Huntington Ingalls Industries, Inc. (HII) Earnings Call Transcript & Summary

Good morning, everybody. I am Jason Gursky, Citi's Aerospace and Defense analyst. I want to be the first to say, thank you all for attending, particularly those in the room at 7:10 a.m. We didn't anticipate, I think, as we set this all up for there to be as much demand as there was and ended up having to create a 7:10 slot. So this was not by original design, but I certainly appreciate everybody turning up. And most importantly, I really appreciate Chris Kastner from Huntington Ingalls joining us and being willing and able to do this, this early in the morning. Chris, I think I want to turn it over to you for some safe harbor, is that right? That we need to...

Yes, normal safe harbor rules apply. And it's not that early in the shipyards we probably have -- they're probably working on their second job right now. So we have a pretty good gate here in banking and Investor Relations.

Fair enough. I'm in the West Coast. So this is a little early.

Yes. Yes.

But anyway, why don't we just kick it up with a few big picture questions to kind of get your take on the state of the world, maybe starting with -- we've had a presidential transition here over the last several weeks as we're all aware. Maybe talk a little bit about how this one has been different than what you have experienced in the past, and talk a little bit about what the company might be doing differently as a result of that?

Yes. Interesting, we don't have a secretary of the Navy yet. It hasn't gone through confirmation. And so that's an acting sort of role there, which means they're keeping the chair warm and they're not making big decisions, it's just getting stuff done. And the next level down really hasn't been filled either. So for our Navy work, we're fortunate that the uniform Navy is executing on their current stuff, but large strategic decisions aren't being addressed or made. I would say in the administration, things are moving a lot faster. The speed in which things are being addressed when the administration is much faster than we've seen previously, you need to be agile, you need to be accessible. We have got phone calls from people and I'm just telling you this. You'll get phone calls from people you never expected, right, as a CEO of an A&D company, you need to be ready to respond and to engage. So everything is moving a lot faster in administration. And then we just need to fill out the leadership within the Pentagon in the Navy. So the kind of large strategic decisions can be addressed.

Okay. So when you say things are moving faster, but the seats aren't filled. So are there decisions being made today that you think are going to impact the longer term? Or are we waiting for all those seats to get filled?

No, I think we need to wait for those specific issues that are being addressed at very senior levels. And you referenced one in your questions relative to SAS, that's being discussed at very senior levels within the administration. But I think the strategic Navy actions, they're kind of waiting for the new team to get put in place to execute those.

Okay. Great. Maybe just as a quick aside, have you heard anything about the timing of the fiscal '26 budget? Just kind of curious.

No, just no. We're in the same place you are. The timing of when '26 happens and what it's going to look like. I know there's a significant amount of iterations on budgets being done for '26, plus 10%, minus 10%, stuff like that. So the machine is working. There's just not a lot of direction on when it's going to come out.

Okay, great. Let's see here. You mentioned SAS and I do have a question I wanted to ask you about kind of industrial base costs and the things that the industrial base might be able to do here independent of government action to help drive costs lower, right? There seems to be an administration that's very focused on the cost. And I'm just wondering, particularly in light of what happened early in the last decade where the industry seemed to get ahead of a lot of costs as we wound down the conflicts in Iraq and Afghanistan. And I'm wondering if there's any similar exercise or an opportunity here, recognizing, of course, we've gone through this big period of inflation. But are there things that the industrial base can and should be doing today and bring it down to HII from your perspective?

Yes. So we're very focused on throughput. I said on the earnings call, we're going to increase throughput 20% this year versus last year. And the most important thing we can do to control cost is meet our schedules. Because when you have 2,000 to 3,000 people on a ship, if you make schedule, there's just immediate cost returns related to that. So our specific story is throughput. We have some cost control measures as well, which are just the normal stuff you work on from an efficiency standpoint. But I think the real cost measures are going to play out over the next one to two to three years relative to AI, I think it's real. I think AI technology being implemented in defense companies, not really in touch labor, body and support labor in how you do engineering, how you do planning, how you do scheduling, how you do quality, all of that is going to be impacted by AI. It's just faster than humans are. And I've got really great people that work in planning and scheduling and engineering where you take the burden of the boring kind of road work that they do, and we're going to pull them up to do the kind of complicated stuff they should be doing. So I think AI is actually going to impact shipbuilding significantly. We've got 5 or 6 pilots engaged both in Newport News and in Ingalls, evaluating our works. I think there's going to be returns there.

And so you think the biggest impact will be on schedule, do you think?

I think it's cost efficiency and schedule. I think you're going to be able to be more efficient in all the engineering and planners and quality people you have engaged. So it will help schedule, it'll help cost on the specific programs, and it will help throughput, right?

So better productivity amongst your labor force, so you need fewer heads. Is that kind of the idea?

A fewer heads across the entire spectrum of planning, engineering, labor. Yes.

Okay. And you said you've got 5 pilots going now. How long are those pilots going to last? And when do you start this out?

It would be throughout the year. We'll start getting returns on some of them. Quality has already yielded some really interesting results. If you think about a shipyard, there's a lot of quality that's done by hand and on pieces of paper. So we digitized all of that, put it in AI model, evaluate the root causes of a lot of the defects and you can analyze where you're having issues and you can address them. So I think there's real opportunity. I think the Navy sees it as well, and there will be supplemental funding to help us with that.

Right. And these are AI models that you're purchasing off the shelf because...

Off the shelf, we're really good partners with AWS involved that's also co-investing in these projects and other partners that we're evaluating to help us take the next step.

Okay. So good updates from you on that, I guess, over the next 12, 18 months. Are there any other big areas of either cost or performance that you guys are focused on?

Well, It's throughput, right? We acquired W International down in South Carolina. That's 500 people, good shipbuilders that came into the company that will help us in throughput in aircraft carriers and submarines right away. We're actually expanding the industrial base right now. It's not often understood that the shipbuilding industrial base is expanding and kind of rebuilding itself under our very noses, right? It's happening. We're expanding people that can build units, that can build up units and what happens when shipbuilding expands, this happens, right? You get different new partners come into the industry and the shipyards become the integrated delivery and test part. And then when it contracts, you start to bring everything back in and maybe not the most efficient way to do business. You see that in the Korean yards when they do commercial shipbuilding, right? But a lot of that is outsourced. They do the integrated delivery test at the end. That's happening right now across the industrial base in shipbuilding. It's just expansion of the companies that can actually develop product.

Can you provide us a little bit of context of 500 employees that you just acquired? What's the overall head count of the company? How significant is this from your perspective?

Well, so think about 1 million hours, it's 1 million hours which could be 5 -- I don't want to quote, between 5% and 10% in one of our shipyards, right? It's significant.

Yes. Okay. Great. Maybe stepping back just for a minute and go to DOGE question. I'd love to get your take on a couple of things. First and foremost, what kinds of recommendations would you -- if you have the ear of Elon Musk and those that are running DOGE, what kinds of recommendations would you give? And then I'd love to get a comment from you as well from some news over the weekend, suggesting that President Trump is going to get together with leaders of Russia and China and negotiate having a 50% reduction in our defense spending going forward.

That's a harder question. Those questions, I think simplifying the Pentagon, everyone would be in favor of. I don't -- every person in my position, every CEO can recognize going into a Pentagon meeting and seeing a lot of chairs around the table with people in them, but you're not sure what their job is. So simplifying the oversight in the Pentagon, I think, is something that would be positive. I think that's the initial focus. That's where I think their initial focus will be. They'll look at the programs as well. I am fortunate that our programs are well supported, and we think about Pacific, I'm very comfortable with our programs. And really just the efficiency of the Pentagon, I think is really going to be looked at.

So that's fewer layers of management and bureaucracy inside the...

Fewer layers, different layers, metrics created or who knows what that you're being tasked to do stuff like that.

Okay. What about some of the -- other than reducing bureaucracy, are there any other tasks -- recommendations you might have?

That relates to everything. It relates to programs being managed and their oversight on programs. It relates to acquisition and how we do acquisitions, how quickly acquisition happens, it's how quickly you can resolve issues that are more strategic in nature, all of that. I think they're going to take a hard look at it.

Okay. So just having better access to the decision-makers earlier on in the process?

I think there's going to be -- you're going to find out who is empowered to make that decision very quickly. But right now, it's not really sure on some issues where an issue has to go to get approved.

And maybe going to the question about having defense spending, if that were to come to pass, how does that get recognized from your perspective?

I don't know. I would love peace in the world. I'm all for the world peace, that would be -- I think the environment it's not really realistic to assume that's going to happen. I know my -- our programs are very well supported by the administration and shipbuilding is -- budget for shipbuilding are only going to increase, and the demand is only going to increase. And the technologies we're working on Mission Technologies. The demand for those are only increasing, you can see from our growth rate in Mission Technologies. So I don't see it unless peace breaks out somewhere.

Okay. Well, speaking about demand for your product, why don't we shift there really quickly and have you kind of walk us around the world. So we've got administration, that seemingly wants to deemphasize our -- I don't want to say commitment to Europe, but it's not as important to us as a country anymore apparently. Over the weekend, we learned that. We are instead going to go focus on the Indo-Pacific and the homeland. So just to talk a little bit about the mission sense in Mission Technologies or in the shipyards that are going to support Europe today so that we kind of get an understanding of what might potentially get deemphasized? And then talk to us a little bit about some of the -- and this is probably more Mission Technologies, but what you're doing to help secure the homeland to speak, and then what's going on in the Asia Pacific?

Yes. So Europe, we really don't have a lot of exposure to Europe. We have some Mission Technology contracts, we're supporting some of the services in Europe for ISR missions, stuff like that. I don't know if it's going to be significantly impacted. I would doubt it. But that's -- and we have some unmanned undersea technology that's deployed into Europe as well, which I think will continue. Pacific, obviously, shipbuilding in China, that's not only a submarine or aircraft carrier and destroyer play and the demand couldn't be greater for our products there. But it's also the kind of the technology play with Mission Technologies and integrated platforms and products and data, what we call fight tonight, which is what you deploy right now to help me in the Indo-Pacific. That's been a benefit of Mission Technologies in the portfolio as we can bundle some of our products, get access and develop and actual demonstrations out in the Pacific, some of the tools that were -- tools that we're developing. So that's not going to back up for the Homeland. It's obviously mostly Mission Technologies, electronic warfare type of stuff. You mentioned Iron Dome. People don't think about us as a directed energy business, but we absolutely have a directed energy capability with world-class partners that we're working on contracts with kind of restricted customers to do that. And that's -- there's a lot of work to do to get that kind of ready for prime time. I don't think it's ready yet, but we have different Mission Technologies, cyber capability that we deploy within our Mission Technologies organization a class we compete with all the kind of tech organizations that you referenced in some of your questions. So yes, we do have a plan for securing the homeland. It's not only shipbuilding other than the NSC, which we delivered. So we expect that to be just fine in our Mission Technologies organization.

Right. You did a good job committing to memory, some of the questions that I wrote ahead of this.

I studied.

Maybe just stick on the homeland for a minute and talk a little bit more about Iron Dome, but maybe first, do we have enough national security cutters if we're going to be securing the homeland, is there opportunity there for more of those in time?

We would love to build more national security cutters. It stopped. The program has stopped and they're working on the OPCs, which is almost as large as a national security cutter. We would love to build more. I'm not sure that there's an appetite for that.

Right Okay. Fair. But let's go back to Iron Dome there for a minute. And just maybe walk us from your perspective through the -- I don't know, 2, 3, 4 key technologies that are going to be needed. Obviously, there's sensors and effectors. But what else is in and around the Iron Dome that -- do we need any key unlocks here in order to recognize something like that?

The largest unlock from me is power and SMRs, right? So the best power source for us -- and Iron Dome for us in the United States is not a small area, right? There's a significant presence that would be required throughout the region, all the regions of the United States, but it's SMRs. It's if you can -- that will enable from a power source, the balance of the technologies to be implemented. So, for me, it's SMRs. And they're very close. We just have to build some. And I believe that it's going to take the government to step in to actually take the risk to make the investment to build some SMRs. Now there's some tech, obviously some tech companies that are potentially building with data centers. We'll see if those actually happen, but people are worried about the cost of developing nuclear project. Even though an SMR obviously do [ SM ] AP1000 and everything else with the cost overruns down in Georgia, but SMRs will unlock the ability to execute that technology for Iron Dome and it will solve one of the biggest issues.

Okay. And from your perspective, do we need an Iron Dome? What are -- what's the threat?

I'm not a technologist. It would -- if you see the success over in Israel of the Iron Dome, that's a fabulous technology. I think it ultimately gets there. I think it would be great to have it. But I think it's a ways away. Directed energy is absolutely improving, and it's going to be more broadly utilized within the military, right? And Iron Dome is the next step beyond that.

Yes. Right. So let me throw the ecosystem question now, but I want to maybe have you kind of bring into this question as well, the kind of drone warfare as well, because a lot of these companies that are involved, so we've got some evolving companies out there, defense tech companies that are focused on drones and other technologies, I think that lead with drones today. So I guess question is to why do you see this new ecosystem and new drone warfare? And then you guys are obviously going to, I think, be involved in countermeasures to help protect the assets that you're building. So the first question is, what's your take on this new ecosystem that is developing? How are you viewing these new companies? Are they competition partners? And then maybe kind of wrap it up by talking about the utility of drones going forward and some of the countermeasures and whether these things will actually be all that active, given these countermeasures you're developing?

So I think these companies are very important. I think it's very positive. I think they need to stay in the industry because it's not the drones, it's the software that's controlling the drones is what's important. There are challenges still. You've got to get them there, right? They need to be survivable so they can execute their mission. And so they're not there yet. But I think it's very important that these commercial-type companies are in the industry that are partners of ours and in some cases, there will be competitors of ours. There's a high-low mix that has to happen with platforms and you think about drones and technology and the integration of those two tied together with software. And that's where the magic is. It's that software that ties it together with AI, so you can make very quick decisions and affect the battle space without a manual route, right? So that is -- that's where the value is going to come. I think it's a challenge going from VC to actual public-traded company that has national programs, sold programs to the military, and so that's an interesting transition. We'll see how they do in that. Some have been successful already in that. Others haven't gotten to that place. But I hope they stay in. They have to stay in, some of the best and brightest. And it's stretching us, it's stretching us. We have to -- in our unmanned business, we have to participate and see what they're doing and it's making us better. And if we can partner with them to make a product better, we'll do that. And in some cases, we're doing that.

And just a quick follow-up, and then I do want to go back to how effective these drones can be over time. I'm thinking back, and you can see the gray hair and lack of hair that I have to understand that I was following telecom companies and hardware companies and the telecom boom back in the day. And it seemed to me that a lot of VCs invested in companies with an exit, not being an IPO, like the exit that they were aiming or shooting for was not going to be an IPO, it was going to be to sell to Cisco or whatever Lucent or something like that. They started these companies with an eye towards just selling. So you mentioned the difficulty of moving from VC to a publicly-traded company. Maybe talk a little bit about how you are viewing capital deployment? I don't know whether you all have a corporate venture arm or not.

We do not. We have invested in venture companies before very limited, but we do not have a venture arm.

Right, right. I mean should we here in the Investor Days begin thinking that a lot of these venture-backed companies are going to end up being acquired and you by the industrial base? I mean you kind of [indiscernible] valuations are so high...

It's just valuation issue. I don't know if they necessarily think knowing the individuals involved, I don't know if that's necessarily a strategy, right? And the valuations are so high that it would definitely be a challenge. From our standpoint, we would have to go much smaller. And if there'd be -- first of all, our capital allocation policy right now is we're investing in our shipyards. We're investing in our shipyards. We'll obviously continue to pay our dividend and increase our dividend annually. And if there's excess cash flow, we'll give back to shareholders, right? That's essentially our strategy. Now, if there's an AI company that doesn't have a crazy valuation which doesn't exist, right? We would buy resources to do AI, but we have partners that were -- they are now. So we're investing back in our shipyard right now, and then we'll provide excess cash back to shareholders. But I just -- it should be very hard, I think, to do an acquisition in the space with the valuations that exist on some of those companies. Now they could mature into them. I just don't see it happening right away. But our situation doesn't -- yes, it does not allow that.

Not directed towards that, right. Understood. Going back to countermeasures on drones. You've got very valuable assets that sit out on the water and underneath it. How do we protect those assets from drone swarms and other things. Just kind of curious...

We have a number of countermeasures on the ship. The question becomes, are you going to shoot down a $100 drone with a $1 million missile. I know there's frustration related to that. I think the risk -- well, let me put it this way, the most survivable airfield in the world is an aircraft carrier. We'll stop, right? In a conflict, right? But clearly, the Navy is pretty good at protecting those ships. So I have a lot of confidence and you've seen their success in the Middle East. So they're doing a great job at that. And I know they're developing additional technologies to deal with that. Directed energy is an interesting technology that could be developed for that, which is much less expensive.

So directed energy. So if you can protect the ship, why can't you protect assets that are onshore? Is it just that you are trying to protect such a valuable asset that you're going to be willing to fire $1 million missiles to take down a $10,000 drone.

We protect assets onshore as well, right? It's just -- there's range issues, there's speed issues relative to the projectile coming at you, right? That's part of the technology that needs to be developed to deal with that. If you have a hypersonic weapon coming at you, it's different with the directed energy versus a missile interceptor. So all of those kind of go into the calculation of what's the right technology.

Right, right. Okay. Let's see here, I think we already touched on one of these. I think there's standard question that we're going to ask every company throughout the conference, not just A&D company, I want to ask that you now because I think I want to shift a little bit more to some of the near-term issues that the company is grappling with. And then, I will open it up to the floor here in a few minutes as well for those that want to ask a question or two. The question that we're asking all companies, just to talk about the top 2 or 3 innovations or structural changes that are affecting the company over the next 5 years. And I think you talked about AI.

That is the major structural change. And you don't have a choice. It's going to happen and you take advantage of it, get the right partners, don't think you can do it yourself, right? And it's going to make you more efficient. It's going to -- you just take advantage of it.

Yes. You mentioned earlier that you thought over the next couple of 3 years, we'd begin seeing some...

Probably before that, 2 years.

Okay. So as part of the 20% throughput that you talked about improvement...

That's not in there. Not in there. We're going to get better than that.

Yes. What's the key to market, key to success on that 20%?

On the 20%?

Yes.

It's really split between increasing our labor force with additional wages that we're working on with our customer. We can't just do it ourselves because flexibly priced and cost type contracts immediately impacts them. So we need to work with them to get that done. Additional outsourcing which we'll improve that. We're already doing significant outsourcing now, but even further with existing partners. Insourcing where we're bringing people under the shipyards to actually do work. That usually is in welding or fitting or electricians that's usually painting and outfitting stuff like that. And then W International is really going to help. So it's kind of a four-pronged approach to increasing that throughput.

Okay. Great. Let's see here. I'm going to ask two quick questions, and then I'm going to go open it to the floor to see if there is anybody out on the floor who has got a question. But why don't we start with the margin and cash flow forecast for '25 is dependent on getting some ships under contract. I guess, 10 ships on a Block VI and on...

Two on Block V, the back end of Block V and then 10 on Block VI and then the Columbia-class group too.

Exactly. Is there anything that the Congress especially needs to do to make this happen at this point? Where is the decision-making going on at this point? You mentioned SAS early on in the conversation as well. So maybe just kind of help us understand kind of what's in the numbers for '25 forecast and what the risks and opportunities might be?

There's no barriers to getting the FY '25 two boats under contract. Congress did it normally, added funds, added investments for workforce development and capital and the infrastructure investments. That has all been appropriated. We just are in negotiations with our customer to get that done. And I expect that to get done in the first part of this year. Block VI and Columbia Bill 2 are a bit more of a challenge. There's going to be funding challenges, is getting those under contract. So there's more work that needs to be done in the Pentagon and with the administration relative to understanding what that cost is going to be. That's why SAS was such a beautiful project. It reduced cost accelerated submarine production, immediately infused significant investment into the industrial base. And they did it by -- that's restructuring the contracts and really acquisition approach. And I don't want to get into the details on how that works, but it just restructures the contracts that enables that. That makes it fit, that makes the budgets fit, support U.S. submarine production and AUKUS. So it's a significant initiative. It's still in play, we need these FY '24 two boats done, and then we'll pivot to that because that enables Block VI and the Columbia Bill 2.

Okay. So it's going to be a 2-step process. It sounds like...

Maybe three. Block VI and Columbia Bill 2, although we can negotiate those together, but might -- we may have to separate that.

Right. And you said first part of this year. So just definitionally what does that mean to you?

Before June.

Before June. Okay. So first half of the year.

Yes. Yes. By the end of June.

Investors ask me, so I'm going to ask you as well. [indiscernible] Let's see here. Maybe switching gears over to Ingalls for a moment.

Sure. Okay.

So profitability has been under consistent pressure, I guess, following positive EAC adjustments. How those stabilize and begin to improve from your perspective? Maybe we'll just leave it there and see...

Ingalls has had the same challenges as Newport News, just to a lesser extent. They've executed very well over the last 10 years. There's really a wind down of a very successful program, the NSC program, which contributed to the positive results over the last 10 years. So there's a bit of a transition taking place in programs where DDGs are becoming more prominent. And, as you know, they're competitively awarded. And then they were negotiated a lot of the DDGs prior to the -- right before COVID, right? So we're working through that. You saw a bit of a reset over Q3 and Q4 at Ingalls. I got a lot of confidence in that team. I think they'll stabilize and I expect them to be better this year than last.

Right. What you just described is a little bit of a mix, it sounds like...

So mix, it's what we always talk about that you want to be -- the time to harvest portability is when you're in a run rate program that's mature and you're more predictable. And that's what we had with the NSC program. That's what we had with the LPD program, it's a very successful program and then not have a kind of a cataclysmic event like a Hurricane Katrina or COVID happen, which significantly disrupts our workforce. That's why I think there's such an opportunity with this $50 billion of work we're going to put under contract. But the key is getting to the other side on shipbuilding contracts, getting through a challenge, having the demand for the products and getting to the other side and making sure that those are fair contracts on the other side, so you have a chance to execute and actually beat your projections. That's where we're on that $50 billion. And I'm fortunate and then Tom and I are both fortunate, we're able to see it. We actually did it. So it's not a mystery. It's -- there's not a magic involved in doing it. It's -- you have to have demand for the product. You have to be resolute in your negotiation. You have to make sure all your cost data reflects your current performance, you have to partner with your customer for doing better if you can, but you need to protect yourself in your terms and conditions. So that $50 billion is going to form a real good basis, I think, for improvement over the next few years. It's going to be slow. I said it's going to be over the next 24 months, it's going to be incremental. But beyond that, I think it's -- as we deliver ships, we have 5 in the next 2 years, and we deliver those ships -- the team is going to get better because we're delivering ships, nothing is better than delivering a ship for a team. And then the $50 billion is going to be more part of the backlog -- excuse me.

Right. Well, we're going to pause here and see if there's a question. We've got one over here.

Thanks, Jason and Chris. First, could you talk about the 20% throughput you are expecting this year like that is such a significant number and obviously, the industry has had challenges. So maybe just address some of the blocking and tackling you're doing, how much of that is in your shipyard? How much of that is in your supply base as you expand the industrial base again?

Yes, we've more than one way to win. So that's what we have really 4 different initiatives. If we hit them all out of the park, it will be better. Fortunate, we've been outsourcing. We have really good partners, both at Newport News and at Ingalls to send some of this work out. And that's an immediate win. But the International is an immediate win from a throughput standpoint. The challenge, we all know, is labor. We've had a challenge with our attrition rates within the shipyards. We have high attrition rates and experience levels low. The throughput is impacted, working very closely with our customers to deal with that from a wage standpoint. So we think the combination of additional experienced labor in the workforce, reduced attrition, outsourcing, in-sourcing, which you're actually bringing companies in to do the work, which takes the load off of your labor and then W which is just for layup. So I'm not saying the 20% is the layup. I'm saying W increasing capacity as a layup. But if you hit them all out of the park, it'd be in a really good place. We need to make sure that we make that 20%.

Anybody else from the floor? I see a few of these lights. Okay. I don't think so.

All I see is lights.

You mentioned earlier as well, I think it was related to capital deployment question, cash and cash returns to shareholders. Maybe we can talk for a few minutes on cash flows. And maybe just help us understand the walk from 2024 cash flows into '25, what the risks and opportunities are for cash flow? And then at what point, you guys had some kind of a 5-year -- kind of cumulative number and -- but I guess the question would be after you get these contracts signed, is there an opportunity for us to come back and have you kind of update us on what that looks like? And then you also have the $700 million or so eventually of cash flow on an annual basis. I'm guessing the question that's going to be it's still out there and we get to $30 billion of revenue, all that kind of good stuff. But any idea...

So let me talk about cash -- let me talk about cash a little bit. So it's always been a challenge in shipbuilding to forecast cash, not because we didn't think it was coming, but it's a large invoice on aircraft carrier flips to January 2nd, people think it's a significant issue in cash, but it's not. It's just -- we have a few projects, large invoices, timing is hard, right? It's gotten harder because of these incentive laid in contracts where there's a greater percentage of our profitability and our cash is tied to incentives for all the right reasons, right, incentivize performance, make investments, all those sort of things. So it's gotten to be more of a challenge. So $700 million is absolutely in the cards in the future. And I expect us to get there fairly quickly. I wouldn't expect a 5-year cash guide unless -- until we stabilize, get the $50 billion under contract, have line of sight and how -- make sure we have a baseline of performance that we understand. Going forward, we get some of these ships delivered. So I'm not ruling it out. But right now, we need to get through the next 24 months, meet our targets for this year, guiding to '26, meet our targets for '26, and then we'll see how things go. But free cash, we're really a great customer, they're going to pay us on time. Cash conversion over 2 or 3 years goes -- gets back to 1.0, it has to. So I'm confident that cash is going to recover.

Yes. But underlying that assumption on returning to those levels that you've spoken about in the past, it's getting the shipyards back to historic profitability in that 9% to 10% range. Is that a fair...

I don't think you necessarily need to get all the way back then. And we haven't given specific figures. But if you just run the income statement, with Mission Technologies and the shipyards and understand the capital and the pension and the tax -- cash taxes, you can get down to north of $700 million without getting back to 9% to 10%.

Okay. Great. We've only got just a few seconds left on the clock on our sides. So I think we'll leave it with that. I really appreciate you spending the time with us today. Hope you get back home safely with the winter storm that's coming in.

Thank you. Appreciate it.

Thank you. All right. Awesome.