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

Okay. Why don't we get started? I'm Doug Harned, Bernstein's Senior Global Aerospace and Defense Analyst. I'm really happy to have with us again, Chris Kastner, the President and CEO of Huntington Ingalls or HII. And Chris, you may -- I don't know if you have a few words to say at the beginning.

No. Yes. Normal safe harbor rules apply here. We're not going to break any news today. Let's just jump into the Q&A.

Okay. Great. So to start, perhaps you can just give us a little bit of an overview on HII and what your most important priorities are right now.

So it's been pretty clear to us that we need to focus on execution. We've got very clear operational priorities around throughput, but we want to increase throughput 20% this year from last year, do significant cost savings in all 3 businesses and at corporate, and then work on getting the new ships under contract. We've got 2 ships under contract in Block V at the end of Q1 or right subsequent to Q1. We need to work on getting the next 15 submarines under contract, and that will set us up well for really the next 15 to 20 years when you think about workload.

Well, when we first look at the budget overall, look at the Navy, so we've seen the President's skinny budget for 2026, not much detail on that. And then a reconciliation bill, which has a lot of money in it for shipbuilding, but it doesn't have to be obligated for 4 years and -- or spend in 10. So how do you think about this given that combination and a number of things we don't know about?

Well, I just think there's tremendous support for shipbuilding, not only defense shipbuilding but commercial shipbuilding. We're not clear how reconciliation and the skinny budget in '26 work together, whether it's additive or they're really funding some of the '26 requirements with reconciliation. We just don't know yet, but we do know it's positive. We know there's significant demand for shipbuilding. And it's -- we think that's going to continue into the future.

Yes. Because in that reconciliation bill, it's another Virginia class in 2027. Quite honestly, I'd be shocked if there had not been eventually another Virginia class in '27. But what does it mean when you start to see -- also more for more DDGs, how does that affect you in terms of gaining confidence in your investment in your preparation for that?

Yes, we have a lot of confidence they're going to do a Block VI contract. There's going to be 10 submarines in that contract and then 5 Columbia-class on the Build II contract. There's significant investment that came through in the Block V contract, not only shipbuilding investment, but also the government kicked in and did some investment as well, which is very important. So we have a lot of confidence in the outlook over the next, as I said, 10 to 15 years.

Yes. Now separate from the budget, we've seen the President announced a White House Office for shipbuilding, talk about working with allies countries like Korea help in our shipbuilding processes. So I can't imagine them making a nuclear submarine.

I can't imagine that either.

But what's your take on this? It clearly is an emphasis on shipbuilding. And from that standpoint, I assume it's positive. But is there anything specific in there that you're looking forward to?

So it's only positive. The shipbuilding office and the White House, even though it's going through a bit of a reorganization right now with national security adviser getting a different job. We think that, that office will continue and be supportive. It's really the kind of the voice of the administration to Navy and Congress. And it's very good because those are kind of high-quality people. We know them. We interact with them regularly. So that's very positive. The discussion about the executive order and additional commercial shipbuilding is very positive as well. We have a relationship with HHI. We put that in place to discuss potential business models related to commercial shipbuilding that we'll explore and then potentially have interactions with them technically around best practices in defense. And then even eventually potentially then building a portion of our surface ship portfolio in Korea. That's kind of far off. It's more work to do before that happens. But the first 2 are very real, and we're evaluating that with them.

So what does that mean for you to think about doing commercial shipbuilding?

Yes. So commercial shipbuilding, we -- trust me, we've had issues in the United States in commercial shipbuilding. We just can't compete internationally because of the -- really, our economy and the strength of our economy and wages. We're really at a competitive disadvantage internationally. So we'd have to have a business model and significant subsidy from the government in order to make that happen and compete.

Yes. Okay. Now one thing that we have to always talk about almost every session here are tariffs.

Tariffs. Yes. It's easy for us.

Yes, it should be pretty easy for you. But even I don't know, materials, things like that if you've got any tariff exposure?

So we don't. We don't have any tariff exposure. We buy American and there could be secondary impact related to demand for domestic supply. We haven't seen that yet. And even if it does, we'll flow through the -- in our contracts to make sure we're protected. So there's no real impact for us with tariffs.

So a big deal, I think, was the award of these 2 -- last 2 Block V Virginia-class, which has wrapped around it support for labor and infrastructure to some extent. Can you talk about that and what the implications are for you?

Yes. So it's very significant. It was a long process. We started it under the previous administration. Finished it under the current administration, the Congress had gotten additional funding out of the anomaly to provide for additional investment to get it to 2 plus 1 build rate. That investment, it culminated in a contract where we get workforce support both in General Dynamics got that as well as HII at Newport News. So we're going to get support for our workforce in Newport News, but also critical investments in infrastructure to make it more efficient to build submarines and Newport News. So it's very positive. It's definitely a testament to the commitment that the administration has to get after shipbuilding and get after submarine production rates.

But what -- and so more specifically, we've talked in the past about the need to -- you need to strengthen the labor force and you've constantly -- each year, you've been working hard to grow that, offset attrition, all of that. How does this support help you?

Well, simply wages. It's likely wages we can increase the wages of our personnel in Newport News. We entertained traditionally a spread in what we paid at Newport News and what the local infrastructure paid for general services, retail, there was a pretty sizable spread between what Newport News paid. When you went through COVID, when inflation hit, that spread went away. It was just too easy for someone to quit their job and go somewhere else because they thought the job was too hard. This will allow us to recreate that spread and attract what we think is more high-quality individuals into the workforce. So it's significant that will impact attrition. We think it will reduce attrition. We have a lot of data that says that attrition is lower performance is better. So it's very important for us.

And the other aspect of -- the other -- one of the other challenges here has been in the supply chain, does this support also filter down into the supply chain and help that?

Yes. So not directly, but there are significant investments that have been made in the SIB in the MIB which are funding that I think there's almost $11 billion identified over the fit for the MIB, that has flown into the supply chain, and that has helped the supply chain. Definitely more stable. There are elements that are still a problem in the aircraft carrier program. But it's definitely more stable than it has been pre-COVID, less inventory. So if you have issues, say, during the test program. But I think that MIB and SIB money has gone a long way to really help the supply chain. Nothing in the Block V contract, but there is stuff that comes through MIB and SIB.

Okay. Because the other issue, which we've talked about before has been inflation. And it's certainly something that you've seen over time every other defense company here has had to deal with it on fixed price contracts. Do you see right now in any of the support you're getting any relief for the inflation that it's put margin pressure on?

Yes, not on our current contracts, not on the pre-COVID contracts. No direct relief for inflation. We are getting that protection on our new contracts. So we'll ensure we don't have that issue in the future. And this is really a Newport News at Ingalls, we have protection for inflation. But no direct contractual relief for inflation on the pre-COVID Newport News contracts.

But presumably, when you get into the Block VI contracts, those will look different.

We are protecting -- well, and the Block V, 2-boat actually protects us for that as well.

One of the thing that comes up at least with us all the time is Virginia-class throughput, this goal of trying to be at 2 per year collectively, you and General Dynamics. You talked about an objective of 20% better throughput in 2025. How do you get there?

So we're already -- we're making progress on that already. We get there by improving retention, increasing outsourcing, increasing in-sourcing, which is bringing contractors into the yard to do the work. We bought a facility in South Carolina with W International, 500 good employees that are executing. So not only do you have to improve performance inside your shipyard and improved throughput, but we're actually recreating the industrial base, not only us, but General Dynamics and the other shipbuilders by expanding people that could do units and piece parts. So you have to do it. It's kind of all of business results here that we have to achieve. It's not just doing it within the shipyard.

Yes. And sort of over the last year or so you've had some leadership changes. One of the challenges that has always been described to me more from the Navy standpoint is that it's not just the quantity of workers, but it's sort of that top tier, where there's a huge amount of institutional knowledge. And when you think about that, how does that stand now in terms of...

I'm actually pretty comfortable with the top tier of shipbuilding knowledge. It's the foreman level and the general foreman levels where we're working really hard to increase their proficiency, teach them how to put people to work and then just not have as many green labor individuals in the workforce, hire more experienced people, you have a higher percentage of skilled craft people in the craft. But really, it's not the top-tier shipbuilders. It's not the vice presidents. It's not the naval architects. This is general foreman, foreman. That's really the focus to increase their training, increase their proficiency on putting people to work.

And I can kind of remember like way back when you were down at Ingalls, I remember down there where...

It was a long time ago.

Post Katrina period where you had that huge problem with the general workforce coming back, green labor. It sounds like that is not the issue right now.

Well, we know the issue that there is green labor, but we have repositioned our hiring to just hire less, right? We need to hire more experienced people. We do have a less experienced workforce. We have a less experienced foreman and general foreman. So as I said, we're focused there. But you don't see the massive after Katrina green labor issue that we had.

Is there a way to project when you may get to that 2 per year rate?

We have models to say when we get there. I let the Navy talk about that on when they're going to get there. I do believe we're going to continue to make progress. These are the correct investments. We've been there before. LA-class submarine programs, we were delivering 4 and 5 a year amongst the 2 companies. So I do believe we'll get there. It's just going to take some time.

Well, and something that we see coming up when you look at the AUKUS program, there are -- this is an issue that sometimes gets raised is how are you going to be able to deliver to Australia if you can't get to the 2 per year for the U.S.?

I think they're going to work that out. I think they're going to work that out. If Australia is nuclear prepared and nuclear ready to manage submarines, which we're going to help them get there. We have a significant effort in Australia to do that with our partner, Babcock. And we're going to get them prepared to do modifications of submarines and maintain submarines and home port submarines there. If they get there, if they get that done, they're going to get a submarine. I don't know when specifically that date is. And I don't know if we have to get to 2 plus 1 before they get one, but they're going to get a submarine.

Yes. And I think as it's been laid out, the first submarines will be existing, not new build.

That's right. That's right. They'll figure that out.

And any insight into the politics around this?

Politics are positive. Both administrations support it, the Navy supports it. Australia supports it even with the elections that happened. So I think it's very bullish right now, the AUKUS program. It's good for us. It's very important for us. We've made some investments in some people down there to get ready for it. And we've won some contracts, and we're going to compete on some contracts over the next 12 months that I think should be very positive. So we've got a good partner, and we've got a good outlook for AUKUS.

Now presumably, the #1 priority is Columbia-class.

Of course.

And can you help us on how is that going right now? What's the progress?

It's going fine. The second boat is definitely learning going on between the first and second boat. Cost performance has improved significantly first and the second boat, at least for Newport News is worth. I don't really want to comment generally on the entire program, that General Dynamics program, I'm a subcontractor. But we have seen pretty significant learning between the first and second part of the boat that we build.

And CVN 80, you took an unfavorable adjustment in Q1. When you look at the aircraft carriers, how is that -- what happened there? How is this proceeding?

So 80 has been impacted by some late major equipment in the bottom of the ship, right? And you just can't direct the ship unless you have that equipment and it's too large and you can't complete an efficient construction of that hole without that equipment in. That's coming in this summer. It's incrementally coming in and we're incrementally building around it. They will be complete by the end of the summer, I believe, or around the end of the summer, and then we'll get back on cadence. But it has significantly impacted that ship.

And when you look at Newport News, I mean, you've got the carrier program, you've got Virginia-class, Columbia-class, you got the carrier.

You got the RCOH program, which is a very good program, yes.

So how do you think about managing the complexity of Newport News? Does -- what you're doing on one of these difficulty in one area affect others? Or I mean...

Well, it's all intertwined. We've got a lot of ship classes in Ingalls as well. So you have to just have standard processes so you can move people back and forth. Historically, at Newport News, they didn't have similar processes between submarines and aircraft carriers. Part of the beauty of the new management change there is we've got a leader from Ingalls going to Newport News that really is comfortable with the new processes and it's going to make sure that they're used.

I remember her from a long time ago.

Yes, Kari Wilkinson, and she's doing a great job. And there's some great shipbuilders in Newport News. They just need to get some wins. And I think with the investments in the Block V contract, the labor adjustments make the milestones this year, 798 gets delivered, 800 gets launched. I think the future is pretty bright for Newport News. They just need to get some momentum.

And in terms of hiring, you've talked before about the number of people you need to bring in per year. How does that...

Well, we're a little behind this year because we consciously decided to not hire as many new hires because they were just leaving. They realized it was a tough job. So we're hiring more experienced people. We're tending to stay on schedule. So we're going to continue to do that with more experienced people. And when the labor -- when the wages increase at Newport News, that will help it as well.

How do you draw people in it?

So it's interesting. We've gone from about 5 to 10 -- what we call is the pipeline. This is -- the last thing you want to do is just hire people off the street in shipbuilding. It doesn't work. They leave. They're not ready for the challenge of shipbuilding. And we were hiring a significant percentage of those. We have a pipeline, which is the regional development centers where people -- the federally and state-funded regional development centers that we sent the state and the federal government has sent additional investment into. And our results coming out of there have gone from about 5% to 10% of our workforce up to 30% over the last year. Those people stay because they chose it as a career, they've been trained and they know what they're getting -- they know what they're going to happen when they get into the shipyard. We want to get that up to 60%, and we have a path to get there. And if we can do that, that should help attrition as well.

No, I just want to because it's a fairly specialized field. So there are not that many places I would think you can go.

Well, Hampton Roads is a pretty robust shipbuilding market. There's a lot of shipbuilders in Hampton Roads. And on the Gulf, if you can weld, you can fit pipe, you can do electrical. If you work in an oil and gas facility and in an oil and gas business, you can quickly transition into shipbuilding. So there's people out there. There's -- manufacturing is tough right now to draw people, but we think that we can attract them with this new wage structure.

So you've got strong -- it seems like very strong political support. You've got hopefully more money for many aspects of this. How much of the work in terms of getting throughput up, getting margins up, how much can you do on your own? Or how much do you need action by the Navy additionally to plan on things or potentially your partner up at Electric Boat?

So we work on that together with the Navy and Electric Boat on the type of investments that are required to increase throughput and achieve the margins that we think we deserve that are necessary to support that sort of capital investment. So we do that analysis for each project that comes up, how much we're able to invest to support it and how much we'll need additional investment from the customer. That tends to work. It's a good organization. EB, Newport News and NAVSEA have been working very closely together for a long time. You see that culminated in Block V. That was a very productive relationship and contract when it showed up. We're very happy with it. We think it's fair, and we hope to continue it in Block VI.

It seems like a big improvement from where things were.

Well, so you get -- the Block V contract was a good contract. The Block IV contract was a good contract. It was executed. The challenge is we did not anticipate COVID. We just didn't and the far-reaching effect of that on the supply chain and inflation and the labor base.

Now you've talked about 4% top line growth for shipbuilding.

Yes.

That's a little bit higher than I remember Mike Petters used to talk about 3% to 3.5%. When anybody pushed them to 4%, he would push back hard.

I pushed them to 4%. So -- No, they were dealing with flat budgets at that time. And it was just essentially inflation. So it wasn't real growth, right? We think there's going to be 4% growth. If we can attract the people and achieve the throughput that we need, it could be better than that. But we think that's a modest assumption based on all the work that we have. It's only -- it's driven by can we get the people, can we get the supply chain in place to execute against it, and we should definitely be able to achieve that on a long-term basis.

And that is -- certainly, it's predominantly driven by Newport News being the larger of the 2 businesses or maybe not?

Newport News will grow more, but Ingalls will grow as well.

Okay. Now longtime goal has been to get to 9% margins across shipbuilding. But in theory, I would think that kind of in the old days, we don't see that anywhere now. But that 9% to 10% range, you could get there with a mix of fixed price contracts, development work, and that was kind of the natural strongly performing shipbuilder. We've gone -- we just -- there have been so many challenges over the last few years. So we're pretty far from that now. But how do you think about a path to get there at Newport News?

Well, it's the reset of the contracts. It's making your milestones over the next 2 years and getting Block V under contract, which we did, Block VI and then Columbia Build II. When those get under contract, you transition into those new contracts and you execute under those, which are better contracts, better risk protection, better inflation protection, you're going to lift to 9% to 10%. I have a lot of confidence in it. I've done it before. We did it at Ingalls after Katrina. It's exact same playbook. It's nothing special. Negotiate a better contract and execute against it and then it will lift.

Because I would think, in principle, what we're looking at in terms of mix at Newport News, I mean Columbia-class is a little different. But these are not all new designs here, which you were facing -- if I go back to the Ford-class in the beginning, it's a much different world back then.

All serial production. We built all these ships before. We should be able to it. We just need to get the cost baseline right, and we need a labor force to execute.

And so once you get there, it seems like you could be on track to get to that.

It's not going to be easy, but there's definitely a path to do it.

Okay. Now Ingalls. So I remember back a long time ago when we were down there in the dark days of a lot of the Northrop Grumman issues there.

Yes that was there.

Yes. I saw you there. You then -- you had a lot happen, right? You got new contracts that were much more acceptable. There had been some very unfavorable ones before it down there. So you got to those new contracts. You had a person running it, Irwin, who was very aggressive, I think, on getting costs down and hiring.

Well, just discipline, really. It was just discipline. It was say do what you're going to say, say what you're going to do, be on time, keep the shipyard clean and execute your work. It was just natural leadership style that Irwin had that was very positive.

And I felt like everything sort of worked together. You got more favorable contracts. You got the discipline you're talking about, cleaned up shipyard that was very difficult. And then also things matured, because you were in the early days of...

LPDs matured, LIC matured. The LHA class matured as well. So you're not dealing with first-to-class ships anymore. We were training people on those ships that were underwater through the test program and going to trials. Those are the same people that knock it out of the park on the subsequent ship. So the people that we're training at Newport News right now are the same people they're going to execute the new ships when they're executed, and they're going to do a much better job because they're learning on these ships right now.

Yes. So that's what -- I mean, back then, you got -- you're able to push margins up because you're dealing with mature fixed-price programs that are properly priced and you're able to get 12%, 13% type margin.

I'm not committing to 12% to 13% margins right now. I'm not going to do that. But I do think there's going to be significantly more predictability in Newport News execution over the next few years. The LPD 22 and LPD 24 program manager was Kari Wilkinson, who's now the person that's running Newport News. So she understands how to do this. She's done it before.

Yes. And that's what though is -- if you look at the mix here with the maturing of programs, I know you're not going to. But I do remember talking with Mike way back then and I said to him, can't you get 12%. He said No, no, no. 9%. That's it.

9% to 10% is a healthy shipyard of new work and mature work. That's what we've always seen. There's a lot of factors that went into Ingalls doing very, very well. My hats off to them to us that it was a great 10 years. But it's really a very good team managing down there right now, and they'll continue to execute. I've got high hopes for them after they get through these kind of ships that were impacted by COVID that they'll recover as well. I don't have a specific time for that. I don't necessarily call it a recovery because I think it's less risk than there is at Newport News, but I do believe they'll recover as well.

Yes. So -- so the -- what has happened there that the margins came off a little bit recently.

It's just working through the ships that were impacted by COVID. It's that simple. You had a reduced workforce, you had a greener workforce, more rework, less schedule adherence and you're just working through those ships.

Because you should be on the other dimensions here in terms of correctly priced contracts, things, I would think you're in pretty good shape.

We don't have that issue at Ingalls. This is execution.

So -- and how has it gone when you built out all the investment across the river to expand? How is that all going...

East Bank, it's gone great. We've got a peer over there. We're doing work over there. We've got probably 200 to 300 people over there. East Bank expansion has done very well. We have a lot of room in Ingalls. We can build a lot of stuff there. We just don't have enough people to do it. But there's ample capacity at Ingalls to execute additional work. We just need more people to do it.

If you did -- and I'm going back to trying to think through this growth rate, 4% growth rate. If you did, you foresee what kind of additional work might come in there? I mean there are going to be more DDGs, but...

There's going to be more DDGs. We don't know where the frigate is going. I don't see them taking -- I really personally don't see the frigate leaving Wisconsin. I think that's an important piece of industrial base that needs to stay in place. So they'll continue to work on that, but there has been discussions previously of a second frigate build yard. There could be outsourcing of other ship classes that's done. So not sure what could show up there.

I don't know if we -- is there a button on check.

Okay. So if you have capacity, give capacity and people to do work, you're going to get work in this environment.

And what type of -- I guess I'm trying to picture...

Any module work from Newport News or GD or Austal or whoever has additional demand on them that they can't get done themselves. Because everybody needs -- because everybody needs capacity.

Is that a priority as well for Ingalls to try and utilize that?

No, I think executing their current workload is good. They're not out marketing themselves for additional work. But if they have additional -- if they're able to hire people and they have excess people, we'll be able to put more work in there.

Now the reconciliation bill, and it adds another LPD in there.

Well, we're not sure. We're not sure. That's a debate going on right now, whether there's an additional ship or that funding is funding the incremental funding required by the bundle that was put in place. So there's a debate going on within various people who like to do this debate on what that's for. I think we'll figure that out over the next couple of months.

Yes. If I go back a couple of years, there was a lot of talk of the transition to LHR, the next-gen boat. What's happened on that? I mean, is this something -- do you -- is it something that you're working on in the background from a development standpoint? Or what is it?

No, I think LPD will continue. They'll buy additional LPDs. And then LHAs or LHRs that will incrementally change potentially. But there's a lot of demand for the large decks as well. There's no radical new design that we're working on in that ship class.

So we're not looking at an LPD replacement actively.

No, we're not.

Okay. So I guess when we look down -- we look at the Ingalls operations, can you -- this -- we've been kind of looking for when you could get back to that kind of 10%-ish margin. Is that -- when we talk about 9% to 10% as a well-run shipbuilding business. But still, things are pretty mature down there. So getting to a 10-plus number again down there, is that reasonable?

Of course, it's reasonable. And it could happen. We don't guide by shipyard. We don't have a specific time frame of when we think it's going to improve. I do think it will, but I'm comfortable at 9% to 10% across both shipbuilding businesses in the future.

Okay. So switching over to Mission Technologies. And I guess -- and we've talked about this one before, too, but when you look at the range of things that you're doing in Mission Technologies, what holds it together? And what makes that a business segment? Because we see...

It's interesting. The markets that we're in are exactly the markets that the government is interested in, right? Electronic warfare, C5ISR, uncrewed vehicles, Nuc, fleet support, live virtual constructive training. Now you go to market together on a lot of those things for proposals and opportunities within Mission Technologies. You'll bundle electronic warfare analysis with C5ISR capability with LVC, with cyber. It's all -- it gets bundled in a lot of these large contracts that you pursue. So it's good to have all those capabilities in your in your toolkit. There's also unmanned team with any of them. Our uncrewed stuff, teams has ISR capabilities, has electronic warfare capabilities, and you can bundle products in that market with those capabilities to go after those opportunities. And more and more of those are showing up software-defined sort of projects that have hardware and technology bundled together to attack an issue. So we're seeing that. We're pursuing that, and we hope to continue to win there. We've -- our backlog, we had almost $10 billion of, I think, $12 billion actually of awards last year, total contract value in that space. So we've been very successful. We hope to continue.

Well, how much -- I mean, is there a connection, a substantive connection between what you're doing there and what you do in shipbuilding?

There really is. It's interesting. The MUSV opportunity is coming up. We're evaluating that. That's a combination of a large enough ship that you need a real shipbuilder engaged, autonomy, 2 different payloads that are included in it. So you need to understand that tech, have people that understand that tech, but also be a shipbuilder. So shipbuilding is evolving. It's going to be a manned, unmanned sort of force in the future. I think we know that. And I think you need to be involved in both.

And it's interesting, just as an aside, if we go back not that long ago, I mean, there's been multiple efforts to rethink the architecture of Navy strategy, moving away from large platforms, going to more distributed basis, more unmanned. But things move very slowly in that world.

Well, interesting, we do have the only production or the program of record for unmanned right now with a small. We delivered our first 2 production units there at the end of the year or beginning of this year. We'll be delivering significant more of them this year for specific missions for the Navy. So it's happening, maybe not as quickly as people would like, but it's absolutely going to happen.

And when you think about UUVs and that world, this clearly, we see it it's a priority for the Navy, but it seems pretty small right now. And so when you look at that, I mean, how large is this? How large could it be in 5 years or so?

Yes. So I don't have a specific number for you on how large it will be. It will be a more significant part of our business. And it's not only the hardware, it's the software that connects it to everything and the different missions it can do. And that's being explored in the business model and how you do that. Like how do you actually sell the software to the Navy that controls all these uncrewed vehicles, surface and subsurface. And how do you connect it both to the air assets and to the ships. That's something that's not fully understood yet. When that's understood and when you're actually selling software, I think it becomes more impactful to the Navy and to your revenue stream, but we're just not there yet. And we're not the only people trying to do it.

And that was going to be my next question. We've got -- there are new entrants out there that are pursuing this in addition to some established companies trying to -- so it's a lot of competition, and it seems as though people have a lot of different approaches, too.

Yes. Not significantly, though. There's going to be a software-defined solution here with unmanned and manned teaming that has a data web that can manage all different types of classification of data with AI that manages out on the edge. It's going to -- that's a -- I mean there's a lot of different solutions to that, but generally, that's what the solution is going to be. There's going to be a lot of competitors. The new guys are coming in and competing for it. They've got a lot of money behind them. We have revenue, which is good. We have an established program, which is good. So that's our benefit here. So we'll just see how it goes.

Do you end up partnering with some of these new players?

Potentially.

So if we -- the other thing that comes up a lot related to Mission Technologies that people ask me about, it's the Dodge. In other words, because you do have these services businesses, have you seen any impact from some of these cost reduction efforts in Washington?

Yes, we haven't yet. We see no impact related to that. We've communicated with them. They sent us a couple of letters. We've responded, but we have not had anything canceled or terminated and we're waiting for their response. We'll see how that goes.

Yes. I mean it seems like the focus initially has been more on consulting type contract.

Consulting. We don't do consulting, all of our -- and especially hardware. I mean we actually deliver product that does a mission. So we'll see how that evolves. You never know what's going to happen, but I don't see a big issue there.

Well, kind of when you put everything together, so you've guided to free cash flow of $300 million to $500 million this year. What events could lead you to the high or low end of that?

Well, if we execute well on our ships, make our milestones, make our throughput goals, negotiate the Block VI contract, negotiate the Columbia Build II contract, we could be at the high end of that range or potentially even better. If they don't happen, then you could be at the low end of the range. But those things -- it's really a combination of those things, kind of risk-adjusted get you into that range. Most importantly is we have to execute. We have to execute on the deck plate, need to meet our throughput goals, make our major milestones, get some ships delivered and transition into the new ships.

And are there some specific milestones you could highlight that we should be watching?

Delivery of 798 is very important mid this year. Float off of 800 is important. We already launched 129. 128 needs to go to sea this year, probably won't deliver until beginning of next year. Those are very important. LHA 8 next year is very important, getting that delivered 79, getting that done is very important. I love all my ships the same.

Okay. So you used to have these longer-term free cash flow outlooks. You don't have that now.

We do not.

How are you -- can you give us a sense of how you're thinking about that? What some of the issues are, plus or minus, that would allow you to make...

Well, we need to establish credibility in our execution over the next couple of quarters, and we need to meet our commitments for this year to Wall Street, and we're going to do that and our shareholders. And when we do that, we'll reevaluate it next year. I'm not sure we'll do it or not. I want to get out of these pre-COVID ships before I make a commitment because you just don't know, in some cases, what's in those ships until you get there when you start the test program. So we'll reevaluate it at the end of the year, but I really like having a short-term commitment we need to make. We're going to make our commitments to our shareholders and then move into next year.

And is there a way to say when you feel you'll be out of the risk on the pre-COVID ships in time frame?

Well, we talked about in '27, where 50% of our revenue is post-COVID ships in '27, and it just gets better from there, but I'll feel better when every one of those ships is gone.

And by post-COVID ships, you mean ships that were...

Ships negotiated.

Effectively, they were negotiated post-COVID.

Yes.

Well, great. Well, look, just to wrap up, maybe you could you summarize where you see the biggest opportunities and where you're going to be focusing your time?

Our biggest opportunity, and I focus almost all my time on execution, execution in the shipyards. We have to get these ships delivered. We have to make our throughput goals. I'm holding each and every program manager accountable for their throughput goals every month. I rank them every month top to bottom, and they see it with their face on the scoreboard. So we're very focused on that. If we do that, if we execute, if we make our cost savings targets that we've set out, we're going to be in a pretty good place because I know we're going to get the 15 ships under contract. I know we're going to get a good deal there, a fair deal. The Navy is very fair, led by business personnel, by the way, which is very positive. It's just the risk and execution is the biggest issue for me that I spend most of my time on.

Yes, because it does seem from a demand standpoint.

I'm not worried about demand.

No problem.

I'm not worried about demand.

Well, Chris, well, thank you very much. Thank you. Great to have you here.

Thank you. That's it?

Yes.

Appreciate it. Thanks again.