Welcome to our 44th Annual Aerospace/ Defense & Industrials Conference. My name is Gautam Khanna, Research Analyst at Cowen. Very pleased to have with us the CEO of Huntington Ingalls, Chris Kastner. Thanks, Gautam. Welcome. Thanks for coming. Thank you. We probably have to get a Safe Harbor out of the way. We do. Get that done. Normal, Safe Harbor rules apply, forward-looking statements, all that stuff. We're ready to roll. You can just jump into Q&A. Cool. Thank you. Well, you just reported the quarter, so- Yeah. There was a lot of information off the quarter. I did wanna just ask, at a high level, what is the biggest challenge you guys are facing right now? Yeah. Coming out of the pandemic, and the kind of the macroeconomic factors that result from that, biggest challenge has been labor, right? Had a pretty good year last year, hired around 5,000 people, and that's craftspeople, right? We hired more than that across- Right. ... the entire company. Ab out 5,000 people in the craft. We'll hire about the same amount this year. The biggest challenge there now is to retain them, get them trained up, get them, on the deckplate and executing. There's been some positive indicators relative to that. Attendance is a bit better. Overtime is a bit better. They're actually, surprising to note that we're having a hard time having people work overtime over the last year. That's improved. Wow. January was successful. It's only one month, so it's not really a trend I can rest my hat on, but it's a positive indicator for sure. Okay. Speaking of that, I was curious because when we look at the total headcount- Right. ... at the company, it looked like it declined, I think, 1,000- Right, right. -people. Right. Has churn been an issue? Yes. Attrition has definitely been an issue, across not only the craft, but our technical talent. You know, it's interesting, because shipbuilding is so regional. We've never really had issues with technical talent leaving the shipyards. But now with the work from home, and the demand that we saw last year for the engineering talent, we actually lost a few engineers in Newport News, that were working from home for tech companies. Mm. That never happened before. Yeah. Potentially with the tech layoffs, that will stop or abate a bit. Yeah. That's an interesting situation that we just never faced before. Yeah. It's interesting 'cause when we were, as Analysts, following the metrics on hiring every quarter- Mm-hmm. ... right, 3,600 people as of Q3. Right. 4,100 people, Q4. I'm curious, was the net that was the 5,000 targeted, was that a net number? No, that was just a hiring number. That's what. That was a hiring number. Okay. It's, you know, you can get into a lot of metrics around hiring with equivalent people and overtime and attendance, and it gets fairly complicated fairly quickly. We just like hiring is a pretty good metric, but we did experience attrition higher than what we expected last year. What are you guys doing on the front end? 'Cause I imagine it's a hard job, right? It is. I mean, it's very skilled, very, very tough, unique job- Yes. Yeah. ... to be a shipbuilder for sure. Yeah. We've actually repositioned the way we're doing our hiring. Okay. We have really world-class apprentice schools, both in Newport News and Ingalls. We find if people choose it as a career, they stay. We train them. We give them opportunities to become leaders in the organization. They stay in shipbuilding. The walk-in individual, really, there's a high chance of attrition now with walk-in individuals. We're really focused on the programs in the apprentice school, in our community colleges, where if people choose the career, they stay. We've repositioned it a bit. We're being a bit more successful. Okay. Just to be clear on the two shipyards, where is the hiring need the greatest? Is it at Newport? It's actually fairly even. Okay. Right? It's, it's fairly even across both shipyards. Has the attrition rate been materially different between the two yards or? A bit different, but they're both improving. Okay. Interesting. I'm just curious. At one point, I think it was in August, we met and, the thought was for every 1,000 person shortfall in hiring, it meant like $100 million of revenue down the road. Is that still about true? Yeah, I wouldn't necessarily use that metric. Okay. Revenue is not only labor and making progress, but also material. Right. Material staying on schedule. Okay. The best thing 3% long-term growth rate makes great sense for us right now. Right. Based upon our significant backlog and how we have the ships going through the manufacturing processes. I wouldn't necessarily use that- Okay. ... as a good metric to forecast revenue. Speaking of the 3%, shipbuilding growth rate. This year, 2023 might be slightly below that, it looks like, right? Yeah. That's what we forecast. Yes. It's correct. Does that mean that in 2024 we get a bit of a catch-up? I mean, I know it may be marginal, but is that do we average out over the next two years at around 3%? We haven't given guidance for 2024 revenue. Right. It's hard to really project the timing of that right now, but we think on a long-term basis, 3% is the right way to think about the business. Is there upside? Sure. If we can hire more, if they're productive, if we can enter ships into the production cycle sooner, make our schedules, there's potentially upside. But we think that's the right way to think about the business right now. Okay. You know, the other question we often get a lot of is on hiring and training. How long does it take for these folks that come in the door to actually be, you know... Yeah. -productive? It's sooner if they come through the established programs. Okay. You know, if you go to apprentice school, when you hit the deckplate, you're ready to go, right? Okay. You're really in a good place. If you walk in, it takes longer. I will say some interesting stuff we're doing in digital has really made the transition easier where the people coming to work now, the younger generation, they're used to digital tools. Yeah. The CVN 80 and CVN 81 are digital ships. Okay. The Columbia- class is a digital ship. The digital products that we're putting on the deckplate is really helping that time to talent, we call it. Okay. I mean, I'm just curious, what does it take? It like two years before you really- It's a rule of thumb is three to five years... Three to five years. -to have a first class shipbuilder. Incredible. Yeah. It's a very specialized, an impressive skill. I was gonna ask also on Mission Tech, just with respect to their labor needs. Sure. Sure. What are the kind of open billets? I don't know what the right word is. Yeah, I think they have maybe 300-500 openings that they're working on right now. That stays. They're, they're pretty current. These aren't really lagging sort of outstanding billets that stay in place for a long time. Right. They have normal, we think they're gonna grow it for, excuse me, 5% this year. They have normal attrition, as you'd expect in the industry. Not more, not less. It's very competitive out there. We will hire across that portfolio this year. Obviously those people are billable fairly immediately. Absolutely. It's 85% cost-plus work. We put them right to work. Okay, that's good. One of the things investors ask about with a number of industrial companies is wage inflation. Right. You guys have union contracts in place. We do. Could you talk a little bit about how does the new hiring environment affect the inflation you're seeing, if at all? In the shipyards obviously we have labor agreements, so we're able to put those into our projections relative to profitability and what it's gonna cost to build ships. That's labor. We are seeing some inflation in our technical talent. Okay. We're having to take that into consideration in our, in our EACs, and we do that on a, on a quarterly basis. We have inflation in Mission Technologies as well. The good news is it's cost-plus. Right. We can flow that through. That actually brings up a curious question. When do you guys have the wage increases? Is it every calendar year beginning? Yes. For your folks? In shipbuilding, it's essentially once a year. In Mission Technologies, you have to be more fluid. Okay. You have to potentially evaluate it on a more frequent basis. I'm just curious, have you ever thought about what is the tailwind at Mission Tech just from wage inflation being passed on to the customer? Is there, like, a way to quantify that? We haven't. Okay. We think about 5% growth rate this year is how we're thinking about the business. Which would include some wage inflation- Of course. ... passed on. Of course. Okay. No, it's interesting. To your point on hiring, like the ability to hire. Right. Do you guys have an established wage rate, right, for the entering? Absolutely. A progression as you become more proficient in your craft. Got it. That's established as part of our union rules. Okay. That's why it's not as big an issue. You're not necessarily paying spot rates. Correct. Right. Correct. Okay. Correct. That's good to hear. I was curious about that. Speaking of EACs. Yes. I wanted to make sure I understood this. These are... My favorite topic. I know, right. In Q3, we all knew the world had quite a bit of inflation, and in Q4, you guys had a negative [cum] catch up on a net basis. That didn't seem like it was related to inflation per se- Well- ... of materials and labor. I coined a term non-programmatic inflation. Yeah. Which is surprises we got in our... You know, we obviously forecast an inflation relative to general, overhead categories like medical expenses or insurance premiums. We forecast that. Right. Unfortunately, we were surprised by some upticks in Q4 that were beyond what we had forecast, which is unfortunate. That's kinda on us. I can't blame... I'm not gonna... The deckplate didn't do that. They weren't less or more efficient. Right. It's just we just missed our estimate relative to some inflationary elements that we saw in Q4. We had to update our projections. It hits all the ships in flow. Right. There was a negative [cum] correct there. We think we've got it right now. Okay. Then we've projected that into the future. Again, it was related to non-programmatic stuff. Just to be very granular, if possible, like, what are those items? Yeah. The two examples I gave are the two primary ones. It's just insurance. Cyber protection increased pretty significantly beyond what we would expect. Okay. Medical insurance premiums. M ore use, more than what we expected. You know, we're projecting these expenses all the time. Right. When you've got a four-year life cycle on a ship or a seven-year life cycle on a ship. Right. As things change, you have to incorporate that on a quarterly basis. Okay. That's what we had to do. It also begs the question. I remember in Q2 of 2022, I think it was Q2, there was an economic price benefit, if I recall. Well, we do it every quarter. Okay. We update, we update that every quarter. Every... it was a big number in Q2, if I recall, right? Yeah. Well, the indices change. Okay. Your estimates change as well. You have to take those all into consideration as you update your EACs. Is there anything that we should be mindful of seasonally that, you know, in Q2, we get the economic? A bigger- No, not really. ... the index, you know. Not really. Not really. It's, we update them every quarter. Okay. At the end of the year, you do get more fidelity around some of the non-programmatic stuff- Right. ... with your medical expenses, insurance, stuff like that. Yeah. There is some seasonality there, but not really. We evaluate them every quarter. Okay. Yeah. I was just curious. Yeah. 'Cause we always focus on the milestones at the shipyards. Right. Right. I never thought to think about these other things. I presume- Right. ... every Q3, you'll have more fidelity on the medical and insurance. We will. Right. We really don't want you focused on all those expenses. We need to get those right. Right. Milestones is the right way to think about the business. We need to stay on schedule with our ships. Speaking of that, one of the things that has been discussed ad nauseam is Virginia-class. Yes. I have to continue to discuss this. Right. Can you just talk a little bit about the evolution of HII's performance on the Virginia-class Block IVs and sort of how that's gone and where we are and why the Block V's are gonna be different? Yeah. Remember, Block IV, we're right in the middle of construction on the Block IV ships when COVID hit. Yeah. We took a significant charge in, I think, Q2 of 2020, related to that. The opportunity on Block IV is less than what you would expect, and we just need to get those ships, those boats delivered. We'll deliver one this year, one next year, and the one after that. It 's becoming less share- Yeah. ... of the total shipbuilding portfolio as we move forward. Sure. That being said, on Block V, we have opportunity on Block V if we can get everything right. If we can get the labor right, we can continue to make progress- Yeah. ... on those schedules. We can be consistent on those schedules and work the operating system. There's just more opportunity on Block V because they weren't directly as impacted as Block IV. What are the difference? You have three boats left. Right. From Block IV- Right. ... that you're working on right now. Right. They deliver- Right. ... each year. How many Block Vs now are in the yards, if any? Oh, geez. Is the combo? Well, all of them are in some phase. Some in manufacturing, some in module development, and then they'll move through the process. Okay. I think you mentioned right, on the last earnings call that the revenue split between Block V and Block IV is actually tilting towards Block V at this point. It is. It is. It's over 50% of the... It is. you know that we're very conservative- Yeah. ... on all our boats until we can retire the risk. Right. We're in the early manufacturing process on most of our Block V work, so we're gonna be conservative. Yeah. We need to retire that risk as we move through manufacturing, and we will when we do, but not until we do. Okay. No, I understand that. What are the differences between the Block IV and Block V ships? Just actually what's different? The configuration is essentially the same, except for the Virginia Payload Module, which was incorporated into Block V. Right? The vast majority of that work is done by Electric Boat. Yeah. Our statement of work hasn't changed very much. That's really the only difference. We know how to build these boats. We know how to build the bow and the stern, the sail, that's very repeatable for us between Block IV and Block V. Okay. That's why it's not going to be. It's just going to be very similar. Very similar. Right. It's really the same configuration in the bow and the stern. Got it. Okay. You know, there is a lot of talk in the industry about the Block IV boats being a little bit behind schedule. But your point is, I think, is that it's running according to what you've already accrued for. You took a big- Absolutely. ... charge in Q2 of 2020. Absolutely. They've been fairly stable. I said that on the earnings call. Right. The Block IV contracts have been fairly stable for at least the last six months at Newport News. I'm very comfortable that we'll get one delivered each of the next three years. Yeah. And be done with that and moving into Block V. At the outset, you mentioned overtime. Yes. You know, and I presume that means it's more costly to manufacture stuff when you're using overtime. Yes. How does that play into kind of the margin walk over the next couple years? We have assumptions on how much overtime we'll use, and we're fairly mindful of that, and you'll apply overtime when you can make progress. We use it to surge on weekends and late into the second and third shift in order to make progress and keep the schedules in place. It's important you keep the schedules in place. Overtime pays for that schedule. That calculus is done, and we apply it appropriately. Okay. Yeah. It's interesting. Again, somebody asked on the earnings call, and I thought it was a great question. Just as you move more Block Vs as a percentage of the Virginia-class revenue split, you should see a natural lift up in margins. At the same time, your point is, you're accruing very conservatively on the front end of the Block V boats. Right. Right. It's gonna be a gradual feathered-in type of thing. Yeah, I think you said it perfectly. Okay. That's right. We're conservative. We have to retire the risk. If we do, then we'll book up. Okay. Would you be willing to opine whether, you know, shipbuilding's a 9% business, theoretically. Yes. That's across two yards. Right. Is the Virginia-class program, like, does that fit into that rubric as kind of at that level, 9%? Is that a possibility? Well, it's in the mix, and, we don't give- Right. ... margin guidance by yard or by program. Right. It's absolutely in the portfolio that'll generate a 9% margin business a bsolutely. Okay. We should not think that, okay, we're accruing Block IV at some de minimis level of margin. We're accruing Block V at a substantially higher margin, and therefore, the minute the Block IVs start to get delivered, we get a big jump. You should absolutely not think that. Okay. I just wanna be very clear. Good thinking. No, that's fair. I just wanna make sure we're not like, you know- Correct. Okay. No, that's great. On non-programmatic inflation, how does that actually get passed on to contracts, if at all? It's an overhead. It's applied overhead that gets into the contract price and your cost and your invoices and they're paid. The cost share was what was reflected in the EAC that you guys have to eat. Right? Some of it's passed on, presumably. Yeah, yeah. It's depending on the contract type. Okay. If you're incentive type, you're gonna share it based on the share ratio. If it's firm-fixed-price, which we don't really have. Right. You're gonna eat it all if it's cost-plus. If it's incentive, you're gonna share it as well. Okay. Sure. Cool. I wanted to ask also, just quickly on the NSC program. Yeah. 'Cause that seems to be winding down over the next. Unfortunately, it seems to be winding down. We'll deliver the last, the 10th boat this year. The 11th boat will be, we haven't talked about when that delivery is, at Ingalls for the next couple of years, 12 to 24 months. Okay. Unfortunately, it is winding down. It's a very good program. I think the Coast Guard loves the boat. It's doing great missions, but I think they've repositioned to the smaller boat that they're working on the OPC. Okay. NSC 12, which was authorized, if you don't mind- It's authorized. We really haven't got a lot of traction. We'd love to build it. I'd love to build four more, five more. Right. It doesn't look likely. Okay. Are there any other opportunities for new boats, ships that you guys are bidding on? The frigate came and went. I'm just curious what the... I just think there's, I think there's interesting stuff going down on, down at Ingalls. It's a very competitive capable yard. The DDG 1000 work is very interesting and significant. The Prompt Strike work they're gonna do on those, on those 3 ships. You know, we will have potentially 2 of them down at Ingalls this year and maybe 3 at one time. Think about having 3 DDG 1000s down at Ingalls doing pretty significant work. That's a big deal. I don't think the LPD line is done. I think there's derivatives of LPDs that'll be built into the future, that Ingalls needs to be right in the middle of. There could potentially be an additional frigate manufacturer. Ingalls would build the heck out of that ship. There's only two that have ever built an Aegis ship, surface combatant. Yeah. That's BIW, also a great shipyard. Okay. At Ingalls. That has not been decided. It's something that we could do if the Navy asks us to participate in that. Yeah. We absolutely have the capacity to do it. As I said, we'd build the heck out of that ship. I don't actually know the answer. Was the HII frigate bid basically modeled after the NSC, or? It was. Okay. Yeah. you guys have- Right. ... a great position there. Right. What are you guys doing on the DDG 1000? Prompt Strike upgrade. Just the hardest, the construction. Okay. The, just the hull. The hull. Right. We don't do any of the technology around the Prompt Strike. Okay. We're modifying the ship, so it's able to house those, that equipment. How big is that? Significant. It's significant. Potentially between 1 million hours and 2 million hours a ship. Okay. Wow. You have two that are definitely coming or that you're working on now? Well, we're finishing 1,002- Okay. ... for BIW, right? That's just the finishing the combat system- Okay. ... for the initial delivery. Got it. We will potentially get all three of them back to do the Prompt Strike upgrade. Okay. Interesting. Okay. You know, I remember a couple years ago, you guys were doing some Los Angeles-class submarine repair work. Are you seeing any of that kind of ad hoc business coming through? You know? We'll still do maintenance overhauls for LA class and potentially Virginia-class at Newport News. Okay. The capacity that we have in Newport News is important for the Navy, and we need to keep that up and running. We will continue to have a kind of a recurring business- Okay. ... relative to maintenance and overhaul for Los Angeles-class and potentially Virginia-class submarines. Okay. That's not gonna be a headwind over the... I don't think so, no. Okay. No, I don't think so. There'll be enough to backfill. Yeah. I think it's pretty flat. Okay. No, that's interesting. You know, one of the things I was also trying to get a sense for is the cash flow. I know this is a... Tom actually gave a great explanation on the call of- I thought he gave a great, a great one as well. Yeah. It was very thorough. It was helpful to actually normalize- Right. ... the last couple of [audio distortion] years. They've been [audio distortion] years. I'm curious, you were the CFO at one point. I was, yeah. You were the COO at one point. Now you're CEO. Couldn't do that job, so they gave me this one. Yeah. Right. I'm just curious, you know, 200 basis points of working capital reduction. Could you walk through why that's... Okay, I would love to give that answer, but I'm gonna give a little different one for you. Okay. Please, go ahead. The previous CFO to me, Barb Niland, who you know- Oh, yeah. Sure. ... fabulous, CFO. Yeah. She used to call cash flow lumpy, right? Yep. Yeah. I'm gonna give the lumpy answer, but I'm gonna give it a little differently. Yeah. Just model net income. Right. If you model the top line that we're talking about, that we believe in, absolutely. Right. You model the bottom line we're talking about, and we think we're gonna get better from here, and we give you net pension. Yep. We give you capital. You know, depreciation and amortization of intangibles. You do all of that and you model down to net income, it's gonna be obvious that we're north of $700 million and on a run rate basis, north of $700 million. Is cash gonna be lumpy? Yes. I've got a lot of large projects that have large invoices. I can swing cash $150 million with three invoices that get paid on January 2nd or January 3rd. Got it. That means nothing to the value of the business. Right. We feel good or bad based on free cash. Right. My advice, I would hope you would take it- Yeah. ... and people modeling the companies, just get to net income. Right. We're a 1.0 cash conversion business when you model all those other things. That will give you the information. Mm-hmm. The cash will be obvious. That's how I answer that question. I appreciate that. To your point, everyone obsesses over the flows year-to-year as opposed to, like, here's the number, here's the net income that converts to cash. Because it does. We have- Right. ... almost the best paying customer in the world with good cash terms. Unfortunately, it's a little lumpy because we have so few invoices that could float over the end of the year or get accelerated. Right. For those who are maybe less familiar with this, why is that? It's hard to ship deliveries and milestones, right? That's the biggest. Well, some of it is, yes. Yeah. Some of it is just the progress payment that someone was out sick and, or they were going on vacation in January, and they wanted to get it paid early, right? That we get that sort of stuff happening. A good example is LPD 29 this year. Okay. Right. That's a delivery to the end of the year. Yeah. It's a significant cash pickup, potentially. Yeah. That's, you know, we're trying to figure out whether it's gonna be end of this year or beginning of next. It doesn't mean anything- Right. ... from a value of the corporation, but it impacts the free cash flow in the year. That's fair. I'm just curious, on some of these ship deliveries like the LPD 29- Yes. ... is there a lot of cash at the end that is hung up and, you know, that's a final payment or whatever? Is it trapped inventory? Is it stuff like that you're actually billing for? It is. It's what's been retained as you work through the construction cycle. Now, on a fixed-price incentive, there's more than on a cost-plus, obviously. Right. LPD 29, it's a large value ship. Yep. We perform historically very well on LPDs. It's a very good program. There's potentially a pickup at the end of the year. Got it. Okay. No, I totally appreciate the, quote, "lumpiness"- Right. ... associated with the deliveries. Right. Which begs the question, you know, are there any kind of Q4 weighted milestones? You mentioned LPD 29. Is that the only one that... That's really the one. That's really the one to think about. You know, I would also add, when you think about free cash for HII- Yeah. Historically, we focused on shipbuilding and, obviously, our historical financials have a free cash flow that are pretty much all shipbuilding. Yeah. We've got a Mission Technologies organization that's $2.5 billion- Right. ... that throws off $150 million-$200 million of free cash flow every year. If you just put that on top of, you're there. You're there, and that's not often talked about. Correct. But there's no capital investment, essentially, and you're spinning off $150 million-$200 million of free cash in Mission Technologies. We don't give guidance by unit or by division- Right. ... in relation to free cash flow or margin, but that's an important thing to think through. Yeah, actually, what do you think the rate of growth at Mission Tech will be over the next couple years? I'm pretty comfortable at the 5% growth rate that we're talking about. I think we're in the right markets. When you think about AI, ML, LVC, unmanned, cyber, electronic warfare, those markets are growing very quickly. Mm-hmm. We think we have a really good position. We have a high, a good backlog and a significant pipeline that we're attacking here, and we hope for a good year from a book-to-bill standpoint. I think 5% is a reasonable growth rate for that business. Okay. You know, a couple years ago, there was a lot of discussion over the FSA that was done by the prior administration and how it was gonna lead to unmanned and lighter ships- Right, right. ... et cetera, et cetera. Where are we on that? Has anything really manifested in your view? I think there is traction. And the traction's coming from all the exercises, the Navy and international navies are doing with unmanned vehicles demonstrating their performance. Some significant exercises last year where unmanned ships were in the fleet and demonstrating performance. There's a couple this year in the Pacific where unmanned's gonna be a critical component of the fleet architecture on executing missions. It's absolutely gaining some traction. I will say that unmanned, like air, will develop on a kind of a fragmented basis. Right. It's a low barrier to entry. There's a lot of players. Yeah. It's very competitive. We understood that going into it. That being said, Hydroid, which we acquired a few years ago, have built and delivered the most unmanned undersea vehicles really in the world. Okay. And 30% of their business is international, which is important to note. We've got a really good install base around the world that we can draw upon. It is gaining traction based on those exercises being successful. It'll become more and more part of the fleet architecture going forward. Okay. Hydroid is one of the angles that HII has in this- Yes. ... ecosystem. Partnerships? Anything else? What other kind of edge does HII bring to that... To unmanned? Yeah, to unmanned. Yeah. We've made a couple acquisitions in unmanned. Not only Hydroid, but SIS, which is- Right. ... which was an autonomy provider for surface. We have a really broad base of products that we can introduce in the unmanned space. Autonomy, subsurface, subsea and surface. Surface. Yeah. Okay. Anything on the partnership front with some of these smaller shipyards, or is that not really? Yeah. We have a partnership on the long-r ange surface vehicle- Okay. ... for the Marines with a small shipyard down in Louisiana. I think it's Louisiana or Mississippi. Okay. It's a good shipyard. It's a good program. We have five demonstrators in the field I believe right now. Three to five demonstrators, showing the capability that that ship will have for the Marines. Yeah. It's a good program. It's not often talked about, but it's gonna do amazing things. There was also talk at that time about like light carriers, you know, CVN. I don't know what they used to call them. CVLs or something. There was some. Is that like a thing or is that... I haven't, you know, it's something that will be picked up and dusted off every two or three years. Every year they look at it and they say, "You know, what we have now is the most capable thing in the world, and you really can't replace it with three or four light carriers." Now we build LHAs, which I put F-35s on, so, or the Navy puts F-35s on. Right. So, um- Right. It's not a debate right now, that I'm hearing- Okay. -since I've been CEO, actually. Interesting. Okay. They're talking about LPD, CVN 82 and 83, right, in the budget, a potential bundle for those. I think the aircraft carrier is, does a very important or a number of very important missions. The Navy's very good at utilizing it. I don't see a replacement for it. Understood. I was gonna ask you on budget. What should we be looking for in the next budget request? What are you guys hoping to get funded? Yeah. The answer, 2023 budget was very important for us. Right. Right. Very important for us getting LHA 10 and LPD 33 funded- Yeah. ... for the long lead for that. There's really nothing new in 2024 for us. Okay. We need to keep all of our existing programs on schedule. The VCS, DDG 51, making sure they continue to make progress. We need to make sure that LHA 10 and LPD 33 get under contract and start long lead. That's important to keep those- Yeah. -schedules in place. Sure. They were funded in 2023. They need you to continue to fund those ships so we can get to the full contract. CVN 75 needs to continue to do their planning efforts for the RCOH program. Yeah. It's really not a, we're not looking for something new in 2024. We just need to continue our current programs, which we expect to. Okay. No, that's good to hear. They've gotten through. I remember Mike Petters used to talk about this. He's like, "The shipyard's gonna have business, you know, for forever." Yeah. It's kind of true. You had all these bundled flies. Well, yeah. I'll tell you the backlog, I mean, we've got this elevated level of, you know, in the mid-40s. Yeah. We'll stay there for a while because of so much work. The submarine industrial base has significant amount of work. You know, Electric Boat and Newport News work really closely together. The Navy's leaned in to ensure that we can execute that work appropriately. We have so much work at Newport News, it's gonna be very stable for the next 15 to 20 years. We're really investing in the operating, the operating system to make sure that we execute that appropriately. Right. The team's bought in completely. I've got high hopes for them. That's exciting. I wanted to also just step back on cash deployment- Sure. ... if you wouldn't mind. Sure. You guys have some debt that you're retiring. We do. Could you just talk through what sort of the plans are this year and perhaps longer term? Yeah. We're gonna obviously from the Alion acquisition, we took some debt out. Yeah. We're gonna, we've had a very structured approach to paying off that debt o ver the next, 12 to 18 to 24 months, we'll get in a place where we're, you know, south of two turns- Yeah. ... which is where we're comfortable. We like having the flexibility in the balance sheet. We also don't like to keep a lot of cash on the balance sheet. After we come through that, if we, if we accumulate cash, we'll just give it back to shareholders, right? Yeah. If we don't have any alternative investments, internally or externally that can generate a better return. We'll continue to evaluate investments in internal IRAD and potentially M&A to build out the portfolio if we see something really interesting niche sort of thing that can, that can add value or add capability for the customers. Absent of that, we're just gonna give it back to shareholders. On M&A. Mm-hmm. I'm curious, you've mentioned there are no gaps to fill. I think you've said that a number of times. Right. Right. Is that still true as you kind of look forward? Yeah. I don't see any material gaps in the portfolio. We, you know, we don't comment specifically on M&A, but we evaluate technologies from time to time that could provide additional capabilities for our customers, but I don't see any significant gaps right now. Could you describe again how Alion reaches back into the shipbuilding business? Sure. Yeah. How big- I'll give you the- Yeah, please. I thought about this a lot on how to make this something I could actually talk about. Yeah. Because Alion does a lot of really interesting stuff I can't talk about. Predictive maintenance. Right? We have so much data on new construction ships. Mm-hmm. On information relative to how ships are maintained. You know, we have AMSEC, which is... Yes, of course. Which is an organization within Mission Technologies that does ship halts and maintenance on ships. They've been doing it for 50 years. Yeah. Specifically on the aircraft carrier program, they've been supporting that aircraft carrier for a long time. Yes. We have initiatives now that we're working on with a customer where we can bundle all that data with AI ML tools to do predictive maintenance in a dashboard such that the operational availability of those ships are greater. Mm-hmm. If you could actually predict when that valve is going to break and make sure that you have the valve ready for installation- Yeah. ... that's what we're working on. Digital and AI ML- Mm-hmm. ... is permeating everything we do, right? In society as well as in shipbuilding. If we're not on the cutting edge of that for our customer- Right. ... then we're missing out on an opportunity. Okay. That's, yeah, that's interesting 'cause, yeah, we don't hear much about that. Right. Right. Appreciate you elaborating. Back in the day, 2016 - 2020. Yes. You guys delivered more than 100% of free cash flow to shareholders, dividends and buybacks. Right. The strategy pivoted with the M&A and what have you. Is there a time, like I'm just curious, like over the next two years, do you think we'll be in a period of time where it's, you know, 100% of free cash flow or then some back to shareholders? We'll take the leverage up- Yes. ... when we're under two. Like- We haven't made that commitment or forecasted that or publicized that as of yet. I will say that we're gonna get out of debt over the next- Yeah. ... 12 to 18 months, then we're not gonna hold a bunch of cash on our balance sheet, right? Okay. If we can distribute it back to, we'll be opportunistic relative to distributing it, that back to shareholders. We'll always protect the dividend. Yeah. We made great strides in that regard. Share buyback is always a tool we can use to accelerate that. How much cash do you need on the balance sheet just to be comfortable? We like around $300 million. I mean, we have, obviously, we've got a revolver. Yeah. We've got access, around $300 million is an okay number. Okay. No, that makes sense. In terms of CapEx, you also went through a big capital spending program. Right. Are there any major CapEx needs that you could see emerging over the next couple? Not really. We're finalizing all the submarine work. Some submarine industrial base work there at Newport News. I think we broke ground on another building that we're going to finish up over the next couple of years in Newport News. Okay. To do all that work that we're gonna have in submarines for the industrial base. Beyond that, I don't see anything significant. Your biggest worry right now is labor, just being able to execute on the backlog. Look, I'm a shipbuilder. I worry about everything. I get it, yeah. Right? Labor, it's getting the team hired, trained, and employed on the ship, making progress every day and working the operating system. Yeah. It's a daily focus for the team. Right. It's fundamentals, right? You can't really work on the fundamentals if you don't have the team. Right. Right now, we think we've got the team stabilized a bit. Yeah. Now we're just working on those fundamentals every day. You know, You saw this in, you know, when the House Speaker was elected, there was a lot of talk about debt ceiling- Right. ... potentially a full year CR next year. I'm just curious, like, how would that impact the shipbuilding business, if at all, for you guys? Full year, not significantly. A full year CR, once you get past the summer, which would be over a year from now, right? Yeah. Yeah. Right. Could potentially impact on us, impact us. remember, we haven't even seen the President's budget yet. Correct. We gotta take this kinda one step at a time. Right. I think cooler heads will prevail in Congress, and I'm hopeful that we won't have to deal with that. It's so interesting that we're talking about a full CR before we've seen the President's budget. I just, I'd like to take it one step at a time a bit. Understood. Last question on Mission Tech. Yes. The gap between EBITDA and EBIT margins. Yes. Right? Obviously, there's a lot of intangibles there. Yes. Yes. Is there anything that you guys are under-earning relative to entitlement in that business, or do you feel like? It's 8 5% cost plus. It's 85% cost-plus. They're, they're appropriate margins for the work we're doing. Okay. It's just we just have to burn off the intangibles. Okay. We give you all that information. No, I got it. For sure. Yeah. Okay. Okay? Well, thank you, Chris. Really appreciate it. Sure, Gautam. Yeah, appreciate it. All right.