on AUKUS at this point and leave discussions about South Korea to the Pentagon and Navy.

Gautam Khanna from TD Cowen asks for the EACs by segment in the quarter and mentions that the margins at NNS were lower than expected. Chris Kastner and Tom Stiehle explain that there were minor step ups and step backs in productivity, but nothing material. They also mention that LPD 29 was taken into account in the first quarter but is a second quarter event.

Seth Seifman from JPMorgan asks a question about the expected increase in CapEx and margin rates in the second half of the year. Tom Stiehle clarifies that the plan and guidance already take this into account and that the margin rates may vary from quarter to quarter due to factors such as milestone completions and risk management. He also mentions that the first half of the year is typically lighter in terms of bookings and major milestones, with the majority of them occurring in the back half of the year.

George Shapiro from Shapiro Research asks about the company's shipbuilding margins and the potential for a $70-75 million increase in profit in the second half of the year. Tom Stiehle explains that the margin rate has been stable over the past few years, but they expect a lift going forward as long as they stay on pace with hiring, materials, and cost efficiency. He also addresses the increase in working capital, attributing it to timing and trade between billings and receipts.

The speaker discusses the cost and progress of the company, mentioning that they are currently higher than expected. They also mention the importance of meeting milestones, particularly in the VCS program. The speaker is then asked about supply chain issues, to which they respond that it is a combination of supplier components and workforce constraints. They also mention the Navy Secretary's comments about Northrop as a source of issues in the supply chain.

The company has hired 1,700 employees and is working on reducing attrition. However, there are still issues with the supply chain due to major equipment from 2-5 suppliers. The shipbuilding margin is expected to be flat year-over-year, but last year it came in below the original outlook due to milestone movement. The company's visibility into back half milestones this year is uncertain compared to last year.

Tom Stiehle discusses the company's performance in the past two years and their expectations for 2021. He mentions that there are more milestones in the second half of the year and they are dependent on meeting them. He also talks about the risk involved and the need for execution. Stiehle also addresses the company's buyback plan and their disciplined approach to it. He reiterates their targets and mentions that there will be no changes in the process.

The speaker explains that the company may dip into their revolving credit or commercial paper when their cash balance reaches a minimum, which is not uncommon during the first half of the year. They are not tied to a specific cash balance in order to take advantage of value in the repo market. The speaker also mentions that they have seen improvement in labor attrition, but it is not yet back to pre-COVID levels. The call concludes with the speaker thanking everyone for their interest in the company.

This summary was generated with AI and may contain some inaccuracies.