General Dynamics Corporation (GD) Earnings Call Transcript & Summary

Okay. Welcome. And I want to just say I'm really excited to have Phebe Novakovic back with us, the Chairman and CEO of General Dynamics. So we've got a lot to talk about here but just start...

Before we get started, I'm lodged to FD, we're invoking the forward-looking earnings.

Okay. Good. So -- but I just want to start with -- Phebe, if you can give us a sense of right now what you see as the biggest opportunities and challenges at General Dynamics?

So let me walk through each of our groups because the opportunities and challenges vary by the group. At Aerospace, it is the smooth production and delivery and entry into service of new airplanes. At the Marine group, it is stabilizing the industrial base so that we can capitalize on the considerable growth we've already gotten by improving our throughput, increasing our solid productivity even higher, that will increase revenue even further than what we currently anticipate and improve margins. At Combat, it's about being nimble enough to take -- to be able to serve the needs of the U.S. and their allies in this increased threat environment, particularly in Europe. And then at Technologies, it's to put the impact of the supply chain challenges we had at Mission Systems behind us continue to grow as we have been at GDIT and at Mission Systems regain that growth. So I think with each one of those significant opportunities come significant operating challenges. And so one of the keys is to continue to ensure that our operations are really disciplined and highly leveraged and effective.

If we start with aerospace.

But of course.

Of course, yes. And last year, I was down in Savannah and saw with you and saw what was happening there. And one of the things you could not miss sort of walking through the facilities is sort of the breadth of your product line right now for the large cabin market, which seems more complete than anyone else has. Can you talk about how you have an -- what advantages you have with this breadth of products for customers and how that offsets any cost of complexity having this number of models?

So let's come back to complexity because I think that is a predicate that I'm not sure I share, but let's talk about this fleet of airplanes that we've developed. They're all new modern, highly advanced airplanes, and we designed and produced them to meet various customer missions and requirements. So in general, each one of these airplanes is separated in performance by about 1,000 nautical miles and roughly crudely about $10 million in price. So that allows customers, and they have great clarity around that is to pick the kind of airplane that they need to suit a particular mission. And sometimes, it's different airplanes from the same organization or same person to meet different missions. With respect to operations, there is an enormous amount of commonality among all of these airplanes. They share the same technologically advanced cockpit. They have similar but different sized wings, and they're all produced in purpose-built modern facilities. We are clearly the most efficient producer, lowest cost, highest quality producer. I think that it's pretty straightforward, and we don't see a lot of complexity from an operational perspective and moving each one of these airplanes down their respective line.

Just on that, one of the things that we have thought of, to some extent, that in the past, often people who say have bought Gulfstream, stay with Gulfstream. Perhaps people who buy from some of your competitors may want to stay with them. Do you see opportunities here to actually gain share and make inroads into customers that may not fly Gulfstreams today.

So clearly, that's an opportunity. We have believed and experience is proving this hypothesis out that new -- all new modern airplanes stimulate incremental demand, either from additional airplane purchasers or from other people's airplanes, there are switching costs that are not insignificant for moving from one producer to another. But we've been pretty good about being able to capitalize on that. And we don't chase market share. It's a good way to go broke if you're measuring yourself on market share, we chase profitability. And with an eye on that, it ensures, along with this, our fleet of new airplanes that ensures additional market penetration.

Well, I mean, 2 of the most important models here are the G700 and G800, can you update us on where they stand in terms of the certification process?

So the G700 has done beautifully in the certification process. We are now at a point where I'd say that the testing is -- we were at a point where the certification process is about compliance. Technical issues are behind us. That said, we expect to be done with that process, the beginning of September. We do not, however, control certification. So that could come in the third quarter, more likely in the fourth quarter. But I think this is what's important -- and by the way, the pilot certification will follow 10 days later, and that's an important thing to keep in mind. But I think critically -- critical import here is that we are -- have built and will have ready for delivery, all of the airplanes we had intended to deliver this year. And it's simply a question of having enough time to manage the logistics of delivering these airplanes to the host of customers. So we believe that we will be able to deliver all, if not substantially all, of the airplanes we had anticipated this year. It's just a question of timing and sufficient logistical time to get these into the hands of the customers.

I'm just curious. I remember in Savannah...

Excuse me, by the way, G800 will follow 6 to 9 months later. Go ahead.

Okay. Because I remember in Savannah, we talked a little bit about the fact that certifications become a little bit more challenging in terms of how software validation is done. Some of this, I think, has all been in the wake of what happened with the MAX. I mean, has that -- do you see the fact that this is taking a little longer than it was having to do with some of these differences in how the FAA is working on certification?

Clearly. There is a more stringent and exhaustive certification process than it was before. It's all triple the case. We don't control it, and it's very hard to estimate, particularly since it's new. But we have -- I think the important thing to -- from our point of view is this airplane has done beautifully and it's extremely mature. So there have been no surprises other than on the upside, it has performed better than our -- than we had originally anticipated during design. So that is all good and awesome. It just takes time on a process we are not in control of.

Now the market -- the business jet market overall became very hot over the last 2 years. I mean now, I mean, you're projecting a book-to-bill of about 1.0 this year as our sort of others in the industry. I mean, can you characterize how that book-to-bill of one kind of plays out, if you think of corporate customers versus high networth individuals versus international?

So our plan presumes as you know, a 1:1 book-to-bill and we consider. We continue to believe that is reasonable. We have very strong demand from North American public and private companies. Europe is moderate, Mid East is strong and parts of Asia are very strong. Not China. But we have seen a bit of a diminution in high net worth individuals. But so far, the remainder of our potential customers and customers have been pretty robust and the pipeline remains quite good.

And does the broad kind of this broad portfolio you have, I would think that may work well with the corporate customer who may have larger fleets?

It works extremely well, particularly with corporate customers, both private and public because they often have different missions, as we talked about a little bit earlier. And so each one of these airplanes meets different missions and they will buy an assortment of airplanes to meet those different requirements and some high net worth individuals did the same.

Now one of the things that gets discussed a lot with respect to business jets is what if there is a recession? And we've seen in past periods, recessions have had a strong impact on that -- on demand. How do you think about Gulfstream, should we see an economic recession?

So that's a hypothetical. So let's postulate a few things. Let's assume we see a recession that is defined by 2 consecutive quarters of negative GDP and let's also presume that we have a book-to-bill of about 0.5 to 0.75...

In that kind of a period.

In that kind of a period, we should do just fine. We are not immune from the economic cycles. And if there's a serious recession or one of greater duration, we're likely to see a bit of an impact. We have a very sticky backlog. So that helps mitigate that. But we've been through cycles before and one of our homeworks is acting like a good cyclical. Cut supply faster than demand declines. And so if should we see as a nation that kind of economic prospects in front of us, that's exactly what we'll do. But from what I read and many of you are better experts at macroeconomics projections than perhaps we are. But from what I see, people are talking about a mild recession, and we should be just fine in that. And by the way, there remains to be seen in a relatively minor recession whether demand is even impacted at all.

Well, if you go back a ways in time, at one point, you were able to get 20% margins in Aerospace. Clearly, you've got new products that are coming in, when would not expect that today. But as you look forward, is that a target that you can think about?

Well, we certainly anticipate that. But in the near term, we're looking at high-teens margins. And we'll get better and better and better as we come down our learning curves on each one of these airplane models. So there's good operating leverage here.

But you do see a path as these mature a few years down the road to be able to get back to that?

Yes, we do.

And does that come -- if you think of in terms of pricing versus cost reduction, operational improvements. I mean what are the main things that will allow you to get to that eventually?

Well, you can never anticipate where price will be, although we hold price very dear, but it will be primarily driven by I would -- we're expecting some price improvement, but primarily by the operating efficiency as we get better and better and better. We have superb operations at Gulfstream. And I think you saw some of that when we were down there. These are highly efficient -- it's a highly efficient business with superb operating leverage, and we have to take advantage of that.

When you look at the services business within Aerospace, I mean, you've got Jet Aviation, you've got the Gulfstream services business. This is an area that I would -- at least as we've seen in the past, can be much more impacted by a recession. I mean how do you think of that?

Well, service will grow as the fleet grows with some perturbation over time of mix, including special mission, we have special mission work that we do, modifying airplanes. We count that as service. But again, it depends on the type of recession, a mild recession, a somewhat diminution in flight hours has very little impact on service. It's about 30% to 40% of aerospace revenue. I expect that will lessen as we get more and more airplanes into the 700 and 800 are in service, but again, we've got good operating leverage in service. And so there, we can manage those fixed costs pretty well. So I don't imagine that being a real headwind in a mild recession.

You already have a pretty high percentage of the service work on your aircraft...

Extremely high. We've captured almost everything we want to capture.

That's what I was going to ask. So there's no goal to increase that, you're pretty much already where you want to be.

You can always do a little bit better, but we are -- we like to take care of our airplanes and our customers like us to take care of our airplanes.

So let's switch over to defense. How do you view the Biden budget? And how did GD fare in that?

So over the last few years, the budget has fully supported our programs. And for the most part, this one too. Congress has added in the past where they see fit, and we would anticipate some of that again. So we've done quite well in the budget environment. Again, the defense budgets are driven by threat and the world is unfortunately not a safe place.

So all of us are watching the drama and Congress right now. It looks like we may get to some resolution with respect to the debt ceiling. When you watch what is going on in Congress, we can get to that point, but we're not at a point where we have agreement on actually what the budget is going to look like until hopefully later this year. How do you look at this?

So there is always sturm and drang about spending, amplified this year because of the debt ceiling. We have a long history of let's just look at the appropriations what do we get? And that gets driven by the relevancy of your major programs, and we are very well positioned in terms of the relevancy of all of our major defense programs. So we should fare pretty well.

So if we go to marine, so your top line has really picked up recently. How should we think of this? Because are we at an inflection point here? Because I know -- I remember when we were sitting here a few years ago, we talked about 2023 as a point where Colombia class could really start to ramp up. How should we think about the trends for marine top line from here?

So marine top line will grow because it's a national imperative for Navy surface ships, but heavily because of the nation's need for submarines. And Colombia will drive that growth for Virginia. We need to get the industrial base stabilized so that we get material delivery on time, you get -- and particularly on Virginia. So you get the material delivery on time. We continue to improve our strong productivity. And as I noted earlier, that drives additional throughput, which drives additional revenue and improves margins. So it's really on the Virginia program, getting things stabilized and returning to the real operating efficiency that the industrial base is capable of. And we see considerable growth that could be amplified the faster we can get the Virginia issues behind us. And Colombia is increasing and will become an increasing driver of our growth as we get further into the first ship. We've already started on the second ship, and then we'll have the third pretty much there to fourth that. So the revenue there is very good and margin expansion is the key.

Yes. Over the past few quarters, you've talked about a number of those issues, supply chain, material costs, labor. I mean when you look at labor, say, today, one of the concerns we've had is that not just here, but in quite a few defense companies, is bringing people back post pandemic has been hard, not just because you need the number of people. But in these complex projects, you may have like 100-or-so critical people, highly skilled people that you might have lost. How do you think about that?

So we haven't had difficulty having people -- bringing people back because they didn't go home. However, one of the remnants of COVID under the primary impacts was a massive disruption in the labor market across the economy and that is felt and was felt in shipbuilding because it's a heavily labor-intensive business. And there was a phenomenon that happened that we saw during COVID a higher number of more experienced shipbuilders and workers throughout the particularly submarine industrial base go home, they retired. So we had a couple of quarters where we were increasing hiring and it was a little spotty. But since the third quarter, we have met the preponderance of our hiring goals. And because we have a very robust training program, these new shipbuilders are coming out of training at a higher proficiency level with a higher performance than we had seen in the past. So COVID hit the labor force, but we are beginning to see that behind us. And the more people we get through our pipeline, the more people we get trained, again, that will help our throughput and our productivity. So we see that beginning to mitigate and nicely.

One of the challenges also, I mean you've got material costs have risen over the past couple of years. How do you think about the impact of rising material costs on these programs and their margins?

So the majority of most of our contracts, in particularly shipbuilding, are covered. We've got provisions in that -- in those contracts that cover inflation, but it is without profit. And so that has been a bit of a drag on margins. But the industrial base and the customers are adjusting to inflationary behaviors that we haven't seen in quite some time. So costs will increase. And that's another reason we have to become increasingly efficient is to offset some of those costs. And we have done that, frankly, throughout the business. So we need to still work through inflation. But so far, it hasn't been a major issue for us.

So when you go -- I think of a comparison here, if you look at commercial aircraft, for example, and probably this is true at Gulfstream. There are one of the challenges you've got a lot of small suppliers where material is a pretty important part of their cost structure. And when those costs go up, it can make it quite difficult for some of them to actually continue to operate in some cases. How do you deal with that?

So both at Gulfstream and also heavily at the Marine group, we have increased long lead funding so that there is certainty out in the supply chain so they can buy in the product mass and material mass that they need to buy, and that helps offset their costs. But as you'll note, the Navy as well as the Congress on the Marine group side has funded quite a bit of supply chain -- provided quite a bit of supply chain funding and that is largely to mitigate some of the impact of inflationary pressures on the smaller suppliers and that has helped considerably and will continue to help. So we've got to work through all of this, but none of it is impossible to manage. It's basic blocking and tackling. The sooner the supply chain knows that they've got certainty, better it is for them, better they're able to adjust and you've seen an increase in particularly on the Marine group side of long lead funding, and the Navy has been quite proactive as has the Congress in recognizing that.

Yes. I think traditionally, Marine is kind of 9% to 10% margin business. And certainly, [indiscernible] you were running it, you were up there in that level. I mean what's the -- as you work through these issues, how long do you think it might take to get back to that kind of margin?

Toward -- we've got to get, as I've noted several times, some of the Virginia challenges behind us. But I think as we get further into Block V -- we're almost done with Block IV, we're working on Block V. As we get further into Block V and some of the challenges are behind us and Colombia continues to grow, we should be in that 9% to 10% margin. We're certainly, that is a goal for us, and it is achievable. Just again, methodically, systematically in a disciplined fashion, working through some of the Virginia challenges, but it is well within our capability.

Let's switch over to Combat now. Can you talk about how the war in Ukraine has affected your growth outlook for Combat Systems?

Well, unfortunately, the threat environment has gotten far worse. And prior to the invasion, we had anticipated flat on occasion, negative growth in combat. We're now looking at low single-digit growth, and there's increased demand in Europe for combat vehicles, both tracked and wheeled for munitions within the United States and elsewhere and for bridges. And so all of those factors combined to give us some anticipated growth that we otherwise had not seen. And that growth can increase depending on how quickly and nimbly and our agility, our ability to get contracts, cycle the demand from a demand signal to an actual contract and increase funding. So we're working on that. Customers are working on that, but we have yet to quite see that, but we do see some uplift here that we hadn't seen before. And again, something to remember about Combat, they have superb operating leverage. This is a very, very efficient group. So the revenue comes and the margins are there, so you get increased earnings.

And I mean one of the things -- I mean, we've seen -- I mean I think this is almost 3 different things for -- related to the war in Ukraine. There's delivery of munitions that ultimately, when things would have to be replenished and other things as well that we would have to replenished. There are sort of direct supplies to Ukraine. And then there's the broader European market with others interested in weapon systems and so forth. I know on the munitions side, you've talked about the potential to actually have some significant new contracts, yet when we look at the budgets, it's challenging because we actually saw the munition budget go down in the Biden budget, and we're trying to understand how this all fits together. Can you describe how we should think about your munitions business?

So we've been working very closely with the Army and the administration on increasing that funding. We have several contracts in place and are moving munition production to the left to meet the needs, and we can go even faster, working with our customer. But I'd say the administration has been very forward leaning. The money that has been in munitions has been adequate and they will provide more when needed. So I'm not concerned about the funding. It's simply getting these contracts in place, and we've got several now so that we can increase production even faster than we've anticipated. We've already brought it to the left. Our goal is to bring it even further to the left because we need to replenish our stores and provide for others as well. And it's possible, it's just again, going to take some time to work through. So you talked about the direct supply for Ukraine, that typically has been or so far has been out of stores. We have some work associated with that. Often training will come with that. And then the increased general demand because of the overall threat environment. And I'd say the first category munitions in that third category of the general demand environment because of the threat where the growth engines are.

In that general threat, I mean you've gotten new things coming into European land systems. How are you thinking about the growth potential in ELS versus Combat as a whole?

ELS should see some very nice growth. Europe is full of bridges and rivers and they need more bridges. So we are the primary supplier of tactical bridges. There's considerable demand for that as well as wheeled and combat vehicles. And so it's simply a question of getting that demand into contracts, and we've seen increasing growth there. So we see that nicely on -- but as a relative comparison to our other 2 businesses in that group, we talked about munitions; and with respect to land systems, we see increased demand for their combat vehicles. Mobile Protected Firepower, which is the Army's Signature new program, will get full funding. Abrams will be nicely funded. Abrams has become a very important strategic asset for many of our allies than the United States. Stryker will -- funding may be a bit more lumpy, but it's got a lot of support because that's a very powerful versatile platform. So we see growth there where we had otherwise seen kind of flat.

Because it looks like -- I mean, those budgets, and we had seen those budgets is actually in decline a year ago. And it looks like that's no longer the case that we may actually see some...

Well, and you see a fair amount of foreign military sales on Abrams, in particular. So I think the world has recognized the superiority of that weapon system. It is unparalleled.

How does this work? When -- like for instance, the decision to provide 31 Abrams to Ukraine. Those were sort of -- that's why I understood it, they were kind of moved up in the beginning of the queue and they slid back. In other words, does volume of work on the Abrams go up or does the line stay somewhat stable, it's just pushed back so it's a longer run?

We expect throughput on that line to increase, less so where we're not impacted as much by where we're taking older models of tanks and sending those, but particularly the newer models. And the FMS sales as well as U.S. sales, we do see additional throughput on that line and that is a highly efficient line.

And you mentioned Mobile Protected Firepower. What's the status of OMFV, the Obsolete Man Fighting Vehicle, this has been going on for a long time.

Yes. So that program has a lot of down selects. So we had one. I think there's another this year. There may be more. I think for the Army anticipates full rate production in the next decade. So we've got -- there's a ways to go on that program.

Okay. And then you talked about the attractiveness of the business in terms of operating leverage. Several years ago, you had a strong mix of international work, and you were able to get margins above 15% -- in the 15% range. As you get more operating leverage there, can we expect that or should we think of this as more of 14% type business?

I think of this business in the mid- to high 14% on a regular basis. If you look back over the last decade, we've had 4 instances, 4 years where margins were 15%. They've never been lower than 14.2%, largely driven by mix. But this is, again, a very, very solid business. And I'd say, in the mid- to high 14% is good, steady running rate.

If we now jump over to Technologies. We've seen a lot of IDIQ awards for GDIT over time. We've seen -- but revenues have been fairly flat, backlogs have been fairly flat. What are the growth prospects here between Mission Systems and GDIT?

Okay. Let's unpack that. Let's take a look at GDIT. So since we got through the integration of CSRA, they have been growing as we had anticipated at the time of low single digit. That growth has not abated and it's been profitable growth. It's a danger to chase revenue alone. You have -- if you're going to chase revenue, it has to be profitable revenue, and that has been our focus. So GDIT has continued to grow, and we anticipate that it will. The challenge for that group has been Mission Systems and some of the supply chain challenges that they have that has caused negative growth, decline in revenue for them. We see the impact on us as largely behind us by the end of the year, not that the supply chain is fixed, but we've been able to mitigate it through a whole series of actions that Mission Systems has taken and quite effectively so that, that impact will be behind us, and they'll continue to grow. That group, as a whole, has about $110 billion, it's billion dollars of qualified pipeline. About $80 billion of that is GDIT and the remainder is Mission Systems. So there's a nice rich opportunity set here. The key is pursuing profitable growth, and that has always been our mantra.

Well, -- and if I think back on that, you had periods where -- I mean, these weren't always together and look like they do today. But on the Mission Systems side in a sense, you were able to get some very high margins. I mean, in some things that you had IDIQ contracts on that were sole source, you could depend on it, much higher margins than you would typically get in a services business. I mean, are you able to see that kind of high-margin performance today? So that if you turn around the Mission Systems, once it comes back, should we expect that to positively impact margins?

They should have a positive impact on margin. That business, given its portfolio density, as you quite rightly point out, a higher-margin business. And their key is to tap into those areas of growth where they have expertise and is in their core where they can continue to enjoy and produce good, solid margins.

And one thing that has struck me as -- I mean, we've got a number of other defense companies here tomorrow and in their businesses that are electronics oriented, they faced very similar challenges in terms of supply chain. And when you look at it, though, is this something that is primarily tied to semiconductor availability or is it a broader mix of things?

Not exclusively, semiconductors, but heavily. And so what Mission Systems has been able to do, as I noted and alluded to earlier, is take a series of steps over the last 2 years to mitigate that impact, either product substitution in concert with the customer, long lead funding and material buys sometimes 18 months in advance. And all of those actions that they've taken have helped mitigate the impact of that. Still out there, but their job is to let's see if we can't get this effect on us behind us, and we're pretty confident that we can do that and they can get back to a growth profile because they have dragged on the group's growth, while GDIT has been growing, they have not.

Yes. I mean a lot of the things that we have heard have been that this is not about highly specialized chips either. A lot of it is more not quite commodity, but chips that there are other industries where demand is so high that often defense companies is get overlooked...

Defense get back in the line.

Yes.

So that's why it is so important to get stability of funding in and put your chip in early so that you can get in that queue. And we've been able to do that pretty nicely. They say this isn't as a nation behind us. But it's incumbent upon us and they -- I think Mission Systems has done a very good job and to manage that impact and then have workarounds. And some of that flexibility from the customer in terms of product substitution. That's been a significant part of it.

Does it also suggest that -- because it's hard to see in the financials overall, that you may be building inventory there where you're just waiting for like 1 more chip or component and then you can deliver. What I'm getting at...

There is an inventory build.

Is there a surge that we might expect?

There Is an inventory build, and we have seen that surge happen on -- depending on a quarter, some quarters more than others. But ultimately, we are building some of that in working capital, and it's got to unwind and will.

Now just going over to GDIT. One of the things that you've highlighted before was the large number of protests that have gone on over the last 2 or 3 years, is that still the case? Is that still an inhibitor to more growth in GDIT?

It certainly yes. And I think that's true for that entire industry. Protests are seem to be the new normal. And it has taken longer from the initiation of an RFP to the execution of a contract, that interval has increased. So I also think that may be the new normal. So we have anticipated all of that in our growth projections for GDIT, and we are looking at low single-digit growth, consistent low single-digit growth, which brings more earnings.

So that -- and that's where I was going with this is, at first, it sounded like we're going through a period where there are a lot of protests and this is an issue that holds you back and others in the space. But you think maybe we should be thinking of this as not going away anytime soon?

Well, that's certainly our view. I think it's unfortunate, but it is what it is. And so we have accommodated our growth projections accordingly. I think if this is a new normal, we need to plan for it. And if it turns out that the deliberation process can go faster, that's all good and wholesome. But I think it's better to plan for the reality that you see today, and that's what we've done.

Yes, I mean, it's just hard to look at this and see when the money is out there then it should be growing and sort of in a sense, where does that money go if you can't get any work started?

Well, it's -- you do start work, it's just taking longer to get it, as I said, from the execution of the RFP hits the street to the execution, it's -- of the contract is just moving everything to the right. And I think the government needs to the extent that they can deal with that. But right now, it is what it is, and we have to accommodate that.

So if we kind of pull this all together, you've guided to 105% cash conversion for the year. Beyond 2023, should we expect cash conversion to continue above 100%?

On or about that, yes.

And in terms of deployment, I mean, you're retiring debt this quarter. So when you think forward, how do you think about the balance in terms of debt reduction, dividends, share repurchases going forward?

So we will retire our debt. And after some minimal investment, sustaining investment in the business. Free cash flow will be deployed and allocated to share repurchases and dividends. And I think that's appropriate.

M&A? Is there anything you're missing that you feel that you might need or might be helpful?

We very much like our portfolio. So if there is a bolt-on here and there, bolt-on meaning relatively small, it might be in the core of one of our businesses, we might look at that. But there's nothing particularly of note on the horizon.

And interesting, if I go way back even when Nick was running the business, it's always appeared to me that at corporate, you really give a lot of latitude to the individual -- the 4 individual businesses in terms of -- I mean, certainly not in the performance objectives you're making resource allocation decisions. How do you think of the way you manage your portfolio of 4 businesses?

So the -- at the corporate level, we set the strategy, the corporate culture, and I say strategy, the big strategy for the company, and we control all the deployment and allocation of capital. It's up to the individual businesses to execute their small, small, we call it small S, their business' strategic plan. And to the extent that they may stumble at that, there's -- they get a lot of help. But it's a very balanced governance model, I think. It gives the business is a lot of agility to execute effectively, that which they know best. When you're on the frontline and you're facing an enemy, the guys on the frontline pretty much know what they're facing. And for big strategic decisions, they go back to the big commands. Well, that's kind of how we operate. Leave the day-to-day tactical execution of the business to the businesses, assuming they continue to meet their objectives and we control the overall strategy. And corporate culture is important. We set that corporate culture. The corporate culture is the character of the entire institution and it is one of our main objectives at the corporate headquarters to ensure that we all have what we call our ethos. Ethos is a more powerful word than ethic. It means you're a fundamental moral character and it is the rules by which we conduct this business. And so that is a big part of what we do and then the deployment of the capital. It all sits at the corporate headquarters, and we deploy it where we believe we can get the long -- the best long-term return on those investments for profitable, sustainable growth.

And as you think about it today, where are the priorities in terms of where you want to deploy capital across the businesses?

Well, we have gone through a major investment period at Gulfstream, clearly, and all these new airplanes at the Marine group and building the capacity to handle the considerable growth and capitalize on that growth that is before us and in the Technologies group the GDIT to shore up our existing IT business. So I think those large capital investments are behind us. And so I think that capital deployment will be sustaining in terms of the business, ensuring that R&D is at the wholesome level. CapEx is declining and will continue to decline. And that then leads into your former question about the deployment of capital. And I think it's going -- our objective is to take shareholder friendly actions. Shareholders have been patient through this investment period and our free cash flow after all of our debt reduction should be and appropriately devoted to dividends and share repurchase. Dividend is an important strategy for us. and we continue to maintain our dividend posture, and I think that's important going forward.

Well, I'm just interested when you talk about the process, how you manage processes from corporate. Since you've been CEO, has that evolved at all or is it pretty much the same as where you started?

I'd say that we have matured our governance and business model. It's become increasingly sophisticated, more agile, faster, quicker. What is -- we really shoot for agility. And agility is the ability to make quick, accurate decisions. And we find that our business model allows us to do that. and that's very wholesome because you're likely to make better decisions in a faster time frame. I'd say we have matured all of that, and it is a well humming machine. We're very pleased with where we are right now in terms of execution and our strategy and the coherence of our businesses.

Well, to wrap up, maybe you could tell us, if you look at the next 12 months, what are your like 2 or 3 top priorities?

Well, clearly, it's the introduction, the smooth introduction and production of the new airplanes. At the Marine Group, it's fixing the industrial-based challenges and increasing our throughput at Combat, it's growing profitably even faster than we had anticipated. And in the Technologies group, it's ensuring that Mission Systems gets through its supply chain challenges and they then add to the growth GDIT has been experiencing. So as a leadership team, that's what we're focused on.

Well, great. Well, Phebe, thank you very much for joining us today.

It's been my pleasure always. Good to see you. Thank you all for coming.