The paragraph introduces the Huntington Ingalls Industries, Inc. Fourth Quarter 2024 Conference Call. It notes that the call will discuss forward-looking statements that involve risks and uncertainties, and these statements reflect the company's judgment at that time. The paragraph mentions the presence of non-GAAP financial measures and provides a source for additional information on these measures. Chris Kastner, the President and CEO, speaks about the company's dedication to its mission, achieving critical milestones, and commitment to the Navy and other customers. He also mentions plans to secure over $50 billion in contract awards in the next 24 months, considering current performance and economic conditions.

The paragraph outlines the company's improved financial outlook and operational execution, with a focus on post-COVID contract fulfillment leading to less financial strain. By 2027, most pre-COVID contracts will be completed, paving the way for growth in business operations. The company anticipates reaching $15 billion in annual revenue by 2030 and improving profit margins and cash flow. In 2024, the company generated $11.5 billion in sales, with earnings per share of $13.96, and secured $12 billion in new awards, boosting the backlog to $49 billion, of which $27 billion is funded. The Mission Technologies division reported significant achievements, including a record $6.7 billion contract and a $3 billion task order, reflecting its alignment with national security strategies and contributing to revenue growth.

The paragraph details multiple defense contracts and projects undertaken by Mission Technologies and its associated shipbuilding divisions in the U.S. and Australia. It highlights a five-year contract with Australia's Department of Defense and a $9.6 billion deal for multiple ship constructions to secure a backlog into the next decade. Achievements in 2024 include deliveries of ships like the USS Richard M. McCool Junior, work on various DDG and SSN class vessels, and progress on aircraft carriers, including CVN 74 and CVN 79. Looking ahead to 2025, the company plans to launch and complete trials for additional ships, with a focus on delivering CVN 79 and enhancing combat capabilities for future readiness.

By 2026, Huntington Ingalls Industries expects significant progress in its shipbuilding operations, delivering key vessels like DDG 128 Ted Stevens and LHA 8 Bougainville, while tackling lingering COVID-related challenges in labor and supply chains. Despite exceeding hiring goals, high attrition rates persist. Collaborating with the Navy, the company plans to stabilize the workforce by increasing wages and attracting skilled shipbuilders. They have acquired a metal fabricator in Charleston, boosting their workforce by 500, with plans to further expand. Outsourcing will increase by 30% in 2025 to fill skill gaps, aiming for a 20% improvement in operations. Moreover, they target a $250 million annual cost reduction through measures like reorganizing the Mission Technologies segment and upgrading payroll systems.

The paragraph outlines the company's plans and expectations for 2025, focusing on cost efficiency, contract negotiations, and financial performance. They plan to optimize cost structures, reduce overhead, and negotiate new contracts that align with the current economic conditions. The company is negotiating the FY24 Block 5 submarine contract and is confident an agreement will be reached. For 2025, they project shipbuilding revenues of $8.9 to $9.1 billion with margins of 5.5% to 6.5%, and Mission Technologies revenues of $2.9 to $3.1 billion with margins of 4% to 4.5%. Their free cash flow forecast is $300 to $500 million, contingent on achieving throughput, cost reduction objectives, and resolving specific contract agreements. They are pleased with the FY25 NDAA, which supports their shipbuilding programs.

The paragraph discusses the NDAA's authorization of funding for various naval vessels and programs, highlighting the refueling of CVN 75 and future acquisition plans for CVN 82. It mentions the strong demand for products and services from the US Navy, with expected deliveries and revenue growth, aiming for $15 billion annually by the decade's end with better operating margins. It then transitions to Tom Stiehle's review of financial results, noting a 5% decrease in fourth-quarter revenues to $3 billion compared to the previous year, attributed to lower revenue across all segments.

In the fourth quarter of 2024, Ingalls and Newport News both experienced declines in revenue and operating income compared to the same period in 2023. Ingalls' revenues fell by 8% due to reduced volumes on amphibious assault ships, while Newport News saw a 4.6% decline, largely from lower RCOH volumes and unfavorable adjustments in certain programs. Mission Technologies also reported a 4.3% decrease in revenues, primarily due to lower C5ISR volumes. Overall, segment operating income dropped significantly, with two nonrecurring items from 2023 making year-over-year comparisons difficult: a court judgment sale at Ingalls and an insurance claim settlement at Mission Technology. Operating margins and incomes were down across the board, with specific pressures at Ingalls and Newport News, although there were some offsets from contract incentives. Shipbuilding margin for the quarter was 3.6%.

In the fourth quarter, Mission Technologies reported a decrease in operating income and margin, largely due to a favorable insurance claim settlement in 2023. Net earnings and diluted earnings per share also declined significantly compared to the previous year. For 2024, consolidated revenues increased slightly by 1% to $11.5 billion, driven by higher volumes at Mission Technologies despite lower volumes at Newport News Shipbuilding. Ingalls' revenues grew marginally, while Newport News saw a revenue decrease due to unfavorable adjustments and lower volumes in some areas. Mission Technologies experienced significant revenue growth of 8.8%, attributed to increased volumes in cyber, electronic warfare, and space sectors. Segment operating income and margin for 2024 also declined, with Ingalls seeing a notable decrease due to the prior year's court judgment sale and lower performance in certain programs.

The paragraph discusses the financial performance of Newport News and Mission Technologies in 2024 compared to 2023. Newport News saw a decrease in operating income and margins due to lower performance in certain ship classes, partially offset by contract incentives. The shipbuilding margin was within guidance, but net cumulative adjustments were negative. Mission Technologies, on the other hand, improved its operating income and margins due to better performance in various contracts and higher equity income, despite a difficult comparison with a favorable insurance claim in 2023. Amortization expenses for Mission Technologies decreased, and its EBITDA margin was 7.9%. The company's overall net earnings and diluted earnings per share declined from 2023, while free cash flow remained consistent with guidance. The company invested heavily in capital expenditures to enhance shipyard throughput.

The paragraph discusses the company's financial activities and outlook. In 2024, the company paid $206 million in dividends, ended with $831 million in cash, and had liquidity of $2.5 billion. It contributed $47 million to pension and postretirement plans, with a slightly improved pension outlook for 2025 due to increased discount rates, despite lower-than-expected asset returns of 7.7% in 2024. The company reaffirms long-term growth targets, aiming for $15 billion in annual revenue by the decade's end, driven by strong demand and backlog. For 2025, free cash flow is expected between $300 million and $500 million, with ongoing impacts from pre-COVID contracts, high capital expenditures, and cash taxes affecting cash generation. Capital expenditures are forecasted to be 4% of sales, with cash taxes around $220 million. For Q1 2025, the company anticipates $2.1 billion in shipment revenues, $680 million in Mission Technologies revenues, a 5.5% shipbuilding margin, and a 3% Mission Technologies operating margin.

The company anticipates negative free cash flow in the first quarter, between $300 million and $500 million, due to increased working capital before achieving program milestones and contract awards. Despite this, they plan to continue investing in their shipyards and maintain their approach to dividends and returning excess cash to shareholders. Their focus is on resolving challenged contracts and normalizing free cash flow. They aim to stabilize shipbuilding performance by 2025, with a significant portion of revenue in 2024 and 2025 still coming from pre-COVID contracts. By 2027, they expect most revenue to come from contracts that reflect current conditions, leading to margin improvements. The call is then handed over to Christie for the Q&A session.

In the paragraph, Douglas Harned raises a question about the company's current margin gap compared to a past projected level of 9% to 10%, asking how much of the difference is due to inflation versus other operational challenges. Chris Kastner responds, explaining that while they have some protections against inflation for specific contracts, the impact of inflation is complex and widespread. It affects various aspects of the business, including the efficiency of their supply chain and workforce performance, and is not easily calculated into a single figure. He apologizes for not providing a precise answer, emphasizing the broad nature of inflation's impact on their cost structure.

In the paragraph, Douglas Harned questions whether, given the Pentagon's lack of support for equitable price adjustments in various programs and the challenging funding environment, shipbuilders like Chris Kastner can still negotiate contracts with traditional profit margins of 9% to 10%. Chris Kastner is optimistic and believes achieving a 9% margin is possible moving forward. He mentions successfully negotiating contracts involving the amp ship bundle and the FY24 Block 5 two-boat contract, with inflation protection included. Kastner cites Congress's additional $5.7 billion funding for FY24 boats and an acknowledgment of the need to rebuild the industrial base and ensure fair margins for shipbuilders as support for his belief. He is confident because he has previously achieved similar outcomes at Ingalls post-Katrina.

In the conversation, Chris Kastner discusses the company's guidance and contract expectations for the year, emphasizing the importance of realistic and achievable cost estimates and schedules. They plan for more predictability by assuming specific contract awards, including two FY24 boats and the negotiation of Block three contracts and the Columbia Bill two contract. Kastner notes that while additional investments in shipbuilding are beneficial, they are proceeding cautiously and in steps.

Chris Kastner expresses confidence in shipbuilding progress for FY24, citing assurances from the new administration that shipbuilding is a priority due to current threats. He mentions the plan to transition into Block six negotiations after completing Block five. In response to Scott Mikus' question, Kastner reflects on past experiences post-Katrina when Northrop faced challenges in shipbuilding before spinning off Huntington Ingalls Industries. He notes the significance of transparency and resolute negotiation for achieving favorable outcomes, as experienced in the late 2000s and early 2010s. He believes these lessons are still applicable today and indicates confidence in flipping unfavorable estimates at completion (EACs) to favorable ones.

The paragraph discusses the challenges and strategies related to managing contracts and budgets in the face of COVID-19 and inflation impacts. Chris and Tom emphasize the importance of accurately estimating and negotiating contracts to avoid delays and cost overruns. They highlight the significance of addressing pre-COVID contracts and ensuring balanced agreements with customers. Despite the challenges posed by inflation, labor, and material availability, they are focused on executing contracts effectively, particularly new awards, including destroyers and submarines. Tom expresses confidence in their existing processes, tools, and facilities to maintain schedules and achieve targets, while acknowledging the need for increased throughput.

The paragraph discusses efforts to enhance the workforce and strengthen the supply chain to improve cost and schedule consistency at Ingalls. It acknowledges challenges, particularly with production delays in the VCS and destroyer programs, and outlines strategies to address these by investing in critical areas. While no specific profitability timelines are given, there's optimism about transitioning from pre-COVID contracts to new ones, leading to potential profitability improvements. Scott Mikus inquires about shipbuilding operating income guidance, and Tom Stiehle explains their quarterly EAC process aligns with current performance, incorporating risks and opportunities to determine future expectations.

The paragraph features a discussion between several individuals about shipbuilding margins and potential contract changes. Chris Kastner addresses a question about the potential impact of a contract change on the CVN 79 ship, explaining that additional capabilities might warrant a contract adjustment, but it would be an equitable change without significant positive or negative margin impacts. He then defers to Tom Stiehle on the topic of margin timing, who indicates that while specific margin guidance isn't provided for the future, there is an expected shape and trajectory anticipated internally.

The paragraph discusses the company's financial performance and operational challenges. It notes that they missed expectations in Q3 last year due to issues like inexperienced labor and supply chain support. However, they have plans to improve these areas. Older contracts from before COVID have seen increased costs, limiting profitability, but new contracts are expected to benefit from current performance. By 2027, most contracts will be post-COVID, potentially increasing profitability, although no dramatic change is anticipated. Additionally, Chris Kastner briefly discusses plans to potentially expand shipyard capacity and mentions that hiring in 2025 will be similar to 2024.

The company has shifted its hiring strategy to focus more on experienced personnel, particularly in Newport News, where the hiring rate from regional development centers has increased significantly, thanks to increased funding. They aim to further increase this rate. At Ingalls, they prefer hiring 80% experienced employees. Regarding acquiring new shipyards, the company is not interested in expansion; instead, they prefer developing partnerships with outsource partners. However, they recently acquired W International as a strategic move because it promised immediate benefits and aligned with their management capabilities. They currently have no plans for further acquisitions unless a compelling opportunity arises. David Strauss then asks about future free cash flow and capital deployment, with an eye towards the years 2026-2027 as the pre-COVID projects finish.

The paragraph discusses the expected progression of free cash flow following recent capital expenditures and working capital investments. Tom Stiehle expects cash flow to return to normal levels within the next 12 to 18 months as they work through pre-COVID contracts. The company's capital deployment strategy remains unchanged, continuing with annual dividends and potentially returning excess free cash flow to shareholders. There is no current guidance on share buybacks for 2025. Chris Kastner adds that projecting free cash flow is challenging due to the incentive-laden nature of contracts and the irregular timing of large invoices.

In the paragraph, a discussion occurs during a financial call involving Chris Kastner, Tom Stiehle, and Scott Deuschle. The conversation centers on issues with the Virginia-class submarines, specifically concerning the negative Estimate at Completion (EACs), affecting both Block IV and V boats. The Block V boats were negotiated in 2019, and there is a focus on the pre-COVID ships. Additionally, there is a dialogue about a potential contract change for CVN 79, which might impact its delivery timeline due to significant combat system work requested by the Navy and integrating lessons from CVN 78's deployment performance. This contract change is being negotiated with the customer and may add new capabilities based on experiences with the first ship of its class.

The discussion centers around shipbuilding margin guidance for 2025, set between 5.5% and 6.5%. Myles Walton questions how much of this margin will be influenced by booking rates versus improvements in throughput and cost reductions. Chris Kastner explains that the guidance accounts for various factors, including new ships, cost reductions, and incentive assumptions. He mentions that the guidance is somewhat conservative due to previous quarters' negative adjustments. Walton suggests that the current 5.5% margin might reflect the present situation without the anticipated improvements. Kastner confirms that all these factors are considered in the guidance and provides updates quarterly.

In the paragraph, Chris Kastner and Tom Stiehle discuss working hard to finalize a contract and meeting quota goals. They mention managing opportunities and risks in their operational objectives and being hopeful about contract awards. Myles Walton asks about the decision to increase outsourcing by 30%, raising concerns about relinquishing control and quality. Kastner acknowledges that it's a significant decision but ensures that they are partnering with familiar collaborators and conducting pilot projects to assess their capabilities. He admits past challenges with outsourcing but emphasizes careful risk management to avoid repeating mistakes.

The paragraph features a discussion about strategic initiatives within Huntington Ingalls Industries, focusing on workforce development and recruitment. Tom Stiehle speaks about the acquisition of W International, emphasizing the integration of Newport News personnel and processes to enhance operational efficiency. He highlights the advantage of having a skilled workforce and the effective insourcing and outsourcing strategies in place, which aim to improve performance and achieve higher throughput. Chris Kastner addresses changes in hiring practices, which now target more experienced shipbuilders with the support of improved wages and workforce development. He also mentions the positive impact of the new administration's focus on shipbuilding and reduced regulations on cost and delivery schedules. Additionally, there is a brief interaction with Ron Epstein's representative, Jordan Lyonnais, inquiring about these initiatives.

In the paragraph, several individuals discuss the financial aspects of contracts related to seventeen submarines. Gautam Khanna from TD Cohen asks about a previous expectation of cash inflow from these contracts and tries to quantify it. Chris Kastner acknowledges some cash benefits but refrains from providing specific numbers due to ongoing negotiations and various factors affecting cash guidance. Tom Stiehle adds that the contracts were previously viewed as a way to meet financial targets, though details remain unspecified amid current discussions.

The paragraph discusses the current state of contracting for naval ships, highlighting differences in contracting approaches between the previous and current quarters. The industry sees an efficient method to quickly build and contract ships, but presently, there are uncertainties regarding cash flow and contract mechanisms due to the approach shifting to potentially dealing with only two ships in FY24 rather than all seventeen. There's an emphasis on balancing affordability and profitability while meeting customer expectations. Additionally, the conversation touches on the potential impact of a shift toward unmanned, lighter ships in line with an advanced station's recommendations, although discussions with the new administration have not yet occurred.

The paragraph describes the conclusion of a conference call where the operator notes that there are no further questions and hands the call back to Chris Kastner for closing remarks. Kastner thanks the participants for joining and expresses appreciation for their patience before the operator concludes the call, allowing participants to disconnect.

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