The operator introduces the Second Quarter 2024 HII Earnings Conference Call, and the Vice President of Investor Relations welcomes everyone and introduces the President and CEO, as well as the Executive Vice President and CFO. They remind participants that statements made are forward-looking and refer to non-GAAP measures. The President and CEO emphasizes the company's focus on meeting commitments to customers.

The company had a successful second quarter, with record revenue and strong performance from its shipbuilding and Mission Technologies divisions. New contract awards and backlog also increased. Mission Technologies had its seventh consecutive quarter of record revenue and a high book-to-bill ratio. The company remains focused on meeting delivery commitments to the Navy and is making investments in capital and employee development to improve performance. In the second quarter, Ingalls delivered LPD 29, Richard M. McCool Jr.

The company is on track to launch LPD 30 Harrisburg later this year and has adjusted other milestones based on workforce availability and facility utilization. At Newport News, they delivered SSN 796 New Jersey and are making progress towards remaining milestones. A minor disruption to the SSN 798 construction team has been resolved, but delivery has been shifted from late 2024 to early 2025. The company is reaffirming its shipbuilding margin outlook for the year and expects significant contract awards by the end of the year. There is bipartisan support for their programs in the fiscal year 2025 defense appropriations and authorization bills, with additional funding for CVN 82, Virginia class, Amphibious ships, LPD Flight II, and DDG-51 Flight III included. The House appropriations bill also includes a $4 billion investment into the submarine industrial base.

In the fourth paragraph, the speaker discusses the current state of Senate appropriations and labor trends. They mention positive talent acquisition numbers and their confidence in meeting their full year plan. They then turn the call over to Tom for financial remarks. The second quarter saw record revenues for HII, with strong growth in Mission Technologies and at Ingalls and Newport News shipbuilding. Operating income and net earnings also saw significant increases compared to the same period last year. Backlog increased slightly to $48.5 billion.

In the second quarter, Ingalls revenues increased by 7.2%, driven by higher volumes in amphibious assault ships and surface combatants. However, operating income and margin decreased due to lower risk retirement on surface combatants. At Newport News, revenues increased by 1.7%, with operating income and margin also increasing. The increase was primarily driven by favorable contract adjustments and incentives on the RCOH program. Shipbuilding operating margin for the quarter was 7.4%, exceeding previous guidance. Mission Technologies saw a significant increase in revenues, up 18.6%, due to higher volumes in C5ISR, cyber electronic warfare, and space. However, a portion of this growth may not recur consistently. The company has raised its revenue guidance for Mission Technologies by $50 million for the year.

In the second quarter, Mission Technologies saw an increase in operating income and margin due to higher volumes and stronger performance in fleet sustainment. The company also recorded a loss related to the sale of a joint venture interest, which helped with the year-over-year comparison. Cash used in operations was $9 million, and net capital expenditures were $90 million. Free cash flow was negative $99 million, and cash contributions to pension and other postretirement benefit plans were $14 million. The company also paid dividends of $1.30 per share and repurchased approximately 250,000 shares. For the third quarter, the company expects shipbuilding revenue of $2.2 billion and shipbuilding margin of 7.8%, with margin increasing in the fourth quarter. Mission Technologies is expected to have revenues of $650 million and an operating margin of 2.5%. The company reaffirms its share building revenue and margin expectations for the year and raises its Mission Technologies revenue guidance range.

The company is updating its interest expense expectation and reiterating its free cash flow outlook for 2024. They expect free cash flow to be weighted towards the end of the year. The company had a strong quarter in terms of revenue growth and meeting shipbuilding expectations. The Mission Technologies portfolio is also performing well. The company is pleased to raise its Mission Technologies revenue guidance and reaffirm its shipbuilding financial outlook for the year. The company is also achieving its hiring goals in both shipyards.

In this paragraph, the speaker discusses the progress made in ensuring that people can execute the work, including improvements in attendance and overtime, successful outsourcing programs, and the application of industrial-based funding. They also mention ongoing efforts to address attrition and labor issues, including creating a manufacturing footprint in new areas to attract labor. The speaker acknowledges that some milestone slippages, such as on the LHA and DDG 129, are due to workforce limitations but reassures that these are factored into their financials and guidance.

During a conference call, Scott Mikus asked Tom and Chris about the company's guidance to generate $1 billion in free cash flow in the fourth quarter. Chris mentioned that there is a lot of timing involved in achieving this goal, such as meeting milestones and contract incentives. Tom added that the first half of the year has seen a use of cash, but they are on track with their guidance and the back end of the year is more heavily loaded with cash generation.

The company is experiencing a decrease in cash and an increase in capital expenditures in 2024 compared to 2023. This is in line with their overall plan and is due to some projects being delayed. They expect to see an improvement in working capital by the end of the year and are on track to meet their goal of $600 million to $700 million in free cash flow for the year.

The company's net working capital level for the next few years is expected to be $3.6 billion, with increases in the second half of the year due to progressing milestones and new contract awards. These new contracts are expected to improve both margin and cash flow. The company plans to put 21 boats under contract in the next 6-12 months with current pricing reflecting the current economic environment. Finally, the company's Ingalls margin has dipped for the first time in a couple of years.

The speaker is addressing concerns about the lower risk retirement on service companies mentioned in the release. They clarify that there may be a comparison issue from the previous year and that the delay in the LPD 29 delivery may have affected the quarter. They also mention supply chain issues on the Virginia and carrier programs, but state that their estimates and schedules have not changed significantly.

Chris Kastner, speaking to David Strauss, gives an update on the progress of Block IV, Block V, and negotiations for Block VI on the Virginia class boats. He mentions that Block IV is on track for delivery in the beginning of next year and Block V is making progress, with one more module left to deliver to General Dynamics. They are also in discussions with the government for the negotiation of Block VI and expect it to be a fair deal, taking into account the current economic environment. The majority of their revenue comes from Block V, with Block IV being 95% completed and Block V in the mid-20% range.

During a conference call, David Strauss asks about working capital and its projected decrease. Tom Stiehle responds that the company expects a decrease in working capital due to capital incentives, but does not want to provide specific targets for free cash flow in 2025. Gautam Khanna asks about any potential impacts on Q4 cash flow, to which Chris Kastner responds that there may be a slight increase but the company is aiming for zero in Q3.

The company expects a decrease of 50 to 100 units in the coming months depending on various factors such as improved trade working capital, sales progress, and cost management. The company has identified major milestones that need to be met, and incentives and new awards are expected to contribute to growth in the second half of the year. The company remains open to potential acquisitions but will prioritize maintaining investment grade status, investing in shipyards, paying dividends, and returning excess cash to shareholders. Jason Gursky from Citi is next in line to ask a question.

Jason Gursky asks Chris Kastner about the growth rate and execution plans for Mission Technologies. Kastner responds that they are comfortable with the current 5% growth rate, but it could potentially be higher due to their strong backlog and pipeline. He also mentions the successful deployment of a Virginia-class submarine with autonomous launch and recovery, demonstrating the value of man and autonomous teaming. However, Kastner cautions against getting too ahead of themselves.

The speaker, Chris Kastner, is discussing the development of Mission Technologies and their conservative approach. In response to a question about labor productivity in the shipyards, Kastner acknowledges that productivity is not at pre-pandemic levels due to the lack of experience in the workforce. However, he expects it to improve through investments and stabilization. The next question is asked by Seth Seifman from JPMorgan.

George Shapiro asked about the free cash flow needs for the fourth quarter and mentioned the estimated amount of $973 billion to $1.73 billion.

The speaker is responding to a question about the company's cash flow in the last five years. He explains that the current year's cash flow is higher due to a backloaded schedule and a draw in schedules from pre-COVID times. He also mentions that the company has good visibility into their portfolio and has increased their target for the next five years. The speaker notes that there is some feedback and that there is more CapEx driving the increase in cash flow.

In the last two years, sales have been 26% and 24% respectively, and are expected to increase in the back half of the year due to the previous headquarters and capital incentives. The company plans to liquidate costs and drive working capital in order to reach their 3% growth target, but they have conservatively guided for the fourth quarter. The second quarter sales in Mission Technologies exceeded expectations due to materials, but the third quarter may see a decrease in material costs.

The company had some sales in Q2 that were not recurring and were not included in their guidance. They expect strong performance in C5ISR and CEWS to continue, but have conservatively guided for the rest of the year. They have a clear sight on expected revenues for the last 2 quarters and potential sales from awards. They feel confident about the Alion acquisition and the portfolio of contracts, but still have a lot of work to do.

The company is expecting a minor impact on revenue due to some awards. They do not want to provide too much guidance on this. The recent uptick in CapEx is due to investments with the Navy, and the company expects a return on these investments. The scope and reasons behind the recent contract with Deloitte are not disclosed.

The speaker, Chris Kastner, thanks everyone for joining the call and extends his gratitude to the HII team. He also mentions that they were not involved in a specific contracting process and looks forward to speaking on the next earnings call. The operator then concludes the call.

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