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. Chris, you may—I don't know if you have a few words to say at the beginning or.
No, just normal safe harbor rules apply here. We're not gonna break any news today. Let's just jump into the Q&A.
Okay. Great. 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.
It's been pretty clear to us that we need to focus on execution. We've got very clear operational priorities around throughput, where we want to increase throughput 20% this year from last year, do significant cost savings in all three businesses and at corporate, and then work on getting the new ships under contract. We got two ships under contract in Block Five at the end of Q1 or right subsequent to Q1. We need to work on getting the next 15 submarines under contract, and that'll set us up well for really the next 15 - 20 years when you think about workload.
You know, when we first look at the budget overall, look at the Navy, we've seen the President's skinny budget for 2026, not much detail in that.
Right. Right.
The reconciliation bill, which has a lot of money in it for shipbuilding, but it does not have to be obligated for four years and or spent in 10.
Right.
How do you think about this, given that combination and, you know, a number of things we don't know about?
I just think there's tremendous support for shipbuilding, not only defense shipbuilding but commercial shipbuilding. It's—we're not clear how reconciliation and the skinny budget in 2026 work together, whether it's additive or they're really funding some of the 2026 requirements with reconciliation. We just don't know yet. We do know it's positive. We know there's significant demand for shipbuilding, and we think that's gonna continue into the future.
Yeah. 'Cause in that reconciliation bill, there's another Virginia-class in 2027.
Right.
Quite honestly, I'd be shocked if there had not been eventually another Virginia-class in 2027. You know, what does it mean when you start to see also more for more DDGs? You know, how does that affect you in terms of gaining confidence in your investment and your preparation for that?
Yeah. We have a lot of confidence they're gonna do a Block VI contract. There's gonna be 10 submarines in that contract and then five Columbia-class on the Build Two 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 - 15 years.
Yeah. Now, you know, separate from the budget, we've seen the President announce a White House office for shipbuilding.
Right.
Talk about working with allies, countries like Korea.
Right.
Help in our shipbuilding processes. I sort of can't imagine them making a nuclear submarine, but,
I can't imagine that either.
You know, what's your take on this? It clearly is an emphasis on shipbuilding, and from that standpoint, I assume it's positive. Is there anything specific in there that you're looking forward to?
It's only positive. The shipbuilding office in the White House, even though it's going through a bit of a reorganization right now with a national security advisor 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. 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 HD Hyundai Heavy Industries. 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 them 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 two are very real, and we're evaluating that with them.
What—so what does that mean for you, to think about doing commercial shipbuilding?
Yeah. Commercial shipbuilding, we—trust me, we've had issues in the United States in commercial shipbuilding. We just can't compete internationally because of really our economy and the strength of our economy and wages. We're really at a competitive disadvantage internationally. We'd have to have a business model and significant subsidy from the government in order to make that happen and compete.
Yeah. Okay. Now, one thing that we have to always talk about almost every session here are tariffs.
Tariffs. Yes.
Oh.
It's easy for us.
Yeah. It should be pretty easy for you.
Yeah.
Even, you know, I don't know, materials, things like that, if you've got any tariff exposure, that.
We do not have any tariff exposure. We buy American. There could be secondary impact related to demand for domestic supply. We have not seen that yet. If it—even if it does, we will flow it through in our contracts to make sure we are protected. There is no real impact for us with tariffs.
A big deal, I think, was the award of these last two Block V.
Yes.
Virginia-class, which has wrapped around it support for labor and infrastructure to some extent.
Yes. Yes.
Can you talk about that and what the implications are for you?
Yeah. It was 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 under the anomaly to provide for additional investment to get at the two-plus-one build rate. That investment culminated in the contract where we get workforce support, both in General Dynamics got that as well as HII at Newport News. We are gonna get support for our workforce in Newport News, but also critical investments in infrastructure to make it more efficient to build submarines in Newport News. It is very positive. It is definitely a testament to the commitment that the administration has to get after shipbuilding and get after submarine production rates.
What—and, and so, you know, more specifically, can you know, we've talked in the past about the need to—you need to strengthen the labor force, and you've, you know, constantly, each year, you've been working hard to grow that.
Right.
Offset attrition, all of that. How does this support help you?
It's simply wages.
Oh, that's right.
It's simply wages.
Okay.
We can increase the wages of our personnel in Newport News. We have traditionally entertained 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. It is significant. It will impact attrition. We think it will reduce attrition. We have a lot of data that says if attrition is lower, performance is better. It is very important for us.
The other aspect, 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?
Yeah. Not directly. There are significant investments that have been made in the SIB and the MIB, which are funding that I think there's almost $11 billion identified over the FIDIC 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. If you have issues, say, during the test program, I think that MIB and SIB money has gone a long way to really help the supply chain. Nothing in the block five 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.
Yes.
You know, it's certainly something that you've seen over time. Every other defense company here has had to deal with it.
Yes.
On fixed-price contracts.
Yes.
Do you see right now, in any of the support you're getting, any relief for the inflation that, you know, it's put margin pressure on you?
Yeah. Not on our current contracts. Not on the pre-COVID contracts.
Yeah.
No, 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. This is really at Newport News. At Ingalls, we have protection for inflation.
Yeah.
No direct contractual relief for inflation on the pre-COVID Newport News contracts.
Presumably, when you get in, into the Block VI contracts, those will look different.
We are protecting. We—well, and the Block V two boat actually protects us for that as well.
Yeah. Okay. One of the, you know, the thing that comes up, at least with us all the time, is Virginia-class throughput, you know, this goal of trying to be at.
Right.
Two per year collectively.
Yes.
you and General Dynamics. you talked about an objective of 20% better throughput in 2025.
Yes.
How do you get there?
We're already making progress on that already. We get there by improving retention, increasing outsourcing, increasing insourcing, which is bringing contractors into the yard to do the work. We bought a facility in South Carolina with W International, 500 good, good employees that are executing. Not only do you have to improve performance inside your shipyard and improve 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. You have to do it. It's kind of an all-of-business result here that we have to achieve. It's not just doing it within the shipyard.
Yeah. I see. And sort of over the last year or so, you've had some leadership changes. You know, 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 this huge amount of institutional knowledge.
Right.
When you think about that, you know, 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 so you have a higher percentage of skilled craft people in the craft. Really, it's not the top-tier shipbuilders. It's not the vice presidents. It's not the.
Yeah.
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.
I can kind of remember, like, way back when you were down at Ingalls and I remember.
Yeah.
Down there where.
Yeah.
In the post.
That was a long time ago.
Post-Katrina period where.
Right.
You know, you had that huge problem with the general workforce coming back.
Right.
Green labor.
Right.
It sounds like that is not the issue, right?
We know the issue. 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. As I said, we are focused there. You do not see the massive.
Yeah.
After-Katrina green labor issue that we had.
Is there a way to project when you may get to that two-per-year rate?
We have models to say when we get there. I let the Navy talk about that, on when they're gonna get there. I do believe we're gonna continue to make progress. These are the correct investments. We've been there before. In LA-class submarine programs, we were delivering four and five a year amongst the two companies. I do believe we'll get there. It's just gonna take some time.
And something that we see coming up when you look at the AUKUS program, there are, and what this is, an issue that sometimes gets raised, that how are you gonna be able to deliver, you know, to Australia if you can't get to the two-per-year for the U.S.?
I think they're gonna work that out. I think they're gonna work that out. If Australia is nuclear prepared and nuclear ready to manage submarines, which I think we're gonna help them get there.
Yeah.
We have a significant effort in Australia to do that with our partner, Babcock. We are gonna get them prepared to do modifications to submarines and maintain submarines and home port submarines there. If they get there, if they get that done, they are gonna get a submarine. I do not know when specifically that date is, and I do not know if we have to get to two-plus-one before they get one, but they are gonna get a submarine.
Yeah. I think as it's been laid out, the first submarines will be existing, not.
That's right.
Not new build.
That's right. They'll figure that out.
Any insight into the politics around this? Because.
Politics are positive. Both administrations support it. The Navy supports it. Australia supports it even with the elections that happened. 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 and some people down there to get ready for it. We've won some contracts, and we're gonna compete on some contracts over the next 12 months that I think should be very positive. We've got a good partner, and we've got a good outlook for AUKUS.
Now, presumably, the number one priority is Columbia-class.
Yes.
Still?
Of course. Yes.
Can you help us on how's that going right now? What's progress look like?
It's going fine. The second boat is definitely learning going on between the first and second boat. Cost performance has improved significantly between the first and the second boat, at least for Newport News' work.
Mm-hmm.
I don't really wanna comment generally on the entire program.
Yeah.
That General Dynamics program. I'm a subcontractor, but we have seen pretty significant learning between the first and second.
Mm-hmm.
part of the boat that we built.
CVN 80.
Yes.
You know, you took an unfavorable adjustment in Q1.
Right.
When you look at the aircraft carriers, you know, how's that? What happened there? How is this proceeding?
Eighty has been impacted by some late, major equipment in the bottom of the ship. Right? 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 hull without that equipment in. That's coming in this summer. It's incrementally coming in, and we're incrementally building around it. They'll 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. It has significantly impacted that ship.
You know, when you look at Newport News, I mean, you've got the carrier program. You've got Virginia class. You've got Columbia class. You've got a carrier.
You've got the RCOH program, which is a very good program. Yes.
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 the others, or, I mean?
It is all intertwined. We've got a lot of ship classes in Ingalls as well. You have to just have standard processes so that you can move people back and forth. Historically, at Newport News, they did not 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 is going to make sure that they are used.
I remember her from a long time ago.
Yes. Kerry Wilkinson. She's doing a great job. There are some great shipbuilders in Newport News. They just need to get some wins. I think with these investments in the Block V contract, the labor adjustments make the milestones this year. 798 gets delivered. 800 gets launched. I think the future's 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 is that? How does that stand?
We're a little behind this year because we consciously decided to not hire as many new hires.
okay.
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 gonna continue to do that with more experienced people. And when the labor, when the wages increase at Newport News.
Mm-hmm.
That will help it as well.
How do you draw people in, you know?
It's interesting. We've gone from about 5% - 10%. We call this the pipeline. 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. We were hiring a significant percentage of those. We have a pipeline, which is the regional development centers, where people at federally and state-funded regional development centers, that we've sent the, the state and the federal government has sent additional investment into. Our results coming out of there have gone from about 5% - 10% of our workforce up to 30% over the last year. Those people stay because they've chosen it as a career. They've been trained, and they know what they're getting. They know what is going to happen when they get in the shipyard. we want that, get that up to 60%.
Okay.
We have a path to get there. If we can do that, that should help attrition as well.
Yeah. I just wonder because it's, it's a fairly specialized field.
It is.
There're not that many places, I would think, you can go.
Hampton Roads is a pretty, pretty robust shipbuilding, market.
Yeah.
are 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 the oil and gas business, you can quickly transition into shipbuilding. There are people out there. Manufacturing is tough right now to draw people, but we think that we can attract them with this new wage structure.
Yeah. You have got strong, it seems like very strong political support. You have 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, you know, potentially your partner up at Electric Boat?
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, and that are necessary to support that sort of capital investment. We do that. 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 good.
Yeah.
Good organization. EB, Newport News, and NAFSE have been working very closely together for a long time. You see that culminated in block five. 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 six.
It seems like a big improvement from where things were.
You get on the block five contract was a good contract. The block four contract was a good contract and was executed. The challenge is, we did not anticipate COVID. We just did not. And then 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% - 3.5%. When anybody pushed him to 4%, he would push back hard.
I pushed him to 4%, so. Yeah. No, no. They were dealing with flat budgets.
Yeah.
At that time. It was just essentially inflation, so it wasn't real growth. Right? We think there's gonna be 4% growth. If we can attract the people and achieve the throughput that we need, it could be better than that. We think that's a modest assumption based on all the work that we have. It's only driven by can we get the people? Can we get the supply, supply chain in place to execute against it? We should definitely be able to achieve that on a long-term basis.
That is, presumably, it's predominantly driven by Newport News being the larger of the two businesses or maybe not?
Newport News will grow more, but Ingalls will grow as well.
Okay. Now, long-time goal has been to get to 9% margins that, you know, across shipbuilding.
Yeah.
In theory, I would think that, you know, kind of in the old days, we do not see that anywhere now.
Right.
You know, that 9%-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.
Right.
We've gone, we've just, there've been so many challenges over the last few years, so we're pretty far from that now. How do you think about a path to get there at Newport News?
It is the reset of the contracts. It is making your milestones over the next two years and getting block five under contract, which we did, block six, and then Columbia Build Two. 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 are gonna lift to 9%-10%. I have a lot of confidence in it. I have done it before. We did it at Ingalls.
Yeah.
After Katrina. It's the exact same playbook. It's nothing special. Negotiate a better contract and execute against it, and then it'll lift.
Because I would think, you know, 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, you know, if I go back to the Ford class in the beginning.
Yes.
You know, it's a much different world back then.
Yeah. All serial production. We built all these ships before. We should be able to execute against it. We just need to get the cost baseline right, and we need a labor force to execute.
Once you get there, it seems like you could be on track to get to that.
It's not gonna be easy, but there's definitely a path to do it.
Okay. Now, Ingalls.
Yes.
I remember back a long time ago when we were down there in the.
Yes.
In the dark days of, you know, a lot of the Northrop Grumman issues there.
Yeah. I was there. Yeah.
Yeah. I saw you there.
Yeah. I know. I know.
You know, you then had a lot happen. Right? You got new contracts that were much more acceptable. There had been some very unfavorable ones before down there.
Right.
You got to those new contracts. You had a person running it who's, you know, Irwin, who was very aggressive, "I think I'm getting costs down and hiring.
Yes. Just discipline, really.
Yeah.
It was just discipline. It was say, "Do what you're gonna say. Say what you're gonna 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.
I felt like, you know, everything sort of worked together. You got more favorable contracts. You got the discipline you were talking about.
Yes.
Cleaned up a shipyard that was very difficult. Also, things matured because you were in the early days of.
LPDs matured. NSCs matured.
LPDs.
The LHA class matured as well, so you're not dealing with first-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 knocked it out of the park on the subsequent ships. The people that we're training at Newport News right now are the same people that are gonna execute the new ships when they're executed. And they're gonna do a much better job because they're learning on these ships right now.
Yeah. So that's what I mean, back then, you know, you got you were able to push margins up because you're dealing with mature fixed-price programs that are properly priced, and you were able to get 12%-13% type margins.
I'm not committing to 12%-13% margins right now. I'm not, I'm not gonna do that.
No, I don't see.
I do think there's gonna be significantly more predictability in Newport News execution over the next few years. You know, the LPD 22 and LPD 24 program manager was Kerry Wilkinson, who's now the person that's running Newport News. So, she understands how to do this. She's done it before.
Yeah. That-that's what though is, you know, you look at if you look at the mix here with the maturing of programs, I know you're not gonna, but I, I do remember talking with Mike way back then, and I said to him, "Can't you get 12%?" He goes, "No, no, no, no. 9%. That's what, you know.
9%-10% is a healthy shipyard.
Yeah.
With 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.
Yeah.
I, you know, my hat's off to them, to us, that it was a great 10 years. It's, it's really a, a very good team managing down there right now.
Mm-hmm.
They'll continue to execute. I 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.
Yeah.
I do believe they'll recover as well.
Yeah. So what is, so the margin, 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.
Okay.
It's that simple.
Same.
Is that you had a reduced workforce. You had a greener workforce, more rework, less schedule adherence, and you're just working through those ships.
'Cause you should be on the other, other dimensions here, you know, in terms of correctly priced contracts, things. I would think you're in pretty good shape.
We don't have that issue at Ingalls.
Yeah.
Right. This is execution.
And how has it gone when, you know, you built out all the investment across the river to expand? How has that all gone? Is that all.
The East Bank, it's gone great.
Yeah.
We've got a pier over there. We're doing work over there. We've got probably 200-300 people over there. The East Bank expansion's done very well. You know, we have a lot of room at Ingalls. We could build a lot of stuff there. We just don't have enough people to do it. There is ample capacity at Ingalls to execute additional work. We just need more people to do it.
Now, if you did, and I'm going back to trying to think through this growth rate, 4% growth rate. If you did, you foresee, you know, what kind of additional work might come in there? I mean, there are gonna be more DDGs, but.
There's gonna be more DDGs. We don't know where the frigate's going. I don't see them taking, I really personally don't see the frigate leaving Wisconsin.
Yeah.
I think that's an important piece of industrial base that needs to stay in place. They'll continue to work on that, but there have been discussions previously of a second frigate build yard. There could be outsourcing of other ship classes that's done. Not sure what could show up there.
Yeah. I don't know if we, you, did you, is there a button on it? No? Any, any?
Check.
Okay.
Yeah. If you have capacity and people to do work, you're gonna get work in this environment.
What type of, I guess I'm trying to picture what you're gonna see.
Any module work from Newport News or GD or Austal or whoever has additional demands on them that they can't get done themselves.
'Cause everybody's so capacity-.
'Cause everybody has needs, capacity.
Is that a priority as well for Ingalls to try and do that?
Execution of labor is not, I think, executing their current workload is good. They're not out marketing themselves for additional work. 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, it adds another LPD in there?
We're not sure. We're not sure. That's a debate going on right now.
Oh.
Whether there's an additional ship or that funding is funding the incremental funding required by the bundle that was put in place.
Oh, okay.
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.
Yeah. 'Cause if I go back, you know, a couple of years, there was a lot of talk of the transition to LHA, the next-gen boat.
Right.
You know, what's happened on that? I mean, is this something, do you, is it something that you're working on in the background and from a development standpoint?
No.
Or what, what is?
No. I think LPD will continue. They'll buy additional LPDs, and then LHAs or LHRs. That'll incrementally change potentially. There is a lot of demand for the large decks as well. There is no radical new design that we're working on in that ship class.
We're not looking at an LPD replacement actively?
No, we're not.
No. Okay. I guess when we look down, when we look at the Ingalls operations, can you, you know, this, we've been kind of looking for when you could get back to that kind of 10%-ish margin.
Right.
Is that when we talk about 9%-10% as a well-run shipbuilding business, but still, things are pretty mature down there. Getting to a 10%+ number again down there, is that reasonable?
Of course, it's feasible. It could happen. We do not guide by shipyard. We do not have a specific timeframe of when we think it is going to improve. I do think it will, but I am comfortable at 9%-10% across both shipbuilding businesses in the future.
Okay. Switching over to Mission Technologies. I guess, you know, 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? That is, what makes that a business segment? 'Cause it seems like a lot.
It's interesting. The markets that we're in are exactly the markets that the government's interested in. Right? Electronic warfare, C5ISR, uncrewed vehicles, nuke, 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 all gets bundled in a lot of these large contracts that you pursue. It's good to have all of those capabilities in your toolkit. There's also unmanned, can team with any of them.
Yeah.
Or un-uncrewed stuff. Teams has ISR capabilities, has electronic warfare capabilities. You can bundle products in that market, with those capabilities to go after those opportunities. More and more of those are showing up, software-defined sort of projects that have hardware and technology bundled together to attack an issue. We're seeing that. We're pursuing that, and we hope to continue to win there. Our backlog, we had almost $10 billion of, I think, $12 billion actually of awards last year, total contract value, in that space. We've been very successful. We hope to continue.
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, two different payloads that are included in it. You need to understand that tech, have people that understand that tech, but also be a shipbuilder. Shipbuilding is evolving. It's gonna be a manned, unmanned sort of force in the future. I think we know that. I think you need to be involved in both.
It was 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.
Yes.
Moving away from large platforms, going to more distributed basis, more unmanned.
Yes.
but these things move very slowly in that world.
Interesting. We do have the only production or the program of record for unmanned right now with the small. We delivered our first two production units there at the end of the year or at the beginning of this year. We'll be delivering significant more of them this year for specific missions for the Navy. So I, it's happening.
Mm-hmm.
Maybe not as quickly as people would like, but it's absolutely going to happen.
When you think about the, you know, UUVs and, you know, that world, you know, this clearly, we see it. It's a priority for the Navy, but it seems pretty small right now. When you look at that, I mean, how large is this? How large could it be in five years or so?
Yeah. I do not have a specific number for you of how large it will be. It will be a more significant part of our business. It is not only the hardware. It is the software that connects it to everything and the different missions it can do, and that is being explored, 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? How do you connect it both to the air assets and to the ships? That is something that is not fully understood yet. When that is understood and when you are actually selling software, I think it becomes more impactful to the Navy and to your revenue stream.
Yeah.
We're just not there yet. We're not the only people trying to do it.
That was gonna be my next question. We've got new entrants out there that are pursuing this in addition to some established companies.
Yes.
Trying to, so it's a lot of competition, and it seems as though people have a lot of different approaches too.
Yes.
How do you think?
Not significantly though. There's gonna be a software-defined solution here with unmanned 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 gonna, it's gonna, that's a, I mean, there's a lot of different solutions to that, but generally, that's what the solution's going to be. There's gonna 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. That's our benefit here. We'll just see how it goes.
Do you end up partnering with some of these new players?
Potentially. Potentially.
Yeah. So if we, the other thing that comes up a lot, related to Mission Technologies that people ask me about, it's to DOGE. In other words, because you do have.
Right.
These services businesses, have you seen any impact from some of these, cost reduction efforts in Washington?
Yeah. We have not yet. We have seen no impact related to that. We have communicated with them. They sent us a couple of letters. We have responded, but we have not had anything canceled or terminated, and we are waiting for their response. We will see how that goes.
Yeah. I mean, it seems like the focus initially has been more in consulting-type contracts.
Consulting. We do not do consulting. All of our, and especially hardware, I mean, we actually deliver product that does a mission.
Yeah.
We'll see how that evolves. You never know what's gonna happen, but I don't see a big issue there.
When you put everything together, you have guided to free cash of $300 million-$500 million this year. What events could lead you to the high or low end of that?
If we execute well on our ships, make our milestones, make our throughput goals, negotiate the Block VI contract, negotiate the Columbia Build Two contract, we could be at the high end of that range or potentially even better. If they do not happen, then you could be at the low end of the range. Those things need, it is really a combination of those things, kind of risk-adjusted, get you into that range. Most importantly, we have to execute. We have to execute on the deck plate. We need to meet our throughput goals, make our major milestones, get some ships delivered, and transition into the new ships.
Are there some specific milestones you could highlight that we, you know, 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 will not 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 know, you used to have these longer-term free cash flow outlooks.
Yes.
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?
We need to establish credibility in our execution over the next couple of quarters. We need to meet our commitments for this year to Wall Street, and we're gonna do that, and our shareholders. When we do that, we'll reevaluate it next year. I'm not sure we'll do it or not. I wanna 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.
Right.
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 gonna make our commitments to our shareholders and then move into next year.
Is there a way to, to say when you feel you'll be out of the risk on the pre-COVID ships in, in timeframe?
We talk about in 2027 where 50% of our revenue is post-COVID ships in 2027.
Okay.
It just gets better from there. I'll feel better when every one of those ships is gone.
By post-COVID ships, you mean ships that were.
Ships negotiated.
Effectively, they were negotiated post-COVID.
Yes.
So, yeah.
Yes.
Great. Look, just to wrap up, maybe you can, could you summarize where you see the biggest opportunities and where you're gonna be focusing your time?
Yeah. Our biggest opportunity, and I focus almost all my time on execution, execution of 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. We are 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 gonna be in a pretty good place 'cause I know we're gonna get the 15 ships under contract. I know we're gonna get a good deal there, a fair deal. The Navy's very fair, led by a business person now, 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.
Yeah. Because it does seem, from a demand standpoint.
I'm not worried about demand.
It's no problem.
I'm not worried about demand.
Yeah. Chris, thank you very much.
Thank you.
Great to have you here.
Thank you.
Great. That's it.
Yeah. I appreciate it. Thanks again.