The paragraph details the opening of the First Quarter 2025 HII Earnings Conference Call, hosted by the operator, with participants initially in a listen-only mode. Christie Thomas, Vice President of Investor Relations, introduces the call and notes that forward-looking statements involve risks, with additional information available in press releases and SEC filings. Non-GAAP financial measures are also discussed, and Chris Kastner, President and CEO, starts his update on the company's 2025 initiatives, highlighting progress in improving shipbuilding throughput by 20% year-over-year, reducing costs, and securing new contracts.

Ingalls is on schedule with production milestones, while Newport News is slightly behind due to unusual weather and delayed equipment for CVN 80. Once the equipment arrives, progress should accelerate. Outsourcing efforts are being increased to meet throughput goals, and a South Carolina facility has completed its first carrier unit for Newport News. Cost reduction plans aim to save $250 million annually by the end of the year. The company has an agreement for the Block V FY 2024 II Built contract and is focusing on future contracts. Their 2025 strategy aligns with the Trump administration's defense priorities, with efforts to modernize defense acquisitions, spur innovation, and strengthen the industrial base, working closely with the Rapid Capabilities Office and using other transaction authorities.

In April, two Lionfish undersea vehicles were delivered to the U.S. Navy under a program that could expand to 200 vehicles, developed with the U.S. Navy and Defense Innovation Unit to integrate commercial technologies into defense programs. This quarter, the Mission Technologies division was chosen to create a high-energy laser counter-drone system for the U.S. Army. The company also signed an MOU with HD Hyundai Heavy Industries to explore collaboration in defense and commercial shipbuilding, emphasizing international partnerships. First quarter results showed $2.7 billion in revenue, $3.79 earnings per share, and a $48 billion backlog. Key highlights include shipbuilding achievements at Ingalls Shipbuilding and Newport News, and a significant test on the Virginia-class program.

The paragraph discusses several achievements and activities of a shipbuilding company. At their Newport News Charleston operations, they retained 99% of the workforce and celebrated the graduation of 115 apprentices. In Mission Technologies, they delivered 700 Remus Uncrewed Underwater Vehicles to 30 countries and secured various contracts, including those for expanding training support for the U.S. Navy and Coalition Forces. In Washington, they expressed satisfaction with defense funding that supports shipbuilding programs and targets aiming for more than $50 billion in awards by 2026. They also noted that tariffs would not significantly impact them due to their domestic material sourcing and long-term purchase agreements.

The article discusses the company's progress on operational initiatives, acknowledging significant work ahead to continue delivering customer value and shareholder returns. The outlook remains unchanged with expectations of $15 billion in revenue by 2030, and normalized margins and cash flow. Tom Stiehle presents the financial performance details, starting with a 2.5% decrease in first-quarter revenues to $2.7 billion, attributed to declines in Newport News and Ingalls Shipbuilding, and Mission Technologies. Specific decreases in revenues were noted in amphibious assault ships, aircraft carriers, naval nuclear support services, and C5ISR, though higher volumes in the Columbia-class submarine program partly offset these declines. Despite decreased revenues, the results exceeded guidance.

In the first quarter of 2025, the segment operating income rose slightly to $171 million, driven by strong performance in certain technology sectors but offset by lower results in other areas. Newport News saw a segment income increase of $3 million despite unfavorable adjustments in certain programs, which were balanced by contract incentives. Overall consolidated operating income increased by $7 million to $161 million, resulting in a 5.9% operating margin. Net earnings decreased to $149 million, and diluted earnings per share dropped to $3.79. Contractual commitments rose by $2.1 billion, boosting the backlog to $48 billion. Cash flow from operations was negative, with $395 million used, resulting in a negative free cash flow of $462 million. No shares were repurchased, but $53 million was paid out in dividends.

The paragraph discusses the company's financial and operational outlook, beginning with a report on liquidity and cash balance, which stood at $167 million with total liquidity of approximately $1.5 billion at the end of the quarter. The company is repaying a $500 million note and will use its revolving credit facility and commercial paper program to support short-term liquidity needs. Their capital allocation remains focused on maintaining an investment-grade credit rating, investing strategically in shipyards, growing dividends, and repurchasing shares. The company is reaffirming its 2025 guidance, expecting growth and profitability through operational initiatives. For the second quarter, Shipbuilding sales are projected at $2.2 billion with margins at the lower end of guidance, while Mission Technologies sales are expected to remain flat with margins between 3% and 3.5%. Free cash flow is anticipated to be $200 million to $300 million. The company's medium to long-term outlook is positive, emphasizing strong demand for its products and government support for shipbuilding. The paragraph ends with a transition to a Q&A session.

The paragraph discusses a Q&A session where Doug Harned from Bernstein asks Chris Kastner about the recent financial boosts for shipbuilding, particularly in relation to the Virginia-class submarines and the needed infrastructure improvements. Harned is concerned about how additional funds can be effectively used to improve production processes. Kastner responds by highlighting several supportive factors, including the FY 2024 boat contract, executive orders, and reconciliation efforts, all of which provide strong support for shipbuilding. He emphasizes that the Navy and shipbuilders have collaborated over the past few years to identify necessary investments to enhance production capacity, and the FY 2024 contract includes targeted investments for wage and workforce development to increase submarine construction rates.

The paragraph discusses the positive developments in the shipbuilding industry, highlighting the collaborative effort across the industry to enhance the industrial base through infrastructure and workforce development. Despite the challenges, investments are being made, such as the FY 2024 tug-boat contract, to accelerate the rate of submarine production, specifically aiming for two Virginia-class submarines per year. Chris Kastner expresses confidence in the strategic investments and outlines the ongoing efforts, including negotiations for Columbia-class submarine contracts, to achieve the desired production rates. Doug Harned and David Strauss from Barclays are also mentioned, with Strauss opening his line for questions.

In the paragraph, David Strauss inquires about a new contract related to the Virginia-class, which Chris Kastner and Tom Stiehle clarify as a hybrid cost-type contract. This contract balances affordability and profitability for both the Navy and their company, taking into account constraints on cost. Tom Stiehle also provides insights into shipbuilding margins, noting that Newport News performed better than expected, while Ingalls experienced a step back. Despite this variance, overall margins landed 90 basis points above their 5.5% guidance for the quarter. Stiehle mentions that no cumulative adjustments were made across the company for this period, with 80 adjustments up and 80 down resulting in a net zero.

The paragraph discusses the performance and challenges faced by various programs within a corporation. It highlights some pressure on sales and adjustments being made, particularly with respect to the Newport News operations, which reported a 6.1% margin. Issues such as parts availability affecting schedules for the CVN 80 program and workforce and production line ramp-up challenges in the VCS program are noted. Incentives have been introduced to aid these challenges, although timing variability of these across contracts causes some frustration. Despite these issues, the company is comfortable with its guidance, aided by strong performances in other areas like the CEW and uncrewed business units. The guidance for Q2 remains conservative as they focus on cost reductions, throughput, and contract awards.

The paragraph involves a discussion between Scott Mikus, an analyst from Melius Research, and Chris Kastner, likely an executive, about shipbuilding contracts. Scott asks why a recent two-boat Virginia contract was cost-plus and whether upcoming orders might follow this structure due to workforce issues, including labor negotiations and the need for workforce development funding. Chris responds that while the focus is on distributing wage support quickly to improve workforce retention and productivity, this doesn’t necessarily dictate the type of contract they will use. Decisions on contract structures will be based on the specific situation during negotiations. The conversation emphasizes flexibility and context when deciding on contract types while moving forward with projects like Block VI and Columbia Build II.

The paragraph features a discussion between industry professionals regarding shipbuilding priorities and challenges. It highlights a hybrid contract approach for boat construction and discusses the need for equipment, specifically radars, for the Golden Dome and Navy shipbuilding. However, there have been no discussions with suppliers on this issue yet. Chris Kastner mentions progress on the DDG 51 program, noting recent milestones. Scott Mikus appreciates the response, and the operator transitions to Pete Skibitski, who asks about the impact of a $50 billion backlog and upcoming new awards on a 4% shipbuilding revenue growth target. He questions whether the growth target includes potential $150 billion defense additions, emphasizing labor issues as a possible confounding factor.

In the paragraph, Tom Stiehle discusses the $50 billion in new awards, including contracts for the FY '24 two-boat deal, Block VI, the Columbia second build, and the ASI bundle at Ingalls. He notes the potential for medium-term growth due to various factors like reconciliation, executive orders, and investments in the industrial base and shipyards, although he refrains from providing specific guidance. Pete Skibitski questions the recent decline in Ingalls' margins, which were previously in double digits. Stiehle explains that while they aren't facing negative adjustments, the production environment remains neutral, with challenges in hiring and retention. He expresses confidence in the leadership and emphasizes the need to improve production flow post-COVID to restore positive performance.

The paragraph is a discussion involving Chris Kastner, who highlights workforce changes and strategies at the shipyards. They hired 1,000 craftsmen and women in the first quarter, including 500 employees from W International, in an effort to increase the proportion of experienced personnel. Although the workforce totals about 44,000, net hiring seems relatively stable. Attrition rates are decreasing, though they haven't yet reached pre-COVID levels. The focus is on improving cost efficiency, maintaining steady parts supply, and leveraging the shipyard's legacy of performance to address existing challenges. Quarterly updates will be provided to track progress.

The paragraph discusses the company's recent hiring of 1,000 employees, which is slightly below their target but aligns with their strategy as attrition rates have improved in both shipyards. Myles Walton inquires about the 35% increase in outsourcing. Chris Kastner responds positively, noting they have improved the process by learning from past experiences at Ingalls, and quality and schedule adherence are satisfactory. He emphasizes the need to maintain high quality to avoid rework. Walton also asks about the SAS program's benefits, and Kastner explains it supports the entire nuclear industrial base, including aircraft carriers. Finally, Seth Seifman from JPMorgan questions the financial impact of a newly announced contract.

The paragraph discusses the financial guidance for Q2 and the year, highlighting the inclusion of the Block V Build II contract and related incentives. Chris Kastner and Tom Stiehle explain that these incentives and contract execution were anticipated and are factored into the current cash flow guidance of $200 million to $300 million for Q2 and $300 million to $500 million for the year, with no changes expected. They also confirm that the contract's impacts have been included in their financial projections all along. Towards the end, there's a brief mention of an announcement involving Hyundai during the quarter.

The paragraph discusses the early stages of potential international partnerships in shipbuilding being considered in Washington. Chris Kastner highlights the strategic and broad nature of these discussions, which aim to explore collaborations in commercial shipbuilding and leverage the economic benefits of a recent executive order. The goal is to expand the U.S. shipbuilding base by adopting best practices in both commercial and military shipbuilding through learning from international partners. While the direction of these partnerships is still uncertain, the initiative seeks to capitalize on favorable conditions in the shipbuilding industry. Jason Gursky from Citigroup then transitions the conversation back to previously discussed themes in their call.

The paragraph involves a discussion between Jason Gursky and Chris Kastner regarding the timeline for transitioning from pre-COVID to post-COVID chips, with a focus on the expected completion by 2027. Kastner mentions a minor delay related to equipment for CVN-80 but states that the project remains on schedule. Gursky then asks about the impact of recent reforms and executive orders on shipbuilding investment, including any associated conditions, and whether these influence cash flow. He also inquires about the relevance of Other Transaction Authorities (OTAs) and potential acquisition reform of FAR and DFARS, particularly in relation to their impact on the Mission Systems business compared to shipbuilding.

In the paragraph, Chris Kastner discusses the potential long-term impacts on the Mission Systems business, focusing on risks, opportunities, and margins. He mentions that while it is too early to determine the full effects, the reform, executive orders, and cash flow profile require significant input and recommendations. Over the next 30 to 90 days, efforts will focus on understanding the economic and investment implications without expecting a cash flow drain. Kastner highlights opportunities within Other Transaction Agreements (OTAs) that accelerate processes and provide potential upsides for Mission Technologies, citing success with small uncrewed vehicles and high-energy laser technology for the Army. He expresses confidence in Mission Technologies' ability to leverage commercial technologies for the Department of Defense, reiterating plans to focus on these opportunities. The paragraph ends with Jason Gursky thanking Chris Kastner, and the operator introducing Noah Poponak from Goldman Sachs.

Noah Poponak inquired about the exclusion of SAS language from the final Maritime executive order and its potential future implementation. Chris Kastner responded that while the draft executive order initially included SAS, it was not in the final version due to government review processes. He emphasized that although the SAS initiative, which spurred innovative investments in shipyard production, may not have a concrete future, the necessary investments identified by SAS are being incorporated into current and future contracts like Block V, Block VI, and Columbia Bill 2 to achieve the desired submarine production rate.

In the paragraph, Chris Kastner explains that the improvement in attrition is largely due to targeted hiring of more experienced labor, rather than broad wage increases, as labor arrangements have restricted significant wage adjustments. Noah Poponak inquires about the sequential margin decline in Shipbuilding and MT during the second quarter. Tom Stiehle responds that they are providing a conservative guide due to some risks and variability, noting progress on cost reductions and initiatives, but still cautiously guiding at the lower end of their range. He remains confident with the current guidance and mentions they will adjust as needed in future quarters. The conversation then shifts to Ron Epstein from Bank of America, who begins to address previous questions.

The paragraph discusses the differences between commercial and defense ship manufacturing processes, emphasizing the need to update military shipyards to improve efficiency and throughput. Chris Kastner highlights ongoing efforts to increase submarine production, mentioning targeted investments and AI pilots aimed at streamlining operations rather than full automation. While some automation can be applied at the beginning of the process, the main focus is on improving efficiency and removing roadblocks. Additionally, there is mention of demand for unmanned or autonomous products, though the response about this topic is not detailed in the paragraph.

The paragraph discusses the growing demand and positive developments in the uncrewed underwater vehicle space, with a significant backlog and anticipated ramp-up in production. It highlights the increasing interest both domestically and internationally for these products and their derivatives. Chris Kastner thanks participants for their interest and participation in the call and looks forward to future updates. The call concludes with an invitation to disconnect.

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