GD - General Dynamics Corporation

Operator: Good morning, and welcome to the General Dynamics Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Nicole Shelton, Vice President of Investor Relations. Please go ahead. Nicole Shelton: Thank you, operator, and good morning, everyone. Welcome to the General Dynamics Third Quarter 2025 Conference Call. Any forward-looking statements made today represent our estimates regarding the company's outlook. These estimates are subject to some risks and uncertainties. Additional information regarding these factors is contained in the company's 10-K, 10-Q and 8-K filings. We will also refer to certain non-GAAP financial measures. For additional disclosures about these non-GAAP measures, including reconciliations to comparable GAAP measures, please see the slides that accompany this webcast, which are available on the Investor Relations page of our website, investorrelations.gd.com. On the call today are Phebe Novakovic, Chairman and Chief Executive Officer; Danny Deep, Executive Vice President, Global Operations; and Kim Kuryea, Chief Financial Officer. I will now turn the call over to Phebe. Phebe Novakovic: Thank you, Nicole. Good morning, everyone, and thanks for being with us. Earlier this morning, we reported earnings of $3.88 per diluted share on revenue of $12.9 billion, operating earnings of $1.3 billion and net income of $1.059 billion. Across the company, revenue increased $1.24 billion, a strong 10.6%, led by a 30.3% increase in our Aerospace segment and a 13.8% increase in Marine Systems over the year ago quarter. Importantly, operating earnings of $1.3 billion are up $150 million or 12.7% Similarly, net earnings increased $129 million or 13.9% and earnings per share are up $0.53 or 15.8% over the year ago quarter. On a year-to-date basis, revenue of $38.2 billion is up 11% over last year. Operating earnings of $3.9 billion are up 15.7%. Net earnings of $3.07 billion are up 16.4% and earnings per share are up 19%. As an aside, we beat consensus estimate by $0.18 on higher-than-anticipated revenue and modestly better operating margins. My reaction to the quarter is best reflected in thoughts about the sequential comparison. In the second quarter of this year, we had very good results, which were well received by investors. This quarter was even better. The 2 quarters enjoyed similar revenue, but operating margin improved by 30 basis points, and we generated significantly higher free cash flow, as you will hear in greater detail from Kim. Robust order momentum continued in the quarter, yielding record backlog. In short, we had a superb quarter from my perspective. With that, let's move into a discussion of the operating segments. First, Aerospace. Aerospace performed very well in the quarter to say the least. It had revenue of $3.2 billion and operating earnings of $430 million with a 13.3% operating margin. Revenue is a dramatic $752 million more than last year's third quarter, a 30.3% increase. The revenue increase was led by new aircraft deliveries, higher special mission volume and the services business at both Gulfstream and Jet. Similarly, operating earnings of $430 million show a staggering 41% increase over the year ago quarter. The 13.3% operating margin is 100 basis points better than a year ago. We delivered 39 aircraft in the quarter, 11 more deliveries than a year ago, including 13 G700s. It is important to note that this is the first quarter where we had no deliveries of the high gross margin G650ER compared to 9 in the year ago quarter. We also made 3 initial deliveries of the G800 in the quarter. This plane will provide the majority of delivery growth in Q4. For the year-to-date, Aerospace revenue is up $1.82 billion, an increase of 24.2%. Operating earnings are up $386 million, an increase of 43.9% all very impressive, especially when the comparator year 2024 showed remarkable growth over 2023. Turning to market demand. We saw accelerated interest across all models in the third quarter, led by the North American market. This led to very strong order intake and loaded the pipeline for a good fourth quarter. This remains, by all accounts, a very resilient and robust market for new business aircraft. In summary, the Aerospace team had a very good quarter and look forward to a strong finish to the year. So let's move on to the defense businesses. As a collective, we once again saw strong growth in Marine Systems and good operating performance across the portfolio. Let me walk you through each segment in turn. First, Combat Systems. Combat Systems had revenue of $2.3 billion for the quarter, a modest 1.8% increase. Earnings of $335 million are up 3.1%. Operating margins at 14.9% are up 20 basis points over Q3 last year, demonstrating nice operating leverage. On a sequential basis, while revenue decreased 1.4%, earnings rose 3.4% on a 70 basis point improvement in operating margin. Year-to-date, revenue of $6.7 billion is up 1.7% and earnings of $950 million are up 3.3% Overall, demand is strong across Combat, particularly in our ordinance and international combat vehicles business. Artillery orders in the missile subcomponent work we do for the primes has increased in our Ordinance business. Internationally, demand for all classes of combat vehicles across the European theater has been increasing and orders are following, particularly in those countries in which we have indigenous production. We saw robust order intake with over $4.4 billion awarded in Q3, resulting in a book-to-bill of 2:1 for the quarter. Orders came from across the portfolio and internationally, primarily Europe. Our Combat System backlog at roughly $18.7 billion reflects a strong demand. All in all, a strong performance quarter for Combat that sets them up nicely for improved growth rates. Turning to Marine Systems. Yet again, our Shipbuilding Group is demonstrating strong revenue growth. Marine Systems revenue of $4.1 billion is up $497 million, 13.8% against the year ago quarter. Columbia-class construction and Virginia-class construction led the way with increased throughput. Operating earnings of $291 million are up 12.8% over the year ago quarter with a 10 basis point decrease in operating margin. However, we are seeing metrics showing improved performance across the business, which should lead to improved operating margins little by little. Sequentially, results are about the same as the prior quarter. Year-to-date, Marine revenue of $11.9 billion is up 14.7% and earnings of $832 million are up 13.2%. So across the business, we have seen rapid growth of revenue and earnings, but margin performance around 7%. As I have said before, improvement here represents our most meaningful opportunity. And lastly, Technologies. It was another good quarter with revenue of $3.3 billion, which is down 1.6% over the year ago quarter. Operating earnings in the quarter of $327 million are essentially the same on a 10 basis point improvement in operating margin. The year-to-date comparisons are better. Revenue at $10.2 billion is up 3.5% and earnings of $987 million are up almost 5% on a 10 basis point improvement in operating margin. Order activity was particularly strong in the quarter with a book-to-bill of 1.8:1. That resulted in backlog at the end of the quarter of $16.9 billion, up $2.7 billion sequentially. Through the first 9 months, the group achieved a book-to-bill ratio of 1.3:1. This positions the group well for better revenue growth than they have had in the last 2 years. Prospects remain strong with a large, qualified funnel of more than $113 billion in opportunities that they are pursuing across the group. It is interesting to observe that our slower growing segments in more recent periods have enjoyed very robust book-to-bill this quarter and year-to-date. That concludes my remarks about the defense businesses. Before I hand the call over to Kim, I'd like to have Danny share his observations from an operating perspective and provide additional color. Danny Deep: Thank you, Phebe. Let me start with Aerospace. We have seen strong performance across the board, including orders, manufacturing and deliveries as well as customer service. From an order standpoint, Phebe mentioned a robust quarter across the portfolio. To give you some additional perspective, in the first 9 months of 2025, unit orders are up 56% versus this time a year ago. From a productivity standpoint, we are seeing good learning across all our lines with manufacturing hours on the G700 and G800 coming down quarter-over-quarter throughout this year. We have seen measurable improvement in the supply chain with on-time deliveries to pre-COVID levels. And in terms of airplane deliveries, the progress has been pronounced with our delivery cadence steadily increasing. Through the first 9 months of this year, we've delivered 113 airplanes as compared to 89 airplanes for the same period in 2024. So overall, plenty to be pleased about from an operational standpoint. Turning to our defense businesses. I'll highlight a few key items of interest. In our Marine group, at Bath Iron Works, we are seeing positive momentum in terms of ship-over-ship learning reflected in both the number of hours to produce as well as the schedule to produce them. At Electric Boat, our productivity and schedule metrics are slowly but steadily improving as we see the investments in tooling and fixtures, automation, robotics and most importantly, our shipbuilders all taking hold. These improvements have stabilized margins and put us in a position to consistently grow them over time once the supply chain improves. With respect to the supply chain, we have seen improvements in some areas, but others are still struggling to meet the significant increase in demand. In the Combat Group, we have seen considerable uptick in demand in our European operations from bridges to combat platforms, and our long-term presence and manufacturing footprint in several European countries positions us well to serve this increased demand. In our Technologies group, we are seeing the benefits of the strategic investments that our Mission Systems business has made in differentiated defense electronics to serve priorities and strategic deterrence, subsea warfare and next-generation command and control. As we transition from legacy programs, which are nearly completed to programs with highly differentiated content, we expect to see continued growth with robust margins for this year and into the future. Across all our businesses, our continued focus on operational performance is bearing fruit as evidenced by our third quarter results, and we expect continued margin strength and strong cash generation in the future. Let me now turn the call over to Kim to discuss relevant financial data. Kimberly Kuryea: Thank you, Danny, and good morning. The third quarter was another strong quarter from an orders perspective. The overall book-to-bill ratio for the company was 1.5:1. All 4 segments experienced a book-to-bill of at least 1.2x. Our Defense segment's book-to-bill was a robust 1.6x their revenue. Aerospace continued its momentum with a book-to-bill of 1.3x for the second quarter in a row, even as revenue increased in both quarters. Year-to-date, the book-to-bill for the company was a solid 1.5:1. This robust order activity led to a new record level of backlog at $109.9 billion at the end of the quarter, up 19% from a year ago and 6% from last quarter. Looking at the segments, Marine and Technology each ended the quarter with a record level of backlog. Our total estimated contract value, which includes options and IDIQ contracts, also ended the quarter at a new record level of $167.7 billion with each of the Defense segments reaching new highs. Moving to our cash performance. It's an even better story than orders. Last quarter, we discussed our efforts to drive cash to the left given our back-end loaded cash forecast for 2025. Well, we realized the fruits of those efforts in the quarter. Our business units really outperformed our cash flow generation estimates for the quarter, driven by solid cash collections. Let's get to the specifics. Overall, we generated $2.1 billion of operating cash flow. All segments contributed to the better-than-expected results with particularly strong cash generation in Combat Systems and Technologies. Including capital expenditures, our free cash flow was $1.9 billion for the quarter or 179% of net income. Coming off strong cash collections in the third quarter, we now expect about half as much free cash flow as we generated in the third quarter in the fourth quarter. Our estimate includes an increase in capital expenditures as we continue to invest in our businesses, especially at Electric Boat and somewhat larger tax payments in the final quarter of the year. As a result, we anticipate a free cash flow conversion percentage in the low 90s for the year. This guidance includes some goodness from the reversal of the R&D capitalization, but the rest of that benefit will be realized over the next few years. Having said that, the uncertain duration and future potential impacts of the government shutdown creates a lack of clear visibility into our cash forecast for the remainder of the year. We are taking prudent actions to conserve cash and liquidity. If a resolution can be reached in the near term, we would expect to be able to achieve the forecast that I just discussed. However, in the event of a protracted shutdown, it is unclear how and when our cash flow will be impacted despite our careful efforts to diligently manage cash. Looking at capital deployment. Capital expenditures were $212 million in the quarter or 1.6% of sales and $552 million year-to-date. We are targeting over 2% of sales for the full year CapEx, given the expected investments in the fourth quarter that I mentioned a moment ago. We paid $403 million in dividends and repaid $696 million of commercial paper during the quarter. Year-to-date, we have returned $1.8 billion to shareholders in dividends and share repurchases. We ended the quarter with a cash balance of $2.5 billion. That brings us to a net debt position of $5.5 billion, down $1.7 billion from last quarter. After quarter end, we did reenter the commercial paper market to support our liquidity during the government shutdown in the event of slow or nonpayment issues. Interest expense in the quarter was $74 million compared with $82 million last year. That brings interest expense for the first 9 months of the year to $251 million, up slightly from $248 million last year. Finally, the tax rate in the quarter was 16.7%, bringing the rate for the first 9 months to 17.2%. This rate is approaching our outlook for the full year, which remains around 17.5%. Now let me turn it back over to Phebe. Phebe Novakovic: Thanks, Kim. So in light of the things we've just discussed, let me give you some thoughts for the remainder of the year. On a company-wide basis, we see annual revenue of around $52 billion and margins of around 10.3%. The puts and takes around the businesses are sufficiently modest that I will not get into them here. Overall, we are increasing our EPS forecast to between $15.30 to $15.35. Some of you may regard this as a cautious forecast given the performance year-to-date. Let me remind you that we're in the midst of a government shutdown with no end in sight. The longer it lasts, the more it will impact us, particularly the shorter-cycle businesses. So forecasts in this environment are difficult at best and less reliable than one would hope. This concludes our remarks, and we'll be happy to take your questions. Nicole Shelton: Thank you, Phebe. [Operator Instructions]. Operator, could you please remind participants how to enter the queue? Operator: [Operator Instructions] Your first question comes from the line of Myles Walton with Wolfe Research. Myles Walton: Phebe, on the orders front within Aerospace, second quarter that they've been quite strong. And I'm curious, how much of this do you think is customers seeing that delivery pace is sort of coming together, realizing that they better get in line, lead times where they are? And maybe how much of it is maybe just more because the certification happens, the orders come in? Phebe Novakovic: I'd say there were a whole host of factors that drove the orders. I think primarily, it's the strength of the economy. It's been -- our order book has been pretty resilient. And in fact, the pipeline remains resilient and pretty robust. So I'd say it's that. It's a combination of that plus the fact that we've got a number of new models. Delivery cadence is improving. So I think it's all the factors that you mentioned. And I will note that it is across the portfolio, led primarily by the 800. Myles Walton: Geographically, is there an area of particular strength? Phebe Novakovic: North America. Operator: Your next question comes from the line of Robert Stallard with Vertical Research. Robert Stallard: Phebe, there's been some reports that the customer, the U.S. customer is talking to defense companies about potentially investing more of their own money, the CapEx and R&D in exchange for the work they do and also potentially putting restrictions on their ability to return cash to shareholders. And I wonder if you had any views or experience of this so far. Phebe Novakovic: I think we've all read the same reports. I would note that we have invested heavily over the last 7 years in our business because we anticipated the growth in all of our shipyards in our Combat Systems business and in technology. So we have a very, very clear record of heavy investing in our portfolio because we did see this growth coming. And some of it was predictable and some of it, I think, is just the natural cycle of defense spending driven by the threat, which is increasingly obvious. So I think we all read the same reports. We haven't seen anything like that yet, but we're pretty comfortable that we have invested, and we will continue to invest where we see it prudent to support the growth. Robert Stallard: Okay. And then just a quick follow-up for Kim on the very strong free cash flow in the quarter. Were there any unusual defense advances in there, particularly from Europe, which helped the number? Kimberly Kuryea: No, there were not, not in this quarter. Operator: Your next question comes from the line of Ken Herbert with RBC. Kenneth Herbert: Phebe, I wanted to follow up on your comments and Kim's comments. On the shutdown, you said protracted. How should we think about timing from what would be a protracted shutdown from your view? And are you seeing anything yet specifically you can point to that's either impacting cash collection or contract timing or anything else as a result of the shutdown? Phebe Novakovic: On cash collection, not yet. On contracts, in some instances, the contracting people have been sent home. So that will push contracting into whatever week or month that the government resumes. I think from our point of view, we've looked at this as a rolling basis since it is unknowable. When the shutdown ends, then we are looking on a weekly basis and rolling forward to anticipate what each one of our contracts look like to the extent that we can. So we're -- it does introduce uncertainty in the quarter. And if it goes into next year, that increases the likelihood that it will have additional impact on particular lines of business that begin to run out of funding. So there's an awful lot of, I think, uncertainty. And in that uncertain environment, I think we're taking a prudent approach. Kenneth Herbert: Okay. And when you talk about protracted, I'm guessing based on your comments, we should think about something resolved this quarter, probably not a material impact, but if it spills into '26, that would be obviously a different story. Phebe Novakovic: I think we'd have to assess where we are contract by contract. But clearly, the longer this goes on, the greater the risk and particularly in the supply chain. Operator: Your next question comes from the line of Ron Epstein with Bank of America. Ronald Epstein: Phebe, maybe the first one for you on Gulfstream. So unlike a lot of other companies in the market, you guys have a suite of new products out there, and you're really gaining the benefit from that. How are you thinking about product development now? Because my understanding is Gulfstream has always had sort of a steady investment in product development and kind of year-over-year and just doesn't ramp up, ramp down, it's very steady. Is that still the case? And how are you thinking about it going forward? I know we got all this behind us and sort of like the last question you probably want, but how are you thinking about it? Phebe Novakovic: Well, look, as you well know, we have -- this has been a long-term strategy of ours to replace the entirety of our fleet with all new product designed to meet every one of our customers' missions, and we've done that. I think the most recent announcement of the 300 shows that. As we go forward, we will be upgrading our products in due course. And that's probably all that we're going to say at this point. These are all brand-new airplanes, and they've got a lot of running room, and they've met with very, very strong positive customer reaction. Ronald Epstein: Got it. Got it. And then one for Danny, if you will, on the shipbuilding. Shipbuilding has been sort of a bugaboo for the industry. When you think about making the shipbuilding business more efficient, how are you thinking about it? I mean labor, I think it's been one of the big problems for the entire industry. But I mean, from your point of view, I mean, what are the levers you're pulling today to try to really get the efficiency out of the shipyards up? Danny Deep: Yes. So let me start with the supply chain. I think in my comments, I mentioned that we've seen some improvement in the supply chain, and there's other areas where it's still lagging. But those improvements are significant. Just to give you a sense -- and that will have the biggest impact on our ability to drive productivity and schedule and start to grow margins. But to give you a sense of how the supply chain has evolved and a lot of it from the investments the government has made in the supply chain in terms of productivity, employee retention and just increasing capacity. But we've seen a 40% increase in the last 2 years in the sequence critical material. And that's really helped -- that helps with productivity. And if you look at it across all of the supply we get, it's been a 75% increase. We'll receive almost 5 million parts. So I'd say the #1 thing that will impact our efficiency in our shipyards is the supply chain stabilizing. And as our shipbuilders come down the learning curve from an efficiency standpoint, and we're starting to see that we're starting to see good ship-over-ship learning. And we make investments in all the same things that is happening in the supply base with respect to robotics and automation and employee development and training. That's where we really see the biggest bang for our buck. Operator: Your next question comes from the line of Kristine Liwag with Morgan Stanley. Kristine Liwag: Congratulations on the record backlog in defense and growth in aerospace. But I guess, Phebe, focusing on technologies, look, we've seen continued strength in the backlog, but we're also seeing a notable step-up in the unfunded backlog. I was wondering if you could provide more color on what's driving this? Is this related to DOGE or the government shutdown? And when would we expect this to either convert to funded or eventually convert to higher revenue for the segment? Phebe Novakovic: I don't think that there's any root cause other than just timing that drives that increase. We're not -- I'm not aware of anything in particular. We are continuing to work with our customers. We always work with them in a normal course, and that's continuing now on ways in which that we can all improve our efficiency. But I wouldn't point to any particular element in that. And recall, we book -- and Nicole can walk you through this offline, but we book backlog a little differently than a lot of them, and we're pretty conservative about it. But I would say that driving that backlog is the demand that we're seeing pretty much across the portfolio. DDIT, in particular, had a very, very strong book-to-bill a little in excess of 2:1 in the quarter, and they've continued to have very strong bookings as a lot of their investments have begun to pay off in cyber, Zero Trust environment, AI. So we're in pretty good stead in that market. Kristine Liwag: And if I could follow on Ron's question about product development in Aerospace. We've seen in the past few years kind of some interest in Supersonic. I was wondering, would that be on the table for a next new program for Gulfstream? Phebe Novakovic: Well, first of all, there is 0 way I'm going to venture into what we're going to do next, but I will say something about Supersonic. We have yet to see a business case that even remotely works. So yes. Operator: Your next question comes from the line of Peter Arment with Baird. Peter Arment: Nice results. Phebe, maybe just to stay on Gulfstream. Just given the resilience of this -- the bookings environment and the backlog and how well you guys are doing, does that provide pressure on kind of where production is? Or do you need to take rates up? Or do you feel like you've got the right cadence with the current rates today? Phebe Novakovic: Well, our rates are driven by the backlog and demand. So far, we're comfortable in our rates will increase in a regular order. But if you -- if we continue to see increasing demand and increasing backlog, we'll have to increase our rates. That's pretty much, I think, our standard operating cadence. And nothing's changed in that regard in how we -- with respect to how we react to increases in demand. So we'll continue to increase, I think, year-over-year for the next couple of years. That's sort of our plan. Peter Arment: Got it. That's helpful. And just as a follow-up, could you give us the latest on where things stand on construction for the first Columbia class, just given all the reports out there and maybe how things are either showing some improvement and getting ready for additional volumes that are coming? Phebe Novakovic: So we have the jigs fixtures facilities to continue to produce. We'll continue to invest and particularly in productivity improvements and additional footprint as needed. The first Columbia is about 60% complete by the end of this year. We'll have all the major modules at Groton ready for assembly and test and then systematically work through each one of those testing items, pretty rigorous, as you can imagine, first-of-class testing program that will work in coordination hand in glove with the Navy. But we're moving -- we're working very hard to move that ship to the left along with our customer and along with the supply chain. So we've -- and we've seen some improvements again from the supply chain, as Danny, I think, clearly articulated. So this next year will be pivotal. Operator: Your next question comes from the line of Seth Seifman with JPMorgan. Seth Seifman: I wanted to ask one about Combat. And so I was kind of thinking about the future there and the fact that there are some headwinds in vehicles, including Stryker and some tailwinds maybe from munitions and in Europe and kind of wondering if that business was going to grow. But based on the comments you made earlier and kind of the backlog growth we saw in the quarter, it sounds like there's potential for Combat growth to accelerate out of this year. Is that a fair way to think about it? Phebe Novakovic: That's how we're looking at it. I think you quite accurately pointed to the headwinds and the tailwinds. International vehicle demand is increasing and at a higher rate and munitions demand, both internationally and domestically is increasing as our -- we are a supplier to the primes on missile parts, and that also is increasing. But there is some headwind with respect to U.S. combat vehicles. That is until we accelerate the delivery of the new tank. So it's a mix, but we see some nice growth driven by our international business. And let me tell you, I want to give you a little bit of perspective on that international business. So we have indigenous businesses that have been the backbone of their country's supply chain for the last -- or industrial base for the last 25 years. And in these businesses, they are -- have indigenous engineering design and manufacturing, and they are run by host country national. So these are -- when we produce vehicles coming out of Europe to Europe, they are European engineered, European designed and European manufactured. And we think that's a very, very good and has been a successful business model for us as demonstrated by we've got the largest installed fleet in Europe. So we're pretty comfortable with the competitive positioning of that business. Seth Seifman: Great. Great. And maybe as a follow-up, can you talk a little bit about where we stand in the replacement cycle for G650. To what degree has that been driving recent orders for G800? And I assume it's more 800 than 700. And to what kind of pipeline is there for that as we kind of look ahead? Phebe Novakovic: So as you know, we phased out the 650, and you're quite right, replaced by the 800. The 800 has had an awful lot of customer interest. It led the orders demand in the quarter. And we have a pretty robust pipeline. So we -- that transition from the 650 to the 800 went very, very smoothly. The introduction of the 800 and has gone well and deliveries are increasing. I mean, this week, we just delivered our sixth G800. By the way, we also, this week, delivered our 72nd G700. So I think that's an indication of more regular cadence in the delivery profile as the supply chain has stabilized. Operator: Your next question comes from the line of Sheila Kahyaoglu with Nepris. Sheila Kahyaoglu: Maybe if I could ask a follow-up on that topic, Phebe. Just how do we think about -- you have so many development programs, and you've done a great job with the shift from the 650 to the 800 and yet the margins are going to be stable even with the 650 going away. So how are you thinking about the G800 learning curve, the 700 as well? If you could provide us an update on those blocks and how we should be thinking about that? Phebe Novakovic: Well, we're coming down the learning curve on both of those airplanes. 650 was a mature high-margin airplane. So it will take a while for the 800 to reach those similar gross margins. But we like the prospects on both of the -- on all of our airplanes, frankly. And the keys are getting the increasing stabilization of the supply chain, and they've gotten much, much better. I'd say the introduction of the 800 demonstrated the strength of the supply chain as they become more reliable and are better able to keep up with demand as compared to the 700. That supply chain, too, has stabilized. So we'll continue to see gross margin improvement as we come down our learning curve. Sheila Kahyaoglu: Can I ask a follow-up again on Aerospace, if it's okay, on deliveries and just R&D. On the delivery profile for the 700, 800, do we think about that cumulative being the 650? Or is it plus that? And then R&D, how much of a tailwind do we see from R&D as you've certified some of these major programs? Phebe Novakovic: Our R&D will be about the same for a while. We've got developmental programs, and we still have airplanes to get through certification. The 800 is really the replacement for the 650. And that is what we are seeing as the 650 customers are buying the 800 as a replacement. The 700, I think, is a market expander. It is a new offering in an element of the market that we didn't have before. So I think net-net, that's a positive growth profile going forward. Operator: Next question comes from the line of Doug Harned with Bernstein. Douglas Harned: On -- going back to Combat, you talked about the value of having the indigenous operations in country in Europe. When you look forward, given the growth potential in Europe, do you expect to be doing more investment there? And could this be beyond just ground vehicles into other areas? Phebe Novakovic: We have the facilities and the infrastructure to produce at the moment. I don't see getting out of our core. I don't see moving past tactical bridges or high-end combat vehicles. I think one of the things we have differentiated ourselves is having the discipline to stick with what we know, do what you know well and get better and better and better at it as you serve your customers, your people, your shareholders best by doing that. So we'll stick to our knitting. Douglas Harned: And then going back to Columbia Class. I mean the delays, there's been a lot of discussion about delays. Can you talk a little bit about what has driven those? Have those been related to design changes, supply chain, labor and you mentioned a little bit about addressing these issues, but can you talk a little bit more about mitigation and where we might end up if things get better there? Phebe Novakovic: So I'd say the single largest impact on the cadence of manufacturing and delivering -- ultimate delivery of the first Columbia has been the supply chain, the fragility of the supply chain as it's tried to ramp up from very low rate production, which has been in for the last 25, 30 years and quintupling that production. That has been the single largest challenge. And the government has recognized that and for the last several years has provided some nice robust funding to mature that supply chain and to expand it. And we're beginning to see some of the fruits of that effort pay off. We also, as you know, and this happened through most of U.S. industrials had a significant demographic shift as experienced workers retired, and we had a generational change with younger workers coming on board. I would say that we've -- we had invested in our training programs and with the government's help are continuing to invest in our training programs. So that we -- when the new shipbuilders come out of the training program, there are a higher level of proficiency than they had been in the past. That's all good. With the government -- working with the government, we've also been able to increase wages in a wage competitive environment. So -- and we're very comfortable that we've got the manpower and the facilities. We've continued to invest in facilities. And as Danny was alluding to, particularly on the productivity side. So I think there is a lot that's beginning to coalesce and come together to reduce risk in this program and bring it to the left, and that is our objective, working very closely with our customer. Operator: Your next question comes from the line of Richard Safran with Seaport Research Partners. Richard Safran: If it's okay, I just have a -- I'm going to ask one 2-part question on contracting. And right off the bat, I'm not asking for anything on specific contracts. Generally speaking, could you comment on changes to the contracting environment you're seeing with the new administration? There was some chatter about award fees and incentive fees. And I'm just wondering what you're seeing in new contracts. And then second, just with respect to international, are you seeing more of an influx of direct commercial awards versus FMS? I was just kind of curious as to what the mix is given all the new awards you've been getting. Phebe Novakovic: So I don't know that I've seen wholesale change in contracting other than there's been an emphasis on speed. And in some customers, we've seen faster contracting and in others, a little bit more prolonged. So I can't say that across the entire portfolio that we've seen any wholesale changes. I think that we've got a sophisticated buyer, and we are working with them right now on several large contracts. So I don't know that I can offer any holistic or observations on that front. We have seen, again, if you step back and look at the entirety of the federal workplace, we've seen the retirement of -- at least in the markets that we play in, retirement of experienced contracting personnel with an increase in newer contracting folks. They'll have to come down their learning curves. But I suspect that will -- they will do so in time. With respect to international orders, there is quite a robust pipeline for FMS, but it is slow to materialize. We know the demand is out there. When it comes through the FMS process is always a question. In Europe, we have direct commercial sales and sometimes -- ex U.S. and other places in Mid East. And we'll see as the munitions demand ramps up. That could be a combination of both direct commercial sales and foreign military sales. Operator: Your next question comes from the line of Gautam Khanna with TD Cowen. Gautam Khanna: I wanted to follow up on Rich's question actually with respect to Marine. And I know you guys are in talks for 5 Columbia class and the next Virginia-class block. I wanted to get your expectations around timing and the form of that contract. Do you think you'll get all of them ordered at once? Or is it going to be incremental? -- maybe when? And if the contract terms might actually be a little more favorable with the government taking on a little more risk than they were willing to in the prior administration. Phebe Novakovic: Well, the operating assumption is that those contracts are executed this year. We're certainly not going to get into any particulars of those contracts. They'll be very large, highly complex contracts. And once we sign them, we can and will be a little bit as we have been in the past, transparent about what the incentives and obligations are in those contracts. But we've had and we'll continue to have and see even more working -- close working relationship between the government and us as we try to solve mutual problems, how do we get shipbuilding throughput increased and while maintaining the quality. So we remain optimistic that together as partners will drive a lot of that change and move these deliveries to the left. Kimberly Kuryea: And Eric, I think we have time for just one more question. Operator: Your final question comes from the line of Scott Mikus with Melius Research. Scott Mikus: Historically, you've talked about Colombia driving $400 million to $500 million of annual sales growth at Marine. It's been significantly higher than that in the past couple of years. Obviously, very strong growth on tough comps again this year. So if we're going to progress to 2 plus 1 on Virginia and Colombia, should Marine sustainably be growing sales at least $1 billion per annum until we hit that cadence? And then once we do hit that cadence, is that when Marine margins get back to the 8% to 9% range? Phebe Novakovic: So I think the way to think about this is that we anticipate similar growth that we've seen over the last few years. And when you think about -- so I don't see that at least in the near term changing, but it's been very robust growth. But when you think about margins, I think Danny walked you through kind of what are the main drivers. And it's primarily stabilizing that supply chain and increasing our throughput so that we can both offset any supply chain perturbations. And I think that's the best way to margin improvement, and it is very importantly, the best way to accelerate the throughput. I don't know if you want to add anything on that, Danny. Danny Deep: Yes. No, I think you've captured it. To the extent that the supply chain stabilizes, I think that's where we will see meaningful margin expansion. Nicole Shelton: Okay. Well, thank you, everyone, for joining our call today. Please refer to the General Dynamics website for the third quarter earnings release and highlights presentation. As a reminder, we will resume our normal reporting schedule of Wednesday at 9:00 a.m. for our fourth quarter call. If you have additional questions, I can be reached at (703) 876-3152. Thank you. Operator: Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.

Operator: Good morning, and welcome to the General Dynamics Second Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Nicole Shelton, Vice President of Investor Relations. Please go ahead. Nicole M. Shelton: Thank you, operator, and good morning, everyone. Welcome to the General Dynamics Second Quarter 2025 Conference Call. Any forward-looking statements made today represent our estimates regarding the company's outlook. These estimates are subject to some risks and uncertainties. Additional information regarding these factors is contained in the company's 10-K, 10-Q and 8-K filings. We will also refer to certain non-GAAP financial measures. For additional disclosures about these non-GAAP measures including reconciliations to comparable GAAP measures, please see the slides that accompany this webcast, which are available on the Investor Relations page of our website, investorrelations.gd.com. On the call today are Phebe Novakovic, Chairman and Chief Executive Officer; Kim Kuryea, Chief Financial Officer; Danny Deep, Executive Vice President, Global Operations; Jason Aiken, Executive Vice President, Combat and Mission Systems; and Amy Gilliland, Executive Vice President, and President, GDIT. I will now turn the call over to Phebe. Phebe N. Novakovic: Thank you, Nicole. Good morning, everyone, and thanks for being with us. Earlier today, we reported earnings of $3.74 per diluted share on revenue of $13 billion, operating earnings of $1.3 billion, and net income slightly over $1 billion. We enjoyed revenue increases at 3 of our 4 business segments compared to the year ago quarter. Across the company, revenue increased over $1 billion, an 8.9% increase. Importantly, operating earnings of $1.3 billion are up almost 13%, once again, demonstrating strong operating leverage. Similarly, net earnings are up 12% and earnings per share up 14.7% over the year ago quarter. You will note we beat Street EPS consensus by $0.19. On a year-to-date basis, revenue of $25.3 billion is up 11.3%, operating earnings of nearly $2.6 billion are up 17.4%, and earnings per share are up $1.26 or 20.5%. In my view, this was a wonderful quarter that exceeded our expectations and led to a very good first half of the year. Let me ask our CFO, Kim Kuryea, to provide detail on our strong order activity, growing backlog and superb cash generation as well as other relevant financial information. Kimberly A. Kuryea: Thank you, Phebe, and good morning. I'll start with orders. We had a huge quarter with over $28 billion of orders, yielding an overall book-to-bill ratio of 2.2:1 for the company. The largest driver was the Marine Systems segment, which received several contracts for further construction of submarines. The large awards in marine almost overshadow the fact that aerospace had a tremendous quarter with a book-to-bill ratio of 1.3x. This is the strongest first half for orders since 2022 and reflected strong demand across the entire Gulfstream product line. Combat Systems and technologies also had solid quarters with book-to-bill ratios of 1x and 0.9x, respectively. We ended the quarter with a record level of backlog of $103.7 million, up 14% from a year ago. Our total estimated contract value, which includes options and IDIQ contracts, ended the quarter at over $160 billion, also an all-time high. Turning to our cash performance for the quarter. We generated $1.6 billion of operating cash flow with all 4 segments contributing to our efforts to drive cash earlier in the year. After capital expenditures, our free cash flow was $1.4 billion for the quarter, yielding a cash conversion rate of 138%. Through the first half of 2025, we have free cash flow of $1.1 billion, which is well ahead of what we had planned. However, there is still work to be done as we have working capital to unwind from the balance sheet. We expect a strong second half with the majority of cash generated in the fourth quarter, which should push us towards a cash conversion rate around 90% for the year, an improvement from what we were originally forecasting. Our full year cash estimate excludes the impact of the recent tax legislation. As you know, reversing the prior law's requirement to capitalize R&D expenses will provide us a cash benefit. We are still working to develop an estimate of the exact timing and amounts associated with how that will all unfold. Now turning to capital deployment. Capital expenditures were $198 million or 1.5% of sales in the quarter. Similar to last year, you should expect capital expenditures to be somewhat higher in the second half of the year, spending a little over 2% of sales for the year. We paid $402 million in dividends in the quarter, but we made no share repurchases largely due to our cash profile. Also in the quarter, we refinanced $750 million of notes that matured in May. We have no further debt maturities until next year. We ended the quarter with a cash balance of approximately $1.5 billion and a net debt position of $7.2 billion, down $1.2 billion from last quarter. Our net interest expense in the quarter was $88 million, compared to $84 million last year. That brings the interest expense for the first half of the year to $177 million, up from $166 million for the same period in 2024 due to our utilization of commercial paper. At this point, our expectation for interest expense for the year is approximately $330 million. Finally, the effective tax rate in the quarter was 17.7%, bringing the tax rate for the first half to 17.4%. This rate is a little lower than our outlook for the full year, which remains around 17.5%. Phebe, that concludes my remarks. I'll turn it back over to you. Phebe N. Novakovic: Thanks, Kim. Now let me review the quarter in the context of the business segments and provide detailed color as appropriate. I have asked some of our group executives to participate and provide color from their perspective as well. First, Aerospace. Aerospace performed well in the quarter. It had a revenue of $3.06 billion, a 4.1% increase. Operating earnings of $403 million or 26.3% better than the year ago quarter. Operating margin is 230 basis points better than the year ago quarter. To give you a little perspective here, Gulfstream had 38 deliveries in the quarter, including 15 G700s, which is 4 more than the year ago quarter and 2 more sequentially. This was offset in part by fewer G650s as we made the final deliveries of this high-margin product. As I indicated previously, the supply chain continues to improve and is performing better to both schedule and quality. We are finding fewer faults and those we are finding are becoming easier to fix. In short, I'm increasingly confident that we can meet this year's delivery plan. And in fact, we are delivering G700s on a much more predictable cadence. I am pleased that all of our G700 retrofit airplanes have been delivered. Also, all of the G700s that were completed before engines were installed have also been delivered. You may recall that both of these things have negatively impacted costs and delayed deliveries. We are in the process of completing the G700 flight test aircraft and a number of them will be delivered in the second half. These are lower-margin aircraft and will be dilutive to margins, but will reduce inventory and increase operating cash by a like amount. The initial deliveries of the G800 will be made in the third quarter. We expect to deliver about 13 G800s for the year, which is about 3 less than the G650s we delivered in the second half of last year. The initial G800s will not carry the operating margins of the G650. This will obviously put some pressure on operating margin in the second half, but we still expect the margins in the third quarter to be very similar to the second quarter, coupled with a stronger fourth quarter. In summary, the Aerospace team had a solid quarter. The G800 deliveries are about to commence and G700 delivery cadence and operating margin are both improving. Anecdotally, as you may recall, the G800 was designed to replace the G650. Interestingly, the first 20 of the G800s will be the G650 owners. There is significant interest in this plane from Fortune 500 companies. Before I discuss demand, I am frequently asked questions about Aerospace operating margin. And when it will move into the high teens, that is above 15%. The simple answer is maybe 2026, but for sure, in 2027, with degradation again in 2028, with the delivery of a significant number of G400s. The simple answer is made with some trepidation, nothing is more complex to forecast than the operating margin for Aerospace. So first, let me focus on what you all think about operating margin on aircraft deliveries. This is almost always driven by mix. The G700 has the highest margins, the G800 should ultimately enjoy similar margins, but it's early in its delivery cycle. The G600 enjoys the next highest margin, followed by the G500 and G280. And let's not forget the very strong margin contribution earlier in the year from the sunset G650 program. But aircraft margins, while important, because of their size are only part of the story. Aerospace also has over $3.5 billion of sales and what we generally refer to as aircraft services business. At Gulfstream, we have a large maintenance business impacted by the amount of warranty work in a given period. Over the counterpart sales and special mission aircraft, each with different operating margin and varying from quarter-to-quarter and impacted by both volume and mix. At Jet Aviation, we have a large MRO business impacted by mix, particularly the number of large maintenance checks in a given quarter. They also have an aircraft completions business that is influenced by the mix of aircraft in-house, i.e., narrow-body, wide- body or completions for Gulfstream. Jet also have a high-margin FBO business impacted by volume in any particular quarter. FBO volume happened to have been down in the second quarter. Finally, Jet has a significant aircraft management and services business that has over 300 aircraft under management. The mix of these things impacts margin quarter-over-quarter at Jet. Jet also has about $1.6 billion of annual revenue, and that is sufficient to impact margins in the group. I hope this, to some extent, helps you understand the mosaic that makes forecast in this area so complex and the impact of both volume and mix on the results. However, do not let this discussion distract you from the main aerospace steady increasing sales and earnings. So turning to demand. Aerospace enjoyed very strong market demand in the quarter. As Kim noted, we had a 1.3x book-to-bill in the quarter even as aircraft deliveries increased the denominator. As I said last quarter, we fully expect the certification of the G800, its better-than-planned performance characteristics and early deliveries to customers will stimulate demand. We continue to see very strong interest across all models in the U.S., across Europe, the Middle East and other parts of the world. So let's move on to the defense businesses. First, Marine. The growth story at Marine continues. Revenue of $4.22 billion is up 22.2% from the year ago quarter and 17.6% sequentially. Similarly, operating earnings of $291 million are up 18.8% quarter-over-quarter and 16.4% sequentially. Operating margin of 6.9% leaves plenty of room for improvement, but let's not lose sight of the fact that operating earnings continue to grow along with sales. This particular quarter's growth was driven by Columbia-class and Virginia- class construction as well as a slight increase in DDG-51 construction. On a sequential basis, the 10-point decline in operating margin was driven by an unfavorable EAC adjustment at NASSCO. Backlog increased in the quarter by $14.6 billion or 38% to almost $53 billion, largely the result of a contract for 2 Block V Virginia-class ships, including a one-of-a-kind special mission ship with considerable contract. The contract also included important investment funds to support shipyard productivity, wage increases and additional training programs. These funds complement the funding that the Navy and Congress have provided over the last several years to help stabilize and improve the submarine industrial base. Taken together, these will help further improve EV throughput and productivity. As I said last quarter, Electric Boat, we continue to experience delays and quality problems in the supply chain. Material and parts are late and sometimes exhibited quality escapes. This obviously disrupts workflow, but we are developing good workarounds. We have more work to do here, but we are making progress. We are working closely with the Navy and the new administration to continue to address the problems in the supply chain and to work diligently to improve throughput and performance at Electric Boat. Our job remains to continuously improve to help the industrial base get stronger and to improve the cadence of ship delivery to the Navy. Next, Combat Systems. I'm going to summarize the group's results for the quarter and first half of the year and then ask Jason, our new Executive Vice President, to give you some color on the quarter from his perspective. Revenue in the quarter of $2.28 billion is essentially flat versus the year ago quarter. Operating earnings of $324 million are up 3.5%, on a 50 basis point increase in operating margin to 14.2%. Year-to-date, the comparison is not dissimilar with modest revenue growth of 1.6% to $4.46 billion, stronger earnings growth of 3.4% to $615 million and a 20 basis point expansion of operating margin to 13.8%. And sequentially, even stronger revenue growth, 4.9% to $2.28 billion, an impressive increase of 11.3% in operating earnings to $324 million on an 80 basis point improvement in operating margin. Order activity was solid with a book-to-bill of 1x for the quarter. So solid performance all around for Combat Systems. Jason? Jason W. Aiken: Thank you, Phebe, and good morning. As you can see from the numbers Phebe detailed for you, the group continues to demonstrate strong operating leverage irrespective of the top line trajectory, flat versus the prior year quarter, up modestly year-to-date and up more significantly on a sequential basis. And that's a testament to the operating discipline of this group. Growth in the quarter in Europe was offset by lower volume in our U.S. combat vehicle business, driven largely by the cancellation of the Booker program. While the Booker cancellation represents a headwind, we've stayed very close to the Army and are supporting their efforts as they work through budget and program prioritization activities. To that point, we've invested ahead of need to make sure we're well positioned to support priorities such as the rapid development and fielding of the next-generation main battle tank. The growth in Europe is particularly encouraging and is representative of significant potential in that business as defense spending in Europe is poised to accelerate. To that point, the book-to-bill in our European business was 1.5x in the first half, and they've got solid opportunities as we look ahead. Our munitions business continues to focus on facility expansion and increasing production rates in all areas related to artillery, including projectiles, load assembly and pack and propellant. We're making progress and working closely with the Army in support of their artillery production goals. Phebe N. Novakovic: Thanks, Jason. And finally, Technologies. As with Combat, I'm going to summarize the group's results for the quarter and first half of the year and then ask Amy and Jason to give you some color on the quarter from the perspective of GDIT and Mission Systems, respectively. The group had another strong quarter with revenue and earnings up quarter-over-quarter sequentially and year-to-date. Revenue of $3.5 billion was up 5.5% from the year ago quarter while earnings of $332 million were up 3.8%. Operating margin for the group was 9.6%, down 10 basis points from a year ago, on a shift in mix as GDIT grew faster than Mission Systems in the quarter. On a sequential basis, revenue and earnings were up by 1.3% and 1.2%, respectively, on a steady margin rate of 9.6%. And for the first half, revenue of $6.9 billion was up 6.1%, and operating earnings of $660 million were up 7.3% on a 20 basis point expansion in operating margins to 9.6%. The group continues to have solid order activity with a book-to-bill of just under 1x for the quarter and just over 1x for the first 6 months. As a result, the group's backlog is up 7.5% from this time a year ago, and their total estimated contract value is up more than 11% over the same period. With that, I'll turn it over to Amy first to talk about GDIT's quarter. Marguerite Amy Gilliland: Thank you, and good morning, everyone. As Phebe noted, GDIT delivered a solid quarter and first half with growth in all of our customer-facing divisions. This performance highlights the discipline and agility of a business focused on mission execution and cost control in a particularly dynamic environment. The pace of contract award activity was slower than normal in the first half, albeit somewhat improved in the second quarter. Despite significantly lower first half customer adjudications, GDIT enjoyed 6 wins over $100 million, including 1 over $1 billion and the business delivered a first half book-to-bill of essentially 1x on a growing business. First half book-to-bill would have been even stronger, but for the protest by a competitor of a significant new second quarter win in the defense business. We are pleased with the results we are seeing from the investments we've made in our portfolio of digital accelerators, capabilities that enable customers to quickly leverage AI, cyber and mission software technologies, and our deepening relationships with strategic and emerging technology partners. We reliably deliver and integrate the best technology has to offer day in and day out, and that has helped us navigate the changes in administration priorities throughout the first half. With that, I'll turn it over to Jason to talk about Mission Systems. Jason W. Aiken: Thanks, Amy. Mission Systems also had a great quarter with revenue, earnings and margins up on every comparator basis, quarter- over-quarter, sequentially and year-over-year. As been discussing for some time, Mission Systems has been transitioning from legacy lower-margin programs to new franchises for several years now. So the top line has been relatively flat, even as the margin profile is improving steadily. We said this is the final year of that transition, and so we're starting to see an inflection to growth. So that's very encouraging. Like GDIT, Mission Systems has been investing ahead of need in areas like unmanned platforms, smart munitions, high-speed encryption, strategic deterrents and contested space. And as a result, they're seeing increasing opportunities across the portfolio. To that point, their total backlog is up 15% from a year ago and total potential contract value is up 23% over the same period. All in all, a very strong first half of the year. I'll now turn it back over to Phebe. Phebe N. Novakovic: Before getting into guidance, I wanted you to hear from Danny Deep about his new responsibilities and what we are up to here with the new Executive VP for Operations. Danny Deep: Thank you, Phebe, and good morning. As you are all aware, General Dynamics takes great pride in being an outstanding operating company focused on cash generation, earnings and dependable delivery of highly differentiated and critical capabilities to our customers. As the portfolio has grown, and in some cases, quite rapidly, we see opportunity across each of our business units to further optimize our operating leverage. Along with the senior corporate leadership team and the operating unit presidents, we will focus on driving continuous improvement across the entire value chain, from competing to winning while maintaining discipline in our contracts to ensuring a robust supply chain and efficient manufacturing footprint to execute on our commitments. We'll place particular attention on programs where we have challenges to ensure we get them up the learning curve and performing to the high standards that have been the hallmark of General Dynamics. In summary, we see a wealth of value creation opportunities across the portfolio. With that, I'll turn it back to Phebe. Phebe N. Novakovic: So let me provide you our operating forecast for 2025 with some specifics around our outlook for each business group and then the company-wide rollup. For 2025, we now expect Aerospace revenue of around $12.9 billion, up around $250 million over prior estimate. Gulfstream deliveries will be $150 million to $155 million, up a little over our previous estimate. We anticipate a 13.5% operating margin for the year, 20 basis points lower than our earlier estimate. The third quarter operating margin will be about the same as this quarter with a somewhat better fourth quarter. In short, revenue is up on more deliveries, margin is down a little due to mix in airplane deliveries and at the service businesses. In Combat, we expect revenue of about $9.2 billion, coupled with a 14.5% operating margin. This should lead to somewhat improved earnings over our last estimate. As noted earlier, the Marine Group has been on a remarkable but difficult growth journey. It will continue during the rest of 2025, albeit at slightly lower growth rate. Our outlook for this year now anticipates revenue around $15.6 billion with operating margin of 7%, which should provide better earnings than previously estimated. In Technologies, we are making no change to the 2025 revenue and earnings estimate provided at the beginning of the year. So for 2025 company-wide, we expect to see revenue of approximately $51.2 billion and operating margin of 10.3%. The revenue estimate is increased by $900 million and the overall operating margin held constant. You have already heard Kim's commentary about our estimate for increased cash for the year. All of this rolls up to an increased EPS forecast of $15.05 to $15.15. So to wrap up, as we go into the second half coming off a very strong first half, we feel very good about the potential for the year. Nicole, back to you. Nicole M. Shelton: Thank you, Phebe. As a reminder, we ask participants to ask 1 question and 1 follow-up so that everyone has a chance to participate. Operator, could you please remind participants how to enter the queue? Operator: [Operator Instructions] Your first question comes from the line of Gautam Khanna with TD Cowen. Gautam J. Khanna: Nice results. Phebe, I was wondering if you could elaborate on the G800 delivery cadence. You mentioned 13 in the second half. Do you have a sense for when the first one might deliver and what the SKU will be Q3 to Q4? And relatedly, you've given color on the lots and the G700 margins, if you will. Any sort of guidance you can give us on how to think about G800 profitability by lots over time? Phebe N. Novakovic: So the first G800 should deliver very soon. And I actually am not -- I don't really know the distribution of each by quarter, but we'll be pretty much on what we -- what I noted in my remarks. As you know, as we talked about before, the G700 lot 1 carried lower margins for all the developmental cost reasons. Lot 2 is better. Lot 3 is going to be better yet or is better yet, and I expect the same from lot 4. The G800 comes out of the box at a higher lot 1 at a higher incremental margin than the 700 that didn't bear as much of the developmental costs. And it will to have margin expansion as we come down our learning curves and move from one lot to the next. Operator: Your next question comes from the line of Seth Seifman with JPMorgan. Seth Michael Seifman: I wanted to ask, first of all, I thought it was helpful to have the breakdown of Aerospace and thinking about the different ingredients in margin. It seems like in services after a strong couple of years, things seem to have slowed down a little bit here in the first half. And so maybe if you could talk a little bit about kind of why that's happening. And while I realize that there's a lot of unpredictability around the different dynamics there in terms of the contributors and the mix, what's sort of a good algorithm for services going forward? Does it grow at kind of a pace with flight hours or I guess, or deliveries or kind of how to think about it and how it fits into the margin mix going forward as well? Phebe N. Novakovic: Sure. So the theory of the case behind our services was that if we build additional service centers at or near location of Gulfstream airplanes, then in fact, that would drive additional incremental revenue. And in fact, that's been the case. And as I tried to walk you through in my remarks, the margins are varied by -- principally by mix, but also by volume. And so in any given quarter, it depends heavily both at Jet Aviation and Gulfstream on what the mix is of both MRO and then in the case of Jet, a lot of -- there are other services lines of business that also accrue to the margin story. So I don't know that there's a given algorithm for thinking about margin in the service world, but we expect it to continue to grow with the fleet, and we're very pleased with how we have done there. Seth Michael Seifman: Okay. Great. And then just as a follow-up, it seems like based on the new guidance with Technologies unchanged, there's a step down in terms of both margin and sales in the second half. And so maybe if you could talk a little bit about what's driving that and then kind of where it goes from here. Phebe N. Novakovic: Yes. So we were given the fluidity in that market so far this year, we thought it prudent to keep our earnings and our revenue estimates about where they are. But I'll ask both first Amy and then Jason to give you a little bit of color. Marguerite Amy Gilliland: So from a GDIT perspective, we did navigate the first half very well. That was not without some impact from contract scope changes, from cancellations of some of our contracts. And so as we look at the second half, the thing that will most impact our positioning is really the cadence of award activity. And as commented in my remarks, the adjudications were down significantly in the first half of 2025 compared to the first half of 2024. And so we're running out of days of the year to be able to win that work and deliver on it. And so really from a revenue expectation, it is the pace of adjudications that we're watching for the second half of the year, but feel very good about where we are from an earnings perspective. Jason? Jason W. Aiken: Yes. So from Mission Systems perspective, a good bit of the strength that we saw in the first half came from activity in their high- speed encryption product business, which is -- it's really a transactional business. And so while we still see incredible demand on that side of the business, the timing of that is somewhat less predictable given the transactional nature. So I would tell you there's opportunity for them in the second half, depending on how that demand goes. But as Phebe said, just given the uncertainty overall in the market for the group as a whole, that's the reason we're holding to the full year guidance. Operator: Your next question comes from the line of Doug Harned with Bernstein. Douglas Stuart Harned: On Marine, the big increase you saw in revenues in Q2, that's unusual to see that large of a jump there. Can you talk about what happens specifically related to Virginia-class, Columbia-class that really took it up so much? Phebe N. Novakovic: So Virginia was about 60% of the volume, Columbia, about 40%, and it really just was the construction volume. And I'd say we'll give you a little bit of perspective here. We've been growing on average at about 9% year-over-year for the last couple of years. And some quarters, we've hit high teens, but I'd say the 22% growth in this quarter is really just a question of largely both timing, but also continued increasing performance at the shipyard. Douglas Stuart Harned: And then you've gotten this -- early in the quarter, you got the award for the 2 -- last 2 Block V boats, which was certainly very good news with support for labor. Can you talk about the increased funding, both that and what we may see in the '26 budget, and how you can get that to translate into higher throughput, which it looks like you're already getting some of and ultimately higher margin as well? Phebe N. Novakovic: Okay. Let me answer that kind of in the inverse order. As we've been telling you for some time, the margin improvement at the Marine Group and particularly within the submarine industrial base improves at Electric Boat when we get additional stabilization in that industrial base and in our supply chain. So that has been a key driver of really the productivity at the shipyard. And as you know, part of our strategy is really dependent on controlling what we can control and on the deck plates, getting better and better and better maximizing or optimizing the work we have in-house with workarounds on late deliveries of major -- from major suppliers as well as any quality escapes. So that's sort of if you think about our big strategy, it's that, and we are seeing productivity improvements at -- in a number of key places in our -- on the deck plates at Electric Boat, frankly, in our other businesses as well across the board. I would say that with respect to the supply chain, we've seen some stabilization an improvement in some important areas. I think the Navy and the Congress have been allocating funding for the industrial base to undergird their performance and some of that is beginning to improve, but we've got a ways to go there. With respect to the fiscal year '26 funding levels, we are still working out with our Navy customer what the exact funding levels are by program. There's a fair amount of complexity as we unpack the '26 budget and the reconciliation bill, but our programs are fully supported. And then with respect to the anomaly, we were glad to get that under contract. One of those boats is a particularly complicated boat. And as we gear up on that. And I think that this is an important -- that contract was important in that it provided the type of funding for the shipyards that we've seen going into the supply chain over the last few years. So that kind of funding support on training and wage increases as well as productivity, maybe funding productivity improvements at each one of those, at each of the yards, that will be very, very helpful as we go forward. Operator: Your next question comes from the line of Scott Deuschle with Deutsche Bank. Scott Deuschle: Phebe, does getting to high teens margins at Aerospace require meaningfully higher Gulfstream deliveries then the $150 million to $155 million you're planning for 2025? Or is that bridge to high teens, primarily driven by coming down the learning curve and optimizing the mix? Phebe N. Novakovic: I think it's a combination of all of that. I tried to spend some considerable time in my remarks, dragging you all through the knothole that is Aerospace margins. So I think I'm not quite sure what other clarification I can give you. But it's a lot -- it will be mix and it will be volume in simple terms. Scott Deuschle: Okay. That's fair. And sorry if I missed this, but was the order strength at Gulfstream this quarter pretty well spread across aircraft types? Or was it concentrated in any particular pockets of the Gulfstream portfolio, particularly in the context of the G800? Phebe N. Novakovic: It was across all of our airplanes. First with the 700, 600, right behind it, and we had nice geographic distribution as well. So it was a good solid demand. And we continue to see that in the third quarter with particular just in the 800 I might add. Operator: Your next question comes from the line of Robert Stallard with Vertical Research. Robert Alan Stallard: Phebe, I was wondering if you could comment on the management reorganization that you announced this quarter and how this could affect the way that the business is ran going forward? Phebe N. Novakovic: Well, it was one of the reasons I asked Danny to give you some clarity on how we see his role in particular, playing out. We'll continue to manage the business as we have been managing it and really driving for value creation across each and every one of our portfolios. But as we grow, we have believed as a leadership team, and we've talked on this call and I've talked with many of you individually and in groups about our desire to increase our operating leverage. And you'll note in almost every single one of our calls, we'll stress and point out and then stress where we are on our operating leverage. So one of Danny's missions is to really focus on the operating performance of each and every one of our businesses. But we will manage the business in the same way. Robert Alan Stallard: Okay. The quick follow-up. Are you also looking to combine Combat Mission going forward? Or is they going to remain stand-alone businesses? Phebe N. Novakovic: Now, we'll keep them as they are. Operator: Your next question comes from the line of David Strauss with Barclays. David Egon Strauss: Phebe, following up on Rob's question. So the portfolio as a whole, I think, used to run 12 -- in the range of 12% to 13% margins more recently running in the low 10s. I know there are a lot of moving pieces, but any thoughts you might have in terms of where the margin potential is for the portfolio as we move forward? Phebe N. Novakovic: So look, we -- as Danny noted, we pride ourselves on our operating performance, and I think we can improve, and particularly, I mean the sort of the one that jumps out at you is in the Marine group. So those margins over time need to improve. But I'll ask Danny if he has any particular insights that not that far into his new position, but he's been a senior operating executive with the company for some time. Danny Deep: Okay. Well, thank you. Yes, I mean I think Phebe hit it. We're going to look across each of the operating units and program by program and where we've had some challenges in getting up the learning curve, I think that's where our focus is going to be and not to point any one particular operating unit out, but if you look at where the largest operating pieces of the business are and where we've historically had our margins, that's where we see our best opportunities. But this company has been focused on operations and has been very disciplined from an operating perspective for a long time, and we're just going to put a finer point on that. Operator: Your next question comes from the line of Myles Walton with Wolfe Research. Myles Alexander Walton: Phebe, the strength of bookings at Aerospace in the first half, are you feeling more confident in seeing a book-to-bill at or above 1x for 2025 at this point? Phebe N. Novakovic: I think we're keeping it about 1x. That's sort of been our cadence and our thought patterns and our observations, frankly. But the demand has been quite good. And as I noted, in my previous answers to one of the questions, we see that demand carrying through into the third quarter. Myles Alexander Walton: Okay. And then I think in your prepared remarks, you mentioned margin pressure in 2028 from the G280 (sic) [ G400 ]. I had my notes a certification in 2026. Phebe N. Novakovic: 400s. Myles Alexander Walton: Sorry, the G400. I had in my notes that certification was in 2026. Does that slipped to the right? Phebe N. Novakovic: I don't think so. I will tell you, we've slowed down the 400 a bit because we've got our hands full. That's not about the FAA. It's simply we've got an awful lot as we continue to grow and really work on our operating leverage at Gulfstream. But 400 is doing quite well. But I think we've -- I don't know that we've ever actually given you -- I don't recall that we've given you an entry into service estimate. And the word is estimate. But I was just trying to give you some kind of color about year-over-year progression without getting into next year's guidance, which, of course, we won't do. Operator: Your next question comes from the line of Sheila Kahyaoglu with Jefferies. Sheila Karin Kahyaoglu: I really appreciate the color on Aero. I might follow up a little bit on Myles' question. Just I think the point on aerospace is it's a stable growing business, both on revenues and operating profit. So maybe if you could talk about just the capacity of volume Gulfstream could produce. Is it growing off this 150 base annually? And to Myles' question, why the dip in '28? If G400 comes in there, I thought it would be maybe a year after the 800. So if you could just provide that dip timing. Phebe N. Novakovic: As 400 comes on, it will be a lower-margin airplanes than the very large cabin. And I think -- remind me what the first part of your question was? Sheila Karin Kahyaoglu: Just on the capacity, production capacity. Phebe N. Novakovic: Yes. So on the capacity question, we've got the plant and equipment jigs and fixtures as well as the workforce to support a capacity of 200 airplanes, but we'll continue to work to increase our production exporting to the market. Sheila Karin Kahyaoglu: Maybe one more, if I could ask, was services down in the quarter? Phebe N. Novakovic: Yes. Operator: Your next question comes from the line of Jason Gursky with Citi. Jason Michael Gursky: You mentioned the -- you made some comments about NASSCO, maybe a small negative EAC there. I was wondering if you can just talk a little bit generally about what's going on out at NASSCO and the priorities of the new administration and the impact that, that might have on that yard out there? And then just provide a little bit color on EAC. Phebe N. Novakovic: Yes. So let me talk about sort of what we see as the market environment, and then I'll turn it over to Danny to talk a little bit about this particular impact, which, by the way, at NASSCO is extremely unusual. So let's just set the table here and remind ourselves that NASSCO produces primarily auxiliary ships for the U.S. Navy. And the demand for those has been increasing over the last few years, and we continue to see that need as the war ships all need support ships in order to function at sea. So we've seen nice increases in demand, and we expect that to continue. We're working on the oiler program, and we've got several other programs in place as well. But I'll turn it over to Danny to talk about this quarter's EAC. Danny Deep: Okay. Yes. So at NASSCO, it really started with the flood and the impact the flood had on our prime line. It took us down from 2 lines to 1, and then we had a subsequent issue. And after that issue, it created a fair bit of rework in the system. And so that's what's reflected in the EAC as we speak. And we think we'll largely be through that by the end of the year and have both of those prime lines up and running, and this issue will be behind us. Nicole M. Shelton: Okay. Lacey. I think we have time for just 1 more question. Operator: Final question comes from the line of Scott Mikus with Melius Research. Scott Stephen Mikus: Phebe, the Secretary of the Navy commented that it might be preferable to have Huntington Ingalls and Electric Boat each build Virginia-class submarine separately rather than in a teaming arrangement. So if the Navy were to actually pursue that route, how much capital would you need to invest to make that happen? And is there enough skilled labor for Electric Boat to handle 1 Virginia by itself while also continuing to work on Columbia? Phebe N. Novakovic: So skilled labor has not been an issue for Electric Boat for some time now. But I -- and we do not see a capacity problem in the region with the availability of our touch labor. So we can support additional growth. We would need some additional capital if, in fact, the Navy ups on that strategy, but not an enormous amount. But I'll defer to the Navy on any future discussions about that. Scott Stephen Mikus: Okay. And then a quick question on Aerospace. The book-to-bill in the quarter was very good despite the stock markets perturbations around Liberation Day. Have you seen any uptick in the pipeline since the One Big Beautiful Bill Act was signed into law and reinstated bonus depreciation? Phebe N. Novakovic: I wouldn't cite one macroeconomic factor. I think that there are a lot of them here. There wasn't one in particular from my perspective that drove the demand. Bonus depreciation helps quite a bit, always has. Nicole M. Shelton: Okay. Thank you, everyone, for joining our call today. As a reminder, please refer to the General Dynamics website for the second quarter earnings release and highlights presentation. Finally, we want to let you know that we expect to hold our Q3 earnings call on Friday, October 24, at 9:00 a.m. That's a slight change from our normal practice of announcing earnings on Wednesday. So we want to advise you that early for planning purposes. We will resume our normal schedule for the fourth quarter call. If you have additional questions, I can be reached at (703) 876-3152. Operator: This concludes today's conference call. You may now disconnect.

Operator: Good morning and welcome to the General Dynamics, First Quarter 2025 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. [Operator Instructions] Please note, this event is being recorded. At this time, I would like to turn the conference over to Nicole Shelton, Vice President of Investor Relations. Please... Nicole Shelton: Thank you, operator, and good morning, everyone. Welcome to the General Dynamics First Quarter 2025 Conference Call. Any forward-looking statements made today represent our estimates regarding the company's outlook. These estimates are subject to some risks and uncertainties. Additional information regarding these factors is contained in the company's 10-K, 10-Q, and 8-K filings. We will also refer to certain non-GAAP financial measures. For additional disclosures about these non-GAAP measures, including reconciliations to comparable GAAP measures, please see the slides that accompany this webcast, which are available on the investor relations page of our website, investorrelations.gd.com. On the call today are Phebe Novakovic, Chairman and Chief Executive Officer; Kim Kuryea, Chief Financial Officer and Jason Aiken, Executive Vice President, Technologies. I will now turn the call over to Phebe. Phebe Novakovic: Thank you, Nicole. Good morning everyone and thanks to being with us. As you can discern from our press release, we reported earnings of $3.66 per diluted share on revenue of $12.2 billion operating earnings of $1.268 million and net earnings of $994 million. These results compare quite favorably to the year ago quarter. Revenue was up 13.9%, operating earnings were up 22.4% and net earnings were up 24.4%. As a result, earnings per diluted share are up $0.78 or 27.1% more than the year ago quarter. The operating margin for the entire company was 10.4% a 70 basis point improvement over the year ago quarter. While Aerospace led the way with a 45.2% revenue increase, each of the defense segment also enjoyed revenue increases. A similar pattern is true with respect to operating earnings. Aerospace led the way with a stunning 59.4% increase and each of the defense segment contributed nice improvements to operating earnings as well. We have obviously opened the year with a very strong quarter. It is important to note that the comparative quarter in 2024 also showed very good growth in all respects over first quarter 2023. We also beat consensus by $0.16 in the quarter at this point. At this point, let me ask Kim Kuryea, our CFO to provide detail on our order activity, solid backlog and cash activity before I come back with segment observations. Kim Kuryea: Thank you, Phebe and good morning. I'll start with orders and backlog. We had a solid quarter with over $10 billion of orders. Order activity was particularly strong in the Technologies Group with a book-to-bill ratio of 1.1 to 1. Our overall book-to-bill ratio for the company was less than one times, due in part to the 14% increase in revenue from last year. This resulted in total backlog being slightly down from year-end to $89 billion at quarter end. Our total estimated contract value, which includes options and IDIQ contracts, ended the quarter at a little over $141 billion. Turning to our cash performance for the quarter, we expected a slow start to the year. In terms of timing, this year will look a lot like last year with cash building throughout. The buildup of inventory as we approach certification and entry into service of the G800 impacted aerospace and although Technologies had a solid quarter, the defense businesses as a whole were impacted by a working capital buildup due to growth in timing. As a result, our free cash flow for the quarter was a negative $290 million. This was better than expected as our business units work to drive cash to the left. For the rest of the year, we expect modestly positive cash flow in the second quarter, followed by substantially improving free cash flow in each of the third and fourth quarters. Now to discuss capital deployment activities. Capital expenditures were $142 million, or 1.2% of sales in the quarter. Similar to last year, you should expect capital expenditures to increase in subsequent quarters throughout the year as we anticipate spending around 2% of revenue on CapEx investments in our businesses this year. Also in the quarter, we returned in excess of $980 million to shareholders in the form of dividends and share repurchases. This included $383 million paid in dividends and repurchases of approximately 2.4 million shares of stock for $600 million at an average price of just over $252 per share. In addition, in late March we repaid $750 million of notes that matured on April 1. As a reminder, we have an additional $750 million of notes maturing in May. Although we ultimately intend to refinance those notes, the timing of when we do that maybe influenced by market conditions. When you add it all up, we ended the quarter with cash balance of around $1.2 billion and a net debt position of $8.4 billion. Our net interest expense in the quarter was $89 million compared to $82 million last year. The increase was due to utilization of commercial paper during the quarter. Finally, turning to income taxes, we had a 17.2% effective tax rate in the quarter, generally consistent with our full year guidance. Phebe that concludes my remarks. I'll turn it back over to you. Phebe Novakovic: Thanks, Kim. Now let me review the quarter in the context of the business segments and provide detailed color as appropriate. First, Aerospace. Aerospace did particularly well in the quarter. It had revenue of $3.03 billion and operating earnings of 432 million with a 14.3% operating margin. Revenue is $942 million more than last year's first quarter, a 45.2% increase. To give you a little color here, the increase was driven by a 50% increase in aircraft deliveries, including 13 new G700s and higher services revenue at both Gulfstream and Jet Aviation. The 36 deliveries in the quarter are about as planned. Recall, however, that there were no G700 deliveries in the first quarter of 2024. So this quarter really shows the robust revenue increase driven by the introduction of the G700. In addition, we saw improved margins on our G700 deliveries. In short, we expect revenue growth throughout the year, but at a slowing rate of growth because G700 deliveries began in the second quarter of last year. As I indicated last quarter, the supply chain continues to improve and is performing better to both schedule and quality. We are finding fewer faults and those we are finding are becoming easier to fix. In short, I am increasingly confident that we can meet this year's delivery plan. We are also pleased that the G800 was certified by both the FAA and EASA on April 16th. This is expected to be a smooth entry into service and we have some reason to believe that we can exceed our planned deliveries of G800. I would be remiss if I failed to mention that Jet Aviation made a significant contribution to the quarter's results. Its revenue was up 8% and earnings up 22% over the year ago quarter on 160 basis point improvement in operating margin. This business has become a real jewel. In summary, the aerospace team has had a good quarter. G800 FAA and EASA certification is behind us and we are improving our G700 delivery cadence and operating margin. Turning to market demand, we had a 0.8 book-to-bill in the quarter even as aircraft deliveries increased by 50%. Orders are consistent with our internal plan at about the same number of units as the first quarter in 2023 and 2024. We expect that the certification of the G800, it's better than plant performance characteristics and the early deliveries to customers will stimulate demand. We continue to see improved interest across all models in the U.S. albeit with cautious concern by customers about the macroeconomic environment and the impact of tariffs on their businesses. Middle East activity remains strong, so let's move on to the defense businesses. Combat had revenue of $2.18 billion, up 3.5% over the year ago quarter. Earnings of $291 million are up 3.2%. Margins at 13.4% are consistent with the year ago quarter. It's interesting to observe that this year's revenue growth is on top of our first quarter 2024 growth of almost 20%, so nice compound growth. The increased revenue performance occurred at Ordnance and Tactical Systems in European land systems, land systems held steady. We also experienced good order performance. Orders in the quarter drove backlog to 16.9 billion, up 3 billion from this time a year ago. Demand for combat system products continues to be robust with particular strength in Europe. Orders for wheeled and tracked vehicles are up, reflecting the heightened threat environment. In addition to several new combat vehicle starts, we are working closely with the U.S. Army to accelerate Abrams modernization. In the U.S. we are rapidly increasing munitions capacity and production with the opening of our projectile facility in Texas and our load and assembly and PAC facility in Arkansas. All-in-all, Combat had a solid quarter and is off to a good start for the year. Turning to Marine Systems, once again, our shipbuilding units are demonstrating impressive revenue growth. Let me repeat the recent history that I gave you at this time last year with respect to growth in this decade. The first quarter 2020 was up 9.1% against Q1, 2019. Q1, 2021 was up 10.6% over Q1, 2020. Q1, 2022 is up 6.8% over Q1, 2021. Q1, 2023 was up 12.9% over Q1, 2022. Q1 2024 was up 11.3% over Q1, 2023. And finally, this quarter is up 7.7% over Q1.24. This has been a really nice rate of growth for the shipyards and the repair yards. This growth has come at significant cost for facilities and significant increase in hiring. The good news is we've been able to hire and train the people we require to support our growth. This particular quarter's growth was driven by Columbia Class and Virginia Class construction, as well as an increase in DDG-51 construction. Operating earnings are $250 million in the quarter, up 7.8% from the year ago quarter. Operating margin is identical to last year's quarter. We have struggled to achieve operating leverage to go with our rapid revenue growth, but operating earnings have grown on a consistent basis as well. We continue to be impacted by delays and quality problems in the supply chain. Material and parts are late and sometimes exhibit quality escapes, and new shipbuilders continue to come down learning curves. We have more work to do, but we have made progress. In addition, one of the unions, the draftsmen's, a largely white collar union that converts engineering specs to drawing has voted to authorize the strike. We are working closely with the Navy and the new administration to continue to address the problems in the supply chain and look for opportunities to improve throughput and performance at the shipyard. The growth profile continues to look strong and demand is not abated. Our job is to continue to improve ourselves and to help the industrial base get stronger with the help of the government. The Technologies Group had a strong start to the year with revenue of $3.43 billion. This was an increase of 6.8% over the first quarter of 2024. Both businesses contributed to the growth in the quarter with GDIT up 9% and Mission Systems up almost 2%. Operating earnings of $328 million were up 11.2% over the year ago quarter on a 40 basis point improvement in operating margins from 9.2% to 9.6%. The operating margin improvement is encouraging given the top line shift toward IT services, which carry a lower margin than the defense electronics side of the portfolio. This reflects strong performance admission systems as the transition from legacy programs to new franchises continues. The group's order activity was also encouraging with a book-to-bill of 1.1 times for the quarter and trailing 12 months even against the strong revenue growth. As a result, the group's backlog is up almost 7% from a year ago and their total estimated contract value is up more than 10% over the same period. Their focus on advanced technology enabling autonomous platforms, smart munitions, subsea warfare and strategic deterrence as well as advanced AI, cloud, cyber 5G and quantum solutions is driving demand for the group. Their pipeline of qualified opportunities remains strong at 120 billion and their win and capture rates in the 80% range reflect the compelling value they're providing their customers. While this year is off to a strong start, a significant amount of uncertainty hangs over the market, particularly on the IT services side of the business as the administration establishes its own spending priorities. That said, our team has a great understanding of the government's emerging technology needs and is committed to innovating to solve the toughest technical challenges across the government at the best return for their customers. As you know, we never update guidance at this time of year. Apart from what I've already said about aerospace, I will continue with that practice. There is, however, no hiding from this quarter's performance and its implication for the year. Let me speak to tariffs for a moment. We cannot yet discern to what extent the defense businesses will be impacted over time. The more potentially impactful problem is in aerospace, where we are a significant net provider of export revenue to the U.S. We do not know the scope and breadth of the tariffs issue at the moment and will not for a while. Accordingly, anything I might say on that subject would be sheer speculation. So I do not intend to answer questions on the subject of tariffs because anything I say on that subject, given our lack firm of knowledge, will almost certainly be wrong. Rest assured that we are working the related issues diligently. This concludes my remarks about a good quarter and let me turn the call back to Nicole to take questions. Nicole Shelton: Thank you, Phebe. Operator: [Operator Instructions] We will take our first question from Peter Arment at Baird. Peter Arment: Yes, thanks. Good morning, Phebe, Kim, Jason, Nicole. Nice results. Phebe, maybe just given in the spirit of everything that's going on, GD -- Technology Segment had a really good bookings quarter, kind of bucking the trend of the industry. Maybe could you talk a little bit about, I guess, any visibility or any discussions that GD is supporting kind of the GSA and their efforts and just, how are things looking from a bookings in a cost savings environment with the current administration? Phebe Novakovic: Yes, Peter, that's a good question. I asked Jason to join us on the call to provide us more color for those of you who wanted some. So I'll turn that over to Jason. Jason Aiken: Thanks, Phebe, and good morning Peter. I think as you'd expect, along with a number of GDITs peers that I'm sure you've heard from, we've been in active conversation and actively working with the customer to identify opportunities for savings for increased value and so on from the services and the solutions that we provide. I think it's important to as a reminder that we are not strictly in the consulting business per se. We deliver mission driven solutions. We deliver solutions to the customer's most challenging technology issues. But the fact is we are in the conversation and as part of that conversation, we are going to partner with our customer and we are going to find the savings that they're looking for. At this point, the only thing I could comment in terms of what we're seeing in our results is you saw, you heard about the strong results in the quarter. First quarter was very strong, not only from a revenue and earnings standpoint, but also the order book was healthy. So on the one hand, we're seeing a little bit of sluggishness in the solicitation and the proposal and award process, no different than the rest of our peers. But we'll have to see how that plays out, how long that sustains and how much of that is just an impact of a new administration setting their priorities and no different than any transition we see with a new administration. So a lot still to be determined, nothing to change yet. The outlook for the year remains the same and I think we'll know a lot more by the midpoint of the year. Peter Arment: Thanks, Jason. Thanks, Phebe. Operator: We'll move next to Jason Gursky at Citi. Jason Gursky: Hey, good morning. First question, Phebe maybe just get some comments from you and your take on the administration's desire to stand up, I don't know, Office of Shipbuilding inside the White House and all the efforts that we're seeing from them on supporting the industrial base here in the United States. We just look to get your take on what you're hearing. Phebe Novakovic: Yes. So we've been in touch with the office. We're very happy to have the focus on shipbuilding across the enterprise. So consider that all goodness. And we've had productive conversations with multiple elements of the administration and we're working with them to see in some cases how we can accelerate throughput productivity and shore up how we can shore up the industrial base, particularly on the, on the defense side, and opportunities for more commercial shipbuilding where they may arise. So I think attention on a, on a subject of national import is always beneficial. Jason Gursky: Okay, great. And then quick follow up question would just be on the executive orders that hit last week about the potential for seems like a rewrite of federal acquisition regulation. I just would love to get your take on, this administration's approach to procurement reform. Seems like every administration comes in and wants to reform how acquisition is done. Just curious if you think this one's going to be any different kind of potential opportunities and risks as we go through this process for the industrial base writ large. Thanks. Phebe Novakovic: So I think that acquisition reform is always laudatory, and I think the extent to which it succeeds is understanding what works in the acquisition process and what doesn't. So I think that part of the dialogue we're all having is here's the good things, because there are an awful lot of good things within the process, but here are all the impediments, the cost drivers, the elements that tend to slow down or build bureaucracy. So I think that's a -- I think those are good conversations. And we've always been supportive of acquisition reform. Operator: We'll move next to David Strauss at Barclays. Thanks. David Strauss: Thanks, good morning. Phebe Novakovic: Hi, David. David Strauss: Phebe, has there been a change in kind of the order activity or customer interest, any noticeable change that you've seen at Gulfstream, post all the tariff announcements in early April, Any, any, any slowing or anything? Phebe Novakovic: The pipeline remains good. I'd say everyone's a little bit cautious figuring out to the extent to which the tariffs will impact any one of their businesses, but the pipeline remains strong across the portfolio of products. So, so far, so good. David Strauss: Okay. And a follow up on the marine side, can you give an update on getting the money, the significant funding that was in the CR under contract and maybe progression on, the larger Block 6, Virginia Class contract? Phebe Novakovic: So we're working with the administration on getting the supplemental funding in the CR under contract. And so we've had very productive conversations and will continue those, so I don't think it's appropriate to talk anymore about that. But to the extent to which that we get those funds into the shipyards, into wages and additional throughput capacity, that's all beneficial in the big conversations that have to happen around Block 6 and the second build of Columbia. So the Navy intends for those to happen this year, but I think we need a lot of building blocks before we get there, including getting the supplemental under contract and starting to execute there. Operator: Next, we'll move to Robert Stallard at Vertical Research. Robert Stallard: Thanks so much. Good morning. Phebe Novakovic: Good morning. Robert Stallard: Phebe, you said some positive things about the aerospace supply chain that you've experienced in the last couple of months, but I was wondering if in recent weeks this whole tariff thing has shifted the landscape here, particularly with regard to engines. Phebe Novakovic: So let's just be clear about the supply chain. They've made very good progress, but the problems are not all behind us. And so we continue to work out of station work and continue to find some issues. I think it's a little soon to tell within the supply chain the extent to which we've got real concerns or their suppliers have real concerns. I would say that a lot of what we consume, internal consumption material, has a significant amount of U.S. content. So how all of this plays out is remains to be seen here. Robert Stallard: Okay, thanks very much. Operator: We'll go next to Kristine Liwag at Morgan Stanley. Kristine Liwag: Hi, good morning, everyone. Phebe Novakovic: Good morning. Kristine Liwag: Jason. I want to focus on technologies a little bit. You mentioned that you're working on savings that you can provide the customer. It seems like the GSA was disappointed with the initial proposals from the industry about cost savings. So can you talk about what's the potential size of savings you could provide with the new approach and if we could size the potential effect on your revenue stream as this materializes, that'd be great. Thanks. Jason Aiken: Yes. I'm afraid I'm going to give you an answer you're not going to be happy with. Kristine. The point is, as I said, we are in a good, healthy, active discussion with that customer. We are identifying savings. Some of that, as you might imagine, is from a conversation that's been discussed quite a bit around shifting the fixed price and outcome based type contracts, which we very much welcome. We have a good healthy portion of that in our backlog and portfolio already. But the fact is it's an ongoing dialogue with the customer. And so I think it'd be inappropriate to get out ahead of that in a public conversation and get ahead of them on that. Kristine Liwag: Great, thank you. And then Phebe, if I could have a follow on Gulfstream. I mean you now have the G800 certified and you had previous had the G700 as well. At this point with the new products for Gulfstream coming out, it looks like there's a little uptick on the older G600s coming to market. I know you mentioned that there hasn't been significant change in demand, but I was wondering if you could provide color regarding customer behavior and how the deliveries of these newer jets are affecting the older pieces and how you expect that to play out regarding pricing. Phebe Novakovic: It's interesting. Old is relative. He's a brand new aviator. I take your point, but a little bit of humor here. The interest in the 500 and 600 continued to be very strong. Each one has its market segment, fulfills different missions. Just so you know, an older airplane again though from a relative point of view is the 650. I think we deliver the last 650s this quarter. So that's kind of a seminal end to really an extraordinary airplane and I would say a real market changer for the last 12, 15 years. But demand remains good, the deliveries are on cadence, largely on cadence but again we still have some perturbations from the supply chain but we'll hopefully get some of those behind us as supply chain more fully recovers. I hope that answers your question. Operator: Next, we'll move to Ken Herbert at RBC Capital Markets. Ken Herbert: Hi Phebe and everybody, good morning. Phebe Novakovic: Good morning. Ken Herbert: Nice Gulfstream deliveries in the first quarter. Phebe, sounds like supply chain is getting better. Sounds like maybe there's some incremental upside to full year expectations. But can you provide any commentary on cadence of deliveries as we think about second quarter and second half of the year from Gulfstream? Phebe Novakovic: I think pretty consistent. We'll have some mixed changes quarter-over-quarter like we typically do, but pretty consistent. And we're sticking with our with the estimate that we gave you on the last call. As you all know, we never I think once in the last 12, 13 years have we once or twice have we ever updated in the second quarter or in the first quarter. We always wait till the second quarter. So we'll give you more clarity to the extent that there are any changes in that second quarter update. Ken Herbert: Okay, great. And just as a follow up, you called out Middle East good order activity there. Are you seeing anything else geographically? Maybe any areas of softness or anything else that sticks out in terms of customer activity on Gulfstream? Phebe Novakovic: Pretty much consistent with what we've seen recently. The U.S. is strong and Middle East is strong. So, so far I haven't seen any systemic changes here. Operator: We'll move next to Scott Mikus at Melius Research. Scott Mikus: Morning. Phebe Novakovic: Morning. Scott Mikus: Phebe. Quick question on Marine. General Cotton of U.S. Strategic Command recently stated that the Columbia programmer record may need to be increased given today's elevated threat environment. Considering the Navy's fleet of 14 Ohio class submarines carry 280 SLBMs, but each Columbia is only designed to carry 16 SLBMs. Is there interest from the DoD that you've heard about increasing the Columbia program to maintain a one to one replacement of SLBM launch capability? Phebe Novakovic: That's an interesting question. That has been a national security question on and off I'd say for the last 15 years or so. So I haven't heard anything new particularly on that subject but it's frequently a question that comes up or a subject that comes up in extended conversations, so I'm sure it is on people's minds. Scott Mikus: Okay. And then turning to Gulfstream, deliveries were very good this quarter. Were there any customers that tried to accelerate the deliveries to get ahead of the tariffs? Phebe Novakovic: Not that I'm aware of. Scott Mikus: Okay, thanks very much. Operator: We'll go next to Gavin Parsons at UBS. Gavin Parsons: Thanks, good morning. Phebe Novakovic: Good morning. Gavin Parsons: Phebe, you mentioned the improvement in the G700 margin was 1Q better than your plan. And do you still expect a step down in the 2Q and 3Q margin? Phebe Novakovic: Yes, we're holding consistent for a whole series of reasons, including mips, among others, in the second quarter. Pretty much the progression that we gave you last call in January. So again, if that changes, we'll update you at the end of Q2, but so far that's still our plan. Gavin Parsons: Okay, appreciate it. And you mentioned you expect G800 certification to drive a step up in orders there. Did you book any G800s in the first quarter? Phebe Novakovic: We've had. Yes, I'm almost certain we did. And we've had certainly additional interest since the since the certification. It's a popular airplane. Let's recall that airplane is the replacement for the 650. 650s, as I noted, leave, it's out of production at the end of this quarter. It's already out of production actually largely, and we're in the delivery mode. So the last delivery will be this quarter, so that'll be an additional, I think stimulant to demand. Operator: And we'll move to our next question from Seth Seifman with JPMorgan. Seth Seifman: Thanks very much and good morning everyone. Phebe Novakovic: Morning, Seth. Seth Seifman: I wanted to ask in Marine, just starting off with the 7% margin kind of slightly higher than what was initially expected for the year and potentially, bringing those last two Block five boats, well, hopefully bringing those boats under contract this year, we'll see about the rest. Does that create maybe a little bit less risk when we think about the margin outlook for Marine versus the past two years? Phebe Novakovic: I think to the extent that we can continue to stimulate through productivity in the supply chain as well as at the shipyard, that is always a risk reduction, so I think every time that we can facilitate that, that is a good thing. I will recall -- I'll just note on the 7% margin. We had a charge in the fourth quarter last year that didn't revisit and that was some mix driven. But we're staying by, you didn't ask this question, but I'll answer it anyway. But we'll stick with, as we stand today with our -- we're going to hover in the upper sixes in margin. But yes, as I said, any action on the part of the government to stimulate productivity always takes risk out of the profile. Seth Seifman: Okay. Okay, thanks. And then just as a follow up on the capital deployment and balance sheet with the share repurchases in the first quarter, I guess will affect the share count for the year. I think, Kim, you mentioned maybe waiting potentially to refinance some of the debt that's due in the second quarter. Should we think about some incremental interest expense at all this year that maybe offsets some of the goodness from -- from share repo or how do I guess, how do those two things kind of net out? And then, Phebe, I think you've said over time that you're typically opportunistic on share repo and this was, a bigger quarter than we're used to seeing and so, what was kind of the thought process around that? Kim Kuryea: Sure. I'll start with -- just to clarify, I didn't necessarily say we were waiting. We're just watching what's happening in the market in terms of the rates related to the refinancing of the debt. So just wanted to clarify on that. And as you stated, we did have significant share repurchase in the first quarter, and we continue to look at share repurchase throughout the rest of the year, depending on the facts and circumstances as they present themselves. And so I would say that we will likely have slightly more interest expense predicted for the rest of the year. Phebe Novakovic: And I would say, too, our general attitude about capital deployment is unchanged, and our share repurchases are opportunistic, but the stock was a good buy a lot of instances this quarter. Operator: We'll take our next question from Andre Madrid at BTIG. Andre Madrid: Good morning, everyone. Phebe Novakovic: Good morning. Andre Madrid: Given all the recent tension around trade, do you think there's a reluctance moving forward for allies to work with U.S. contractors? I mean -- you saw several Northern European nations kind of coming together and saying that they were intending to collectively buy a competing inventory combat vehicle. Like do we expect stuff of this magnitude kind of moving forward? And yes, like I said, do we expect trade to kind of linger and weigh on allies dealing with contractors like GD? Phebe Novakovic: I think that we have to see how all that plays out. But we -- I think you know that we are a little bit different, and this is largely talking about combat systems because that's our preeminent business in Europe. But this is a European business run by Europeans with manufacturing facilities in Europe sourced in Europe almost exclusively. So these are long-standing 30-year in some instances companies in their home countries. So, I think we're a little bit different. I would say that the demand in the first quarter for European made sourced GD products was certainly there and European Land Systems has a superb portfolio of products to offer and we have seen increased demand and increased spending. So, that bodes well from our perspective for these businesses. Andre Madrid: Got it. Got it. That's helpful. And then if I could just squeeze in one more. I think some of your peers pointed out a slower pace of contract awards in the first quarter. Did you see anything of this nature? Could you provide more color there? Phebe Novakovic: Yes. I'll not in the majority of the portfolio, but Jason, go ahead. Jason Aiken: Yes. I think as it relates to the Technologies Group, as you saw in the results, it was actually a very encouraging quarter from an orders perspective. On a pretty meaningful uptick in revenue, we had a book-to-bill greater than 1:1. So -- so far, we're not seeing an impact through the end of the first quarter. And as Phebe said, the pipeline for the business remains very strong. The issue that I think most people are talking about, and we're seeing, frankly, the same thing is what I would refer to as perhaps a sluggishness, if you will, in the cadence of solicitations and award activity. But as a reminder, that's not necessarily something new for this business. In the GDIT side, in particular, we've talked for some time about dealing with these types of issues of protracted and drawn out adjudications and award activities, protests and other things that sort of extend that order cadence beyond what would be a regular order. So while this is something we're tracking and it's something everybody is talking about, I don't necessarily think it's something aberrationally different than what we've been used to dealing with in the past. And so we'll just have to see how it plays out as we go forward. Operator: We'll take our next question from Sheila Kahyaoglu at Jefferies. Sheila Kahyaoglu: Good morning, Phebe or Kim, maybe two follow-ups, if I can, both on margins, one on Aerospace and one on Marine. On aerospace, can you just update us on how we think about the last 650 being delivered in this quarter as the G800 grams [ph] and how we think about the different box with G700 aggressing throughout the year? Phebe Novakovic: So we're continuing to improve G700 margins. We are not, however, at what I would call a normal cadence yet. And so once we hit that, then we will begin to progress margins even further. The 650 will deliver at high margins and the 800 will come in at higher margins than the 700 because it's not carrying as much burden as the 700 for a slot of 700. So these are all, I think, beneficial to us. And you had a question on the Marine margins? Sheila Kahyaoglu: Yes, please. I just thought your prepared remarks mentioned the government and working with them a lot more. So I was wondering over the last quarter or two, what's really changed, whether it was the higher in cadence, the investment required from GD or is the government customer working closer with you to support the marine build-out. Phebe Novakovic: I'd say there's a step-up in engagement on the civilian side of the government with us on building that cadence, getting the throughput up, getting productivity increases. Ensuring that we can continue to hire the workers that we have been hiring that the wage structure is appropriate and that the investments take us to the next level. And I suspect the next series of investments you'll see some investment in resiliency, a lot and, again, additional productivity and throughput with increased automation, even more increased automation. They have quite a bit that we've spent over the last decade and recently putting it in the shipyards and then additional fixtures for additional throughput so that we can really get our pace to where it needs to be, to deliver what the nation needs. And then, again, continued efforts on the part of the government to support the supply chain and get the supply chain stabilize, it's better in places, but we've got a ways to go. Operator: We'll move next to Ron Epstein at Bank of America. Mariana Perez Mora: This is Mariana Perez Mora, for Ron today. Phebe Novakovic: Good morning. Mariana Perez Mora: I wanted to do a follow-up on Combat Systems. Could you mind discussing what is the pipeline of opportunities in Europe, especially because we continue to see headlines on like increased commitment to build up their defenses? Phebe Novakovic: So we've seen increased discussions and really throughout Europe. Eastern Europe as well as Central Europe now, and those conversations have accelerated. They started in earnest with the invasion of Ukraine, and they have picked up even more as each one of those governments has allocated an increasing amount of its resources to defense spending, so I would say it's across the board. Mariana Perez Mora: Thank you. And my follow-up is going to be on tariff. What are your expectations for -- especially in this macro environment or evolving uncertainty? What are your expectations for book-to-bill on for full [ph] strength for the full year? Phebe Novakovic: We are close to 1:1 for the year. I think we're actually 9, but why pick nit, that's very close to 1. So we continue to see that as achievable in the moment. Should that let you know in Q2. Operator: Next, we'll move to Myles Walton at Wolfe Research. Myles Walton: Thanks. Phebe, I realize you can't put precision on the tariffs from the step in the land mine here. Phebe Novakovic: You're right about that. Myles Walton: I know. I know. So your confidence that you alluded to in the full year outlook. Is that encompassing your assessment of what you're going to see? Phebe Novakovic: We don't think the defense guys get hit much. There will be some Gulfstream impacts and nothing we see so far is extraordinary but we had a long way to go. And I think a lot of the supply chains have to assimilate these changes and see the impacts to the extent that they have them on them, but that's all I can give you. If I were any more specific, the one thing I could assure you is it would be wrong, and you all would be highly irritated that it gave you a wrong number. So I'm giving you really how we see it from our thought at the moment. Myles Walton: And then a follow-up, we talked through the call about the administration fingerprints on the Marine business, with the Shipbuilding Act and technologies with some of their initiatives on government services. Is there anything you're seeing as it relates to your combat business and their view on the role of the Army and maybe the X30 and M10 as being prioritized or deprioritized in the framework? Phebe Novakovic: So one of the things that is a truism about Washington that is now a truism on steroids is that rumor is rampant. So I want to see what the budgets actually show. But the CR did fund Stryker and Abrams at a lesser rate. I think the Army's plan had been on full brigade of Abrams third brigade of Strykers and they cut that request by about a third, so we need to find a little bit more stable funding profile, particularly for the supply chain. That really perturbate the supply chain badly. There is a great interest on the part of the Army, and we are working daily with them to accelerate the next-generation Abrams. So we consider that a very positive step in Army recapitalization and modernization. Operator: Next, we'll go to Noah Poponak at Goldman Sachs. Noah Poponak: Hey good morning everyone. Phebe Novakovic: Good morning. Noah Poponak: I just wanted to go back to technologies, Jason or Phebe, it's interesting you mentioned engagement with the customer and that this dialogue back and forth dialogue is going on. I wondered how much are they just asking for reductions versus how much are you showing them capability that can help them gain efficiencies while adding revenue to your business. And then additionally, I'm curious how much discussion is there around contract structure and how that could impact margins whether positively or negatively? Jason Aiken: Yes. Look, in short, I'd say it's all of the above. Not to mince words, they are looking for reductions across the board, and we are actively participating in that and making recommendations to help them solve the problem they're trying to solve. But to your point, there are opportunities down the road because the fact is when you look at the types of efficiencies they're trying to drive the type of headcount reductions they're looking for, it is absolutely the very types of things that we provide in terms of these technology solutions and digitization and so on that enable those types of reductions. So there's going to be a period where it's a shorter-term conversation and then it's going to turn to a longer-term conversation. And to your point about opportunity in that, I think -- look, we talked about fixed price outcome-based type contracts. And again, I mentioned we're comfortable with that. We have a good bit of that in our portfolio and that should bring an opportunity for us. The fact is it's no different than any other contract geometry fixed price versus cost plus. When you take on more risk, there should be an opportunity for a little better margin. But all of it comes at a better price and a better outcome for the customer. I guess if I would add one other thing to watch out from a risk standpoint, we need to be careful from a mission perspective, that if there's dueling priorities of significantly reducing workforce within the government and at the same time, on a meaningful level in sourcing this type of work to the customer that can come at great peril and we need to be mindful of that in these conversations and make sure we don't compromise any mission capability. Noah Poponak: I appreciate all that detail, Jason. And just one quick one, Kim, what's your updated thinking for full year free cash flow to net income conversion? Kim Kuryea: I think we're sticking with the forecast that we gave you in January at this point in time. We're obviously always trying to improve upon that. But at this point in the year, we're going to stick to that forecast. Nicole Shelton: Operator, I think now we have time for just one last question. Operator: And we'll take that question from Gautam Khanna at TD Cowen. Gautam Khanna: Yes, thank you guys. Jason, I wanted to just follow up on the prior question. Have you actually seen dose or whatever we want to call this book terminate contracts with GDIT? Has that happened? And if so, can you quantify what that aggregates to? Jason Aiken: Yes. I'm sure if you look at the public information around DOGE, they list all the contract actually that they've taken action on. And we have been a part of that. There have been some stop work orders, some partial stop work orders and so on. In terms of impact of that, I'm not going to quantify that for the year. As I said, the outlook for the year for the business remains the same. If anything, I think I would remind you that historically, the way General Dynamics puts contract value into backlog is materially different and more conservative than most of GDIT's peers. We're very rigorous about that. And so from a color standpoint, I think I'll put it that way. But we're -- those things are going on, and it's going to be part of the conversation. Gautam Khanna: Got you. And that's factored in. Okay. And then just a follow-up on Gulfstream, Phebe, could you remind us what percentage of the pipeline of opportunities on the large cabin side are with non-U.S. customers like a rough percentage? Is it half? Is it a quarter? Phebe Novakovic: Yes. No, it's less than half. I think it typically runs 60-40, something like that, 60 U.S. Nicole Shelton: Great. Well, thank you, everyone, for joining our call today. As a reminder, please refer to the General Dynamics website for the first quarter earnings release and highlights presentation. If you have any additional questions, I can be reached at 703-876-3152. Operator: And this concludes today's conference call. Thank you for your participation. You may now disconnect.

Operator: Good morning, and welcome to the General Dynamics Third Quarter 2024 Earnings Conference Call. All participants will be in listen-only mode. After the speakers remarks there will be a question-and-answer session. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Nicole Shelton, Vice President of Investor Relations. Please go ahead. Nicole Shelton: Thank you, operator, and good morning, everyone. Welcome to the General Dynamics third quarter 2024 conference call. Any forward-looking statements made today represent our estimates regarding the company's outlook. These estimates are subject to some risks and uncertainties. Additional information regarding these factors is contained in the company's 10-K, 10-Q, and 8-K filings. We will also refer to certain non-GAAP financial measures. For additional disclosures about these non-GAAP measures, including reconciliations to comparable GAAP measures, please see the slides that accompany this webcast, which are available on the Investor Relations page of our website, investorrelations.gd.com. On the call today are Phebe Novakovic, Chairman and Chief Executive Officer; and Kim Kuryea, Chief Financial Officer. I will now turn the call over to Phebe. Phebe N. Novakovic: Thank you Nicole. Good morning everyone and thanks for being with us. Earlier this morning we have reported earnings of $3.35 per diluted share on revenue over 11.67 billion, operating earnings of 1.18 billion and net income of 930 million. Across the company revenue increased 1.1 billion, a strong 10.4% led by a 22% increase from our Aerospace segment and a 20% increase in Marine Systems. We enjoyed revenue increases at three of our four business segments compared to the year ago quarter, only Combat Systems is flat. This is strong growth by any reasonable standard. Importantly operating earnings of 1.18 billion are up 124 million or 11.7%. Similarly, net earnings increased 94 million or 11.2% and earnings per share are up $0.31 or 10.2% over the year ago quarter. When earnings are up at a greater rate than revenue in a growth environment, the business is demonstrating solid operating leverage. We are doing just that. On a year-to-date basis, revenue of $34.4 billion is up $3.77 billion or 12.3% over last year. Operating earnings of $3.37 billion are up 14.1%. Net earnings of $2.63 billion are up 14% despite a higher tax rate. Nevertheless, we mistreat EPS consensus by a fair amount because we were able to deliver only four G700s in the quarter. So without further ado, let me move right into aerospace and give you as much insight into this issue as I can, and its implications for the remainder of the year. At the outset, let me give you some comparative numbers that are quite good despite the shortfall of anticipated G700 delivery. Then I will put all of this in some reasonable context for you. Aerospace had revenue of $2.48 billion and operating earnings of $305 million with a 12.3% operating margin. Revenue is $450 million more than last year's third quarter, a solid 22% increase. The revenue increase was driven by the four G700 deliveries, higher service center and special missions volume, and higher FBO and MRO volume, particularly in the Asia Pacific region at Jet Aviation. We delivered 28 aircrafts, including four G700s this quarter. This is 11 fewer G700s than we expected to deliver. We also delivered one less G600, G500 and G280 than we did a year ago quarter. The deliveries of these aircraft are at a reasonably steady state and the modest shortfall is a typical variance, having to do largely with timing and customer convenience. Operating earnings of $305 million are up $37 million or 13.8% over the year ago quarter. The 12.3% operating margin was 90 basis points lower than the year ago quarter for a host of reasons, including inefficiencies caused by supply chain deficiencies. So despite a very good quarter, we had planned to do better and sell side consensus reflected our expectations. You might recall that I told you we expected to deliver 50 to 52 G700s this year and that the deliveries would be more or less evenly divided over the last three quarters of the year. While we planned 15 for Q2 and delivered 11, we planned 15 to 16 for Q3 and delivered four. Three weeks before the end of the quarter, we still had a reasonable belief that we would deliver at least 11 in the quarter. So what happened? Whenever we miss our forecast so badly, it is almost always for a number of reasons that all play a part, so let me identify the most important and impactful ones. First, due to the timing of engine certification, aircraft engines arrived late to schedule. We painted the aircraft before the engines arrived and then painted and installed the engines. This led to a significant amount of repaint that resulted in increased cost and time spent. Second, many of the aircraft planned for delivery in this quarter have highly customized interiors. First of tight intricacies. These intricacies are considered to be major changes for regulatory purposes. This resulted in longer-than-anticipated efforts to finalize and achieve supplemental-type certificates. Related to this, the size and complexity of the G700 cabins has also elongated the customer reviews during final delivery of these planes. Third and maybe most important, late in the quarter, a supplier quality escape on a specific component caused the exchange of several components on each planned aircraft delivery up to 16 per aircraft. The supplier is fully cooperative and is providing components for all our needs, but this rework has increased the number of test flights necessary to obtain the final certificate of airworthiness for each aircraft. So the removal and replacement of these components has impacted labor costs and schedule adversely. We are nonetheless working our way nicely through this problem with the cooperation of the vendor. Finally, if that wasn't enough, we lost four days of productivity as a result of Hurricane Helene. Several customers who were in Savannah working with us to accept delivery left and went home to avoid the storm. So given that there is always risk and precise estimates, I will describe our delivery cadence a bit later and provide some monthly forecast so that you can monitor the quarter from publicly available data. Alright, back to some good numerical comparisons. For the year-to-date, aerospace revenue is up $1.63 billion, an increase of 27.7%. Operating earnings were up $146 million, an increase of almost 20%. I recite these figures, which will reflect even more growth by the end of the year so that we do not get lost in the third quarter delivery issue. This is still eye-watering growth. So what impact should we now expect for the fourth quarter and the year given the fewer-than-planned G700 deliveries in the second quarter and third quarters. You may recall that we expected to deliver 50 to 52 G700s this year, we now expect to deliver around 42 for the year with 27 in the fourth quarter. This number is not without risk, but there's also some opportunity to bring planes forward. The real issue here is supply chain support during this critical period. Let me give you some insight into the sequencing of the 27 planned deliveries in the quarter. We anticipate five in October, nine in November and 13 in December, recognizing there is some risk as these numbers could vary a little bit up or down through the quarter. You can, as I have said, follow this with fairly accurate but not perfect publicly available data. Turning to market demand, the interest level of buyers and the expiration of accelerated depreciation at year's end suggests a reasonably strong order intake in the fourth quarter, and that is what we are seeing. After some slowing in the U.S. during the second and third quarters, we are seeing improved interest across all models in the fourth quarter. Europe and Middle East activity is quite strong, but current activity in Southeast Asia and China has slowed. Interestingly, the overall number of prospects in all areas continues to increase. The overall number of prospects in our pipeline is at an all-time high, with the most active models being the G500, G600 and G700. We have a good cross-section of U.S. businesses in this mix. In summary, the Aerospace team had a very good quarter, albeit disappointing from the perspective of G700 deliveries. We look forward to a strong finish to the year in the fourth quarter but will fall somewhat short of our midyear forecast. So let's move on to the defense businesses. As a collective, we once again saw strong growth and good operating performance across the portfolio. I may walk you through each segment in turn. First, Combat Systems. Combat Systems had revenue of $2.2 billion for the quarter, similar to a year ago. Earnings of $325 million are up 8.3% and margins at 14.7% represents a 120 basis point increase over Q3 last year. Each of the businesses increased earnings with particularly strong operating leverage in munitions and customer service businesses. On a sequential basis, while revenue decreased 3%, earnings rose almost 4%. Year-to-date, revenue of $6.6 billion is up almost 12% and earnings of $920 million are up $124 million or almost 16%. Combat saw robust order activity over $3.3 billion awarded in Q3, resulting in a book-to-bill of 1.5:1 for the quarter. Orders came from across the portfolio with notable orders in munitions and near defense vehicles for the U.S. Army. Overall, demand remains solid across Combat, particularly in our ordinance and international combat vehicle businesses. In the U.S., we are increasing production of 155-millimeter ammunition projectiles as well as expanding our support to the U.S. Army across several other areas, including final loading and assembly of artillery. Our Combat Systems backlog at roughly $18 billion reflects the strong demand. All in all, a strong performance quarter for Combat. Turning to Marine Systems. Once again, our shipbuilding group is demonstrating strong revenue growth. Marine Systems revenue of $3.6 billion is up $597 million, 20% against the year ago quarter. Columbia-class construction and engineering volume as well as Virginia-class volume drove the growth. DDG-51 revenue also increased somewhat. Just to put this in some context, this 20% growth follows 15% growth in Q4 2023, 11% growth in Q1 of 2024, and 13% growth in Q2 of 2024, impressive growth by any standard. Operating earnings are $258 million, up $47 million over the year ago quarter, with a 20 basis point increase in operating margin. However, margins continue to be adversely affected by additional delays from the submarine industrial base, partially offset by improved margin performance at NASCO. Sequentially, revenue increased 4.2% and earnings improved 5.3% in Q3 driven by volume at EB. Year-to-date, marine revenue of $10.4 billion is up 14.7% and earnings of $735 million are up 12%. So across the business, we have seen rapid growth of revenue and earnings but stagnant margin performance. As I noted last quarter, although the supply chain is improving in places, EB continues to be severely impacted by late deliveries from major component suppliers, which has delayed schedule and is continuing to impact cost. Our out-of-sequence work on modules weighing thousands of tons is time-consuming and therefore, expensive, sometimes up to eight times the cost of in-sequence work. The operating metrics tell us that we have, in fact, increased our productivity to somewhat offset cost. As I noted last quarter, throughput, a significant measure of productivity continues to improve. And while we will continue to work on improved productivity, there is no point hurting portions of the boat only to have to stop and wait increasingly extended periods of time for major components to arrive. It is not good for the bulk over time nor cost. Given the recent projections from the supply chain on deliveries, we need to get our cadence in sync with the supply chain and take costs out of the business if we are to hope to see incremental margin growth. Put another way, the supply chain is not getting better at a fast enough rate as we had hoped. Through our internal efficiency, we have now outpaced them. This is the reality of the post COVID environment for many of our most important suppliers. Finally, to be clear, current submarine delivery projections are not incrementally impacted since they already reflect the anticipated delays from the supply chain. We will, of course, carefully monitor supply chain performance and accelerate our work should their deliveries to us improve. And lastly, technologies. It was another strong quarter with revenue of almost $3.4 billion, which is up 2% over the prior year. Operating earnings in the quarter were $326 million, up 3.5% on a margin of 9.7%. That is a 20 basis point improvement year-over-year. The year-to-date comparisons are similar. Revenue at $9.9 billion is up 1.2%, but earnings of $941 million are up almost 5% on a 30 basis point improvement in operating margin. The growth for this quarter and the first nine months was driven by GDIT's investments in their digital accelerators. Mission Systems was flat year-over-year as they continue to transition from legacy programs to new franchises. Strong operating performance across the group more than offset the relative growth in services of GDIT compared to hardware at Mission Systems. Sequentially, the group grew 2.5%, spread relatively evenly over both businesses with margins steady at 9.7%. Order activity was particularly strong in the quarter with a book-to-bill of 1.3:1, that resulted in backlog at the end of the quarter of $14.4 billion, up 13.5% from the year ago quarter. Through the first nine months, the group achieved a book-to-bill ratio of 1.2:1 more than keeping pace with the strong revenue growth across the business. GDIT and Mission Systems have shared in the robust order activity so far this year, demonstrating the strength of this portfolio and prospects remain strong with a large qualified funnel of more than $120 billion in opportunities they are pursuing across the group. That concludes my comments about the defense businesses. Let me now turn the call over to our CFO, Kim Kuryea, and then we'll wrap up with our guidance for the remainder of the year. Kimberly A. Kuryea: Thank you, Phebe, and good morning. We had a solid quarter from an orders perspective with an overall book-to-bill ratio of 1.1 for the company. This is particularly impressive with the continued strong revenue growth in the quarter. Combat Systems and Technologies led the way with book-to-bill of 1.5 times and 1.3 times, respectively. This order activity led to our backlog increasing to $92.6 billion at the end of the quarter. Our total estimated contract value, which includes options and IDIQ contracts, ended the quarter at a record level of $137.6 billion. Moving to our cash performance, this was another good story in the quarter. Cash flow improved as anticipated over the prior two quarters. We produced $1.4 billion of operating cash flow. All segments contributed to the results with particularly strong cash generation in technologies. Including capital expenditures, our free cash flow was $1.2 billion for the quarter, or 131% of net income. For the fourth quarter, we are expecting free cash flow to again be greater than 100% of net income, but we now expect the full year to fall short of our 100% conversion target as G700 deliveries pushed into 2025. As a reminder, total free cash flow generation between 2021 and 2023 was quite strong with a three-year conversion rate of 107%. Looking at capital deployment, capital expenditures were $201 million in the quarter or 1.7% of sales. We're still targeting to be around 2% of sales for the full year given the commitments that remain. We paid $390 million in dividends and repurchased a little over 150,000 shares of stock for $44 million during the quarter. We ended the quarter with a cash balance of over $2.1 billion. That brings us to a net debt position of $7.2 billion, down over $700 million from last quarter. As a reminder, we have an additional $500 million of fixed rate notes maturing in the fourth quarter that we plan to repay with cash on hand. Net interest expense in the quarter was $82 million, bringing interest expense for the first nine months of the year to $248 million, down from $265 million for the same period in 2023. Finally, the tax rate in the quarter was 16.5%, bringing the rate for the first nine months to 17%. The rate was slightly lower than expected, principally due to increased U.S. and foreign tax credits and benefits and other timing items. As a result, for the year, we believe our full year tax rate will be closer to 17%. Now let me turn it back over to Phebe for some final remarks. Phebe N. Novakovic: Thanks, Kim. In light of the things I have just discussed, let me give you some clarity for the remainder of the year. The figures I am about to give you are all compared to our July update, which will be posted along with today's guidance on our website. In Aerospace, we expect sales to be about $12.3 billion with a 13.2% margin. We are expecting 150 versus 160 deliveries with 10 of the deliveries slipping into next year. This will, of course, benefit next year. With respect to the defense businesses, Combat Systems and Technology remain unchanged from July. Marine Systems revenue should be about $13.9 billion with margins of 6.9% for all the reasons I've previously noted. On a company-wide basis, we see annual revenue of around $48 billion and margins of around 10.3%. All up, that indicates EPS guidance of approximately $14 per share, about $0.45 below our previous expectations. That concludes my remarks, and we will be happy to take your questions. Nicole Shelton: Thank you, Phebe. As a reminder we ask participants to ask one question and one follow-up so that everyone has a chance to participate. Operator, could you please remind participants how to enter the queue? Operator: Thank you. [Operator Instructions]. We'll take our first question from Seth Seifman at J.P. Morgan. Seth Seifman: Hey, hi, thanks and good morning. Phebe N. Novakovic: Good morning Seth. Seth Seifman: Phebe, I was wondering if you could talk a little bit about this year is kind of an unusual year in terms of the various things that have come up with the G700. But as we think about going forward and where the profitability can go in the Aerospace segment, I know it's early for 2025, but maybe even qualitatively talking about the things that are weighing down margin this year and how things can evolve taking into account also the introduction of the G800 and kind of what the progression looks like? Phebe N. Novakovic: So I think as we've discussed through most of this year, we still have supply chain challenges that require -- at Gulfstream that require out of station work, and we still have late deliveries of material. The supply chain has gotten much better as evidenced by our ability to ramp up production, but they still got ways to go. And until we get that supply chain quality as well as delivery timing stabilized, we'll continue to have out of station work. That, however, should be behind us before too terribly long let's talk about the 700. So the 700 we've talked throughout the year about some of the margin pressures of the first lot, but when we look forward, as we've talked about before, we see gross margin improvement of about 600 to 700 basis points, that remains the same. As I look forward in the Aerospace Group, we see very, very strong margins going forward and we'll see good margins in Q4, not as high as we expected because a lot of 700s was into next year, but we'll have very nice margin expansion as we go through into next year. With respect to the 800, we expect it to come out of the blocks pretty good and have some nice margin impacts over the course of its year. So I would say that we're pretty optimistic over -- starting about next year and into the future of the margin performance at Aerospace. Seth Seifman: Okay, thanks. And maybe just a follow-up on Combat, with the -- understand the growth trajectory kind of slowing down here in the second half, how much of that reflects kind of the end of the facilitization process for the 155-millimeter shells and how do we think about kind of the interplay of growth and margin going forward, it would seem that the backlog here would allow this to be, as we look across the industry, maybe one of the faster growing businesses across the industry, is that a fair assessment? And then have we -- has this quarter indicated that some of the margin pressure from facilitization is behind us? Phebe N. Novakovic: So look, if we look at our backlog and the threat environment and the performance at Combat in general, over time, I think we expected in our market space we will continue to grow and perform very well. Facilitization for increased munition production is largely behind us. We're moving into production. We'll see increased revenue from our combat vehicle business and so we do see a pretty good solid growth pattern as we go forward. This year, we accelerated growth into the first half so we expect fourth quarter to be relatively flat but still have about 5.9% growth for the group in the year. And we expect to see very nice growth going forward. I would add this, in a high-performing organization like Combat Systems, variability in revenue and margin is almost always a question of timing, so just to give you a little context on that score. Operator: We'll move next to Robert Stallard at Vertical Research Partners. Robert Stallard: Thanks so much, good morning. Phebe N. Novakovic: Good morning. Robert Stallard: First of all, a question on Marine, Phebe, you mentioned about the supply chain issues there. I was wondering if you could elaborate on why it's not improved as much as you would have hoped and also at what point does this start to negatively impact submarine schedules? Phebe N. Novakovic: Well, I think that it already has impacted schedule and that's been pretty well publicized by the Navy. Until recently, we had a reasonable hope, and it was a reasonable set of expectations based on the indicators that the supply chain would continue to get better. But most recently, we've seen that, in fact, that's not the case. And they're not getting better at the rate at which we had hoped for a whole series of reasons. And I think that and some of those have been very well documented, the Navy and Congress have been well aware of that. So they've been pumping additional support into the parts of the supply chain and some parts are doing well, but others are continuing to struggle. And I'd say that it was not a typical number of manufacturing sectors. If you go back from December of 2019, the PPI for manufacturing has increased by 25%. Overlay that with the demographic challenges that we've had with the smaller cohort of new hires and wage growth that span and added pressure on some of our suppliers at the same time, almost quintupling the throughput on -- and the demand on submarines. So there's been a lot of pressure, parts of the supply chain. I think that's well understood by our customer and the Congress. So we're going to continue to work with them and help where we can. But in the meantime, we're going to control what we can control. And that is we're going to adjust our pace to align with what we now see as more predictable supply chain schedules that have elongated. It will take cost out of our business, and we'll continue to work productivity on the debt plates [ph] with an increasingly capable and skilled and experienced workforce. So you can control what you can control, and we're simply in the moment adjusting to what we see as the inability of the supply chain to improve at the rate that we had hoped and that frankly I believe our customer had hoped. Robert Stallard: Yes. And just as a quick follow-up, do you think the supply chain issues jeopardize the aspiration to move back to two boats a year on the Virginia-class? Phebe N. Novakovic: Well, I think that in the short term, there's going to be pressure on that, considerable pressure on that. So I think that's something for us to work through with our customer and, frankly, the customer to work with the supply chain. I think it's a well-known issue. Operator: We'll go next to Myles Walton at Wolfe Research. Myles Walton: Thanks, good morning. Phebe, if I could follow up on Rob's question there. The implied fourth quarter margin at mid-6% range for Marine, is there something in the third quarter positively offsetting to get to the low 7s, I don't know if there's a positive EAC you might have taken? And then looking to 2025, is the mid-6% margin, the right run rate that you're looking for now in that business? Phebe N. Novakovic: So this quarter, we had some strong performance out of NASCO. We had some good performance at Electric Boat. But that's going to, in this environment, vary quarter-by-quarter. So we anticipate some more supply chain impacts in the fourth quarter. And as we project next year, and I'll give you that clarity about in our regular order in January but as we project next year, the ability to continue to drive incremental margins in the short-term is just how fast we can take our pace down at cost and improve our productivity. So we'll work through all that with the shipyard and give you a sense of what we're seeing in margins. I'd say they are going to be kind of lumpy probably through next year and maybe even beyond. Myles Walton: Okay. And then one clarification. I know it's super granular and near term, so I apologize in advance. But in October to date, have you gotten more than one G7 out the door? Phebe N. Novakovic: Yes, I think I was -- yes, we have. And I think I've given you some pretty good clarity of what we expect for October. That's pretty much on schedule. And then November and December, I gave you that clarity as well. I'm trying to be as transparent with you all so that you can better understand where we anticipate and as you well know, you can follow some of that with publicly available data, which is directionally correct. Operator: We'll go next to David Strauss at Barclays. David Strauss: Thanks, good morning. Phebe, following up on the items that you highlight in terms of what's impacting the G700 delivery. I guess just to clarify, is roles from an engine perspective, are they behind, is that part of the issue? And then on the interior side, do you view this as kind of a temporary issue or could it linger just given a much larger cabin here, and I would assume a lot more in the way of complexity on the interior side on a go-forward basis? Phebe N. Novakovic: Yes. So we control the interiors. So we're very comfortable in our projections on how we work those interiors. So I don't -- I'm not worried or even concerned about our interiors. Engines on stations have improved, so that is definitely a benefit. And I tried to give you some color around that particular issue in my remarks, but there's improvement. David Strauss: Okay. And a quick follow-up. The [indiscernible] announcement with partnership with Lockheed in the quarter. Can you just give some color around that and how that might materialize over the next couple of years in terms of numbers? Thanks. Phebe N. Novakovic: Yes. So we'll make some investment over the next couple of years. And then I think that -- and I don't have an exact start date off the tip of my tongue. But a lot of the number of motors will be driven by -- overall by the demand for the rock that itself, but we're pretty comfortable that this is well within our capability set, and we'll work through that with our partner. David Strauss: Thanks very much. Operator: We'll move next to Peter Arment at Baird. Peter Arment: Hey good morning Phebe. Phebe, maybe just to focus on Combat, you guys have had really strong growth through the first three quarters of the year, and you're obviously -- your profit margins reflect a lot of really good execution. Just how are you thinking about just kind of the long-term visibility here, how big of a business do you see in terms of the bookings environment, you mentioned Middle East and Europe, maybe just describe, I think, how you're seeing the visibility on Combat? Phebe N. Novakovic: So our book-to-bill and backlog supports nice growth. The unfortunate threat environment also continues to drive demand. And we see our pipeline is pretty robust, but domestically and outside the United States. So at least for the foreseeable future, we see nice steady growth in Combat. [Multiple Speakers] with good margin performance. Peter Arment: Yes. Then my follow-up is on the margin front, I mean almost 14% for the first nine months. I mean, is there opportunities to further enhance margins, I know there are some limits here and mix is a factor, but you've got a lot of growth and a lot of us are just focused on kind of what actually this business can generate? Phebe N. Novakovic: So historically, this -- when we've talked about this before in previous calls over the years, this tends to be a 14.5% margin business given some margin variability quarter-to-quarter, again, largely driven by mix. And I suspect that will continue in that range. Again, some margins will be better. Could we make long-term incremental structural improvement in that. I don't see that at the moment, but there's always opportunity. So we'll continue to pursue this. As I said, this is a -- this has always been a very high operating leverage company. So -- and groups of company, the three of them. So I think we'll continue to see both nice growth and good earnings expansion. Operator: We'll take our next question from Ron Epstein at Bank of America. Ronald Epstein: Good morning. So maybe back to the supply chain. If we look at the supply chain for the shipyards, I mean, we all kind of know that's been an issue. And if we look at the land systems business, I mean it's growing. Do you worry about the supply chain there and I guess, broadly, what has the supply chain in your munitions business and the businesses that are growing in land systems doing better than the supply chain in the shipyards? Phebe N. Novakovic: So I think it's a function of the type of material that we use in Combat Systems versus the scope, size of the material and inputs we use both at Marine Group and particularly submarine and Gulfstream. I mean, Gulfstream supply chain got perturbated by a lot of factors that have been well reported. But I think it's really a question of just the types of materials we use and the overall demand even outside of the Combat particularly vehicle business that tends to be a more robust supply chain on component parts given that there's other uses for a lot of that material. Materials, the inputs for Aerospace and for Gulfstream and the Marine Group are one of a kind. They don't replicate anywhere else in industry. So I think that, that explains why we've had fewer issues. I mean we had some issues with supply at Combat, but those are largely behind us. And I think that I tried to give you some color on what that is. Ronald Epstein: Yes. And then maybe as a follow-on, back to Marine, sorry, I know it's what everybody is focusing on at the moment. When we look at Marine, you say supply chain, supply chain is a huge thing, right? And I think we all have a good understanding in Aero where the type points are. And what in Marine is the issue, I mean, what kind of component -- if you just kind of broadly want to understand if we peel back the onion, where are the suppliers not supplying, is it bearing -- what is it? Phebe N. Novakovic: Well, we have a number of smaller parts that remain -- they get produced by single-source suppliers and often small ones, that remain a bit of -- remain an issue. I think it's a large component parts that -- and I think the navy has reported on some of that, that tend to be highly complex. Costs have risen significantly, and you've got green workforce in a lot of these areas. So those are -- it's a large group. I think that's all I'm about the most color I'm going to give you on where some of the challenges are because the navy has been kind of explicit in some instances about that. And I think that's just a better place to be. Operator: We'll go next to Ken Herbert at RBC Capital Markets. Kenneth Herbert: Yeah, hi, good morning. Thanks for taking the questions. Maybe first, Phebe, on services within Aerospace, you had nice growth here again. You've sort of reset, it looks like at a sort of a much higher level. I know you've added capacity. Is this a good run rate to think about for the services business within this and maybe if you could talk about how dilutive this part of the business is relative to the aircraft side within this segment? Phebe N. Novakovic: So we have long said that services is going to grow at the rate of the fleet expansion. And think about it this way, we gather -- we garner between 85% and 90% plus of all Gulfstream service. And so as the fleet expands, service expands. Its impact on overall margins tends to be rather lumpy, but it is in some instances in some quarters, it's about even, so it's certainly not any large dilution impact and hasn't been for some time. So this is a nice, steady growth business. Kenneth Herbert: Okay. And on the quality escape, I guess, with how deliveries are trending in this month and your confidence, you feel good about that risk getting retired or is there anything -- it sounds like there is clearly still some caution into the back half of the year, but do you feel good about that particular supplier and getting back on schedule? Phebe N. Novakovic: Yes. They're working very cooperatively with us, but I think it's emblematic or at least descriptive of the fact that we don't have all of these risks behind us and that we're slipping airplanes into next year. So I've tried to give you my best estimate both on cadence and timing and of what we see, but for the remainder of this year and then as I said, some of these airplanes will go into next year. But we've worked well with the supplier, understand the scope. So that is not any particularly long-term issue, nor is it a complete anomaly just in terms of the type of thing that happened here. So we're just fixing that in the regular order. It was a timing problem, but not a systemic one, think about it that way. Kenneth Herbert: Okay, thank you. Operator: We'll go next to Doug Harned at Bernstein. Douglas Harned: Good morning, thank you. Going back to Marine and Electric Boat. When you look at the supply chain issues there and the delays in the programs, how do you think of the Virginia-class and Columbia-class in a sense separately, how do you prioritize work or are you making decisions to prioritize one over the other? Phebe N. Novakovic: Well, that is a national security decision dictated by the Navy. So Columbia has across the entirety of the industrial base priority, and it has since its inception. So yes, so by definition, Virginia gets behind in terms of priority Columbia. And that has ramifications for Virginia. It's well understood by our customer, particularly in an environment in which supply chain material is constrained. Columbia gets the first of the pick, again, given its national security imperative. Douglas Harned: Well, given the importance of these programs, not just to Navy, but the overall Defense, you have got money in the supplemental for supporting the shipbuilding industrial base. But when you work with your customer, how is that helping and are there subsequent steps that can be taken within the budget to help build this industrial base better? Phebe N. Novakovic: So the Navy and the Congress have recognized that there are portions of the industrial base that need help. And that's what the shipbuilding and submarine industrial-based funding is attended to address both expanding the capacity and shoring up the capacity. There has been significant cost growth, as I noted earlier, across manufacturing business in particular and by extension into the submarine industrial base. So costs are increasing. Back to life cost or economic realities. And the funding is going to have to adjust to these fundamental changes in inputs and that will need to happen over time. Douglas Harned: Thank you. Operator: We'll move next to Gautam Khanna at TD Cowen. Gautam Khanna: Yeah, thank you. Good morning. So just to follow up on Marine. I know that you guys are in negotiations with the Navy on the Columbia-class, five of those, and I think it's 10 or 12 Virginia-class boat. I was curious what sort of your expectation is for the timing of when those contracts get agreed to and is there any cash or margin implications once those are signed to what's in the yard now and just if you could talk about that? Phebe N. Novakovic: So cash, no. Margin impact happens over time as we begin to execute those programs. I don't have a good sense of timing. I expect that the FY 2024 ships that are not yet under contract maybe in the next few months. But I don't have a good sense of timing for the remainder of the negotiations on Block 6, the contract on Block 6 or Built 2 of Columbia. It's going to be hard to get those contracts under -- the ships under contract, given that we've had the kind of cost increases in inputs, frankly, throughout the economy. But as I noted earlier, manufacturing PPI high, and those costs have increased for inputs. So we're going to have to work that with our customer and Congress. Gautam Khanna: Just as a follow-up, I guess what I'm asking is, do you -- is there any expectation that there would be relief provided for higher labor inflation you've -- that everyone's experienced on boats that are already in production as perhaps part of that negotiation? Phebe N. Novakovic: Well, I don't know if part of that negotiation, I wouldn't link it necessarily to those negotiations, but we are constantly in negotiation with our customer on a whole -- on any number of contracting actions and now is no different. We also have entitlements in our contracts for which we will seek remedy. So there's a lot of ongoing discussions with our customer about these costs these fact-of-life cost increases and labor cost increases. And that plus the remedy to which we're entitled. We're going to continue to work both of those issues with our customers. Operator: We'll take our next question from Gavin Parsons at UBS. Gavin Parsons: Thanks, good morning. Phebe, you of course have delivered some G700s out of inventory this year and maybe some out of inventory again next year. Can you help us with what the underline…? Phebe N. Novakovic: We are out of inventory. Help me with what you mean by out of inventory. I mean, we don't have 700 in inventory. And 700 that are in some stage of production, but just picking a nit there with you. Ronald Epstein: Yes, fair. I guess can you help us with the underlying production rate? Phebe N. Novakovic: Yes. So I try to be as explicit as I could be for the remainder of the year. Some of these airplanes will go into next year, that will help next year. And then we'll give you a lot of clarity around what next year looks like in our ordinary course when we give you our guidance in January. The airplane is performing very well. But we still, as I've noted, frequently, we still got out of station work, that needs to get behind us. Ronald Epstein: Okay. And I'll try one more. I don't know if this is just an accounting question, but you called out all the elevated cost on paint interiors component replacement on G700. How does the 600 to 700 basis point margin step-up remain intact? Phebe N. Novakovic: Well, that will happen. I don't have exact clarity on when those gross margin improvements will happen, but I think relatively soon and over the course of potentially the next year, we have to see some really nice margin expansion. We're seeing it in the fourth quarter right off the bat. And I expect to see that margin expansion continue throughout next year and beyond. Operator: We'll go next to Jason Gursky at Citi. Jason Gursky: Hello there, good morning everybody. I was wondering if you could just step back for minute and maybe talk a little bit about the things that you're most excited about and where you are kind of spending the most amount of your time as it relates to technology investments and the business development pipeline across...? Phebe N. Novakovic: In technology? Jason Gursky: In -- across the defense business as a whole. Phebe N. Novakovic: Yes. So I would say that we need to continue to capitalize on the very strong growth profile we see going forward in the Marine Group. We spend an awful lot of time on improving our own capability within our own shipyards. I think the technologies group, in general, has shown nice growth and they have positioned themselves in faster currents within their highly competitive businesses. So we're pretty excited about what we see there. And then I think Combat Systems performance continues to be strong and how we then translate demand into revenue in the out years and continue the strong operating performance we've had there is sort of where we focus our time. There's a lot to be excited about in terms of performance of the company. Jason Gursky: Yes, understood. Okay. It's helpful to understand the prioritization. And then maybe this is a question where we get Kim involved as well, but just kind of philosophically how you guys are -- how you all, excuse me, are approaching the balance sheet and the capital structure and leverage. I'm just kind of -- as we think about the future of the company, where you want to operate? Kimberly A. Kuryea: Yes. Well, Obviously, we have a very strong balance sheet. We were recently upgraded in terms of our credit rating, and we have some debt repayments coming due that we expect to pay on schedule, and we'll consistently look at where we stand, but we feel pretty good about where we stand right now. Jason Gursky: Right. And just philosophically, you want to keep your leverage under externs of leverage. I'm just kind of curious how you're thinking about? Phebe N. Novakovic: Yes. I don't think at this point in time, I think we're continuing to work the growth environment that we're in and determining in terms of where the cash is going to come out for 2025, especially. And I think it's a matter of time in terms of taking a look at where we stand. So Audrey, I think we have time for one more question. Operator: Thank you. We'll take that question from Scott Deuschle at Deutsche Bank. Scott Deuschle: Hey, good morning. Phebe, just to clarify your response to David's question earlier, do the certifications you're getting this year on those highly customized interiors for G700, do those derisk this as an item from being a constraint next year? Phebe N. Novakovic: Yes. I mean these are the first ones out of the block. So we don't see that as a constraining item next year. Does that answer the question? Scott Deuschle: Yes, does Combat Systems have many products that are approved for export on a direct commercial sale basis and then are you seeing much traction for DCS sales, either in terms of the bookings you put up recently at Combat or in terms of orders that are in the pipeline? Phebe N. Novakovic: Not out of the United States, but out of our European businesses, yes, those tend to be direct sales, and that's been true for 25 years. And the demand for those products in Europe, in Eastern and Western Europe remains very, very strong. Scott Deuschle: Thank you. Nicole Shelton: Great. Well, thank you, everyone, for joining our call today. As a reminder, please refer to the General Dynamics website for the third quarter earnings release and highlights presentation. If you have additional questions, I can be reached at 703-876-3152. Operator: And this concludes today's conference call. Thank you for your participation. You may now disconnect.

Operator: Good morning, and welcome to the General Dynamics Second Quarter 2024 Earnings Conference Call. All participants will be in listen-only mode. Please note, this event is being recorded. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]. I would now like to turn the conference over to Nicole Shelton, Vice President of Investor Relations. Please go ahead. Nicole Shelton: Thank you, operator, and good morning, everyone. Welcome to the General Dynamics second quarter 2024 conference call. Any forward-looking statements made today represent our estimates regarding the company's outlook. These estimates are subject to some risks and uncertainties. Additional information regarding these factors is contained in the company's 10-K, 10-Q and 8-K filings. We will also refer to certain non-GAAP financial measures. For additional disclosures about these non-GAAP measures, including reconciliations to comparable GAAP measures, please see the slides that accompany this webcast, which are available on the Investor Relations page of our website, investorrelations.gd.com. On the call today are Phebe Novakovic, Chairman and Chief Executive Officer; and Kim Kuryea, Chief Financial Officer. I will now turn the call over to Phebe. Phebe Novakovic: Thank you, Nicole. Good morning, everyone, and thanks for being with us. Earlier this morning, we reported earnings of $3.26 per diluted share on revenue of $11.98 billion, operating earnings of $1.16 billion and net income of $905 million. We enjoyed revenue increases at each of our four business segments compared to the year ago quarter. Across the company, revenue increased a strong 18%, with a 51% increase in our Aerospace segment and a 10% increase across our defense units, strong growth by any standard. Importantly, operating earnings of $1.16 billion are up almost $200 million or 20.2%, demonstrating solid operating leverage. Similarly, net earnings are up 21.6% and earnings per share up 21% over the year ago quarter. You will note, we missed Street EPS consensus by $0.02 due entirely to the slip of 4 G700 deliveries from the last week in the quarter to the beginning Q3. One has since been delivered, three are imminent. From a different perspective, the sequential comparisons are also quite favorable. Revenue was up $1.2 billion and operating earnings are up $120 million on steady margins. On a year-to-date basis, revenue of $22.7 billion is up $2.67 billion or 13.3% over last year's first half. Operating earnings of nearly $2.2 billion are up 15.4%. Net earnings of $1.7 billion are up 15.6% despite a higher provision for income taxes. In a few minutes, our CFO, Kim Kuryea, will provide you with free cash flow for the first half and remainder of the year, our strong continued order activity and backlog, as well as some additional relevant financial information. But first, I will take you through each of the segments. We'll start with Aerospace. Let me give you some comparative numbers that will show the front end of a tremendous growth surge for Aerospace that will progress favorably throughout the year. Then I will attempt to put all of this in some reasonable perspective for you. Aerospace had revenue of $2.94 billion and operating earnings of $319 million with a 10.9% operating margin. Revenue is $987 million more than last year's second quarter, a remarkable 51% increase. The revenue increase was driven by additional new aircraft deliveries, coupled with higher service revenue. We delivered 37 aircraft, including 11 newly certified G700s in the quarter. This is four fewer than we expected to deliver, but more about that in a minute. Operating earnings of $319 million are up $83 million, 35% over the year ago quarter. The 10.9% operating margin was 120 basis points lower than the year ago quarter. This was driven by G700 deliveries that carried more than expected costs from three things: First, retrofit; second, out-of-station work related to the late arrival of parts; and three, the extended certification period. This cost burden will affect 20 lot one aircraft, which includes five test aircraft that will not deliver this year. So we are through the lot one cost burden for this year within the next four deliveries. The good news is that margins on the G700 are expected to increase by 600 to 700 basis points in lot two and by a similar increment in lot three. By the time we reach lot three production and deliveries, we will have reached a steady state in terms of productivity and predictability. A few comments on predictability. You might recall that I told you we expected to deliver 50 to 52 G700s this year and that the deliveries would be more or less evenly divided over the last three quarters of the year. But we planned 15 for Q2 and deliver 11. So much for predictability. We actually had the remaining four completed and ready to go, but could not get through the preflight delivery testing in time. You might be surprised to learn that each G700 has flown about 30 hours of tests before delivery. Two of the planes also needed a supplemental type certificate because of a very different cabin configuration. That wasn't done by the end of the quarter. All right, back to some numerical comparisons. The sequential numbers are equally impressive. Revenue is up $856 million, a strong 41% increase, and operating earnings are up $64 million, about 25%, affected by 130 basis point degradation in operating margins for the reason I just mentioned a moment ago. You will see much stronger operating margins in the third quarter, followed by even better operating margin and related earnings in the fourth quarter. Separately, we still expect to deliver 50 to 52 G700s this year. Look for about 16 in the third quarter and 23 to 25 in the fourth quarter. From an orders perspective, we had a respectable quarter at 0.9:1 book-to-bill in dollar terms. There is strong interest in a fair pipeline across the product mix. As I noted last quarter, bringing transactions to close has elongated somewhat, as there is some caution, while customers digest the impact of geopolitical events in general and U.S. presidential election in particular. The United States remains our strongest market, but the yield is improving. The Middle East shows very strong potential. And just very recently, we have seen some improvement in China. The interest level of buyers and the expiration of accelerated depreciation at the end of the year suggests a reasonably strong order intake in the second half of the year, particularly in the fourth quarter. We are pleased to have both G700 FAA and EASA certifications behind us. The Aerospace comparative revenue and earnings numbers in the quarter are very good by any reasonable standard, but still behind consensus, largely attributable to deliveries that did not make it to the wire. In summary, the Aerospace team had a very good quarter. It is handling the rapid increase in deliveries and revenue on a methodical and disciplined fashion. We look forward to a powerful second half with increasing revenue and earnings quarter-over-quarter as we forecasted at the end of last quarter. Moving to the defense business as a collective. We once again saw strong growth and good operating performance across the portfolio. Let me walk you through each segment in turn. First, Combat Systems. Combat Systems had revenue of almost $2.3 billion, up 19% over the year ago quarter, with growth at each of the three business units. Earnings of $313 million are up almost 25%, and margins at 13.7% represent a 70 basis point increase over the Q2 last year. In short, very strong operating performance from Combat Systems. The increased revenue came from facilities expansion and artillery work in our ammo business, coupled with increases in international tank and wheeled vehicle sales and U.S. Army programs of record. Each of the businesses increased earnings nicely, with particularly strong operating leverage in our international vehicle business. On a sequential basis, revenue increased 8.8% and earnings rose 11%. Year-to-date, revenue of about $4.4 billion is up 19.3% and earnings of $595 million are up almost $100 million, or 20%. Combat saw robust order intake with over $3.4 billion awarded in Q2, resulting in a book-to-bill of 1.5:1 for the quarter. Orders came from across the portfolio, ranging from ammunition to main battle tanks for the U.S. Army and wheeled vehicles for an international customers. Demand remained steady, particularly for the Abrams main battle tank and international wheeled vehicles. We expect demand for ammo to continue to rise for some time to come as we rapidly increase production of our artillery shells and components. All in all, a very strong growth and performance quarter for Combat Systems. Turning to Marine Systems. Once again, our shipbuilding group is demonstrating strong revenue growth. Marine Systems revenue of $3.45 billion is up $394 million, almost 13% against the year ago quarter. Columbia-class construction and engineering volume drove the growth, while Virginia-class and DDG-51 revenue also increased nicely. Operating earnings are $245 million, up $10 million over the year ago quarter with a 60 basis points decrease in operating margin. Margins were impacted by continued delays to EB from the submarine industrial base, partially offset by improvement in DDG-51 performance of Bath and continued steady performance at NASSCO. Sequentially, revenue increased 3.7% and earnings improved 5.6% in Q2, driven by volume at EB, as we saw some quarter-over-quarter improvement in supply chain deliveries to the yard and continued positive performance at NASSCO. Year-to-date, Marine revenue of $6.8 billion is up 12.1% and earnings of $477 million are up 7%. As I noted a moment ago, although the supply chain is improving in places, EB continues to be impacted by late deliveries from the supply chain, which both delay schedule and impacts costs. At a sequence work on multi-ton modules is time-consuming and expensive. Our strategy, as you know, has been to increase our productivity to somewhat offset that impact. To that end, throughput, a significant measure of productivity, continues to improve, hiring is good and attrition is lower, so all good signs. In summary, we are starting to see some momentum build in our shipyards to meet the delivery and repair requirements of our customer, the U.S. Navy. We anticipate that all of our yards are now well positioned for slow, but steady incremental margin growth over time with fewer perturbations. Finally, Technologies. The group had another good quarter with revenue of nearly $3.3 billion, up 2.5% over the year ago quarter and operating earnings of $320 million, up 13.1% on a 90 basis point improvement in margin. This nice improvement in operating performance was across both businesses. GDIT margins increased 40 basis points, emission systems margins were up 130 basis points as they continue to recover from supply chain impacts experienced in 2023 and before. Sequentially, revenue was up $81 million or 2.5% and operating earnings are up 8.5% on a 50 basis points improvement in margin. And the story is much the same for the year-to-date with revenue of $6.5 billion, up about 1%, and operating earnings of $615 million, up 5.7% against the first six months of last year. As a result, margins for the group were up 40 basis points year-to-date to 9.4%. So all relevant comparisons this quarter show revenue and earnings growth and a margin expansion of both businesses, positioning them well going forward. In short, GDIT is holding its industry-leading margins, while consistently delivering year-over-year growth, while Mission Systems is delivering nice margin expansion as it transitions from sunsetting legacy programs. The group received $3.3 billion in orders in the quarter, bringing the total of $7.2 billion for the first six months. That results in a book-to-bill for the group of 1.0 for the quarter and 1.1 for the year-to-date. Total awards for the group in the first half were up 30% compared with the first six months of 2023. This is on the strength of win rates consistently around 80% for the group and capture rates at roughly 65%, both very strong for this industry. Backlog was down slightly from the end of the first quarter due to the removal of backlog associated with an international divestiture in the quarter, but was up almost $200 million from a year ago. As importantly, the qualified pipeline remains very robust at over $120 billion. So the group is well positioned to continue its growth trajectory. Let me now turn the call over to Kim. A - Kimberly Kuryea: Thank you, Phebe, and good morning. I'll start with orders. We had a solid quarter from an orders perspective at $10 billion, with an overall book-to-bill ratio of 0.8:1 for the company. This was achieved in the quarter when revenue grew 18% over last year, and there were no significant shipbuilding contracts awarded. Aerospace had a book-to-bill of 0.9:1, while revenue grew over 40% sequentially with the initial deliveries of the G700. On the defense side of the business, Combat Systems did particularly well with a book-to-bill of 1.5:1, and Technologies was 1:1. We ended the quarter with backlog of $91.3 billion, essentially even with where we were a year ago. Our total estimated contract value, which includes options and IDIQ contracts, ended the quarter at nearly $130 billion. Turning to our cash performance for the quarter. We generated $814 million of operating cash flow. After capital expenditures, our free cash flow was $613 million for the quarter, yielding a cash conversion rate of 68%. Technologies led the segments with strong cash flow generation in the quarter. When you consider the free cash flow through the first half of 2024, we are slightly positive at $176 million and about $250 million ahead of what we had planned. After the planned slow start in the first half, we expect significant second half growth. With the majority of the cash generated in the fourth quarter, we are still planning a cash conversion rate around 100% for the year. So you may be wondering what's driving cash to be so backloaded this year. It's apparent from our balance sheet that we have been building up working capital in the first half of the year, which we expect to substantially unwind in the second half. One obvious driver of this is Gulfstream with the ramp-up for the certification and deliveries of the G700. The planned G700 deliveries in the second half are significant, which will reduce working capital. Another large contributor to the growth in working capital has been Combat Systems. They have several programs that pay at delivery. Thus, we are buying material in the first half of the year that results in product deliveries and cash in the second half of the year. Combat is also subject to the timing of deposits on international programs, and the first half of the year has been a period of liquidating deposits received in prior periods. Now turning to capital deployment. Capital expenditures were $201 million or 1.7% of sales in the quarter. Similar to last year, you should expect capital expenditures to be somewhat higher in the second half of the year and slightly above 2% of sales when the year wraps up. Also in the quarter, we paid $389 million in dividends and repurchased approximately 119,000 shares of stock for $34 million. Through the first half, we repurchased only a modest number of shares for a total of $139 million, driven largely by our 2024 cash profile. We ended the quarter with a cash balance of approximately $1.4 billion and a net debt position of $7.9 billion, down over $300 million from last quarter. As a reminder, we have an additional $500 million of fixed rate notes maturing in the fourth quarter that we plan to repay with cash on hand. Our net interest expense in the quarter was $84 million compared to $89 million last year. That brings the interest expense for the first half of the year to $166 million, down from $180 million for the same period in 2023 on lower debt balances. At this point, our expectation for interest expense for the year remains unchanged at approximately $320 million. Finally, the effective tax rate in the quarter was 17%, bringing the tax rate for the first half to 17.2%. This rate is a little lower than our outlook for the full-year, which remains around 17.5%. For the second half of the year, we expect the rate to be lower in the third quarter and then a bit higher in the fourth due to typical timing items. Phebe, that concludes my remarks. I'll turn it back over to you. Phebe Novakovic: All right. Thanks, Kim. Let me move on to give you updated forecast for the year. The figures I'm about to give you are all compared to our January forecast, which will be posted along with today's guidance on our website. In Aerospace, we are sticking with our same earnings estimate, but we'll get there with higher revenue and about a 100 basis point drop in margins for all the reasons I mentioned to you a few minutes ago. We are still holding to our delivery estimate of about 160 airplanes. With respect to the defense businesses, Combat will have revenue of about $200 million higher than previously projected as a result of continued demand. So look for total revenue of about $8.7 billion. Margin should be about the same. All in, operating earnings will be up $30 million over the previous forecast. Marine Systems revenue should be up $1 billion of Electric Boat and somewhat at Bath. So we will have annual revenue between $13.4 billion and $13.8 billion with an operating margin around 7.4%, with operating earnings up around $45 million over the January forecast. For Technologies, we are not changing our earlier guidance to you. On a company wide basis, we see annual revenue up about $2 billion, with overall margins down about 30 basis points. So total revenue of $47.8 billion to $48.2 billion, and operating earnings up modestly. All up, that indicates EPS guidance of $14.40 to $14.50, $0.05 over prior guidance. I will note that normally, this time of year, we have solid insight into revenue and margin. In this growth environment, the upside has been difficult to predict with equal clarity. Should anything materially change in Q3, I will give you another credit guidance. That concludes my remarks, and we'll be happy to take your questions. Nicole Shelton: Thank you, Phebe. As a reminder, we ask participants to ask one question and one follow-up so that everyone has a chance to participate. Operator, could you please remind participants how to enter the queue? Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions]. We'll go to our first question from David Strauss at Barclays. David Strauss: Good morning. Thanks for taking my question. Phebe, on the G700, as I understand, there are some issues that you have to fix with these prebuilt airplanes. Can you just talk about what exactly the issue is, how far of the way you are through that? And whether this is still an issue in terms of airplanes that are on the line? Thanks. Phebe Novakovic: Sure. So very late in the certification process, we had a requirement to bind together some wires in the tail of the airplane. So relatively simple fix. For those airplanes that we had already built, we took the tails off. For those that we were building, we just didn't put them on. So this is largely behind us. And contributed to a bit to the cost impact on lot one. But I would note that it's extremely hard to discern anything meaningful looking from the outside in here. This is, as I said, largely behind us and was pretty late in the process. And not particularly difficult to do. David Strauss: Great. And so none of the slips relate to kind of supply chain issues? It was more about just fixing the certification issue? Phebe Novakovic: Right. Think about the supply chain as more a question of cost than delivery. David Strauss: Terrific. Thank you. Operator: We'll move next to Peter Arment at Baird. Peter Arment: Thanks. Good morning, Phebe. Phebe Novakovic: Good morning. Peter Arment: Yes, it's really encouraging to hear about the 50 to 52 is still intact for the G700. Maybe you could just touch upon, I think expectations around bookings? I know you've talked about in the past about geopolitics and a lot of just volatility in the world. Just your thoughts on just bookings for the year? Thanks. Phebe Novakovic: So we tried to give you some color around that. In the remarks, I'd say that we typically see in any U.S. presidential election, a slowdown around the election. And I think this won't be any different. But we do expect, as I noted in my remarks, a more robust fourth quarter because we've got the expiration of the accelerated depreciation. And the pipeline is quite good. And I gave you also some color around the geographical distribution there. So all in all, there's quite a bit of interest in our airplanes. Peter Arment: That's great to hear. Just as a quick follow-up. Just your latest thoughts on just the G400. Is that still tracking to meet your kind of original plan? Phebe Novakovic: It is, and we ought to fly very soon. Operator: We'll go next to Robert Spingarn at Melius Research. Robert Spingarn: Hey, good morning. Phebe Novakovic: Good morning. Robert Spingarn: Phebe, maybe sort of a two-parter on Marine. I wanted to ask you, first, with the recent supplemental, there was money, a little over $3 billion to help support the submarine industrial base. And you did mention last time that there were a few sole-source suppliers of complex components that were causing some of the delays. So wondering if that money has gotten to them and is resolving the issue or if you had to qualify alternate sources? And then the longer-term question is, a decade ago or maybe a little bit longer, Marine was a 10% type margin business. And given the supply chain issues, the impact to the shipbuilding workforce in the aftermath of COVID, is that a realistic target at some point in the future? And what might be the timing on that? Thank you. Phebe Novakovic: Sure. So let me take each part of your question in turn. So the Navy, working quite closely with the Congress, allocated significant funding for the industrial base, as you noted. That money has begun to flow, and it is intended for another, and it's targeted for a number of uses. One, increased throughput; two, some facilitization, some training, increased hiring. And so it's been really critical, and we've been pushing very hard to get that money as fast as we possibly can into the supply chain to help stabilize them. And let me put it to you this way. There are some supply chain providers who are improving and improving quite nicely. We still have some challenges out there that are pretty well publicized, but we're continuing to work with the U.S. Navy on how to the extent that those can be mitigated. So we continue to see cost impacts from late deliveries of out-of-sequence work, as I noted in my remarks. But we continue to be hopeful. We are hopeful that the additional funding that we're putting into the supply chain should help stabilize over time. So with respect to your 10% margin, that certainly is our goal. I think the supply chain has to stabilize. We've got to come down our learning curves on Columbia. Virginia throughput has to increase. So we will ultimately stabilize in the Marine group. And I will notice, by the way, I think you mentioned something about the workforce. We have, in the last year or so had no difficulty in hiring at our shipyards, and our training program has been pretty robust. So we've got shipbuilders coming out of that training program with a higher than typical level of proficiency. Our retention is also much better. So that gives us some confidence in the throughput and productivity capacity of the shipyards. But everything in shipbuilding is slow. So it's small, incremental improvement over time. But I think 10% is a reasonable goal over time, and there's no way to estimate that with any precision. Not going to speculate, but it is objective. Robert Spingarn: Thank you very much. Operator: We'll go next to Cai von Rumohr at TD Cowen. Cai von Rumohr: Yes. Thanks so much, Phebe. Phebe Novakovic: Good morning. Cai von Rumohr: Good morning. So the tail issue at Gulfstream, does the required rework extend beyond the first 20 units in the first block? And should we be looking for a sequential build in terms of unit deliveries, so that I would assume then you have less first block impact in the third quarter than the second and even less or none in the fourth. And therefore, you should see a strong lift in the margin sequentially. Is that the way to look at it? Phebe Novakovic: Yes. So I tried to give you a lot of color on that in my remarks. But with respect to the binding of some of those wires in the tail, that's largely behind us. And with respect to the margin trajectory, we see nice margin improvement in this quarter and then again in the fourth quarter. Think about the fourth quarter as mid- to high-upper teens. Cai von Rumohr: Okay. And because of this rework, should we assume that the profitability on Block 2 for the G700 that the sequential step-up from 1 to 2 will be somewhat bigger than one might normally look for? Phebe Novakovic: I tried to give you that in my remarks, but this is really a Lot 1 issue. Cai von Rumohr: Got it. Thank you. Operator: Our next question comes from Jason Gursky at Citi. Jason Gursky: Hey, good morning everybody. Phebe, I just wanted to spend a few minutes talking about the services business in Aerospace. And just some of the trends that you're seeing there with the fleet utilization and what you're seeing in the competitive environment in that business as well? Phebe Novakovic: So on the service side, services, as we said before, will grow with the expansion of the fleet. Our objective is to get as much of the Gulfstream worked as possible, and we've got the vast preponderance of that already. Services is growing this year. As is, by the way, special mission, which is driving a lot of the revenue increase this year, but we should see nice steady growth over time in the service sector. And there's no real -- with respect to services, there's no real difference in any of the competitive environment. Jason Gursky: Okay. Great. And then turning to Technologies and maybe using a bit of your crystal ball on the pipeline and the outlook for bookings and book-to-bill there. What's the environment look like there for you all over the next, I don't know, 12, 18 months on the pipeline and the outlook for book-to-bill for the Technologies business? Phebe Novakovic: So we continue to see a very active pipeline. I think the available market at the moment is over $120 billion, it's pretty robust. And we've been winning our fair share and a little bit more than our fair share. So we believe that over time, that will continue as it has in the last couple of years drive services growth and frankly, at Mission Systems as well. So I think technology is positioned for a nice steady slow growth, which is exactly what we have promised in the past and what we're delivering. So pretty steady. Operator: We'll go next to George Shapiro at Shapiro Research. George Shapiro: Yes. Good morning. Phebe Novakovic: Hi, George. George Shapiro: Phebe, I just wanted some clarification. You had said that the pretty much all the costs were, incorporated yet you delivered 11, five you said won't be delivered until next year, but there's still four left. Is that the four that you just delivered in the first week or so of the second -- of the third quarter? Phebe Novakovic: Yes. So the Lot 1 consisted of about 20 or so airplanes. All five are test airplanes, they'll deliver next year. But this year, the Lot 1 costs are going to be behind us imminently. We've delivered one of the four. And I tried to give you some color on the delivery process. And the other three imminent here. So I think we're in pretty good shape on that. Does that help you? George Shapiro: Yes, that helps. And then just a quick follow-up on the usual question. If I look at the gross bookings versus the net bookings from your backlog, it's like a $171 million difference. Was that just forfeiture cancellation, currency-related? Do you have any comments on that? Phebe Novakovic: Nothing that I can put my finger on, to be quite honest, in the moment. George Shapiro: Okay. And one last one and aftermarket growth in the quarter at Gulfstream? Phebe Novakovic: Pretty good for us. The service business, and we expect it to continue to grow this year, which is driving a lot of the revenue increase, along with special mission. Operator: We'll go next to Ken Herbert at RBC. Kenneth Herbert: Yes, hi, Phebe. Good morning. Phebe Novakovic: Good morning. Kenneth Herbert: I wanted to see if you could make some comments on Combat. And specifically, the outlook for bookings in Europe and other regions. But also, how should we think about with the orders you're booking today, the impact on the backlog and to what extent are they accretive to segment margins? Or how accretive could they be as some of the more recent bookings flow into the backlog of revenues? Phebe Novakovic: So the bookings continue to reflect the threat environment. Both that they were driven in the quarter, both by international vehicle orders and U.S. ammunition and Army programs of record. And I think we'll see as we're going forward, I'd say that Combat Systems is typically, as we talked about in the past, probably a mid-14% margin business, but it will have quarter variability, sometimes up around 15%. So it's really a question of mix. In the moment, we see increased what we call sustainment, think about repair and support, which tends to carry a little higher margin. And you didn't exactly ask this question, but I'll sort of answer it. As we move from the lower margin facilitization work to the higher-margin throughput on -- that's generated like the throughput on ammunition, you'll see a little bit of margin expansion there. Kenneth Herbert: And just can you quantify the cash impact in the second half and the fourth quarter from the timing of some of the cash receipts on Combat? Phebe Novakovic: I don't think we've broken out cash for you by business group. I think Kim tends to give you a fair amount of color on what was going on in the third and particularly the fourth quarter of unwinding some of the prebuilds in Combat with the deliveries of those vehicles and material. Operator: We'll go next to Doug Harned at Bernstein. Douglas Harned: Good morning. Thank you. Phebe Novakovic: Hi, Doug. Douglas Harned: If we look at Gulfstream and kind of look through the current margin issues, and when you get out to 2026, you should be at a point where you've got a full portfolio of maturing aircraft, commonality. And if we go back to the days when you could get to those 18% to 20%-type margins, is there a way to think about the progression here? There are clearly near-term issues. You've got the G800 to 400. How do you see working through those, the implication for margins? And where you would come out when you're what I would say, more of a normalized mode? Phebe Novakovic: I'd say there's good potential for higher margins along the lines that we had seen in the past. But exactly when at this point, it's hard to pinpoint. But I think we're pretty confident and pleased with long-term margin trajectory at Aerospace for all the reasons that I think you quite potently listed. Douglas Harned: And then just changing gears. When you look at munitions, I know you're expanding capacity substantially. A lot of people look at the situation in Europe. We've got an election coming up. And when you look at the demand for munitions, if you run that out five, six, seven years, how do you see that? Because others are -- Rheinmetall and others are also ramping up here. How do you see that extending over time? Phebe Novakovic: Well, it's hard to look into a crystal ball much past a planning period. But we anticipate for the next couple of years, increased munitions orders as dictated by the threat environment. And we're pretty confident in that. So that's kind of how I look at it. It's awfully difficult to predict the threat environment with any kind of clarity other than pure speculation outside the next couple of years. Douglas Harned: I was asking because as you think about this build out. And for what period of time are you looking at is kind of what I was getting at in terms of growth? Phebe Novakovic: Yes, a couple of years. I wasn't clear on that. I apologize. Yes, I'd say a couple of years of this. I'd say three, four years max, somewhere along those lines. And then we'll see. I think there have been some profound lessons learned about the criticality of munitions, ammunition. So I expect those to be incorporated in force is thinking. Douglas Harned: Okay. Very good. Thank you. Operator: We'll go next to Myles Walton at Wolfe Research. Myles Walton: Thanks. Good morning. I was wondering, Phebe, you increased the sales at Gulfstream, but no change in deliveries. Is that an ASP or a services-driven higher revenue base? Phebe Novakovic: A couple of things, including services, as I had noticed, increase in services and also an increase in special mission which are kind of lumpy, as you know, and we've talked about in the past. Myles Walton: Okay. Got it. And then just another detailed question. Thanks for the color on the unit improvement in margins. Are the unit quantities about 20 aircraft is Lot 1? And then secondarily, when you move to the 800, the G800, should we anticipate a similar profile of profitability? Or do you think you'll be at higher profit sooner on the 800 out of the gates? Thanks. Phebe Novakovic: Planning purposes is the latter. But that's probably all the clarity we've got at the moment. It all depends on the certification process, but we anticipate, I think and reasonably anticipate that they'll come out of the gate very strong. Myles Walton: Okay. And where that lost quantity is about [indiscernible]? Phebe Novakovic: Yes. Myles Walton: Okay, thanks. Phebe Novakovic: It's typical lot quantities. Operator: We'll go next to Scott Deuschle at Deutsche Bank. Scott Deuschle: Hey, good morning. Phebe Novakovic: Good morning. Scott Deuschle: Phebe, can you characterize the ramp-up of this new munitions facility in Texas you opened up during the quarter? I guess, are you likely to exit 3Q at a relatively full run rate? Or is the ramp more gradual from that? Thank you. Phebe Novakovic: So we opened up the facility. The first line is running and producing as we anticipated. We are standing up lines 3 and 4. So that's a material increase in the throughput of that facility, but it's a modern facility with a very strong and good workforce. So we're pretty encouraged that we will quickly come down our learning curves and produce at or above our plan. Scott Deuschle: Great. And Kim, just to clarify your earlier comments, are you expecting working capital to be a source of cash in 3Q? Kimberly Kuryea: Yes. But I would say that when you look at the cash profile for the rest of the year, most of that cash does come in the fourth quarter. So most of that working capital will unwind in the fourth quarter, not the third quarter. Scott Deuschle: Okay. So modestly positive in 3Q? Kimberly Kuryea: Yes. Scott Deuschle: Thank you. Operator: We'll move to our next question from Robert Stallard at Vertical Research. Robert Stallard: Thanks so much. Good morning. Phebe Novakovic: Good morning. Robert Stallard: Phebe, a couple of physical questions for you. First of all, on the U.S., if the Ukraine supplemental were to be 0, what sort of risk could that present to GD in the future? And then second, in the U.K., a change of government over here, whether there's any implications for AJAX down the line? Thank you. Phebe Novakovic: I will take that in the inverse order. Don't anticipate any particular changes in AJAX. The vehicle is performing extremely well. The U.K. Army is pleased with it. So I think that, that's a standard piece of kit for the U.K. Army. With respect to the U.S., I think it's -- the Ukrainian supplemental certainly helped, but was not the only source of funding for munitions. And frankly, the munitions demand is a reality independent of, I think a lot of other things based on the lessons learned that most land forces, I believe have incorporated at this point. So we expect that to continue. Robert Stallard: Okay, thanks so much. Operator: Our next question comes from Seth Seifman at JPMorgan. Seth Seifman: Good morning. Phebe Novakovic: Good morning. Seth Seifman: One quick specific one on Gulfstream. The out-of-station work you talked about due to late supplier deliveries, is that behind us now as well? Phebe Novakovic: The supply chain has improved, but it is not completely healed yet. So I suspect we'll continue to have some out-of-station work. Seth Seifman: Okay. Okay. And then more broadly, the comment you made at the end of the prepared remarks about potentially revisiting the guidance with the Q3 earnings. Is that because of uncertainty in any particular area or just kind of broadly across the businesses? Phebe Novakovic: I think that in this growth environment, revenue has been harder for us to predict. And just the input of contract executions and the impact of contract execution. So that's why we have a little less clarity than we typically do at this point, as revenue is a bit harder for us to identify with the kind of certainty that we typically can. Seth Seifman: Okay, very good. Thanks very much. Operator: Our next question comes from Ellen Page at Jefferies. Ellen Page: Good morning. Thanks for the question. Just starting on the G700. You mentioned Block 3 was at a steady-state margin. How do we think about that relative to the G650? When would that kind of peak margin? Phebe Novakovic: I don't have that exact comparison, but these are going to be very healthy margins, as you can imagine, on these airplanes. Ellen Page: Okay. Thank you. And then just moving to Marine. As we think about the high growth this year, how do we think about that continuing into 2025? Or should we assume? Phebe Novakovic: So this is -- we continue to see a strong growth profile for the Marine Group for the foreseeable future. In fact, for some time to come. Driven by, as I noted before, the threat environment. So growth is continuing. Some years, it will be a higher rate of growth than others, but it is a growth trajectory. Ellen Page: Thank you. I'll leave it there. Operator: And next, we'll move to Noah Poponak at Goldman Sachs. Noah Poponak: Good morning everyone. Phebe Novakovic: Good morning. Noah Poponak: Phebe, I guess if I look at the funded backlog at Gulfstream, it's been relatively flattish over the last kind of year, 1.5 years. I know you have overall good demand for the new products. But how are you thinking about matching supply to demand as you're going to ramp deliveries here? Do you have visibility that the orders will keep pace with that? Do you have any concern about taking the revenue run rate above the order rate? Phebe Novakovic: So I think we've got a very balanced plan through this year and the way we think about the market. Certainly, the pipeline supports that and has supported it. There's an awful lot of interest in these new airplanes. So I think we've planned accordingly. And I think as I tried to give you some color in the remarks, the pipeline remains strong, and that's the best indicator of near-term future growth. Noah Poponak: Okay. How far out into the future does the pipeline go in terms of your level of visibility and confidence in what the order flow will look like? Phebe Novakovic: It doesn't stand to reason that the further out you go in the future, the less your confidence is? It's actually, I think a truism. But for what we can see, we're -- we like what we see in the pipeline. Noah Poponak: Okay. And Kim, did you -- I apologize if I missed it, did you provide a new free cash flow to net income conversion goal for the year? And then, I guess just any comment on how to think about that next year if there are some abnormalities this year that reverse next year? Kimberly Kuryea: So in terms of for this year, we're still targeting the conversion rate of approaching 100%. Obviously, a lot of that cash is going to come in the fourth quarter of this year, based on our profile this year. And honestly, we are still in the planning process for next year. So we're not at the point that we're ready to give any cash flow guidance for next year. Noah Poponak: Okay, thank you. Phebe Novakovic: So Adra [ph], I think we have time for just one more question. Operator: Thank you. That question comes from Matt Akers at Wells Fargo. Matthew Akers: Hey, good morning. Thanks for the question. Phebe Novakovic: Good morning. Matthew Akers: There was a fire at the Camden, Arkansas facility. Can you guys comment if that was material at all and if that is back online at this point? Phebe Novakovic: Well, that was a tragedy for the individual, the family and for us. From a business perspective, it's a very small line. Matthew Akers: Got it. Thanks. And I guess if you could comment on maybe the outlook at NASSCO? Just between the repair work and you guys recently won the sub tender work there, just kind of how you see the outlook for that yard? Phebe Novakovic: So NASSCO learning and performance on the T-AO, the oiler is going quite well. We're delivering the seventh of the A-class ESB, and repair continues to be pretty strong as the demand from the U.S. Navy is increasing. Nicole Shelton: Thank you, everyone for joining our call today. As a reminder, please refer to the General Dynamics website for the second quarter earnings release and highlights presentation. If you have any additional questions, I can be reached at (703) 876-3152. Operator: This does conclude today's conference call. Thank you for your participation. You may now disconnect.

Operator: Good morning, and welcome to the General Dynamics First Quarter 2024 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. And I would now like to turn the conference over to Nicole Shelton, Vice President of Investor Relations. Please go ahead. Nicole Shelton: Thank you, operator, and good morning, everyone. Welcome to the General Dynamics First Quarter 2024 Conference Call. Any forward-looking statements made today represent our estimates regarding the company's outlook. These estimates are subject to some risks and uncertainties. Additional information regarding these factors is contained in the company's 10-K, 10-Q and 8-K filings. We will also refer to certain non-GAAP financial measures. For additional disclosures about these non-GAAP measures, including reconciliations to comparable GAAP measures, please see the slides that accompany this webcast, which are available on the Investor Relations page of our website, investorrelations.gd.com. On the call today are Phebe Novakovic, our Chairman and Chief Executive Officer; and Kim Kuryea, Chief Financial Officer. I will now turn the call over to Phebe. Phebe Novakovic: Thank you, Nicole. Good morning, everyone, and thanks for being with us. As you can discern from our press release, we reported earnings of $2.88 per diluted share on revenue of $10.7 billion, operating earnings of $1.036 billion and net earnings of $799 million. These results compare quite favorably to the year ago quarter. Revenue is up 8.6% against the first quarter last year. Operating earnings are up 10.4%. Net earnings are up 9.5%. As a result, earnings per diluted share up $0.24, or 9.1% more than the year ago quarter. The operating margin for the entire company was 9.7%, a 20 basis point improvement over the year ago quarter. Overall, these numbers represent a very strong quarter and a good start to 2024. However, we fell below our own expectations for the quarter and below analyst consensus, which is predicated at least in part on our forecast. The rather obvious explanation is that we forecast 15 to 17 G700 deliveries in the quarter, which did not happen. We received FAA certification for the G700 at the very end of the quarter, too late to make any G700 deliveries. This obviously impacted revenue and earnings in the Aerospace group in the quarter. The good news is that we now have certification, and the delay in deliveries does not change our outlook for the year. Gulfstream still plans to deliver 50 to 52 G700s this year. So our Aerospace forecast for the year remains unchanged. I'll give you a little more color on this later in my remarks. Another good news, as you can see, was strong performance across the defense portfolio. In short, we performed very well in the quarter over those things within our control. At this point, let me ask Kim Kuryea, our CFO, to provide details on our order activity, solid backlog and cash activity before I come back with segment observations. Kimberly Kuryea: Thank you, Phebe, and good morning. I'll start with orders and backlog. We had a solid quarter from an orders perspective with an overall book-to-bill ratio of 1:1 for the company. Order activity was particularly strong in the Combat Systems group with a book-to-bill of 1.6:1 and in the Aerospace and Technologies segment, which each had a book-to-bill of 1.2:1. We ended the quarter with total backlog of $93.7 billion, up slightly from year-end and up 4% from a year ago. Our total estimated contract value, which includes options and IDIQ contracts, ended the quarter at approximately $134 billion, up 1.5% from year-end. Turning to our cash performance for the quarter. We had an expected slow start to the year, absent the delayed certification and entry into service of the G700 and continued G700 inventory build. So let's start with Technologies. We continue to see strong cash performance from that group in the quarter. As anticipated, Combat Systems and Marine Systems both built working capital in the quarter based on their unique mix of contract timing versus expected payments. Finally, moving to Aerospace. The lack of G700 deliveries drove us to use cash in the quarter. As a result, our free cash flow for the quarter was a negative $437 million. Since all of what I described is timing related, we still have an expectation for the year of a cash conversion rate around 100%. We expect most of the negative free cash flow to reverse in the second quarter, followed by substantially improving free cash flow in each of the third and fourth quarters. Now to discuss our capital deployment activities. Capital expenditures were $159 million, or 1.5% of sales in the quarter. Similar to last year, you should expect capital expenditures to increase in subsequent quarters throughout the year, as we anticipate spending between 2% and 2.5% of revenue on CapEx this year. Over 50% of that expected spend will be for infrastructure at our 3 shipyards as we continue to invest to support the Navy submarine and shipbuilding plan. Also in the quarter, we paid $361 million in dividends and repurchased approximately 390,000 shares of stock for $105 million at just under $269 per share. When you add it all up, we ended the quarter with a cash balance of around $1 billion and a net debt position of $8.2 billion. Our net interest expense in the quarter was $82 million compared with $91 million for the same quarter last year. The reduction in interest expense was attributed to our lower debt balances. Finally, turning to income taxes. We had a 17.5% effective tax rate in the quarter, right in line with our full year guidance, which reflects higher taxes on foreign earnings. Phebe, that concludes my remarks. I'll turn it back over to you. Phebe Novakovic: Thanks, Kim. Now let me review the quarter in the context of the business segments and provide detailed color as appropriate. First, Aerospace. Aerospace did very well in the absence of the G700 delivery. It had revenue of $2.1 billion and operating earnings of $255 million with a 12.2% operating margin. Revenue is $192 million more than last year's first quarter, a 10.1% increase. To give you a little detail here, the increase was driven by an increase in new aircraft deliveries and an increase in services at both Gulfstream and Jet Aviation, partially offset by significantly lower special mission aircraft activity, which is always lumpy. The 24 deliveries in the quarter are fewer than planned but 3 more than the year ago quarter. The mix in the quarter favored large cabin and the 650 in particular, which helped both revenue and earnings. Operating earnings of $255 million are up $26 million over last year's first quarter, an 11.4% increase. Earnings on both new aircraft and aircraft services enjoyed good increases, offset in part by lower earnings on special mission, higher G&A and net R&D. While Gulfstream will continue to experience part shortages that cause significant out-of-station work, which is inherently less efficient, the supply chain is clearly improving and much more predictable. As is now apparent, we plan to deliver a considerable number of G700s in 2024, the first 20 to be delivered or fully built, and deliveries have begun. By the end of this month, the next 7 to 8 will be ready. We plan to deliver these 50 to 52 planes over the quarters in relatively even numbers, with improving margins quarter-over-quarter as we go along. The first one, what we call the lot 1, carries some cost and retrofit burden that will not affect subsequent aircraft deliveries. So expect margins in the second quarter to be similar to the first quarter with significant improvement in Q3 and Q4. Aerospace had a decent quarter from an orders perspective with a book-to-bill of 1.2:1 in dollar terms. Sales activity and customer interest is evident this quarter, but concerns over persistent inflation and monetary policy in the U.S., together with concerns about conflict in the Middle East, has slowed the consummation of transactions to some degree. It is also worth noting that a significant portion of the demand we see is fleet replenishment for corporations. These multi-aircraft deals usually proceed at a slower pace. The G800 flight test and certification program continues to progress well. The aircraft design, manufacturing and the overall program are very mature. We continue to target certification of G800 for 9 months after the G700 certification, although I'm increasingly reluctant to give estimates about these things that are ultimately out of our control. In short, the Aerospace team had a good quarter. G700 FAA certification is in the rearview mirror, and we hope EASA certification is hard on its heels. And we expect nicely improving margins, particularly in the second half. Next, Combat Systems. Combat had revenue of $2.1 billion, up almost 20% over the year ago quarter. Earnings of $282 million are up 15.1%. Margins at 13.4% are down 60 basis points over the year ago quarter. It is interesting to observe that this very strong increase in revenue is in comparison to last year's first quarter, which enjoyed a 5% increase over '22. We saw increased revenue performance in each of the 3 businesses. The increase came from higher volume on new international tank programs, higher artillery program volume and higher volume on PIRANHA's programs and bridges. We also experienced very strong order performance. Orders in the quarter drove total backlog to $15.6 billion, up $1.5 billion from this time in the year ago quarter. Demand for Combat Systems and products continues to increase, particularly in Europe and in some lines of business in the U.S. Orders for wheeled and tracked combat vehicles are up significantly, reflecting the heightened threat environment. In addition to several new combat vehicle starts, demand for Abrams also continues. We've seen tank orders from new users, and a number of countries will be introducing Abrams into their combat fleets for the first time. Since Q1 last year, we have received almost $1 billion in orders from both U.S. allies through FMS and the U.S. Army. In the U.S., we are rapidly increasing ammunition production with the opening of our Texas facility, which will increase current 155-millimeter ammo capacity by 83%. As the year goes on, we will continue to work with our Army customer to further increase ammo capacity to meet their requirements. Turning to Marine Systems. Once again, our shipbuilding units are demonstrating impressive revenue growth. Let me repeat the recent history that I gave you last year at this time with respect to growth in this decade. The first quarter of 2020 was up 9.1% against Q1 of 2019; Q1 '21 was up 10.6% over Q1 '20; Q1 '22 was up 6.8% over Q1 '21; and Q1 '23 was up 12.9% over Q1 '22. Finally, this quarter at $3.3 billion is up 11.3% over Q1 '23. This is an impressive growth ramp by any standard. However, growth ramps of this character bring with them supply chain and operation issues that are challenging. This particular quarter's growth was almost exclusively Columbia-class construction. Operating earnings are $232 million in the quarter, up 10% from the year ago quarter. Operating margin is basically the same as last year's quarter. We anticipate that this will improve as we progress through the year. As we have talked about in previous calls, the story at the marine group is efficiently managing the growth propelled by the U.S. Navy's need for ships, particularly submarines. As a labor-intensive heavy manufacturing industry, the shipbuilding industrial base was hit hard by the demographic impacts of COVID. This, coupled with a number of sole-source suppliers of highly complex components, has made it difficult for the industrial base to keep pace with increasing demand. The significant financial investments we have made in our shipyards over the last 12 years, particularly at Electric Boat, has mitigated the impact on us, but we are still hit by schedule and quality problems in the supply chain. Our job is to minimize the efficiency and schedule impacts of late material by increasing our throughput. And we are doing that each and every quarter. In Q1 alone, our productivity increased 11%, but there is more to do. Finally, the Navy's investment in the supply chain has helped and will continue to help as we move forward. For Technologies, we're off to a solid start. Revenue in the quarter of $3.2 billion is down less than 1% from the prior year but up 2% over the fourth quarter of last year, and modestly ahead of our expectation to the start of the year. Operating earnings of $295 million are consistent with last year, yielding a margin of 9.2%. As we have previously discussed, margins will continue to be driven by the mix of IT service activity and hardware volumes. The group received $4 billion in orders during the quarter for a book-to-bill ratio of 1.2:1. Both businesses experienced strong order activity, in GDIT's case, the highest book-to-bill since mid-2019. This led to a total backlog of $13.5 billion, an increase of over 5% from a year ago and total estimated contract value of $42.7 billion. The story in Technologies is one of steady growth, particularly at GDIT and increasingly at Mission Systems as they transition from legacy programs to new programs and faster-growth lines of business. Both businesses have robust pipelines driven by their respective investments in different technologies. The group's continued focus on margin performance will result in sequential margin expansion throughout the year as they continue to build their backlog and grow. As you know, we never update guidance at this time of year. Apart from what I have already said about Aerospace, I will stick to that custom. We do, however, confirm the guidance we gave you at the end of last quarter, and we'll update it at midpoint of the year, as we typically do. This concludes my remarks with respect to what was, in many respects, a rewarding quarter. Let me now turn the call back to Nicole to take your questions. Nicole Shelton: Thank you, Phebe. [Operator Instructions] Operator, could you please remind participants how to enter the queue? Operator: [Operator Instructions] And your first question comes from Scott Deuschle with Deutsche Bank. Scott Deuschle: Kim, can you clarify the G700 delivery expectation for the second quarter? Is it the 20 that are ready to go plus the 7 to 8 that will be ready at the end of this month? Phebe Novakovic: So let me kind of tackle that. I alluded to it in my opening statement. But we're -- we have 50 to 52 airplanes that are going to deliver in about equal amounts of the 700 in the second through the fourth quarters. So think about it that way. So I think that will help you. Scott Deuschle: Okay. And then, Phebe, I was hoping you could spend a moment maybe talking about the growth that Combat Systems is currently seeing in Europe and perhaps how you expect that to trend over the coming quarters. Phebe Novakovic: So the growth in Europe is clearly driven by the threat environment. We've seen increases in orders for combat, wheeled and tracked vehicles and significant bridge orders. We're also seeing increased orders coming out of various countries in Europe for Abrams through the FMS process. So we see that demand signal continuing until the threat environment, frankly, improves. Operator: We will take our next question from Seth Seifman with JPMorgan. Seth Seifman: Looking to marine. When we think about the expectation for the profit margin for the year and kind of where we started, are there kind of visible milestones that you see through the remainder of the year that bring that number higher? Or kind of is it a change in mix? Or kind of what drives the underlying margin improvement through the year? Phebe Novakovic: So two things. One is the increase in productivity at each of the shipyards, and we see that and we've been seeing that for the last few quarters. And it's also fewer disruptions from the supply chain. So those are the two primary factors. Seth Seifman: Right. Okay, okay. Great. And then just when we think about -- I think you mentioned some of the headwinds to demand at Gulfstream from here in terms of monetary policy, geopolitical issues. Just to kind of affirm the expectation for 160 deliveries this year and the way that the backlog will trend through the year, the expectation is that, that's a very sustainable number with potential for that to grow in the years beyond. Phebe Novakovic: So let me clarify a bit. I don't see concerns about inflation or monetary policy impacting demand. It really is just impacting the time from the initiation of a potential interest to the closure of an order, which is also impacted somewhat by large fleet -- airplane fleet orders from corporate customers. So think about it that way, more of a timing issue with the completion of the deals and not a headwind to overall demand. So I think that's an important nuance. And we're still sticking to our delivery guidance for the year. And I think on a going-forward basis, as we've intimated before, we see that those deliveries increasing over time. Operator: And we will take our next question from Robert Stallard with Vertical Research. Robert Stallard: Phebe, I was wondering if you could comment on the recently passed or soon to be signed supplemental and what implications that could have for the combat business, but also on the submarine side, what sort of additional funding could come from the U.S. Navy? Phebe Novakovic: So let me take them in the inverse order. On the submarine side, the preponderance of the funding in the supplemental is to help stabilize the industrial base, ensuring that we continue to drive order activity on a consistent and repeatable basis. So that is really on the submarine side. In combat, I think you can see there's a fair amount of ammo funding, and we had fully anticipated that. Robert Stallard: Okay. And then just secondly, I was wondering if you could give us an update on the AJAX program in the U.K. Phebe Novakovic: So it is proceeding extremely well through test, continue to work with that customer, but they are very pleased with the performance of the vehicle. Operator: And we will take our next question from Sheila Kahyaoglu with Jefferies. Sheila Kahyaoglu: I wanted to ask one about Aerospace, and I'm sorry for putting you on the spot with the mental math. But last year -- or last quarter, you talked about the G700 profit contribution being around 25%. So when we think about the Q1 performance, it was actually really good relative to our number of 12.1% margin. It would imply you see a deceleration in the underlying business for Aerospace just given G700 comes in at 50 units. So I guess, how do we think about the mix movement throughout the year for Aerospace? Phebe Novakovic: Well, let's talk about the first predicate in that question. I don't believe we've ever disclosed any margin on a particular airplane, and we haven't there. I think we can't -- it can't take and discern revenue and earnings in any given quarter as attributable to one airplane. So I think you need to think about it holistically. But we see the -- we don't see any real changes in the mix throughout the year. And we'll do a detailed bottom-up review in Q2. But for right now, we're sticking with both our mix, our earnings, our margin and revenue expectations. So we're off to a pretty good start, I'd say. And we're very encouraged at how the outlook looks for the rest of the year. Sheila Kahyaoglu: Can we assume that G700 is accretive to the 15% full year guidance? Phebe Novakovic: So think about it this way. This is ultimately going to be a very profitable program. But as I explained in my remarks, the first lot of 20 or so carries with it additional cost. We'll see those in -- largely in Q2. So think about Q2 as an increase in revenue of about $1 billion to $1.1 billion and in earnings of about $100 million to $110 million, and then progress nicely thereafter. And again, that's all impacted by the multiplicity of factors in our Aerospace business that drive margins. Operator: And we will take our next question from David Strauss with Barclays. David Strauss: Phebe, so Rob's question on the supplemental and the submarine industrial base money, so there's money there. There's a lot of money in the base budget, it appears. You're spending additional CapEx today that you'll eventually recover through working capital, profit. How does -- I mean, it's a lot of money. I mean how does that manifest itself in your numbers as we think about over the next couple of years? Phebe Novakovic: So for the supply chain support, it has minimal impact on us. It's, however, extremely important because the stabilization of the supply chain is critical to the resumption of full cadence on Virginia and the increased cadence on Columbia. So funding is also robust for submarines. We've got one we projected in '25. And then it would be extremely helpful to get a full ship set of Virginias also appropriated because that, again, helps stabilize the industrial base with repeatable revenue that they can plan around. David Strauss: Okay. Last quarter, you made some more kind of positive comments regarding the potential for share repurchase to step up. Obviously, you did a little bit this quarter, but not that much. How are you thinking about that now? Did that have to do with the fact that you ended up burning cash in Q1? Just how you're thinking about share repo and the balance sheet from here. Phebe Novakovic: So the way we think about share repurchases, and this will be true going forward, is really in the regular order. Recall what we were facing in Q1. And that was we're looking down the throat of a potential, and at some point looked very likely, government shutdown. And so I think that prudence and conservatism in the face of that kind of uncertainty is really key. But the cash performance for the remainder of the year is going to be very strong, and we will act accordingly. Operator: And we will take our next question from Noah Poponak with Goldman Sachs. Noah Poponak: Phebe, what's the framework for the pace of G700 deliveries beyond this year compared to this year? Not asking for quarterly numbers or anything like that, but just given this year's had some abnormalities compared to a recurring airplane. And then, Kim, just what's the updated view on free cash flow to net income conversion for the year? Phebe Novakovic: Well, so let me talk about 700. We never, except I think, on 1 or 2 occasions about 5, 6 years ago, give the future year expectations. But 700 is a very, very successful program, and it will continue to execute well. I'll turn it over to Kim on cash. Kimberly Kuryea: On cash. Thank you, Phebe. So with respect to cash and the expectation, we still anticipate achieving about 100% of free cash flow conversion in 2024. We had expected the first quarter to be negative even before considering the fact that we didn't deliver any G700. So we had planned for a negative free cash flow in the first quarter, and that was mostly driven by some contract timing in the Combat Systems segment and some in the Marine Systems segment. But we expect that most of that negative cash will reverse in the second quarter with a stronger third quarter and then a steeper ramp in the fourth quarter. Operator: We will take our next question from Myles Walton with Wolfe Research. Myles Walton: Phebe, could you comment on -- or Kim, could you comment on the margin expansion implied at Combat Systems as you move through the rest of the year? I think it has to be 80 to 100 basis points on average up year-on-year for the rest of the year. And maybe the underlying dynamics of given the volume, why we didn't see more of a drop-through margin in the first quarter? Phebe Novakovic: So what drove margin in the first quarter were two things: mix as we came off of older legacy programs, particularly in the vehicle world and in the U.S. and then -- and began ramping up newer programs, vehicle programs in the U.S.; and then a significant amount of the revenue growth came from facilities investment which, by definition, carries a lower margin than production. So both of those things will reverse throughout the course of the year, and combat margins will increase. Our expectation is quarter-over-quarter. Remember, this is a high operating leverage group. So they ought to do quite well here. Myles Walton: Okay. And one clarification on Gulfstream's backlog, if I could. I think that there were some adjustment downward in the backlog. Were those cancellations or ForEx, maybe 6 large jet cancellations or thereabouts? Phebe Novakovic: I don't think that's the way to look at it. But why don't Nicole get back to you on that? But we didn't have any particular notable cancellations. So let us unpack that one with you a little later. Operator: We will take our next question from Ron Epstein with Bank of America. Ronald Epstein: So Phebe, with the increased demand on munitions and so on and so forth, I mean, what are you doing to mitigate any of the issues that could arise from growth in those markets, just like we've seen in the Navy markets given all the demand and growth? There's been supply chain issues. Are you expecting... Phebe Novakovic: Yes. So in the combat world, it's a little bit more of a robust supply chain in general that we typically have not had difficulty with, typically. We know our priority. The suppliers who could conceivably cause issues, and we've been working with them to ensure that they can manage this growth. But we're pretty comfortable that we can execute the growth. Our focus is really on operations and execution. And those will be the two key drivers of the profitability in that group. Ronald Epstein: Got it. Got it. And then maybe back to the kind of the naval side of the house and the supply chain. Could you give us any color on where there are actual weaknesses in the supply chain where investment has to be made? Phebe Novakovic: So I'd say in the large -- in the single-source, sole-source suppliers who are, by definition, critical. And the Navy has focused quite intensely on those particular products and supply chain items. And I think they've been pretty explicit about where some of that might be. And I think it's best to think about it that way. But we do believe that working with the Navy customer, the continued infusion into that supply chain will help stabilize. But they are the pacing item now for Electric Boat. Operator: And we will take our next question from Doug Harned with Bernstein. Douglas Harned: On marine, the Navy recently described some shipbuilding delays really across programs. And the one that really stood out was Columbia-class delays reported on the turbines and the bow. Can you give us a sense of changes you've seen in schedule that affect you kind of across the program base and particularly on Columbia? Phebe Novakovic: So I think you've articulated what the Navy has said. I will tell you, our throughput and productivity has been strong on Columbia. It enjoys the highest national security priority. So we have done pretty well on Columbia and are increasing our throughput on Columbia. So then it's really those pacing items that are out there. And we're working with our Navy customer to see if there are additional things we can do to recover some schedule and if there are any workarounds. But this is going to be a bit of a slog for the supply chain. Douglas Harned: And then also on shipbuilding, inflation has affected shipbuilding costs a lot over the last few years. We've seen pricing on new awards go up. And when you look forward in the budget, is there a concern that you're basically, if you're going to -- if the Navy's budget is really going to be able to afford the kinds of inflation increases that may come along with the continued ramp in shipbuilding? Phebe Novakovic: Yes. So I think you've known over the years, I tend not to comment on individual service budgeting. But inflation certainly has been a factor. And to the extent that we can increase throughput to offset some of that, we will. But the Navy is well aware of the inflation impact and I think is working hard with the whole shipbuilding industrial base to adjust some of that. Operator: And we will take our next question from Kristine Liwag with Morgan Stanley. Kristine Liwag: Phebe, following up on the marine question. In addition to the delay in the Columbia class, the DoD did request one less Virginia class for the fiscal year '25 budget request. So I mean, if we take all this into perspective, can you provide some context on what this means for marine revenue growth over the next few years? And does the margin with a 7 handle on it, is that more the new norm for this business? Phebe Novakovic: So let me address that in the inverse order. Margins will be improving at our shipyards. We have every expectation all of our shipyards, NASSCO, Bath and Electric Boat. One of the things, as we've talked frequently about, is the margin impact of quality and schedule problems coming out of the supply chain. And as the supply chain stabilizes, that will help as well. And what was your first part of your question? Kristine Liwag: The revenue cadence, including the just one Virginia class for fiscal year '25. Phebe Novakovic: Yes. Okay. So it has no impact in the short term for Electric Boat because we've got plenty of work in front of us. It could have an impact in the outer years outside of our planning horizon. But critical here is, in fact, the additional ship set of funding. We have long lead material on Virginia. That is very important to the supply chain. And to the extent that we can ensure that we get a full second Virginia ship set so that we're buying it to a year, I think, is very important for the overall health of the industrial -- submarine and industrial base. Operator: And we will take our next question from Ken Herbert with RBC. Kenneth Herbert: If we look, Phebe, at your comments around timing in Gulfstream, is it still fair to assume that you should be looking at a book-to-bill at 1 or greater for Gulfstream in '24? Phebe Novakovic: So it's a good planning assumption. It is how we are thinking about our internal planning. But let's see how we do as we start to significantly ramp up production and deliveries. So -- but as I said, that's a good planning assumption. Kenneth Herbert: Okay. Great. And just a clarification for Kim. The comments sound like the free cash flow ramp really sort of accelerates in the second half of the year. But with all the 700 deliveries expected this quarter, free cash flow should be positive in the second quarter, correct? Kimberly Kuryea: Yes. That's pretty much what you should assume. Operator: And we will take our next question from Robert Spingarn with Melius Research. Robert Spingarn: Phebe, you said recently that with the -- even though the aerospace supply chain is improving, your ramp this year could challenge that improvement. I was wondering if you could elaborate on that a little bit. Phebe Novakovic: So we still have -- look, it's definitely improving. Quality is improving and schedule reliability is improving. But make no mistake, we still have a lot of out-of-station work. And that impacts the profitability and margin on airplanes that are experiencing that. So we definitely see improvement. We are optimistic that they can keep pace, but it's not without its margin challenges. Robert Spingarn: Okay. And then also, I think you commented you had good bookings in Aerospace in the quarter, reflecting strong demand. But I think you've said the U.S. has been very strong. How is aircraft demand elsewhere in the world? Phebe Novakovic: So there's no real change, I think, from the previous quarters, U.S. corporations, private and public, high-net-worth individuals, both U.S. and outside the U.S. So no real changes, no real surprises. Sort of the typical customer base that we see is I think the way you should think about it. Operator: And we will take our next question from Peter Arment with Baird. Peter Arment: Phebe, the Army wants to reach 100,000 155 shells by, I think, October 2025. Can you update us on how your ramp is going? You've discussed that, that supply chain is a little more robust. Phebe Novakovic: Yes. So our ramp there is more about increasing the facilities that we have. And as I noted in my remarks, the opening of our Texas facility, which we worked very, very hard to expedite and frankly did it in almost record time, was very important because it increased the throughput and the productivity of the number of shells by 83%. So we're on track with the Army to get where we need to be, and our objective is to move even faster. And so far, we have been. But the Army has been a critical and extremely important partner here in what is really a national security imperative. Peter Arment: Yes. And then just if you could make any comments on the G280 program just given the conflict that's going on in the Middle East. Phebe Novakovic: So we had anticipated the impacts on the 280 in our guidance too, but I will tell you that they are doing quite well and are slightly ahead of our schedule. We're still sticking to our deliveries, but I think it's notable that they're managing pretty well in this tough environment. Operator: We will take our next question from Cai von Rumohr with TD Cowen. Cai Von Rumohr: Good quarter. Phebe Novakovic: Thanks, Cai. Cai Von Rumohr: So could you update us on the status of the G400? How is it doing? And is it fair to assume that it might have a gap of approximately 12 months between its certification and that of the G800? Phebe Novakovic: I think I said last quarter, I'm done predicting process over which we have little control. We've tried in the past to give you indicators of our internal -- or actually, our internal -- our dates. So I'm kind of out of the detailed predicting mode. I will say the program is doing extremely well. And it's -- it will fly in the third quarter, and I think we'll be flying a pretty mature airplane. Cai Von Rumohr: Excellent. And then your R&D was up a fair amount in the first quarter. Could you give us some color of the pattern of the R&D at Gulfstream this year and looking forward? How should we think about that? Phebe Novakovic: Well, pretty much steady as she goes, particularly this year. We've got a number of, as you know, programs in the certification process. And so I'd see that at least through this year is pretty consistent. No real surprise this year, steady as she goes. Operator: And we will take our next question from Jason Gursky with Citigroup. Jason Gursky: Phebe, I wanted to just quickly go back to your comments on Aerospace and what, I guess, you described as an elongation of your sales cycle. Maybe you could just talk a little bit about the overall size of the pipeline and how that is evolving. I understand things are taking longer to close, but I'd also be kind of curious to know whether there are an increasing number of people that are interested. Phebe Novakovic: So the pipeline remains robust. And I look to that as encouraging, a good sign. It's been that way for a while. People want our airplanes, and that's driving demand. Jason Gursky: Okay. Great. So good metrics going on there, it sounds like. Then just really quickly on -- maybe this is a question targeted at Technologies. But I'd love to get some updated thoughts from you on artificial intelligence, AI, the adoption that you're seeing with your customers. How you see this kind of playing out and affecting your business. And then maybe, as I suggest, focused on Technologies. Phebe Novakovic: Yes. So we have been investing in AI to support our customers, and particularly at GDIT and somewhat at Mission Systems. And I would say that there, we're working closely with our customers. They define what the art of the possible is for them in AI. And as you all know, there are some government -- governance challenges around that. But the more sophisticated we get and our ability to tailor AI solutions, I think the more comfortable our customer becomes and will ultimately drive some increased revenue. I haven't seen too much of that yet because I think the government is not like -- unlike other industries where its adoption is. People are careful, and I think properly so. And I would argue that would be true across the entirety of our business. Operator: Our final question today comes from Gavin Parsons with UBS. Gavin Parsons: Phebe, you highlighted the stronger second half Aerospace margins that's a more normal volume and G700 production. Is that more of an appropriate starting point for 2025 than the full year 15%? Phebe Novakovic: Nice try. So look, yes, I think once you get through the first lot, our performance from a margin standpoint will continue to improve. And you'll see that, third quarter will be significantly better than second quarter, and fourth quarter will be even better still. But we will update you on our regular order. We kind of keep our discipline, as you well know, around updating guidance, and I think that, that's appropriate. Gavin Parsons: Yes. I appreciate that detail. And then just in terms of the 100% cash conversion for the year, what's the opportunity to exceed that given last year, you were well above and you built a lot of G700 inventory? Kimberly Kuryea: I think right now, we're just focused. Given the steep ramp in the second half of the year, we're really focusing on trying to hit that mark at this point in time. Phebe Novakovic: And we should get there. Nicole Shelton: Great. Well, thank you, everyone, for joining our call today. As a reminder, please refer to the General Dynamics website for the first quarter earnings release and highlights presentation. If you have additional questions, I can be reached at (703) 876-3152. Operator: And ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.

Operator: Good morning and welcome to the General Dynamics Fourth Quarter and Full Year 2023 Earnings Conference Call. All participants will be in listen-only mode. After the speakers' remarks, there will be a question-and-answer session. [Operator instructions] I'd now like to turn the conference over to Nicole Shelton, Vice President of Investor Relations. Please go ahead. Nicole Shelton: Thank you, operator, and good morning everyone. Welcome to the General Dynamics fourth quarter and full year 2023 earnings conference call. Any forward-looking statements made today represent our estimates regarding the company’s outlook. These estimates are subject to some risks and uncertainties. Additional information regarding these factors is contained in the company’s 10-K, 10-Q, and 8-K filings. We will also refer to certain non-GAAP financial measures. For additional disclosures about these non-GAAP measures, including reconciliations to comparable GAAP measures, please see the press release and slides that accompany this webcast, which are available on the Investor Relations page of our website, investorrelations.gd.com. On the call today are Phebe Novakovic, our Chairman and Chief Executive Officer and Jason Aiken, Executive Vice President, Technologies and Chief Financial Officer. With the introductions complete, I’ll turn the call over to Phebe. Phebe Novakovic: Thank you, Nicole. Good morning, everyone and thanks for being with us. Earlier this morning, we reported earnings of $3.64 per diluted share on revenue of $11,668,000,000, operating earnings of $1,288,000,000, and net earnings of $1,000,000,000. Revenue is up $817 million, a strong 7.5% against the fourth quarter last year. Operating earnings are up $61 million, and earnings per share are up $0.06, or 1.7%. The year-ago quarter had $52 million more of other net income, which helps explain the more modest earnings per share growth. In short, the quarter-over-quarter results compare quite favourably, particularly revenue and operating earnings. The sequential results are even better. Here, we beat last quarter's revenue by $1,097,000, a very strong 10.4%, operating earnings by $231 million, or 21.9%, net earnings by $169 million or 20.2%, and EPS by $0.60, a 19.7% improvement. As we promised that it would be, the final quarter is our strongest of the year in both revenue and earnings. In fact, revenue, earnings per share, operating earnings, and net earnings improved quarter over the previous quarter throughout the year. It was a nice steady progression of sequential improvement. For the full year, we had revenue of $42.3 billion, up 7.3%, and operating earnings of $4.25 billion, up 0.8%, and earnings per fully diluted share of $12.02, down $0.17, a 1.4% decrease, mostly as a result of below-the-line items like other income, which was higher, and the tax provision, which was lower in 2022. The fourth quarter in the year are $0.04 and $0.09 respectively, below consensus. It is important to note that consensus lowered during the two weeks before this earnings release, as the sell side became aware of Gulfstream's deliveries from public sources. This miss was exclusively because the G700 did not certify before year end. As a result, Gulfstream was unable to deliver 15 G700s as we and the sell side had anticipated. I will have more to say about this in my segment remarks. While we miss consensus and our own expectations for reasons beyond our control, it should not distract from an otherwise good quarter and year. Let me ask Jason to provide some detail on our strong cash performance for the quarter and the year, overall order activity, and backlog, and any other items you might like to address. Jason Aiken: Thank you, Phoebe, and good morning. Order activity and backlog were a strong story for us in 2023. We finished the year with total backlog of $93.6 billion, up $2.5 billion over last year. Total estimated contract value, which includes options and IDIQ contracts, was nearly $132 billion. In terms of orders, the aerospace segment led the way with a 1.2 to 1 book-to-bill ratio in both the fourth quarter and full year, and they ended the year with total backlog of $20.5 billion. The defense segments had a book-to-bill of 0.7 times in the fourth quarter and one-to-one for the full year. Overall, the company had a book-to-bill of 1.1 times for the year, and all four segments were one-to-one or better. Turning to our cash performance, it was another strong quarter with operating cash flow of $1.2 billion, which brings us to $4.7 billion of operating cash flow for the year. As discussed on previous calls, this level of cash flow was achieved on the strength of Gulfstream orders, additional payments on Combat Systems international programs, and continued strong cash performance in technologies. After capital expenditures, our free cash flow for the year was $3.8 billion, a cash conversion rate of 115%. This was nicely ahead of our anticipated cash flow for the year, notwithstanding the delayed certification and entry into service of the G700. Looking at capital deployment, capital expenditures, as I noted on the last call, were higher in the fourth quarter at $304 million, which brings us to $904 million for the full year. The lion's share of these investments are of course, in our shipyards to support the Navy's submarine and shipbuilding plan. At 2.1% of sales, full year capital expenditures were a little lower than our original expectation due to timing, so some of that naturally pushes into next year. As a result, we expect CapEx to be between 2% and 2.5% of sales next year and closer to 2% thereafter. We also paid $360 million in dividends in the fourth quarter, bringing the full year to $1.4 billion. There were no shares repurchased in the quarter, so we finished the year with two million shares repurchased for $434 million at $215 per share. With respect to our pension plans, we contributed $106 million in 2023, which included a modest voluntary contribution to one of our commercial plans, and we expect to contribute approximately $75 million in 2024. After all this, we ended the year with a cash balance of $1.9 billion and a net debt position of $7.3 billion, down approximately $1.9 billion, more than 20% from last year. We have $500 million of debt maturing in 2024. Our net interest expense in the fourth quarter was $78 million, bringing interest expense for the full year to $343 million. That compares to $85 million and $364 million in the respective 2022 periods. We expect interest expense in 2024 to continue to decrease to around $320 million. Turning to income taxes, we had an 18.1% effective tax rate in the fourth quarter, which brings our full year rate to 16.8%, slightly below, but generally in line with our guidance. Looking ahead to 2024, we expect the full year effective tax rate to increase to around 17.5%, reflecting higher taxes on foreign earnings. That concludes this portion of my remarks, and I'll turn it back over to Phebe for segment comments. Phebe Novakovic: Thanks, Jason. First, aerospace; the story in aerospace is found in sequential and year-over-year improvement, continuing strong demand for Gulfstream aircraft, the overall strength of Gulfstream service business, and the continuing growth of jet aviation. In the quarter, aerospace had revenue of $2.74 billion and earnings of $449 million. This represents a 12% increase in revenue and a 33% increase in earnings on a quarter-over-quarter basis. The sequential numbers are even stronger, with a 35% increase in revenue coupled with a staggering 68% increase in operating earnings. The important point here is the dramatic increase in the delivery of in-service airplanes in the quarter, 39 versus 27 in the third quarter of 2023. A strong mix favoring large aircraft, strong pricing in the backlog, better overhead absorption, and improved supply chain response, leading to less out-of-station work, all contributed to a 16.4% margin in the quarter. For the full year, revenue of $8.62 billion is up only $54 million from the prior year, and operating earnings of $1.18 billion, improved by $52 million on a 50-basis point improvement in operating margin. Nevertheless, aerospace revenue and earnings are less than we anticipated for the quarter in the year because, as I mentioned earlier, we did not receive the certification of G700 in the fourth quarter and did not deliver 15 aircraft we had ready to go. That deprived us of slightly over a billion dollars of revenue and close to $250 million in earnings. These, of course, are orders of magnitude figures. We were also unable during the course of the year to increase production of in-service aircraft as planned because of well-known supply chain issues that began to resolve in the fourth quarter. So, where are we in our journey toward G700 certification? We are almost complete with the final technical inspection authorization. FAA function and reliability flight testing is almost done, and almost all of the paperwork associated with the process has been submitted. In the meantime, we are asking customers to schedule their pre-delivery inspections contemplating delivery this quarter. All that having been said, let me turn to the demand environment. The book-to-bill was 1.2 times in the quarter and 1.2 times for the year. Backlog increased $395 million sequentially and $938 million for the year. So, aerospace demand remained strong for both aircraft and services at Gulfstream and jet aviation. I should add that strong order intake was interrupted for a two- to three-week period twice during the year, once for a macroeconomic event and the second for a geopolitical event. I refer to the regional bank failures earlier in the year and the conflict initiated by the Hamas attack on Israel and the resultant conflict in Gaza. In each case, order intake resumed after a brief pause. As we go into the New Year, the sales pipeline remained strong and sales activity is at a solid pace. Aerospace backlog is up 72% since the first quarter of 2021 when we first detected a measurable uptake in order activity. In summary, aerospace results are in line with our original forecast, excluding the G700 certification delay. We look forward to a significant increase in deliveries in 2024 and improved operating margin, but I'll say more about this as we get to guidance. We also expect continued growth and margin improvement at Jet Aviation to perform well in the year. Next, combat systems. Revenue in the quarter of $2.36 billion is up 8.5% from the year-ago quarter. Operating earnings of $351 million are up 5.7% on a 40-basis point decrease in operating margin, but still a very good 14.8%. The majority of the growth in the quarter was at ordnance and tactical systems and European land systems. It was largely driven by higher artillery and propellant volume, including programs to expand production volume, higher volume of piranhas, bridges and eagles in Europe, and new international tank programs. Not surprisingly, the sequential comparisons are even better. Revenue is up $140 million or 6.3% and earnings are up $51 million or 17% on the strength of 130 basis point improvement in margins. From an order perspective, combat had a very good year with a 1.1 times book-to-bill, driven by very strong international demand for the Abrams main battle tank, growing demand on the munitions side of the business, and particular strength in Europe. By the way, combat's performance for the year significantly outperformed our expectations. 2023 revenue was up 13% against a flat forecast provided earlier in the year. Operating earnings are up $72 million or 6.7%, with operating margin at 13.9% for the year. In short, this group had a wonderful quarter and a year with strong revenue growth, strong margin performance, good order activity, and a strong pipeline of opportunity as we go forward. Turning to marine, the powerful marine system's growth story continues. Fourth quarter revenue of $3,408,000,000 is up 14.8% over the year ago quarter. Revenue is also up 13.5% sequentially, and 12.9% for the year. This was driven by Columbia class construction and engineering volume, TAO volume, and service contracts at bat. Operating earnings are down 8.4% over the year ago quarter on a 160 basis point reduction in operating margin attributable to EAC rate decreases at electric boats. These rate decreases similarly impact the sequential and annual comparison with respect to operating earnings. The EAC decreases were primarily driven by two factors, later than promised material to EB [ph], which drove additional out of station work at EB, and quality problems from several vendors. On the positive side, we are continuing to work with the Navy and the Congress to help further stabilize the supply chain with additional funding for work. We are also working with certain suppliers to set up process improvements where we can. EB also needs to continue to improve its productivity to help offset some of the financial impacts from the supply chain. Marine Systems had a one-time book-to-bill for the year, a good result for a group of shipyards that began the year with a total backlog of nearly $46 billion. Jason will now give you some color on the Technologies group for which he has responsibility, and then I'll return for our outlook for 2024. Jason Aiken: The Technologies group had a solid quarter and a very strong year. Revenue in the quarter of $3.2 billion was down 3.1% compared with the prior year, while operating earnings of $305 million were down 10.3% versus the fourth quarter of 2022. For the year, however, the group's revenue of $12.9 billion was up 3.4%, with both businesses experiencing nice growth. The results exceeded our expectations on strong demand for the group's products and services. GDIT fared particularly well with increased volume across each of its customer-facing segments; defense, intel, and federal civilian. Operating earnings of $1.2 billion were down by 2% versus the prior year on a 50-basis point contraction in operating margin to 9.3%, and that's solely a function of the revenue mix as IT services grew faster than the defense electronics portfolio. Turning back to the quarterly performance, to break it down between the two businesses, GDIT's revenue was up in all four quarters compared with 2022, and they've now grown their top line in each of the past three years. The same is true for mission systems' quarterly revenue performance, with the exception of the fourth quarter. If you recall, last year's fourth quarter saw us break through a logjam in the supply chain and deliver an unusually high number of products, lifting both revenue and margins. Barring that anomaly in 2022, the group's comparisons on a quarterly and full-year basis are quite favorable. With respect to order activity and backlog, the technologies group had a very good year, notwithstanding the continuing trend of customer solicitations pushing to the right and recurring award protests. The individual businesses and the group as a whole achieved a one-to-one book-to-bill on solid revenue growth. GDIT received awards totalling $13.5 billion, far exceeding their previous annual record set the year before. They've got another $15 billion in awards pending adjudication and just shy of $2 billion in awards under protest. Mission systems had a great year as well, with a total value of submitted bids almost triple the level they saw in 2022. Of course, many of the group's awards come in the form of IDIQ contracts with potential value that doesn't initially hit the backlog. So much of these positive results will continue to manifest in the reported numbers over time. To that point, we ended the quarter with a total estimated contract value for the group of nearly $41 billion, and the group's combined qualified pipeline exceeds $130 billion; so all in all, a great year for the technologies group. Phebe Novakovic: So let me provide our operating forecast for 2024 with some color around our outlook for each business group and then the company-wide roll-up. In 2024, we expect aerospace revenue of about $12 billion, up around 40% over 2023. Operating margin is expected to be up 130 basis points to 15%. Gulfstream deliveries will be around 160, materially over the 111 delivered in 2023. This is about 10 fewer deliveries than we anticipated in the multiyear forecast we gave you in January of '22. The mix will include about 50 G700 deliveries and fewer G280s as a result of the Gaza conflict's impact on our Israel-based supplier. As I just noted, we anticipate a 15% operating margin for the year, weaker in the first half, particularly in the second quarter, and then well over 15% in the third and fourth quarters. While the ramp-up is slightly less than previously anticipated, it is not without supply chain challenges. In combat systems at this time last year, we had anticipated revenue to be flat in '23. With a changed threat environment, we had a 13% increase in revenue. For '24, we expect revenue to be up about 3% to $8.5 billion, coupled with a 50 basis point improvement in operating margin to 14.4%. The outlook is the result of the strong order activity we saw in '23 and the demand signals we see in Europe. To the extent that these demand signals start to convert into order activity, we could see some opportunity for additional revenue later in the year, particularly in our armaments and munitions business. As I noted earlier, the Marine group has been on a remarkable growth journey. In 2023, revenue came in much stronger than expected, almost $1.6 billion against a flattish forecast. Our outlook for this year anticipates revenue of about $12.8 billion, with operating margin improvement to 7.6%, which should result in a meaningful improvement in earnings in 2024. In technologies, 2023 revenue was stronger than anticipated in both businesses. 2024 revenue is expected to be up about 1% to $13 billion. Within the group, GDIT will be up low single digits, emissions systems will be down slightly due to a transition from legacy systems and a slow ramp up on new programs. Operating margins are expected to improve 20 basis points to about 9.5%. We see long term low single digit growth for the group and continued industry leading margins. So for 2024 company wide, we expect to see revenue of approximately $46.3 billion to $46.4 billion, an increase of around 9.5%. We anticipate operating margin of 11% up 100 basis points from 2023. All this rolls up to an EPS forecast of around $14.40. A reasonable range would be $14.35 billion to $14.45 billion. On a quarterly basis, the first two quarters look a lot alike with very strong third and fourth quarters. In summary, as we go into this year, we feel very good about the demand environment across all of our businesses. It has been some time since I have seen stronger demand signals and better promise of organic growth. We also have some very good opportunities across the business to improve operating margins. All we must do is execute. It almost goes without saying that we will be laser focused on operations. Nicole, back to you. Nicole Shelton: Thanks, Phebe. As a reminder, we ask participants to ask one question and one follow up, so that everyone has a chance to participate. Operator, could you please remind participants how to enter the queue? Operator: [Operator instructions] We will take our first question from Myles Walton at Wolfe Research. Myles Walton: Thanks. Good morning. Phebe, I was hoping you could touch on the 700, not a surprise. How many do you have ready for pre-delivery inspection from your customers and also, relative to confidence of when the deliveries could take place, I mean, this is pretty much out of your control. The FAA has published a few rules last week that are pending and have to go through their process. I'm just curious, your confidence level for first quarter delivery versus, say, where you were in the fourth quarter expecting deliveries by year end? Thanks. Phebe Novakovic: So we have 15 airplanes ready to go and the hope is that we deliver them this quarter. The notifications that Gulfstream made earlier, I guess, this week, are in the regular order and really have no material impact on the certification process. I tried to give you as much clarity as I could around the certification and where we are. Myles Walton: Is there an 800 delivery assumed in the guidance for '24? Phebe Novakovic: So we're not going to go into what we've assumed for any given airplane in our guidance. So let me give you guys some perspective about this. For the last about eight years, we've tried to give you some clarity about a process over which we have no control and it's kind of like sticking your fingers in a light socket to predict a process that we just don't control. So I think we're going to be silent as we go forward about any specificity around certification timing because then we hear words like slip and miss and these planes are going to get certified, but get certified on the FAA schedule. Myles Walton: All right. Thank you. Operator: We'll move next to Ron Epstein at Bank of America. Ron Epstein: Hey, good morning, Phebe and Jason. Maybe just circling back on your remarks, Phebe, around EB, but maybe more broadly, just kind of the ship industrial base, the DOD has been making some big investments. Now, where do you see Virginia-class build rates ultimately getting, Columbia, too, because it just seems like the supply chain and maybe just also from just a capacity perspective, we're just under-capacitized. So, any thoughts on that? Phebe Novakovic: So let's step back a minute and talk a little bit about the shipbuilding industrial base in general and the submarine industrial base in particular. These are very heavily manpower-driven businesses and industry and an entire supply chain and manpower availability was impacted significantly as a result of COVID in two respects. First, we had a really stunning increase in the timing and the number of retirements of seasoned workers throughout the industrial base. That, coupled with the post-COVID labor shortages, caused considerable perturbation in the supply chain. Those will begin to remedy. We've already seen some stabilization in the labor market. Those won't remedy, but there's clearly learning that has to happen throughout the supply chain. I'd say with respect to capacity, at Electric Boat, we are nicely sufficient capacity at the moment to deal with the demand that we have -- we see at the moment, but should that demand signal increase in the near term, we'll work closely with our Navy customer. I think key to the stabilization of the supply chain is improved delivery and improved quality and that happens as new workers come down their learning curves. We've benefited from Electric Boat because they have a very robust training system in which our new workers come out at a higher level of proficiency, but still they need to come down their learning curves and they're doing so nicely. I think to add a little bit of perspective to that, Electric Boat, we increased our velocity and throughput on Virginia by about 10% this year in '24% and about 30% on Columbia. So Electric Boat is continuing to do well. They just need to continue to improve their productivity, so we can continue to offset some of these financial impacts that we're seeing from the supply chain. But I would finally mention the Navy has been a very good partner in recognizing these challenges and working hard to get orders and certainty of demand into the supply chain and that helps the entire supply chain plan. Ron Epstein: Got it. And maybe just one quick follow-on. Are we capacitized enough to meet the demand that AUKUS would require, having an extra Virginia class every three years? Phebe Novakovic: So I think we're going to look at all of that with the Navy, but let me tell you, the best thing we can do for AUKUS in the moment is get back to two-a-year production. That's one step at a time. Operator: We'll take our next question from Jason Gursky at Citigroup. Jason Gursky: I was wondering if you could talk a little bit about the G400 and how that plane seems to be performing from a market acceptance perspective and kind of the pipeline that you're seeing for that aircraft. I'm just kind of curious how that segment of your market is shaping up there as we come into the New Year. Phebe Novakovic: So the plane is performing very nicely in excess of the design parameters. We see considerable interest in that end of the market and so we are quite positive about that airplane when it enters into service. Jason Gursky: Okay, great. And then your comments on combat and the potential for some orders converting into revenue coming out of Europe in the second half of the year, that doesn't sound like it's implied in your guidance, but I'm just kind of curious that how far into the year can we go to get those orders and actually convert them into revenue? Phebe Novakovic: Well, it depends on what the orders are for. On faster transaction material like service and munitions, they can move a little more quickly. Longer lead orders on combat vehicles take a little bit longer. So we factored to the best of our ability the known demand signals and the velocity of contracting into our plan. So the extent that there is upside, it'll be I think largely on the armament munition programs that execute at a faster rate and to the extent that we can speed up even further the installation of additional jigs and fixtures for productivity as well as our increased scope on delivery of munitions, that should help as well. But we think we had -- look in all cases, we give you a very balanced I'd say, 50-50 plan with opportunities and risks and we're quite comfortable with the estimates that we've given you at the time. Operator: We'll go next to Davis Strauss at Barclays. Davis Strauss: Phoebe, any thoughts on how the budget process for '24 might actually play out here given that we're quickly approaching, the potential for a sequester? Phebe Novakovic: So we have factored in all known funding into our plan and should we see an extensive and continuing resolution, we'll have to see what impact that has on our faster transaction businesses because every CR plays out a bit differently and to the extent that we have a sequester then we have factored some of that, but apparently, clearly you can't do all of it into your plan. So we'll adjust accordingly, but we are hopeful that the Congress is able to pass a critical defense bill, particularly in these times given the threat environment. Davis Strauss: Okay. Jason, I wanted to ask about free cash flow and capital deployment. Maybe help with some of the big movie pieces, obviously inventory was a big drag, but advances helped a lot. Your cash taxes have been really high. How do those all factor in, in '24 and I assume your guidance includes nothing as usual for capital deployment. How should we think about that given you have very little in maturities this year? Thanks. Jason Aiken: Yeah, so when you think about free cash flow, we are anticipating to continue in the 100% conversion range in '24 and beyond. Obviously, we outperformed that a bit in 2023, but that doesn't affect what we expect in '24. So, the good news is a lot of the larger scale moving parts around cash flow are starting to settle down a little bit. We've experienced some big headwinds and then some corresponding tailwinds over the past several years, but right now if you look ahead, I think you can expect for the aerospace group a fairly steady conversion at or slightly above 100% conversion. When you think about it, we got a pretty big tailwind when they were building the significant backlog over the past few years and all the deposits were coming in. So that more than offset any effective inventory build. So as you transition into a period where you're starting to deliver off that inventory, but then you assume a steady one-to-one book-to-bill, you should be in a pretty regular burn rate at 100% conversion plus or minus for that business. Combat systems, on the other hand, should continue to see tailwinds as they work through some of the receivables and work in process on the international programs that we've made some great progress on in recent years. So that'll continue for a couple of years. The technologies group is a steady provider, well above 100% conversion and the marine systems group, as we noted, is still finishing up some of the large capital projects. We're coming through that now and we'll see what the future holds as Phebe alluded to in terms of Navy investment. But when you kind of net all those together, we're right about 100% for the coming year. If you look at capital deployment, as you noted, there's not a lot in terms of commitment. We've got $500 million in notes that mature out in November of this year. So we've got plenty of time to kind of see how things play out and decide what we want to do with that maturity. No rush on that decision and we'll look at all options as we always have. I think we've got great opportunity for stepped up share repurchases as more, I should say, as uncertainty sort of moves out of the environment. We looked at the last half of last year, the last quarter of last year, and the significant threat of a government shutdown sort of hung over the environment and that factors into our thinking as we think about how we preserve cash and deploy capital. So if we can get past that in March, then I think it provides a lot of optionality for us as we look ahead on the capital deployment front. Phebe Novakovic: If you think about it, the demand signals we see and our expected growth make share repurchases increasingly compelling. Hey, one thing that Jason talked about, just mentioned tangentially, and I want to focus a little bit on and just give you guys some perspective, when we talk about a one-to-one book-to-bill in our businesses, that's really for planning purposes. It's not a forecast. So just keep that in mind. Operator: We'll move next to Sheila Kahyaoglu at Jefferies. Sheila Kahyaoglu: Good morning, Phebe, Jason. Thank you for the time. Phebe, great color on Gulfstream. You gave some numbers around the loss of revenues and profit that slipped into '24 from the G700, which would imply, north of 20% margins for the G700, and given you have quite a few built up already, any color you could give on profit profile of the G700 relative to maybe the G650 and the G500 and 600? Phebe Novakovic: Hey, can you repeat the last part of your question? It was kind of coming in. Sheila Kahyaoglu: Sure, sorry. It was more just the profit profile of the G700 relative to G650 and the G500 and G600 as it entered service, just because you gave the revenue. Phebe Novakovic: Yeah, the G700 comes in at accretive margins, but as you all know, and many of you are quite expert in this, we've talked about over the years, including on this call, the margin performance at Gulfstream is driven by a host of issues and as I noted in my remarks, mix, pricing, out of station work, all impacted. So I think, again, as I mentioned earlier, the way to think about our plan is a really balanced plan. Not quite the question you asked, but I'd stick with that and I'd think about it that way. But these new airplanes are coming in at very nice margins. Sheila Kahyaoglu: Okay, and then if I could ask one more on the defense side of the business, just given a lot of what your peers are talking about as well, and you have pretty robust demand in Marine and combat, but earnings growth tends to be below revenue growth. So just given inflation and mix, how do you think about GD's ability to continue to grow defense profits? It seems like combat is seeing some of that. Phebe Novakovic: Combat is seeing some of it, but I tried to give you some perspective earlier on the impacts of what happened to the industrial base in the Marine group, and it also impacted Gulfstream as a result of COVID. So for us, it's really a question of operating excellence, operating excellence, operating excellence. We're going to focus on that very heavily. So we drive increased profitable growth. That's the value proposition that we're looking at right now. Operator: We'll move next to Seth Seifman at JP Morgan. Seth Seifman: Okay, thank you very much, and good morning, everyone. I wanted to start off asking about combat and just the 3% growth guide. I guess even if we adjust for some seasonality, I might have thought that the activity levels that we're seeing here in the earlier, what we saw in the second half of '23 would lead to some really quite robust growth in the first half, perhaps even double digit, and then being at 3% would imply something like flat or down in the second half. Am I not thinking about that cadence properly, or is there some reason for the growth to really step off or come down in the second half? Phebe Novakovic: No, I wouldn't look at anything macro with respect to that. In a quickly growing environment, contracts tend to come in a little bit more lumpier, and so this is simply a question of timing. I think we see mid to upper single digits over and toward the higher upper single digits over our planned period, but we've given you the plan that given the faster execution of contracting that we saw last year, we may have a bit of a slowdown in the first couple quarters and then acceleration as the year goes on, but the demand is there. Seth Seifman: Sure, sure. Okay, excellent. And then on aerospace, I guess it's probably about two years ago that you gave us a multi-year look at the aerospace business and the expectations there as the demand started to gather. Since that bunch of stuff has happened, I think demand has probably been a little stronger than expected. We've also seen some supply chain issues, some certification pushouts. As we think about a multi-year outlook for aerospace in terms of deliveries and profitability, is that something you can update at this time? Phebe Novakovic: Yes, so we're going to deliver 160 airplanes that's in our plan this year. I will say that '25 will be more deliveries and '26 even more deliveries, but at this point given the issues that you mentioned, we're not going to be any more granular than that. We owe you additional fidelity as time goes on. Operator: Our next question comes from Noah Poponak at Goldman Sachs. Noah Poponak: Hey, good morning, everyone. Phebe, maybe just following on that, but a little bit bigger picture, I was curious to hear you talk about how you're managing supply versus demand in this pretty unique business jet market because if you go to $12 billion in revenue, that's run rating $3 billion a quarter and based on the change in backlog, I know that's imperfect, but directionally, the order rate had made it to $3 billion a quarter, but it's now slowed a little bit and we're trying to figure out where this market settles out. And so you want to get customers airplanes and you want to grow, but I know you also want to maintain backlog and that you're more focused on pricing and margins than units and so if you're going to $12 billion and then as you just said to Seth, you're going to go higher, I guess you'd be burning backlog. So how do you think about managing that multi-year supply versus demand in that market? Phebe Novakovic: Well, look, I don't see us particularly burning through backlog given the robust backlog we have and given the robust pipeline that we have. We're off to a good start this year. So I don't see anything that particularly drives an unhealthy burn through the backlog. We have believed for some time and it is turning out to be the case that new clean sheet airplanes drive incremental demand and we're certainly seeing that and we don't see much of an abatement in that. Noah Poponak: Okay. So it sounds like you potentially expect the quarterly order rate to pick back up moving forward as your new airplanes are more entrenched in the market? Phebe Novakovic: Well, look, our order rate has been quite healthy and quite wholesome and we would expect additional orders supported by the pipeline to come in this year. So we're not going to give you any real granularity around orders per quarter, but we see nice demand, continuing interest, and a very solid pipeline. To me, those are the sort of foundational elements that we rely on for looking on a going forward basis, looking at what production can ultimately be. Operator: We'll move next to Cai von Rumohr at TD Cowen. Cai von Rumohr: Yes, thank you very much, Phebe. Good, good numbers. So Gulfstream, two issues. First, you mentioned the Hamas attack and the impact on the G280. Maybe tell me the status of that and what that means in terms of your ability to get deliveries. And secondly, I think the bigger question is, by my quick math, it looks like your guidance for '24 implies an 18% incremental margin at Gulfstream, which seems low given the good margins you should be getting on the G700. Phebe Novakovic: Okay. Right. So look, let's agree that we shouldn't in any given moment infer something from an implied margin. I think as you know probably better than most that the margin performance in any given quarter is driven by a myriad of factors that we have gone over multiple, multiple times and I think in this environment where we are encouraged by the supply chain, but we've got more ways to go, we think that we have given you a very, very balanced plan and I really stick to that plan. That's how I think about it. With respect to the G280, we have properly adjusted our plan to deal with the realities of what they are facing there. They are continuing to perform with retirees and management and as I say, we factored all of that into our expectations for the year. Cai von Rumohr: So is that, I still don't quite understand, the 18% margin, is that sort of a P&L drag, the fact that there's -- they can't get enough or the timing? Phebe Novakovic: I wouldn't say it's a P&L drag. It's just a reality of the multiplicity of factors that are impacting us. '24 is a pivotal year. We saw a significant improvement in the supply chain during the course of the year that frankly allowed us to increase production in the latter half of the year. If you recall, we were delivering between 24 aircraft and 25 aircraft and we delivered 39 aircraft in the fourth quarter. That makes us pretty optimistic that we can continue to increase production, but we are cautious about the ability of the supply chain to keep up. All indicators are that they're doing quite well, but this is one step at a time and there's more risk. As I say, we're optimistic, but we've got a ways to go. Operator: We'll move next to George Shapiro at Shapiro Research. George Shapiro: Just following up a bit on Cai's question, the incremental margin was like 38% here in this fourth quarter, which is pretty extraordinary. So, what changes to really knock that down to the point that Cai's comment? Phebe Novakovic: Hey, you guys are reverse engineering incremental margin and it's almost impossible to deal with in the complexity of this business. I would infer nothing from it. Look, let's talk about the underlying capabilities. Gulfstream has a lot of operating leverage. They've always been a good since we acquired them at GD years ago. They have been strong operating performers, with very good margin performance and gross margins coming out of their operations. That won't change, but the mix of business, the level of any given quarters, timing around supply chain and its impact on out-of-station work and mix of service, jet aviation, all of those things are contributing. So, there is nothing systemic other than those issues that you know, and they are temporary and we will work through the supply chain issues, but there's nothing systemic that should concern you about where we stand on Gulfstream and its ability to increase margins, earnings and revenue over time here. George Shapiro: And one for you, Jason. The unbilled receivables were down like $450 million in the quarter. Is that just Ajax catching up? Jason Aiken: It's a little bit Ajax and it's a little bit of the ongoing payments on our other large international program of combat systems. Those are the two big pieces. Yes, George. Operator: We'll take our next question from Robert Spingarn at Melius Research. Robert Spingarn: Phoebe, Phebe the marine guide implies about $340 million in sales growth and in the past, you've talked about Columbia driving $400 million to $500 million of growth per year. So, could an economic price adjustment for Virginia-class be a meaningful source of sales and operating income for Marine in 2024? Phebe Novakovic: Well, EPA adjustments can always be a good source of income. Look, I think the way that we've always talked about Marine growth being somewhat lumpy, $300 million to $500 million in any given year, but in the next two years, we expect between $600 million and $1 billion in per annum growth. So the growth is there. It just comes in on a lumpier basis than one might want, but it is there. So with respect to Virginia and any EPA adjustments, we're continuing to work with the Navy. We had contemplated the impact of Columbia prioritization, as had the Navy, on Virginia and that's just a work in progress as we work through all the particulars with the Navy, but we think we've given you a pretty good indicator of this year's revenue and we'll adjust it accordingly if anything changes on the upside. Robert Spingarn: So just to be clear, there's nothing in there for an adjustment yet? Phebe Novakovic: No. I think it's premature to put numbers in before you've got an agreement with your customers. Robert Spingarn: Fair enough. Thank you. Phebe Novakovic: And Audra, I think we have time for just one more question. Operator: Thank you. We'll take that question from Peter Arment at Baird. Peter Arment: Yeah, thanks. Good morning, Phebe and Jason. Hey, Phebe, maybe just to add and just speak on Marine, you've given us a lot of details on what some of the pressures were, but we've seen throughout the industry, the Defense Production Act has been used to kind of improve some capacity at rocket motors and munitions. Is there an opportunity? I know the Navy's a really good partner and customer. Is there an opportunity for to get some relief and free up some additional resources for you at the yards? Phebe Novakovic: So we have been pretty well resourced by the Navy and for many, many years in anticipation of particularly the Columbia and Block 5. So I think from our perspective where we really need some assistance and continued assistance from the Navy is stabilization of on-time delivery and quality coming out of the out of the supply chain. So I think that as we go through this year, I'm sure there'll be additional opportunities for us to work with the Navy and find some ability to relieve those pain points that remain in the supply chain. Peter Arment: Appreciate the color. Thanks, Phebe. Phebe Novakovic: Hey, and listen, before we leave, I just wanted, this is for many of you may know, this is Jason's last earnings call, and I wanted to thank him for his excellent years of service as a CFO. He will be missed, but his work will continue at Technologies. So I'm sure all of you will join me in congratulating Jason on a superb CFO job well done over the years. Nicole Shelton: Okay. Well, thank you all for joining our call today. As a reminder, please refer to the General Dynamics website for the fourth quarter earnings release and highlights presentation. If you have any additional questions, I can be reached at 703-876-3152. Operator: And this concludes today's conference call. Thank you for your participation. You may now disconnect.

Operator: Ladies and gentlemen, good morning and welcome to the General Dynamics third quarter 2023 earnings conference call. All participants will be in a listen-only mode, and please note that this event is being recorded. After the speakers’ remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star, one a second time. Thank you, and I would now like to turn the conference over to Nicole Shelton, Vice President of Investor Relations. Please go ahead. Nicole Shelton: Thank you Operator, and good morning everyone. Welcome to the General Dynamics third quarter 2023 earnings conference call. Any forward-looking statements made today represent our estimates regarding the company’s outlook. These estimates are subject to some risks and uncertainties. Additional information regarding these factors is contained in the company’s 10-K, 10-Q, and 8-K filings. We will also refer to certain non-GAAP financial measures. For additional disclosures about these non-GAAP measures, including reconciliations to comparable GAAP measures, please see the press release and slides that accompany this webcast, which are available on the Investor Relations page of our website, investorrelations.gd.com. On the call today are Jason Aiken, Executive Vice President, Technologies and Chief Financial Officer, and Bill Moss, Vice President and Controller. With the introductions complete, I’ll turn the call over to Jason. Jason Aiken: Thank you Nicole. Good morning everyone and thanks for being with us. The first thing I’ll note is that our Chairman and CEO, Phebe Novakovic, is under the weather today, so I’ll be conducting today’s call along with Bill. Earlier this morning, we reported earnings of $3.04 per diluted share on revenue of $10.6 billion, operating earnings of $1.06 billion and net income of $836 million. Revenue was up $596 million or 6% against the third quarter last year. Operating earnings were down $41 million or 3.7%. Net earnings were down $66 million and earnings per share were down 6.7%. The quarter-over-quarter results show significant growth in revenue but a 100 basis point contraction in operating margin. On the other hand, sequential results are quite good across the board. Here, we beat last quarter’s revenue by 4.1%, operating earnings by 9.9%, net earnings by 12.4%, and EPS by 12.6%. From a different perspective, we beat consensus by $0.13 per share on higher revenue and better operating earnings than anticipated. Operating margin is about the same as expected. The beat came almost entirely from operations. On a year-to-date basis, revenue was up 7.2%, operating earnings were down less than 1%, and diluted earnings per share were down 2.6%. We had another very strong quarter from a cash perspective. Net cash flow provided by operating activities was $1.32 billion and free cash flow was $1.1 billion, which is 131% of net earnings. This follows very good cash performance in the first half. Order performance was good in the quarter in all segments and particularly strong at Gulfstream and the marine segment. You’ll hear more detail on cash and backlog, as well as some of the other financial particulars from Bill in just a minute. In short, we enjoyed a strong quarter, particularly so in light of the supply chain and program mix headwinds that time will cure, so let me move right ahead with some color around the performance of the business segments. First, aerospace. Aerospace had revenue of $2.03 billion and operating earnings of $268 million with a 13.2% operating margin. Revenue was down $315 million from the year-ago quarter, driven by fewer deliveries at Gulfstream due to supply chain constraints. Operating earnings were down $44 million on lower revenue and a 10 basis point contraction in margin. The sequential comparison is much better - revenue was up $79 million or 4%, and operating earnings were up $32 million or 13.6% on 110 basis point improvement in margin. There were 27 deliveries in the quarter, three more than in the second quarter. To provide some additional color here, Gulfstream has made 72 aircraft deliveries through the end of the quarter. We are on track to deliver between 40 and 45 currently in-service aircraft in the fourth quarter. All-in including G700s, we anticipate in excess of 60 deliveries in the quarter, assuming we’re granted FAA certification before the end of the year. That said, as you can tell, there’s a considerable amount of uncertainty as we get closer to certification. Moving to the demand environment, this was yet another positive quarter reflecting continuing strong demand. Aerospace book-to-bill was 1.4 to 1, and Gulfstream alone had a book-to-bill of 1.5 to 1. We continue to have vibrant sales activity going into the fourth quarter and expect strong orders. It would, however, be a stretch to get to 1 to 1 in the fourth quarter, given our expectation of over 60 deliveries. A wildcard in the quarter will be the conflict in Israel and its impact on demand, if any. The period of significant increased aircraft demand began in mid-February of 2021, over two and a half years ago. In 2021, Gulfstream’s book-to-bill was 1.7 to 1, in ’22 it was 1.5 to 1, and year-to-date 2023 it’s 1.3 to 1. This includes the first quarter of 2023, when there was a three-week hiatus in orders as a result of the failure of several regional banks. In that quarter, we still managed a 0.9 to 1 book-to-bill. All of this leads quite naturally to an astonishing build of the aerospace backlog. It grew from $11.6 billion at the end of 2020 to $20.1 billion at the end of the third quarter 2023, an increase of over 70% in two and three-quarter years. This all speaks to me of the underlying strength of the market for our products. The G700 flight test and certification program continues to move closer to its ultimate conclusion. We continue to plan for certification in the fourth quarter of this year, largely dependent upon the availability of FAA resources and a credit the FAA may allow for company flying. We currently are spending most of our engineering time on final reports and data submission. Operationally, Gulfstream continues to make good progress under difficult circumstances, but as a result of the supply chain issues that we’ve previously discussed, we plan to deliver 10 to 12 fewer aircraft this year than the 145 we had originally forecast in the beginning of the year. On the other hand, we continue to expect more service revenue than initially predicted. Next, combat systems. Combat systems had revenue of $2.22 billion, up a stunning 24.4% over the year-ago quarter with growth at each of the business units, but particularly at OTS and European land systems. Earnings were $300 million, which was up 10.7%. Margins at 13.5% represent 170 basis point reduction versus the year-ago quarter, so once again we saw powerful revenue performance coupled with more modest operating margins in large part attributable to mix and new program starts. Some of our revenue increase is a result of facilities contracts to increase our artillery production capacity taken at lower margin. As you’d expect, these contracts will result in additional production at accretive margins over time. On the subject of munitions, we’re working very closely with our government customer and have accelerated production faster than planned. The large capacity expansion that we’re putting in place today will further increase production. We have a ways to go, but we’re making progress. The increase in combat revenue also came from new international vehicle programs, the ramp-up of the M10 Booker, higher artillery program volume, and higher volume on Piranha and Eagle vehicles in Europe. On a sequential basis, revenue was up $300 million or 15.6%, and earnings were up $49 million or 19.5% on a 50 basis point improvement in margin. Year-to-date, revenue was up $775 million or 15.1% and operating earnings were up $53 million or 7.1% over last year, so the numbers are quite impressive quarter-over-quarter, sequentially and year-to-date. Combat systems experienced very good order performance. Orders in the quarter resulted in a one-to-one book-to-bill, a very strong performance given the increased revenue and evidencing strong demand for munitions and international combat vehicles. Year-to-date, the book-to-bill is 1.3 to 1, which fully supports the growth outlook. Turning to marine systems, once again our shipbuilding units are demonstrating impressive revenue growth. Marine systems revenue of $3 billion was up $233 million or 8.4% against the year-ago quarter. Columbia-class construction and engineering drove the growth. Operating earnings were $211 million, down $27 million versus the year-ago quarter with 160 basis point decrement in operating margin. The year-ago quarter had a number of favorable EAC adjustments which did not repeat this quarter. Sequentially, both revenue and operating earnings were down somewhat. Importantly, year-to-date revenue was up $982 million, 12.2%; however, earnings were essentially flat on a 90 basis point contraction in operating margin. The real driver of the margin difficulty has been the late deliveries at Electric Boat from the supply chain, which causes out-of-station work and internal scheduling disruptions. Electric Boat has continued to improve its throughput, but not fast enough to offset the cost of late material. We continue with the help of the Navy to work this issue. At Bath, while we’re seeing signs of improved productivity, it has yet to manifest in the business’ financial performance. All that said, we’re looking for slow but steady incremental margin growth over time. Importantly, marine systems enjoyed a very good quarter from an orders perspective with a 2.3 to 1 book-to-bill. This is a very large enduring backlog. Lastly, technologies. It was another strong quarter with revenue of $3.3 billion, which is up 8% over the prior year and continues to build on the strong first half of the year. That growth was spread pretty evenly between GDIT and mission systems; in fact, each business grew both year-over-year and sequentially. At GDIT, we’re seeing particular strength in the defense and federal civilian portfolios as our technology accelerator investments and capabilities like zero trust, artificial intelligence, digital engineering and 5G are really resonating with customers and driving increased demand. At mission systems, the cyber and naval platform markets have been particularly strong. The production and delivery cadence on the hardware side appears to have stabilized, so we expect their results to be somewhat more predictable despite the lingering fragility in the supply chain that will continue to be the new normal. Based on the strength of the first three quarters, the group is on track to achieve our increased sales forecast of $12.7 billion for the year. Operating earnings in the quarter were $315 million, up 10.5%, yielding a margin of 9.5% - that’s up 20 basis points year-over-year and up 70 basis points sequentially, so a very solid performance on strong revenue growth in the quarter. This is a drumbeat we expect to see continue in the fourth quarter. Backlog at the end of the quarter was $12.7 billion. Through the first nine months, the group achieved a book-to-bill ratio of 1 to 1, keeping pace with the strong revenue growth across the business. Prospects remain strong with a qualified funnel of over $125 billion in opportunities they’re pursuing across the portfolio. Let me close with a review of the defense units in aggregate. As a whole on a quarter-over-quarter basis, defense had revenue of $8.54 billion, up $911 million or 11.9% over the year-ago quarter. On the same basis, earnings of $826 million were up $32 million or 4%. On a sequential basis, the pattern is similar - revenue was up $340 million or 4.1% and earnings were up $57 million or 7.4%. Year-to-date against the same period last year, revenue of $24.7 billion was up 10.2% and operating earnings were up $60 million or 2.6%. In short, our defense businesses are experiencing significant growth in revenue and to a lesser degree in earnings; however, we need to continue to work with our supply chain in order to achieve appropriate operating leverage. With that, let me turn it over to Bill. Bill Moss: Thank you Jason, and good morning. We had another very good quarter from an orders perspective with an overall book-to-bill ratio of 1.4 to 1 for the company. This is particularly impressive with the strong revenue growth in the quarter. Marine systems and aerospace led the way with book-to-bill ratios of 2.3 and 1.4 respectively. For the second quarter in a row, this led to record level backlog of $95.6 billion at the end of the quarter, up 4.6% from last quarter and up 7.6% from a year ago. Our total estimated contract value, which includes options and IDIQ contracts, ended the quarter just shy of $133 billion. Moving to our cash performance, this was another strong story in the quarter with over $1.3 billion of operating cash flow. This brings us to $3.5 billion of operating cash flow through the first nine months of the year. Including capital expenditures, our free cash flow was $1.1 billion for the quarter and $2.9 billion year-to-date, or 126% of net income through the first nine months. This conversion rate was achieved on the strength of the Gulfstream orders, additional scheduled progress payment on combat systems international programs, and continued strong cash performance in technologies. We are well positioned to achieve our target for the year of a cash conversion rate over 100% of net income. Looking at capital deployment, capital expenditures were $227 million in the quarter, or 2.1% of sales. For the first nine months, we’re at 2% of sales. We’re still targeting to be slightly below 2.5% of sales for the full year, so that implies an uptick in capital investments in the fourth quarter. We paid $363 million in dividends and repurchased a little over a quarter million shares during the quarter, bringing the total deployed in dividends and share repurchases through the first nine months to $1.5 billion. We also repaid $500 million of debt that matured in August and ended the quarter with a cash balance of over $1.3 billion. That brings us to a net debt position of $7.9 billion, down nearly $1.4 billion from year end. Net interest expense in the quarter was $85 million, bringing interest expense for the first nine months of the year to $265 million, down from $279 million for the same period in 2022. Finally, the tax rate in the quarter was 15.6%, bringing the rate for the first nine months to 16.2%. This is consistent with our guidance last quarter to expect a lower rate in the third quarter and a higher rate in the fourth, so no change to our outlook of 17% for the full year, which again implies a higher tax rate in the discrete fourth quarter. Now let me turn it back to Jason for some final remarks. Jason Aiken: Thanks Bill. As far as year-end guidance is concerned, we’re holding at $12.65 for the year. There will be a number of puts and takes from what we published last quarter, but it should all come about the same place. Nicole, that will conclude our remarks, so I’ll turn the call back to you. Nicole Shelton: Thanks Jason. As a reminder, we ask participants to ask one question and one follow-up so that everyone has a chance to participate. Operator, could you please remind participants how to enter the queue? Operator: Yes, thank you. [Operator instructions] We will take our first question from Peter Arment with Baird. Your line is open. Peter Arment: Yes, thanks. Good morning, Jason and Bill. Jason, it sounds like there’s just obviously a lot of moving parts for Q4 at Gulfstream. Is there a cut-off date, you know, if certification happens in December versus November, about your ability to kind of push out those deliveries, and then any commentary on just--I know you’ve had a long term forecast of 170 deliveries for ’24, whether you still think that holds. Obviously if certification slips, there would be more potentially, but maybe just some commentary there. Thanks. Jason Aiken: Yes, thanks Peter. As it relates to certification, I think what we’ve said for some time now is that if we can achieve certification in the, call it early to mid December time frame, then we’ve got a good shot at getting the planned deliveries of G700s out the door this year. Obviously if that pushes further to the right, that puts that a little bit at risk. To your point about 2024, it’s probably not appropriate to get into specifics about next year until we go through our plan period, which we’ll engage in coming up here in the next month or two, but I think the way to think about this is a lot of what we’ve been talking about this year between the supply chain challenges, as well as the G700 cert timing, is really timing issues, and to your point, to the extent some of the deliveries that we anticipated this year don’t happen, that really just pushes into next year, so that naturally is an adder to the outlook for 2024. But what we can’t do yet is declare victory on the supply chain issues and say that by early next year, they’re going to be completely solved, so a lot remains to be seen as to the timing of how that ultimately works itself out. I think it’s that that will determine the net impact to 2024, so I think a little bit more time is going to be needed to see between what pushes out of 2023 into 2024 and the timing of the supply chain fix, what the net impact is to that ’24 outlook. I think we’ll have a better sense of that when we come back to you with guidance in January. Peter Arment: Appreciate the color, thanks Jason. Operator: We will take our next question from David Strauss with Barclays. Your line is open. David Strauss: Thanks, good morning. Jason Aiken: Good morning David. David Strauss: Hey. Jason, at the beginning of the year, you guys had forecasted marine and combat to be relatively flat. At this point, we’re looking at probably double-digit growth for both of those businesses this year. Does any of that--as we start thinking about how those businesses could look next year, does any of this represent any sort of pull-forward that would potentially moderate the growth that we could see out of those two businesses next year? Jason Aiken: Yes, so I think as it relates to marine systems, David, nothing has really fundamentally changed from the narrative that we’ve talked about for some time, which is to expect roughly $400 million to $500 million on average per year, year-over-year growth in that business. Obviously this year has turned out to be quite a bit different than we originally anticipated, and that’s largely attributable to the increased throughput that we’ve seen at Electric Boat in particular as the hiring and retention dynamics have really improved faster than we thought, so that’s really driven a lot of the revenue acceleration into this year. That backlog is so large and so long term, I don’t really see that having a direct effect on next year or any given year, but obviously again we’ll have to go through the specific planning period that we’re about to engage in before we get too specific about next year, so we’ll be back with more on that, but not a direct correlation in my mind from that marine systems increase in throughput. On combat systems, to your point, we had been expecting sort of flat to down-ish revenue before the threat environment really took a turn in the opposite direction, and as you’ve seen through the first part of the year, up 15% so far year-to-date, almost 25% in the quarter - that certainly was well beyond what our original expectations were, and frankly we don’t see that demand signal slowing down. When you think about the munitions side of the business as well as the international demand we’re seeing, along with the new program starts in the U.S., I don’t necessarily see that as being a pull forward or something that creates a headwind into 2024. Again, not being specific about that outlook because we’ll get into the planning period and get back to you in January. David Strauss: As a follow-up, the IRS came out with updated guidance on Section 174 R&D. What impact does that have on your cash flow outlook? Jason Aiken: Really, nothing other than what we’ve told you before. We’ve actually been pretty consistent on this throughout the drama on this issue over the years. We didn’t originally anticipate the law to be changed, so our guidance was predicated on the law as it is. It turned out not to be changed, and our expectation of what that would mean for us, ultimately you can call it lucky or good, we expected the net impact from a cash perspective to be right on course with what we’re seeing right now. Operator: We will take our next question from Ken Herbert with RBC Capital Markets. Your line is open. Ken Herbert: Yes, hi. Good morning, Jason and Bill. Maybe just to start, Jason, again on Gulfstream. Last quarter, you called out sort of 19 as the expected 700 delivery number, depending upon cert timing this year. Is that still a number we should expect into the fourth quarter, assuming you get certification in time, and can you just comment on any potential risk around 280 production levels, considering some of the uncertainty in the Middle East? Jason Aiken: Yes, so far as the G700 is concerned, 19 is the number that we have targeted and are still striving to get to. Again, as you note, that is predicated on timing of cert. What I can tell you in terms of a little bit of color behind that is we’ve got 15 of those 19 that are ready to go and are in good shape, and we’re working toward the others, so again predicated on when the cert comes, we should be in good shape to be somewhere in that range for deliveries this year. As it relates to the 280s, what I would tell you is the modest down-tick that we--that I talked about earlier this morning in terms of our overall 2024--excuse me, 2023 deliveries, that five or six aircraft reduction from our previous guidance in July, that is largely related to G280s. I would tell you that what we planned to deliver this year, we now have in hand at our Dallas facility for completion, so there’s really not any incremental risk to 2023. We will have to see, obviously, how the events in Israel play out and what impact that may have in 2024, but a little premature to get into that at this point. Ken Herbert: Okay, great. Thanks Jason. Jason Aiken: You’re welcome. Operator: We’ll take our next question from Robert Stallard with Vertical Research. Your line is open. Robert Stallard: Thanks very much, good morning. Jason Aiken: Morning Rob. Robert Stallard: Jason, on the supply chain, maybe I’m just reading too much into this, it sounds as if it actually got a bit worse than what you talked about last quarter, so I wonder if you can elaborate on what you’ve been seeing, whether there are any specific pinch points that are causing you trouble. Jason Aiken: Rob, I’m going to guess you’re talking about supply chain in aerospace, and if so, I would tell you that actually we’re seeing modest signs throughout the quarter that things are actually getting better. It’s not, as you’d imagine, a straight line to the finish line on this issue, so there will be some bumps in the road and some curves along the way, but things are starting to trend better. What we saw here was a specific issue in terms of, as I mentioned, G280s in terms of the reduced in-service aircraft production, but on the large cabin aircraft, we are starting to see things trend in the right direction, so I think it’s a little bit maybe in the other direction of what your intuition is pointing you to. Robert Stallard: Okay, good to hear. Just as a follow-up, I was wondering if you could elaborate on where you stand on supply chain in, I think, mission systems had a few issues, and also in the labor situation at marine, that that seems to have improved. Jason Aiken: Sorry, it broke up there, Rob, at the end. You said mission systems supply chain and then labor--? Robert Stallard: At marine. Jason Aiken: Oh, labor at marine - okay. On the mission systems side, I feel very good about what they’ve done. The supply chain, to be completely candid with you, remains, and I think we expect it to remain what I’d call fragile. I don’t think that that’s going to get back to what we saw pre-pandemic for the foreseeable future, but the fact is the team at mission systems has fully incorporated that new reality into their outlook, and so I expect their future to be a lot more stable and predictable as they’ve incorporated the new normal, if you will, on supply chain on the electronic side for them. In terms of the labor side on marine systems, as I mentioned earlier, I think we’ve seen stabilization in both attraction and retention of labor in the shipyards at a faster rate than we anticipated, so that’s an encouraging sign. That drives the throughput in the yard, and over time as those new shipbuilders become more tenured, more experienced, more proficient, we would expect at that point, that’s one of the factors that will really drive over time the margin improvement in the shipyard, so it’s an encouraging start for them. We’ve just got to see that play out, because as you know, shipbuilding is a long term venture. Operator: We will take our next question from Scott Deuschle with Deutsche Bank. Your line is open. Scott Deuschle: Hey, good morning. Jason Aiken: Morning. Scott Deuschle: Jason, can you walk through some of the high level puts and takes for aerospace incremental margins next year, and I guess maybe to ask another way, are the right things to focus on from our perspective the G700 mix, less out-of-sequence work, the learning curve on G700, and then presumably R&D either leveling off or coming down, or is there anything else here that we should be considering? Thank you. Jason Aiken: I’d say you nailed most of the high level items there for next year, and again the G700 is a bit piece of it. Obviously we’ve talked about how that will come into service with favorable entry level margins, accretive entry level margins for the group, so that’s a big driver. I think the other major one, and you alluded to it, really is the resolution and straightening out of the supply chain issues. One of the things Gulfstream has really worked towards here and planned towards, I think very effectively and we’ll see it over time, is driving the efficiency of the operation with this new family of aircraft. Between the facilities that have been built, the commonality between the airplanes, the ability to service those airplanes efficiently, that is really what we are driving towards and one of the major underpinnings behind the long term trajectory back to the mid to high teens margins for that group. Obviously timing of when those things get straightened out in the supply chain will be important, because that’s really what’s sort of inhibiting us getting to that point of efficiency. We will see a little bit of modest down-tick in R&D - I wouldn’t call that a major factor, but you should expect to see that tick down a little as we finish up the 700 this year and get through the 800 next year, but again, have 800 and 400 to go, so we’re not out of things yet from an R&D standpoint there. Those are the major puts and takes, I’d say. All in all, we would expect to see revenue--or excuse me, margin continuing on its trajectory again toward that mid to high teens rate. We’ll see improvement here in the fourth quarter, and I expect to see good improvement in 2024. Scott Deuschle: Okay, great. Then as a follow-up, are there any major company-funded growth capex projects still underway in ’24 and ’25, or is most of that complete this year? If it does complete this year, does the nearly billion dollars of capex included in current Bloomberg incentives for ’24 and ’25 make directional sense, because that’s basically still in line with ’23, I think? Thank you. Jason Aiken: Yes, the major internal capex projects are done this year. We’ve got a little bit of trailing cost and activity going on in the shipyards as we finish out that capacity expansion, particularly at Electric Boat, but that will wrap up next year. The investments we’re making on the Army side from an artillery perspective, that’s being funded by the customer, and so bottom line, we ought to see our capex level trend back towards 2%. We’ll be below 2.5% this year, which is directionally headed the right way, and we’ll be back toward--if not at 2%, headed toward 2% next year. Operator: We will take our next question from Kristine Liwag with Morgan Stanley. Your line is open. Kristine Liwag: Hey, good morning Jason and Bill. Maybe first on the president’s $106 billion supplemental request, it includes $3.4 billion for the submarine industrial base. With this request out there now and with respect to AUKUS, can you talk more about what this means for GD? Does this change timing at all? Jason Aiken: Bottom line, Kristine, I think the short answer is no. Obviously any additional support that can be provided in terms of that supplemental or other funding to shore up the industrial base is helpful. There’s a lot of talk around AUKUS and obviously we’re going to do everything we can to support our customer in that regard, but the fact is this supply chain still remains very fragile. We’ve got a lot of work to do to get this whole industry back to--from a submarine perspective, back to two per year. We’ve got to get to that point on Virginia while delivering Columbias, and I think we’ve got some more work to do to get there, and so any additional funding and support, whether it’s through the supplemental or other Navy support, would be extremely helpful, but that’s our focus today, is to get to that two per year plus Columbia, and then we’ll look to AUKUS beyond that. Kristine Liwag: Following up on your comments on the fragile supply chain, has there been changes in your contracting terms with the customer to reflect this, and how do we think about long term margins? Jason Aiken: I think the main way this has been reflected in our contracting with the customer is to recognize the impacts that we’ve had and to price that in, and accommodate what is this current state of affairs in our contracting. One example of that is the DDG multi-year that we just saw awarded in the quarter - we feel like that’s been appropriately considered there, and we’ll continue to consider the state that the industry is in as we go forward. I wouldn’t point to necessarily any other macro or overarching contract structures or other terms that have changed. In terms of margins, we expect them to get better, frankly. My expectation is that this quarter would be the trough for the group. We expect to see improvement in the fourth quarter and we expect to see modest sequential incremental improvement over time in this group. That said, this is a challenging task. Shipbuilding is a challenging endeavor and so it’s not going to be straightforward, but our expectation, to be completely straightforward, is to have gradual increasing margins in this group over time as we march back toward that 8% to 9%-plus margin range. Operator: We will take our next question from Seth Seifman with JP Morgan. Your line is open. Seth Seifman: Hey, thanks very much, and good morning everyone. Maybe just a follow-up on that last topic. The Q3 margin in marine, similar to Q1. In Q1, we know there were some charges on Virginia, I believe Block 4 and Block 5. Were there significant negative EACs on Virginia in the third quarter that drove the margin that we ended up seeing, and I guess any--I know you talked about supply chain at Electric Boat, but any additional color about what assumptions have really changed there, and with the new assumptions, how that affects your ability to expand margins? Jason Aiken: In the quarter, Seth, nothing material in terms of EACs in the quarter. What you’re seeing there, obviously we are still experiencing pressure from delayed material coming out of the supply chain that’s affecting Electric Boat’s schedule and delivery and man hour in the yard. But the other implication that you’re seeing is having reduced the margin rates through the earlier EAC adjustments, we’re now seeing the aggregate impact of that in the booking rates that we are recognizing on the programs today, so it’s sort of the aggregate confluence of all those factors are driving the margin rate that you see in the quarter. But again, as we start to continue to improve the throughput and improve the efficiency in the yards, we do expect to see incremental improvement in the margin, starting in the fourth quarter. In terms of supply chain changes, I don’t know that it’s anything changing. I think it’s as we go to contract, we have 2020 hindsight, or full visibility if you will, into the current state of affairs, and so we’re working through that with our customer and they understand the situation we’re in, so we’re basically incorporating the current state of the supply chain, as well as the implications of increasing cost of skilled labor as you’ve seen with a lot of the labor negotiations going on out in the market. It’s those types of factors that are being incorporated, that we’re putting into the new contracts and that we feel like will put us in a good position to perform from a margin perspective as we look ahead. Seth Seifman: Okay, okay, thanks. Then just for clarification, when you talked about at the overall company and despite some changes, the EPS outlook being unchanged, was that sort of--that was based on that new Gulfstream delivery outlook that you talked about with the 60-plus in Q4. If the G700 wasn’t to be certified this year, I assume that that’s kind of a different story, and what’s the last date roughly that you could see that certification happen and still deliver, I don’t know, double-digit G700s? Jason Aiken: Yes, so the EPS reaffirmed at $12.65 is based on the updated Gulfstream delivery number that I mentioned earlier. As I said, that’s mostly--the reduced number from the July outlook is mostly associated with G280s, so not as significant an earnings impact to that. As you can imagine, some puts and takes, none of which are particularly material, across the rest of the portfolio, including some upward pressure across the defense businesses from a revenue perspective, as you might imagine, improved, customer service revenue at the aerospace group and so on, some below-the-line things like lower interest expense and share count, net-net kind of putting us in the same place, so that’s sort of why the guidance stays where it is. In terms of the 700 outlook, I think the key issue is, and the question so many people around why the uncertainty, is we don’t have a date certain. This is the FAA’s process. We need to let them go through that process. We are supporting them in that process. They’re going through flying now and we’re doing the necessary paperwork and reporting to support that, and so we have a path, we have an expectation to get there in early to mid-December, but there’s not a red line or a date certain on the calendar that we’re looking at, at this point. Operator: We will take our next question from Doug Harned with Bernstein. Your line is open. Doug Harned: Good morning, thank you. Jason Aiken: Morning Doug. Doug Harned: I wanted to go back to marine because when you look at Electric Boat, and your backlogs have been--have built way up, as you mentioned, the Navy wants to be at two VCS deliveries per year, can you describe, like, what scenarios you can even look at here? I mean, my understand it’s about 1.2 now, it’s way off what clearly Congress wants, what the Navy wants. Are there scenarios that you think about in terms of how soon in a good situation we might get to that two per year, or what would be a negative scenario? What’s the range of outcomes here? Jason Aiken: No, you point out the landscape appropriately, Doug. I think the way I think about that is prior to COVID, if you look at the couple quarters leading up to 2020, we were--as a team, we were right on the threshold of getting to two per year on the Virginia-class program, so it is imminently doable in terms of the industrial base and the team that’s working that program. Obviously COVID set us on our heels, as well as the generational changeover in shipbuilders in terms of retirements and new hires. I think the way to think about that now is there’s a number of factors that are going to help us get back to that point. One is, again, the maturing and tenuring of that new workforce to get the efficiency in the workforce, to get us back to where we were. The investments that the Navy is making in the industrial base, which are extremely helpful to stabilize that, and then other initiatives like what we call strategic sourcing, where we’re trying to take bottlenecks out of the shipyards and move subsystem construction and capacity into other facilities and other yards around the country, so that we can take some of the pressure off of the two main production and assembly yards. Those are the types of things that are going to drive us back toward two per year. I’d be remiss to try and give you a timeline on when it’s going to be to get there - this is long term, challenging stuff, but I think with us and our partner and the Navy all working in the same direction and in a very strong partnership, I feel optimistic about our path to get there. Doug Harned: Then as a follow-up, if you add one more factor into this, which is Columbia class, obviously in a very different stage in the program, but also you’ve got an overlapping supply chain. How does progress on the Columbia class right now look, and how does that affect your ability to push forward on this VCS ramp? Jason Aiken: Yes, Columbia, as you know, is the Navy’s and the DoD’s number one priority, so that’s going to continue to be the case. I don’t see that being a trade-off necessarily to get to two per year for Virginia. Right now, we’re a little over 40% complete on the first boat, and we’re right on schedule for the targeted completion of that first boat. We’ve still got obviously about four years to go before delivery, so a lot of the way to go and a lot can happen between now and then, but all the resources that can be brought to bear are on that priority. I think the way to think about it is because of its priority position, it is essentially a headwind to those other factors that I gave you about what we’re trying to do on Virginia class, and we’ve got to be able to manage both of those within the yard and within the team arrangement and with our customer, but those are some of the puts and takes. Columbia will be the priority, and it’s our job to make Virginia happen notwithstanding that priority. Operator: We will take our next question from Cai von Rumohr with TD Cowen. Your line is open. Cai von Rumohr: Yes, thank you very much, and good quarter. Jason, you said you’re still looking for 12.7 in technologies, but when I look at all of your defense numbers, you really beat in revenues across the board, so maybe if you can--you know, if I look at where the model was before, it looks like we have a softer fourth quarter to get us home, but that doesn’t seem realistic given the spectacular revenues you had here in the third quarter, so maybe update us, if you could, on where you’re looking for revenues in each of the defense sectors for the year, and should we feel a bigger step-up next year? Jason Aiken: I think the way to think about the fourth quarter, Cai, is as I alluded to earlier, there is obviously some upward pressure on the revenue on the defense side, nothing to get too specific about and I don’t know that it’s particularly material with just a couple months to go here in the year. But one way to think about this is this year, let’s talk group by group, in technologies you may remember, last year we had a significant surge in the fourth quarter because we had had a big back-up on the supply chain side at mission systems through the third quarter, and a lot of that flowed through in the fourth quarter, so really a big hockey stick or upswing in the fourth quarter. That’s not the pattern this year. As I mentioned before, they’ve been on a more regular order and a more regular drumbeat, and so we’ll see a more steady state revenue pattern for technologies in the fourth quarter. In combat, likewise it’s historically for some time now been the traditional seasonal pattern for combat to rise throughout the year and have its biggest quarter in the fourth quarter, and we saw that again last year. In this case in 2023, it’s a much more steady drumbeat - again, steady demand, strong volume, but not the traditional seasonal fourth quarter uptick in combat. In marine, again we’ve already seen tremendous volume well in excess of our expectations. We’re up a billion dollars almost through the first nine months, which is roughly what we expected for the year, so again I’d say more stable quarter to quarter. To summarize, we’re seeing more stable volumes across all three of the defense segments from first quarter to fourth quarter, whereas in the past they’ve risen from first to fourth, so a little bit of an aberration in the pattern. I do expect--again, not to get ahead of the planning process we’re going through, but I expect each of the businesses to show growth going into next year. Can’t get too much more specific about that at this point, but you should see growth in the defense business across all three of the segments going into 2024. Cai von Rumohr: Very helpful, and then maybe a quick comment on Israel - Hamas has created additional demand, we have this $106 billion request from the President. Can you give us some general color in terms of areas where you think you could see incremental acceleration in demand? Jason Aiken: You know, the Israel situation obviously is a terrible one, frankly, and one that’s just evolving as we speak. But I think if you look at the incremental demand potential coming out of that, the biggest one to highlight and that really sticks out is probably on the artillery side. Obviously that’s been a big pressure point up to now with Ukraine, one that we’ve been doing everything we can to support our Army customer. We’ve gone from 14,000 rounds per month to 20,000 very quickly. We’re working ahead of schedule to accelerate that production capacity up to 85,000, even as high as 100,000 rounds per month, and I think the Israel situation is only going to put upward pressure on that demand, so that’s the biggest stick-out that I can see. Nicole Shelton: Abbie, I think we have time for just one more question. Operator: Excellent, thank you. We will take our final question from Ron Epstein with Bank of America. Your line is open. Ron Epstein: Hey, good morning. Jason Aiken: Morning Ron. Ron Epstein: Maybe just two. On land systems, given truly the surge in demand relative to where everybody thought it would be, from a capacity point of view, from a labor point of view, how are you guys set up there to handle it all? Jason Aiken: You know, I have to give a hand to the guys in the combat systems group in general, and land systems specifically. You’ve really not heard us talk about supply chain bottlenecks, labor capacity or other issues in that group, and that does not mean they have not faced them, they are just--they stand out amongst even a spectacular crowd in the way they’ve handled it. I don’t have any expectation that we’ll see any issues as we look ahead, even as the demand for their product, both domestically as well as internationally, continues to grow. Ron Epstein: Then maybe just changing gears a bit, nobody really asked a heck of a lot about GDIT. Jason Aiken: Thank you for that - finally! Ron Epstein: Let’s talk about that, it’s a big piece of the company, right? You know a lot about it in particular. When we think about a path to double-digit margins, how do we get there, and then maybe from an operational point of view, why does not integrating mission and GDIT together kind of make sense, because there’s this bigger demand for software-driven solutions and software and hardware, and you’re seeing this synergy coming out particularly with the application of AI to legacy systems, and so on and so forth. Jason Aiken: On the margin side, just to be clear, as I think about double-digit margin for the group, not specifically GDIT - it’s the mix of the two of them together, I absolutely expect this group to be on the march back to low double-digit margin. It’s where they’ve been historically. I think if anything I could articulate as a headwind to that, it’s to the extent that the GDIT side grows faster than the mission systems side, that obviously creates a bit of a macro mix issue that could be a little bit of a headwind in terms of how long it takes us to get there. But frankly, I expect to see us get back into the double-digit margin range here in the fourth quarter, and we’ll see how quickly we can get there in the outlook as we look at ’24 and beyond, but I do expect them to get back on the trajectory toward low double-digit margin. In terms of integration, the way we see this is while they’re very symbiotic businesses and they are dealing with a market that’s dealing with a convergence, to your point in terms of their capabilities, we think that having them separate is appropriate because the investment thesis and the way you run an inherently people business versus an inherently technology development, hardware and production business, are fundamentally different and take different leadership, different priorities and sort of different investment theses. The good news is that by having them together in the same group and in a coordinated way, we are making investments and addressing the evolving technologies jointly as a group, and we are making sure we are being efficient at that and effective at that, not duplicative, not missing anything, and bringing the requisite skills, to your point, from end to end, whether it’s the hardware side, the services, the software capabilities, solutions as a service, software services and so on, together in joint capability. I think we get the best of both worlds that way in terms of the way we manage and run the businesses, but also the way we can bring combined capabilities to the customer set. Nicole Shelton: Great. Everyone, thank you for joining our call today. As a reminder, please refer to the General Dynamics website for the third quarter earnings release and highlights presentation. If you have additional questions, I can be reached at 703-876-3152. Operator: Ladies and gentlemen, this concludes today’s call, and we thank you for your participation. You may now disconnect.

Operator: Good morning, and welcome to the General Dynamics Second Quarter 2023 Earnings Conference Call. All participants will be in listen-only mode. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Howard Rubel, Vice President of Investor Relations. Please go ahead. Howard Rubel: Thank you, operator, and good morning, everyone. Welcome to the General Dynamics second quarter 2023 earnings conference call. Any forward-looking statements made today represent our estimates regarding the Company’s outlook. These estimates are subject to some risks and uncertainties. Additional information regarding these factors is contained in the Company’s 10-K, 10-Q and 8-K filings. We will also refer to certain non-GAAP financial measures. For additional disclosures about these non-GAAP measures, including reconciliations to comparable GAAP measures, please see the press release and slides that accompany this webcast, which are available on the Investor Relations page of our website, investorrelations.gd.com. On the call today are Phebe Novakovic, our Chairman and Chief Executive Officer; and Jason Aiken, Executive Vice President, Technologies and Chief Financial Officer. With the introductions complete, I turn the call over to Phebe. Phebe Novakovic: Thank you, Howard. Good morning, everyone, and thanks for being with us. Before I discuss the quarter, I want to take a moment to acknowledge the loss of our long-time Board member and Lead Director, Jim Crown. Jim has a record of distinguished service on the GD Board for over 35 years. Throughout that time, Jim provided guidance to more than five different management teams. We mourn his passing, and our prayers are with his family. Earlier this morning, we reported earnings of $2.70 per diluted share on revenue of $10.2 billion, operating earnings of $962 million and net income of $744 million. We enjoyed revenue increases at each of our four business segments. Importantly, we had a 12% revenue increase across the Defense segments, with a more modest 4.6% increase at Aerospace. While revenue is up by $963 million or 10.5%, operating earnings are down $16 million and net earnings are down $22 million against last year’s second quarter. So, we had significant revenue increase but lower operating margin against the year-ago quarter. From a different perspective, we beat consensus by $0.14 per share on significantly higher revenue and modestly lower operating margin than anticipated by the sell side. The earnings beat was exclusively operations-driven. We enjoyed very nice sequential improvement. Revenue was up $271 million, and operating earnings are up $24 million on identical operating margins. On a year-to-date basis, revenue of $20 billion is up $1.45 billion or 7.8% over last year’s first half. Operating earnings of $1.9 billion are up less than 1% and net earnings are down $22 million, largely as a result of below-the-line items, including a higher provision for income taxes. As Jason will amplify, cash from operating activities and cash after capital expenditures in the quarter continued at a very good pace. For the first half, free cash flow was 123% of net income. Obviously, we are off to a very good start from a cash perspective. As is clear from the press release, we also had a powerful order quarter across the business, extending our already large backlog. Jason will provide full color around that item as well. In summary, this is from a revenue perspective, a very strong quarter and a good first half. Supply chain issues and past COVID labor issues have impacted operating margins, but there is relief in sight. We expect improvement as we progress. At this point, let me ask Jason to provide some detail on our strong order activity, growing backlog and very strong cash performance as well as commentary about the Technologies group in the quarter. Jason Aiken: Thank you, Phebe, and good morning. We had a very good quarter from an orders perspective with an overall book-to-bill ratio of 1.2:1 for the Company. Order activity was strong across the board, as each segment had a book-to-bill of 1:1 or greater in the quarter. This is quite impressive in light of the strong revenue growth. Combat Systems and Aerospace did particularly well with book-to-bills of 1.4 times and 1.3 times, respectively. This led to record-level backlog of $91.4 billion at the end of the quarter, up 1.7% from last quarter and up 4.3% from a year ago. Our total estimated contract value, which includes options and IDIQ contracts, ended the quarter at more than $129 billion. Turning to our cash performance for the quarter. We generated $731 million of operating cash flow, which, following our strong first quarter performance, brings us to $2.2 billion for the first six months of the year. After capital expenditures, our free cash flow was $519 million for the quarter and over $1.8 billion year-to-date, yielding a cash conversion rate of 123% for the first half. This conversion rate reflects continued strong cash performance in Aerospace and Technologies and a particularly strong start to the year for the Combat Systems group from payments received on our large international vehicle programs. The year-to-date results are consistent with our expectation for the year of a cash conversion rate in excess of 100%. Now turning to capital deployment. Capital expenditures were $212 million, or 2.1% of sales in the quarter, which brings us to 1.9% of sales for the first six months. Similar to last year, you should expect capital expenditures to be higher in the second half of the year, but in line with our expectation to be just under 2.5% of sales for the year. Also in the quarter, we paid $360 million in dividends and repurchased approximately 1.4 million shares of stock for $288 million. That brings year-to-date repurchases to 1.8 million shares for $378 million. We also repaid $750 million of debt that matured in May and ended the quarter with a cash balance of over $1.1 billion. That brings us to a net debt position of $8.6 billion, down nearly $700 million from year-end. As a reminder, we have an additional $500 million maturing in the third quarter that we plan to repay with cash on hand. Our net interest expense in the quarter was $89 million compared to $95 million last year. That brings the interest expense for the first half of the year to $180 million, down from $193 million for the same period in 2022. At this point, our expectation for interest expense for the year remains unchanged at approximately $360 million. Finally, the effective tax rate for the quarter was 16%, bringing the tax rate for the first half to 16.5%. There’s no change to our outlook for the full year of approximately 17%. But of course, that implies a rate in the mid-17% range for the second half of the year. To shape that for you, we’d expect the rate to be somewhat lower in the third quarter and higher in the fourth due to typical timing items. Now turning to operating performance in Technologies. It was another solid quarter with revenue of $3.2 billion, which is up 7% over the prior year and continues to build on the strong start to the year we saw in the first quarter. In fact, each business grew year-over-year, both in the quarter and the first half. The measures implemented at Mission Systems to overcome what seems to be the new normal in the supply chain are taking effect. So we feel good about their prospects for the balance of the year. GDIT had another solid quarter, in fact, their highest second quarter revenues since before the pandemic as they continue to deliver on their steady year-over-year growth trajectory. Operating earnings in the quarter were $283 million, yielding a margin of 8.8%. As you know, margins are driven by the mix of IT service activity and hardware volume, and in this case, were further impacted by the mix of new start programs that are driving the strong growth trajectory. Backlog grew during the quarter, with the group achieving a book-to-bill ratio of 1.1:1 on solid order activity that outpaced the strong revenue growth across the business. In fact, GDIT booked the highest first-half orders they’ve seen since mid-2019, and their pipeline remains robust with $20 billion in submitted bids awaiting customer decision and another $81 billion in qualified opportunities identified. Now, let me turn it back to Phebe to review the other business segments and give an update on our guidance for 2023. Phebe Novakovic: Thanks, Jason. Now, let me continue to review the quarter in the context of the other business segments and provide color as appropriate and guidance for the full year. First, Aerospace. Aerospace had revenue of $1.95 billion and operating earnings of $236 million with a 12.1% operating margin. Revenue was $86 million more than last year’s second quarter on the strength of additional new aircraft deliveries, coupled with higher Gulfstream service center volume, partially offset by less volume in Jet Aviation’s completion center. The 24 deliveries are modestly fewer than planned and are a result of supply chain issues. On the good news side of the equation, supply chain conditions are improving. We still have a significant backlog of late parts, but processes are in place to catch up, deliveries are trending positive and we have greater transparency. In short, the suppliers are more predictable and are complying with catch-up schedules. This will help both revenue and margins as we do less out-of-station work. Operating earnings of $236 million are $2 million behind last year’s second quarter as a result of a 60 basis-point reduction in operating margin. Operating margin in the quarter was off largely as a result of the supply chain issues and higher R&D expense. The shortage of parts continues to cause significant out-of-station work, impacting efficiency. As mentioned earlier, we see improvement here, and that should help as we go through the second half. Sequentially, Aerospace had a 3.2% increase in revenue and a 3.1% increase in operating earnings on identical operating margins. Moving to the demand environment. Aerospace had a very good quarter with a book-to-bill of 1.3:1 in dollar terms and even higher for Gulfstream aircraft alone. Vibrant sales activity and strong pipeline replenishment were evident in the quarter. The U.S., particularly large corporations, led the way with the Mid East and Asia participating to a lesser degree. The 700 flight test and certification program continues to progress. The aircraft design, manufacturing and the overall program are very mature. However, we now target certification in the fourth quarter and see no major obstacles in our path. To give you a little more insight, we will complete our FAA Type Inspection Authorization in September. This is a flying we are required to do pursuant to FAA requirement and plan. When we are finished, the FAA will fly some confirmatory flight tests to verify portions of our results. That will be followed by a brief period of paper submission, followed by FAA review. As most of you know, we had planned to deliver considerable number of G700s in the third and fourth quarters. That has now flipped into the fourth quarter. We now expect to deliver 27 aircraft in the third quarter, with a rapid increase in the fourth quarter deliveries. In short, we are making good progress under difficult circumstances. However, we expect to deliver 5 to 6 fewer aircraft than the 145 we forecast at the beginning of the year. On the other hand, we expect more service revenue than initially anticipated. I’ll have more on this later in my remarks. Next, Combat Systems. Combat had revenue of $1.92 billion, up a stunning 15.5% over the year-ago quarter with growth in each of the business units. Earnings of $251 million are up 2.4%. Margins at 13% represent a 170 basis-point reduction over the year-ago quarter. So, we saw powerful revenue performance, coupled with more modest operating margin, in large part attributable to mix. The increase in revenue came from international vehicle programs at both Land Systems and European Land Systems. OTS has also enjoyed higher artillery program volume, including programs to expand production capacity for the U.S. government. These programs carry dilutive margins, but will result in more production at accretive margins over time. On a sequential basis, revenue is up $168 million or 9.6%, and earnings are up $6 million or 2.4% on a 100 basis-point reduction in margin for the reasons described. Year-to-date, revenue is up $339 million or 10.1%, and operating earnings are up $24 million or 5.1%. We also experienced very strong order performance. Orders in the quarter resulted in a 1.4:1 book-to-bill, evidencing strong demand for munitions and domestic combat vehicles. International programs also contributed to the strong book-to-bill. So, a very exciting first half for Combat. Turning to Marine Systems. Once again, our shipbuilding group is demonstrating impressive revenue growth. Marine Systems revenue of $3.1 billion is up $408 million, a robust 15.4% against the year-ago quarter. Columbia-class construction and engineering volume drove the growth, and to a lesser degree, TAO growth. Operating earnings are $235 million, up $24 million over the year-ago quarter, with a 30 basis-point decrement in operating margin. We anticipate that all of our yards are now well positioned for slow but steady incremental margin growth over time with fewer perturbations. On a sequential basis, revenue was up $67 million or 2.2%, and operating earnings are up $24 million or 11.4% on a 60 basis-point improvement in margin. For the first half, revenue was up $749 million or 14.1% and earnings are up $24 million or 5.7%. So, a good quarter and first half. So, let me move on to give you our updated forecast for the year. The figures I’m about to give you are all compared to our January forecast, which I won’t repeat. There is, however, a chart with respect to all of this, will be posted on our website, which should be helpful. In Aerospace, revenue will be down almost $200 million due to the 5 or 6 fewer aircraft deliveries, offset in part by stronger service activity. So look for revenue of $10.2 billion. We also expect margins to be down from a projected 14.6% to 14.1%. This implies operating earnings of $1.4 billion. With respect to the Defense businesses, Combat Systems will have revenue of $400 million to $500 million higher than previously projected due to new program starts and an increased threat environment. So look for the total revenue of around $7.75 billion. Margins will be down 50 basis points from 14.7% to 14.2% on mix. All-in, operating earnings will be up $25 million over the previous forecast. Marine Systems revenue should be up $900 million or $1 billion on acceleration of work throughout the yards. This is a leading indicator of improving efficiency. So, we will have annual revenue around $11.8 billion with an operating margin around 7.6% for the reasons I have previously described to you. Operating earnings for the year should be up $20 million over the previous forecast. Technologies revenue will be $100 million to $200 million better than previous guidance, but operating margin will be 9.4%, 10 basis points lower than previously forecast. So for the group, we expect annual revenue of about $12.7 billion, with operating earnings around $1.2 billion, steady with prior guidance. There is some opportunity here to capture 10 to 20 basis points of margin. On a company-wide basis, we see annual revenue higher than our initial guidance and an overall operating margin about 40 basis points lower. So look for total revenue to be around $42.45 billion, about $1.2 billion up from previous guidance. Operating earnings should be down modestly from prior guidance, but below-the-line items and lower share count will leave our EPS guidance the same. One final note before I conclude my comments. Howard has informed the Company that he intends to retire later this year. So, this will be his last earnings call. We are grateful for the excellent work that Howard has done since joining our team. I hope many of you will join me in congratulating Howard on a job well done. Nicole Shelton, whom some of you know already, will be taking over the mantle with the third quarter call. That concludes my remarks, and we will be happy to take your questions. Howard Rubel: Thank you for your kind words and friendship. It’s been a pleasure and a great experience to have had the opportunity to represent General Dynamics to the investment community these nearly six years. I have grown working side by side with many of the talented people of this tremendous enterprise. I look forward to working with Nicole over the next few months to ensure there are proper introductions and a seamless transition. There will be time ahead to say goodbye, but today, I want to say thank you. Now, let’s turn to the question-and-answer period of this call. As a reminder, we ask participants to ask one question and one follow-up so that everyone has a chance to participate. Operator, could you please remind participants how to enter the queue? Operator: [Operator Instructions] Your first question comes from the line of Seth Seifman from JP Morgan. Seth Seifman: Hey. Thanks very much. Good morning, and congratulations, Howard. Thanks for everything. Just on the new Aerospace guidance, I guess, maybe if you could walk through how you thought about the setup for that. And I appreciate that this is mainly a timing issue and that any airplanes that don’t get delivered in ‘23 can kind of move to ‘24. But just kind of the way we get level set. With 27 deliveries in the third quarter, we’re talking about something quite high to get to 140-ish for the year. And also, I mean, with 27 deliveries, I assume we’ll be looking at a margin in Q3 that’s probably still in the 12s and so also getting to 14.1% for the year. Maybe you can talk a little bit about the margin -- the initial margin accretion from the new aircraft and what that contribution will be to the total deliveries. Phebe Novakovic: Yes. So, I think you’ve put your finger on a nub of an issue. So, what we have given you with respect to Aerospace is Gulfstream’s plan, and the guidance that we gave you reflects their plan. Our January guidance, just for context, contemplated a very high Q4 delivery rate. That rate increased with the certification delay on the 700. 700 will be fully built and ready for delivery. Remember, too, our new planes are all built in purpose-built facilities. We’ve expanded our wing line. In short, we’ve facilitized for increased production. And finally, the fact that we have planes -- and you can see this from the increase in inventory that are awaiting parts, we now have a schedule, and all of that taken together allows us to -- will give us the ability to deliver. With respect to margin, we’ve got a number of higher-margin airplanes, as you would expect, delivering in the fourth quarter. So, that provides significant uplift. So, we kind of explained how we intend to get the revenue through the deliveries, and the margin is really a question of mix of higher deliveries of higher-margin -- greater deliveries of higher-margin airplanes. Seth Seifman: Okay. And just a follow-up real quick on this topic. The 27 deliveries in Q3 would be down year-on-year. And so in terms of -- there’s the issue of the G700 certification, which we’re all kind of looking at and it’s hard to analyze. But just for the non-G700 deliveries, is there any risk around what the plan was there and what Gulfstream expects to do? Phebe Novakovic: So, as I noted in my remarks, our supply chain is increasing its transparency, improving its processes. And we have reliable -- increasingly reliable schedules. That said, they’re more likely -- likely to anticipate more catch-up in the fourth quarter, which will allow us to complete a number of those airplanes, but they’re still impacting the third quarter deliveries. Operator: Your next question comes from the line of Robert Stallard from Vertical Research. Robert Stallard: I can’t believe Howard’s retiring. He’s so young. Phebe Novakovic: That’s what we say. Robert Stallard: Anyway, I’ve got a couple of questions for you, Phebe. First of all, on the revised Aerospace guidance, you mentioned that you’ve increased your expectations for services for the full year. I was wondering if you could square this with what we’ve been seeing in Biz Jet flight hours year-to-date, which have been down year-on-year. And then secondly, a great Combat Systems order quarter, but how do you expect these orders to flow through to revenue growth over the next couple of years? Thank you. Phebe Novakovic: So, our flying hours are not down. But I think, too, the way to think about our service business is we expect service to increase as the fleet of airplanes -- new airplanes in the market increases. So, we expect steady growth in service. And we haven’t seen any impact so far on any change in flying hours. I said that mostly other people flying hours. With respect to Combat, the world has become a less safe place, and that’s reflected in the increased demand, both internationally and in the United States. So we expect the -- this year to be considerably higher than last year. And we’ll give you clarity around 2024 in January. But as you may recall, we had anticipated flat to down growth in this business segment. Clearly, that trajectory has changed. We won’t be able to -- we can’t quantify it right now, but we’ll give you more clarity on that. Operator: Your next question comes from the line of David Strauss from Barclays. David Strauss: So, back on the G700, would you expect to make up the missed deliveries this year? Would you expect them to make those up next year? So does the -- I think, what was -- 170 go higher in terms of what you’re expecting for deliveries next year? Phebe Novakovic: Well, we’ll get into next year, next year. But the deliveries are lower, are -- 5 to 6 deliveries that won’t deliver this year are not 700s. So, it’s other airplanes. David Strauss: Okay. Got it. And then as a follow-up -- quick follow-up. Combat Systems, you’ve mentioned this during the prepared remarks, the lower margins in the quarter, and then it looks like you’re forecasting a bit of a snapback in the second half of the year, but still a fair amount lower than what you were initially forecasting. Could you just give a little bit more detail on the mix and how that’s impacting? Thanks. Phebe Novakovic: Yes. So mix in this instance is comprised of two elements. One is the capacity expansion, which I noted carries lower margin. And then it’s really the transition from more mature programs to newer programs, and those margins will improve as we come down our learning curves. Operator: Your next question comes from the line of Cai von Rumohr from TD Cowen. Cai von Rumohr: Terrific. Thanks so much. So -- and Howard, let me say, you’ve been terrific to work with and a great friend, and I wish you all the best. Howard Rubel: Thank you, Cai. Cai von Rumohr: So, Phebe, how many 700s are you assuming to deliver in the fourth quarter? And what kind of margin for error is there in terms of timing in terms of... Phebe Novakovic: We will deliver 19 G700s, and we’re not going to tell you margins will be accretive. Nice try. Well, have we ever given you margins by airplane? Cai von Rumohr: No, no, no. I just -- so -- and next -- I didn’t mean -- I meant how much time-wise, a cushion you have in the schedule if the certification slips. Phebe Novakovic: You mean the schedule for the 700 certification? Cai von Rumohr: Yes. I mean, is your best guess that you certify in the middle of November, in middle of December, which could impact the amount number of planes you get out… Phebe Novakovic: So, what we’ve told you is our best estimate right now of the certification process. Clearly, if it comes very late in the year, we’ll deliver airplanes, but we won’t necessarily be able to deliver all of them. That will bleed over into the best first quarter GD has ever had in its history. But we’re not anticipating that at the moment. So, I don’t have real good clarity because we don’t know yet with precision on when in the fourth quarter. But our best estimate, what we’re planning for right now is that we will be able to have sufficient time to deliver these airplanes. Remember, they’re built -- the pilot training will start, and that will help significantly with deliveries. Cai von Rumohr: Got it. And with all of these deliveries in the fourth quarter, maybe, Jason, can you give us some color in terms of the cash flow profile? I mean, do we have just a momentous fourth quarter cash? And is there any upside to the 105%? Jason Aiken: The way I think you need to think about that, Cai, is when it comes to Gulfstream, we have a sequence of progress payments that occurs from the time of the initial order through delivery and entry into service. So, the vast majority of the cash receipts associated with an aircraft order and aircraft delivery are in-house before the actual airplane is delivered. So, while there’s obviously an implied set of progress payments, final delivery payments would occur at that point. When those aircraft enter into service, it’s not an outsized level of cash, one way or the other. So, the bigger issue is you’ve got an ongoing sequence and series of progress payments associated with all of the orders in the order book. And with the significant order volume that we’ve had over the past 2, 2.5 years, that is sort of a machine that’s just churning those progress payments over time as we continue to make progress on each of those airplane builds as well as the certification process. Operator: Your next question comes from the line of Myles Walton from Wolfe Research. Myles Walton: Thanks. Good morning. And congratulations on retirement, Howard. Miss you. In terms of the -- the outlook for Aerospace orders, could you just comment, Phebe, what you’re seeing for the rest of the year? Obviously, the second quarter was probably helped a little bit because of the anomaly you mentioned in March around the banking crisis. And then also if you can comment on churn in the backlog, I think your net book-to-bill was a couple of hundred million lighter than your gross book-to-bill. So maybe just talk about any cancellations. Phebe Novakovic: Yes. So, the demand in the second quarter was at the same level as the demand in the first quarter. It felt very, very similar. As you quite rightly note, we had a three-week hiatus coincident with the banking -- many banking crisis. But the demand levels have remained about the same. And as we enter Q3, we have a very strong pipeline. And so far, activity is quite good in Q3. We had six defaults in the quarter, but nothing that is notable to us. And the backlog is holding up very, very well. Operator: Your next question comes from the line of Jason Gursky from Citigroup. Jason Gursky: Congrats, Howard. I look forward to getting some postcards from our in distant places. Phebe, just sticking with Gulfstream for one last question, hopefully here. On the pipeline and kind of what you see from a bottom-up perspective, can you give us a little flavor from a geographic perspective and customer type? How is high net worth doing versus corporate? And are we beginning to see some green shoots in geographies outside the United States? Phebe Novakovic: Yes. So, the United States was strong, has been strong, particularly with the Fortune 500. I would say that high net worth is about the same. And the Mid East is pretty good, as is Asia, but it’s really the Fortune 500 that are really driving the demand. These are long-established customers as well as new Fortune 500 customers. Jason Gursky: Okay, great. And then, Jason, over to you on Technologies. It sounds like you’ve got a robust pipeline of opportunities in front of you. Can you talk a little bit about the mix of that? We had some margin degradation here in the quarter. I’m just kind of curious, as you look out at that pipeline, do you see anything that would suggest we’re going to see a departure in any -- either higher or lower from a margin perspective as you bid on this work and bring it in? Jason Aiken: I think bottom line, the short answer to that is no. We don’t see any fundamental change, as we’ve talked about. You’re going to see some level of aggregate margin perturbation between the two businesses, the IT services side being somewhat lower obviously than the hardware side. I think in this quarter, we saw it a little more pronounced because as we’re seeing this turn for the group to a stronger growth level, a lot of that is driven by not only new starts, but it’s actually replacement contracts, or I should say, recompetes that we’ve won. So, you had in the prior year the trailing off of very mature-level legacy contracts that were closing out at higher margin rates as compared to the entry-level margin rates we’re seeing now. So, that’s sort of the driver of the year-over-year delta that you’re seeing. But barring any major structural shift between the percentage contributions of the IT services versus defense hardware parts of the business, we continue to expect this to be a low double-digit margin business over time. Operator: Your next question comes from the line of Ron Epstein from Bank of America. Ron Epstein: Yes. Hey. Good morning. And ditto Cai’s remarks, Howard, you will be missed. It’s been a pleasure working with you. So quickly, a couple of questions. On Technologies, what should we be looking for? I mean, sometimes the contracts there aren’t as obvious in the horizon. So, Jason, what should we be looking out for in the second half of the year as potential things you guys could win? Jason Aiken: Ron, it’s always tough in this business to point to a singular event or a contract that is going to drive the overall business. As you know, it’s a wide portfolio of literally thousands of contracts. I think -- the thing I would tell you is, when you look at Mission Systems on the one hand, they are really seeing strong support in their -- what I’d call, their Navy platform support businesses, whether it’s the strategic side or the mission computing side. They’re also seeing really great support in their cyber portfolio. So, those are two areas I would expect to see continued growth in particular out of that business. When you look at GDIT, they’re seeing strength in all three of their customer segments: the defense, the intelligence community and the Fed SIV side. So, really good across-the-board support in GDIT. And I think if I could point to any one thing in particular on that side of the portfolio, we’ve talked for the past few weeks, a couple of months about some selective technology investments they’ve been making to accelerate their growth, and we’re seeing that really start to take hold. And of course, we’re talking about things like artificial intelligence, machine learning, hybrid cloud, Zero Trust and so on. And that’s really starting to bear fruit. We’ve seen already several hundred million dollars worth of award wins as well as organic growth on existing contracts that’s resulting directly from those investments. They’ve got some $7 billion in change in post-submittal submissions that are awaiting award decisions. And they’ve got another 20-plus, I think, between $20 billion, $25 billion of opportunities in the pipeline that are directly tied to those targeted investments. So, I think some really intelligent capital allocation over there at GDIT to try and drive that growth, and we’d expect to see the results of that continue in the second half of the year and beyond. Ron Epstein: Okay, great. And then maybe one follow-on for Phebe. When we think about Aero, when things start to normalize, right, supply chain kind of gets back to a normal cadence and all that, what should we be thinking about broadly as like a realistic margin target? Phebe Novakovic: We’re thinking in the higher teens when we get on a steady state with upside potential. Operator: Your next question comes from the line of Louie DiPalma from William Blair. Louie DiPalma: Howard, thank you for your deep aerospace-defense expertise in your current position and your former position on the sell side, your high standards raised the level of those around you. For Jason, for the Army’s CHS-6 $8 billion recompete that should be announced, I think, very soon. GD Mission Solutions is teaming with GDIT. Do you feel these synergistic joint bids between IT and Mission will become more common and a significant strategic advantage for you? And could it help return the overall Technologies segment to mid-single-digit growth over the long term? Jason Aiken: Yes. And bottom line answer, you kind of hit the nail on the head there. We absolutely expect the synergistic benefits of these two businesses working together to be to our benefit over the long run. It’s -- the predicate for all that is that what we’ve seen both in the customer demand environment, what they’re requiring in terms of end-to-end solutions, including both software, services and the hardware elements of what we provide. We’re seeing the peer group migrate that way with some of their M&A activities that you’ve seen in the market. And so, we believe that is the thesis that we’ll see play out. You noted CHS-6, we’re obviously participating in and anticipating that -- resolution to that competition. We’ve seen that program migrate over time from one that was traditionally very much focused on high-end, customized, ruggedized hardened-type defense hardware to one that is a combination of that type of capability as well as a more traditional, sort of off-the-shelf catalog-type product. And so, we believe that having the attributes of both GDIT and Mission Systems involved in that program would be the best suited to serve our customer there. So, that’s just one good example of it. But absolutely, we see that over time. And as far as long-term growth rates, we’ll have to see where this leads. Right now, we continue to track low- to mid-single digit, but we’ll see if we can’t get some juice out of that over time. Operator: And your next question comes from the line of Sheila Kahyaoglu from Jefferies. Sheila Kahyaoglu: Howard, exactly what Louie said, and then, thank you for being such a great colleague and a teacher to me and all those around you, so thank you. Phebe or Jason, whoever, on the Defense business, when you look at your 2023 guidance, Defense growth is up solidly up 5% for the year versus the 9% growth you did in the first half. But this is not necessarily leading to operating leverage with margin contraction of 40 bps and flat operating profit. So, how do you think about the return to operating margin expansion either on a total company level or a segment basis? It seems like Technologies is more temporary, Combat mix maybe continues for some time. Phebe Novakovic: So, Technologies and Combat are simply a question of mix. And I suspect Combat will quickly return to its normal operating leverage. The Marine Group has significant supply chain challenges that have impacted for the Virginia-class in particular. That’s going to take some time to resolve. We’ll talk about that in a little bit more detail. So, as I noted, we expect slow quarter-over-quarter margin growth in the Marine Group, perhaps an occasional perturbation by quarter, but slow and steady improvement over time. Operator: And your next question comes from the line of Ken Herbert from RBC Capital Markets. Ken Herbert: Congratulations, Howard. Phebe, I just wanted to dig into Marine again a little deeper. The full year guide implies a pretty significant deceleration in growth into the back half of the year. Two questions, really. First, as we go back six months, you were talking about a much more conservative outlook for the top line in Marine. And clearly, maybe any comments on really what’s changed because the first half has really been much stronger than expected. But then also, as you think about the remainder of the year, what will drive the significant step down and how much conservatism does the Marine outlook reflect in terms of the growth? Phebe Novakovic: So, growth in the quarter was driven by improved -- increased volume on Columbia and on the oiler program as well as additional throughput throughout each one of those yards, which is often a precursor to better margin performance. And finally, just the -- revenue came in faster than we had anticipated, really across the board. And that will drive our expectations. With respect to the margin performance, we have -- Columbia is doing very well. We’ve got nice performance on the oiler. We see some deck plate improvements of Bath, but that has yet to translate into financial performance. Electric Boat needs to continue to get better to offset likely additional supply chain challenges as the Virginia supply chain begins to improve. And with respect to that supply chain, we see improvements and some very nice improvement in some area. But that supply chain was hit hard by COVID. And I think a little bit of explanation there is helpful. COVID impacted that supply chain, Virginia supply chain, in particular, in a couple of ways. Obviously, the impact of COVID itself, the workforce disruption. Then we had the large demographic changeover. And finally, Virginia was impacted by the Columbia prioritization. All of that made it difficult for that supply chain to begin to get back on cadence. They’re getting better, but we’ve got a while to go before they hit their two-a-year or more cadence. Operator: Your next question comes from the line of Peter Arment from Baird. Peter Arment: Thank you. Good morning, Phebe and Jason. Congrats, Howard. Hey Phebe, within Combat, munitions kind of is viewed as a potential source of kind of upside volume, and thanks for all the color on the segment. But how should we be thinking about the munitions growth profile? I mean, it’s about -- finished last year, about 27% of your mix. Do you expect that mix to continue to grow? And any comments on the supply chain there as my follow-up, just because I know there’s been talk about challenges there. Thanks. Phebe Novakovic: The supply chain in the Combat group has been less of an issue. I suspect that the -- at least for the foreseeable future, the munitions portion of the business will remain about that, same as we see uplift in all of our all three businesses. We’ll see OTS at about that same level. We’ve already increased munitions capacity and working with the federal government and the Army and OSD in particular, we have a very detailed plan to further increase capacity, which will allow us then to increase production very rapidly and move to the left, the munition availability to meet the United States’ needs and, frankly, external needs as well. Howard Rubel: Operator, we’ll just take one more question, please. Operator: And our final question for today comes from the line of George Shapiro from Shapiro Research. George Shapiro: Good morning, and congratulations, Howard. I didn’t figure I’d outlast you, but we’ve known each other a lot of years and... Howard Rubel: George, it’s over 40, just counting. George Shapiro: That’s right. Phebe, on the defaults that you mentioned, can you just mention what kind of customers they might have been? And I assume you keep the down-payments that might have been made on the aircraft that they order? Phebe Novakovic: So I think you know we have very strong terms and conditions that you forfeit some of your value in the airplane when you cancel. I don’t actually know the context of the default, that won’t -- nothing that was of note or interest, otherwise, I’d know it. George Shapiro: Okay. And Jason, the unbilled receivables was actually up like $100 million sequentially. So, does that mean you didn’t get any payments from the expected customers in the quarter? And how much would you expect the rest of the year to come in? Jason Aiken: Actually, George, we did receive additional payments on schedule as per the plan that was set forth several years ago. And I’m actually happy to tell you that at this point -- and maybe this terminates this line of dialogue for the foreseeable future. The arrears that you all may remember from many years ago on that Canadian international program has now effectively been paid down, and we are down to what I would call a normal run rate of operating working capital on that program. So I’m pleased to report that we’ve passed through that phase. In terms of what we expect to receive for the balance of the year, there are some more progress payments to come in, but I don’t have that quantified off the top of my head. George Shapiro: Something you had kind of given what the specifics were on that in the Q. Howard Rubel: We’ll follow up on that. Jason Aiken: Yes. Howard Rubel: Operator, that now ends the call. And for those that are interested in connecting later, we’ll have follow-up questions. Please don’t hesitate to call me. Thank you for joining our call today. As a reminder, please refer to the General Dynamics website for the second quarter earnings release and highlights presentation. And as I said, if you have any additional questions, I can be reached at 703-876-3117. Thank you. Operator: This concludes today’s conference call. Thank you for your participation. You may now disconnect.

Operator: Good morning, and welcome to the General Dynamics First Quarter 2023 Earnings Conference Call. [Operator Instructions]. Please note that this event is being recorded. I would now like to turn the conference call over to Howard Rubel, Vice President of Investor Relations. Please go ahead. Howard Rubel: Thank you, operator, and good morning, everyone. Welcome to the General Dynamics First Quarter 2023 Earnings Conference Call. Any forward-looking statements made today represent our estimates regarding the company's outlook. These estimates are subject to some risks and uncertainties. Additional information regarding these factors is contained in the company's 10-K, 10-Q and 8-K filings. We will also refer to certain non-GAAP financial measures. For additional disclosures about these non-GAAP measures, including the reconciliations to comparable GAAP measures, please see the press release and slides that accompany this webcast, which are available on the Investor Relations page of our website, investorrelations.gd.com. On the call today are Phebe Novakovic, our Chairman and Chief Executive Officer; and Jason Aiken, Executive Vice President, Technologies and Chief Financial Officer. With the introductions complete, I turn the call over to Phebe. Phebe Novakovic: Thank you, Howard. Good morning, everyone, and thanks for being with us. As you can discern from our press release, we reported earnings of $2.64 per diluted share on revenue of $9.9 billion, operating earnings of $938 million and net earnings of $730 million. Revenue is up $489 million or 5.2% against the first quarter last year. Operating earnings are up $30 million and net earnings are flat against the year ago quarter. This increase in operating earnings was offset by a $31 million increase in the tax provision. Recall that the first quarter 2022 tax provision was only 14%. Nevertheless, earnings per share are up $0.03 as a result of the stronger operating earnings and a lower share count. The operating margin for the entire company was 9.5%, 20 basis points lower than the year ago quarter. This reflected lower operating margins in Aerospace and Marine, which I will address in some detail later in these remarks. Revenue was $489 million better than first quarter '22. All of the defense units were up and Aerospace down slightly, less than 1% on fewer aircraft deliveries. We beat consensus by $0.05 per share. We have roughly $550 million more in revenue than anticipated by the sell side and lower-than-anticipated margins, leading to operating earnings basically consistent with expectations. The earnings per share beat was largely attributable to below the line items. As Jason will amplify, cash from operating activities and cash after CapEx was very strong. This is particularly impressive following a very strong cash performance in '22 and not at all typical for us in the first quarter. Obviously, we were off to a very good start from a cash perspective. This is an important respects, a strong quarter, a good foundation for the year, subject to some supply chain issues that I will try to eliminate as we discuss the business segments. At this point, let me ask Jason to provide detail on our order activity, solid backlog and very strong cash performance as well as commentary about the Technologies group in the quarter. Jason Aiken: Thank you, Phebe, and good morning. We had a solid quarter from an orders perspective with an overall book-to-bill ratio of 0.9:1 for the company. Order activity was particularly strong in the Combat Systems group, which had a book-to-bill of 1.5x. We ended the quarter with total backlog of $89.8 billion, off 1.4% from the end of last year, but up 3% from a year ago. Our total estimated contract value, which includes options and IDIQ contracts, ended the quarter at more than $128 billion. Turning to our cash performance for the quarter. It was another exceptional start to the year, with operating cash flow of $1.46 billion, representing 200% of net income. This very strong cash flow was heavily loaded in the last few weeks of the quarter. After capital expenditures, our free cash flow for the quarter was $1.3 billion, a cash conversion rate of 178%. While we continue to enjoy strong cash performance in Aerospace & Technologies, the Combat Systems group, in particular, delivered outstanding free cash flow this quarter. As expected, the U.K. resumed payments on the AJAX program. This coupled with the ongoing progress payments on our other large international vehicle program drove the group's cash performance. This is consistent with our expectation for the year of a cash conversion rate in excess of 100%. Now turning to capital deployment. Capital expenditures were $161 million or 1.6% of sales in the quarter. Similar to last year, you should expect capital expenditures to increase in subsequent quarters throughout the year. Also in the quarter, we paid $345 million in dividends and repurchased approximately 400,000 shares of stock for $90 million at just over $220 per share. We ended the quarter with a cash balance of over $2 billion and a net debt position of $8.5 billion, down nearly $800 million from year-end. As a reminder, we have $750 million of debt maturing in the second quarter and we are in a position to pay that down with the cash on hand following the receipts at the end of the first quarter. Our net interest expense in the quarter was $91 million compared to $98 million last year. Benefiting from the debt repayment in the fourth quarter of 2022. Finally, we had a 17% effective tax rate in the quarter, consistent with our full year guidance. Now turning to operating performance in Technologies. We're off to a solid start. Revenue in the quarter of $3.2 billion was up 2.5% over the prior year, modestly ahead of our expectations for the start of the year. The measures implemented at Mission Systems to overcome what seems to be the new normal in the supply chain are taking effect, which gives us confidence about their outlook for the balance of the year. And GDIT had their highest quarterly revenue and earnings in 4 years as they continue to deliver on their year-over-year growth trajectory. Operating earnings of $299 million were consistent with last year, yielding a margin of 9.2%. As we discussed in January, margins will continue to be driven by the mix of IT service activity and hardware volume. Backlog grew during the quarter with the group achieving a book-to-bill ratio of 1:1 on strong order activity in IT services that included some important wins not yet factored into the backlog. This includes the Army's flight test school training support services contract valued at $1.7 billion. And Air Force IDIQ with a total potential value of $4.5 billion between 2 awardees for security support services, and a pair of IDIQ contracts with the EPA with a potential value of $380 million to support the agency's environmental and climate initiatives. In fact, GDIT booked the highest orders they've seen since the second quarter of 2019. And their pipeline remains robust with $19 billion in submitted bids awaiting customer decision and another $84 billion in qualified opportunities identified. Now let me turn it back to Phebe to review the other business segments. Phebe Novakovic: Thanks, Jason. Now I may review the quarter in the context of the other business segments and provide detailed color as appropriate. First, Aerospace. Aerospace held its own in a very difficult operating environment. It had revenue of $1.9 billion and operating earnings of $229 million with a 12.1% operating margin. Revenue was $11 million less than last year's first quarter despite the delivery of 4 fewer aircraft. The fewer aircraft deliveries were almost completely offset by higher ball stream services, debt aviation volume and special missions work at Gulfstream. The 21 deliveries in the quarter are 3 fewer than planned, two 280s did not deliver because of late engine deliveries. The other plan, a large cabin for an international customer didn't deliver because of simple bureaucratic registration delays in the owner's country. Importantly, this is the first quarter in which we have missed an airplane delivery as a result of supply chain issues. Up until now, we have managed to work around late to schedule parts delivery. Operating earnings of $229 million or $14 million behind last year's first quarter as a result of a 70 basis point degradation in operating margin. Operating margin in the quarter was under pressure as a result of fewer new airplane deliveries, a less attractive mix, severe supply chain issues, some modest cost increases from suppliers and the prebuild of G700. Let's take a look at some of these elements in greater detail. The shortage of parts to schedule from the supply chain, especially from Honeywell has created significant out-of-station work, which is inherently less efficient. We have a young, well trained and capable workforce. They have, however, never previously been exposed out of station work. They are doing well. I am pleased to report, but it had an impact. The other impact of latest scheduled parts deliveries, apart from cost growth is that we cannot increase our build rate until the supply of parts is more predictable. The good news is that there is light at the end of the tunnel. We see the vast majority of this problem resolving early in the third quarter, but for 2 large suppliers who will take a little longer to resolve. As most of you know, we plan to deliver a considerable number of G700s in the third and fourth quarters. To do that, we must build them now and incur some period costs without the related revenue. This has impacted the first quarter and will impact the second quarter, but relief is in sight as deliveries commence. Aerospace had a decent quarter from an order perspective with a book-to-bill of 0.9:1 in dollar terms and 1:1 in units. The quarter was looking quite good until the 2 regional bank failures in early March. This created a pause in the market for about 3 weeks. I am pleased to report that normal activity has resumed. Strong sales activity and customer interest is evident in this quarter. The U.S. has been strong and the Middle East as well. China remains slow. The G700 flight test and certification program continues to progress well. The aircraft design, manufacture and the overall program are very mature. We continue to target certification of the G700 for late summer this year. Gulfstream remains committed to a safe and comprehensive certification test program. Production of customer G700 is well underway, and we are preparing for entry into service. We will deliver a mature, high-quality aircraft. Looking forward to the next quarter, we expect to deliver 26 aircrafts with rapid increases in the third and fourth quarter deliveries, as we have previously indicated. In short, the Aerospace team did a good job under difficult circumstances. Next, Combat Systems. Combat had revenue of $1.76 billion, up 4.8% over the year ago quarter. Earnings of $245 million are up 7.9% and margins at 14% represent a 40 basis point improvement over the year ago quarter. So we saw a strong operating performance coupled with a nice revenue uptick. At Land Systems, Increased revenue came from the MPF ramp-up, Stryker SHORAD and new international vehicle programs for Poland and Australia. At European Land Systems, we had higher Parana volume and OTS enjoyed higher artillery program volume. So we saw increased revenue performance at each of the businesses. Here's a little additional color on Combat Systems revenue results. Foreign exchange fluctuations negatively impacted Combats revenue in the quarter due to the strength of the dollar versus the Canadian dollar, Euro and the British pound. But for the FX headwind, Combat Systems revenue growth would have been up 7.1% over the last year rather than the 4.8% we have just reported. We also experienced very strong order performance at Combat. Orders in the quarter are at their highest level in more than 8 years, evidencing the strong demand for munitions and international combat vehicles. There is clear upward pressure on our forecast for Combat Systems revenue and earnings in the year. Turning to Marine Systems. Once again, our shipbuilding units are demonstrating impressive revenue growth. As an aside, let me repeat a little recent history. The first quarter of 2020 was up 9.1% against the first quarter of '19. The first quarter of '21 was up 10.6% over '20 and first quarter 2022 was up 6.8% over '21. Finally, this quarter revenue of almost $3 billion is up 12.9% over 2022. This is an impressive growth ramp by any standard. This quarter's growth was led by Columbia class construction and engineering, DDG-51 construction and some T-AO volume. Operating earnings are $211 million in the quarter, exactly the same as a year ago, but with a 90 basis point decrement in operating margin. The primary driver of lower margins during the quarter was a charge on the Virginia program to reflect cost pressure within our supply chain and efficiency impacts at electric boat as a result of late material deliveries. This was partially offset by Colombia margin improvement. Other modest margin impacts included an earnings decline at Bath as a result of a onetime pickup in the year ago quarter and cost inflation reimbursement that does not carry profits. Overall, earnings are what we expected, but revenue was higher, resulting in lower margins. We anticipate that this will improve as we progress through the year. As you know, we never update guidance at this time of the year. I would say, however, that our quarterly progression differs from prior years and that the second quarter will be our lowest quarter because of mix and volume across the business. Nonetheless, we look forward to very strong third and fourth quarters. We will give you a comprehensive update at the end of next quarter as is our custom. This concludes my remarks with respect to what was a challenging but in many respects, rewarding quarter. Howard Rubel: Thanks, Phebe. [Operator Instructions]. Operator, could you please remind participants how to enter the queue? Operator: [Operator Instructions]. Your first question comes from the line of Seth Seifman from JPMorgan. Seth Seifman: Thanks very much, and good morning, everyone. Phebe, I wonder to ask a question about Marine and at the risk of asking the question that you just said that we never update guidance at this time of year. If you can just give us some color, given what we thought about revenue and margin at Marine coming in. The revenue is clearly much stronger in Q1, the margin weaker for the obvious reason of the Virginia charge. Can you help us from here in terms of how the Virginia contribution changes from Q1 going forward now that the charge is done? And it seems Columbia is maybe coming in stronger. And if I could tack on one follow-up, there's been a lot of talk about the Columbia schedule, both in congressional testimony, GAO reports, et cetera. If you can give us the latest update on how you view the schedule for Columbia. Phebe Novakovic: So we think that we plan to have Q1 as our lowest margin quarter. And we'll continue to work to that. Virginia is -- it will stabilize once we get the schedule and supply chain issues resolved. But at this point, it's some comment on electric boat to continue to do better to offset those costs. So with respect to revenue, there's clearly some upside pressure there, but we're going to hold any other additional comment for the moment. So let's go to Colombia. And I think just the Navy has clearly articulated it -- firmly articulated that we are ahead of the contract schedule. The contract schedule is what matters. So let's put a little context on this. We are on the Colombia. We are 16 years into the 20-year lead ship schedule. I think within that context, it's indicative of the actions we have taken heretofore and those that we will continue to take to keep this program on schedule. Operator: Your next question comes from the line of Robert Stallard from Vertical Research. Robert Stallard: Phebe, I may be wrong, but it sounds like these supply chain issues in Q1 got worse. So I was wondering if you could comment on that. And also, what sort of mitigation plans you're putting in place to correct these problems? Phebe Novakovic: Specifically, are you talking about a particular group? Robert Stallard: Well, it seems like it's Aerospace and the Virginia-class submarine and marine. Phebe Novakovic: Yes. So with Aerospace, we have -- let's be clear, we have been dealing with supply chain issues for some time, and we've been able to manage through them. This quarter, we had 2 large suppliers get worse. We have, however, as I noted in my remarks, light at the end of the tunnel by our clear visibility in -- through our clear visibility into the third and fourth quarters where the majority of the supply chain improves. And we're working very hard with all suppliers, both in terms of teams and additional production help and to also encourage them to allocate the necessary resources in order to make their contracting schedules. So we are pretty comfortable that we can resolve these issues in the third and fourth quarter. But Gulfstream has done a magnificent job heretofore in even this quarter and managing through these challenges. With respect to the Virginia-class program, we have been talking about the supply chain challenges for some time. And as with all heavy manufacturing and labor-intensive manufacturing construction projects, manpower is a significant impact and the impact from the -- and the ramifications from the pandemic hit that supply chain pretty hard. We're beginning to see that remedy with the help of the Navy and a lot of support. So we'll continue to work with our supply chain and all elements of that supply chain as well as our customer who is very engaged to ensure that we can get that Virginia cadence back on schedule. Operator: Your next question comes from the line of Doug Harned from Bernstein. Douglas Harned: Phebe, on -- when we're looking at the situation in Europe right now, I mean, 2 things seem to stand out to us with respect to Combat. One is, as you mentioned, the demand for munitions. But we've seen in the 2024 budget, there was actually a reduction in the budget for munitions, which we found somewhat surprising. How do you think about the trajectory there? And your ability to -- assuming we are going to see significant growth in munitions demand and your ability to ramp up production over time? Phebe Novakovic: We have been working very closely with DoD and the Army to ensure that we increase production and move... Douglas Harned: Hello? Phebe Novakovic: Hello, can you hear us? Jason Aiken: Operator? Operator: He appears to have lost audio. Jason Aiken: Okay. Are we still... Phebe Novakovic: Let me answer, Doug. Can the rest of the call here us? Operator: Yes, we are still live. Phebe Novakovic: Okay. So let me answer Doug's question. We've been working very closely with DoD and the Army to increase production and throughput. And we've done that in a couple of ways, upgrading existing facilities increasing the number of shifts and building new facilities with more modern equipment. So to, again, accelerate production, we have already done so and are quite confident in our ability to do even more. So we are -- we've been receiving adequate and -- completely adequate funding to execute all of this. And we are quite confident that we will move throughput much quicker and will expedite the delivery of this critical capability to the Army. Operator: Your next question comes from the line of Peter Arment from Baird. Peter Arment: Phebe, thanks for the color on Gulfstream. Just on the overall demand kind of restrengthening in the quarter post the banks in the Middle East and certainly the U.S. Are you still seeing kind of broad interest across all the models? I know you've mentioned G650 in particular the last like 2 years has been very strong. Phebe Novakovic: Broad interest across all the models. We're doing quite well. Do you want to ask another question? Peter Arment: Yes, sure. No, I appreciate that. Just staying within Gulfstream. Just I know that you're not going to update kind of guidance, but I -- the deliveries that you missed this quarter, are they expected to recover in the second quarter? How are we thinking about that? Or is this all kind of second half related? Phebe Novakovic: We will resolve -- we expect to resolve all of the supply chain issues. And what you ought to think about is the third quarter and fourth quarter being quite robust. And I think what you're getting at is the deliveries that we expect to execute for the year at about 145. We're pretty confident we can get there. If we miss, it's just going to be by a little. Operator: Your next question comes from the line of Myles Walton from Wolfe Research. Myles Walton: Phebe, I was hoping you could talk to how you balance within Marine higher-priority national -- the national level of the Columbia class, which is under a lower financial risk cost plus contract versus the higher financial pressure, Virginia class which is under fixed price contract, but you might have to pull resources away and just how you're managing that from a financial risk perspective? Phebe Novakovic: So implicit in your question is the fact that Colombia enjoys a higher national rating in terms of urgency than Virginia. We had fully contemplated that with the U.S. Navy when we negotiated the most recent block of Virginia that was in concert timing wise with the Columbia negotiation. So we're working with the Navy to ensure that the language that we had incorporated into the Virginia contract to accommodate any such impacts on Virginia from a Columbia prioritization could be addressed. And the Navy has been working very closely with us. So we were mindful of that and have been for some time. Myles Walton: And so I guess just for a clarification, Phebe. Did the current financials reflect that assumption playing out? Or would there be a sort of equitable relief in the future if they agree with the position? Phebe Novakovic: I'm not going to speculate on how this will be addressed ultimately with our customer. But, this is more of a future issue rather than in the moment issue. That was not the primary driver of the quarter. Operator: Your next question comes from the line of George Shapiro from Shapiro Research. George Shapiro: If you hadn't had the loss of 3 weeks from the bank failures, I assume then the book-to-bill would have been above 1 in the first quarter. And is that likely to continue then in the second quarter where you're saying we are seeing significant strength now? Phebe Novakovic: So our plan going before March 10, was that, in fact, we had anticipated a book-to-bill -- full book-to-bill of 1:1 on at that point, higher deliveries. So on a going-forward basis, it's our working assumption that we will continue to see 1:1. And at the moment, we see no reason why that can't be achieved. George Shapiro: Okay. So the delivery expectations for next year would still be the same as what you had laid out before? Phebe Novakovic: We are holding to what we gave you in terms of out-year expectations for Aerospace. Operator: Your next question comes from the line of Louie DiPalma from William Blair. Louie DiPalma: Is the lead Columbia approximately 1/3 complete now? Phebe Novakovic: Yes. Louie DiPalma: Great. And as a follow-up, you referenced supply chain headwinds with Virginia and Aerospace. Is the supply chain for Mission Systems improving at all? Jason Aiken: It absolutely is. We saw a good trajectory and gaining some traction in the quarter. That's part of the reason why volume was up nicely in the quarter, and they seem to be on a good path to overcoming that bottleneck in their system. So gives us confidence for the opportunities we have in the second half of the year. Operator: Your next question comes from the line of Kristine Liwag from Morgan Stanley. Kristine Liwag: Phebe, per new plans unveiled last month under the August pack, it looks like Australia could buy up to 5 Virginia-class submarines potentially in the early 2030s. So with the backlog now of 17 Virginia is delivering through 2032, how are you thinking about this opportunity? And what's the production capacity required to meet this demand? Phebe Novakovic: So we are working with our Navy customer to clarify timing and capacity and throughput. But at the moment, we have no particular insight, not really deferring to the Navy on and the timing and specificity of their long-range planning? Kristine Liwag: And if I could sneak another one, maybe switching to combat. Look, it seems like the Army is pushing significantly to ramp artillery production, particularly the 155-millimeter shells and planning to double monthly production to about 24 per month by year-end. And then increasing production 6x over the next 5 years. How are you thinking about this opportunity? And again, do you see -- what do you need to do in order to meet this demand? Should it materialize? And are you seeing the orders come through? Phebe Novakovic: We have seen the orders come through. And we do not yet have out your clarity on the exact timing of the additional production, but we will see additional production. And because of the priority of the 155, I think the nation has learned a lot about 155 artillery shelf. So we've done a lot to increase production already, and we are quite confident that we can go even faster. Operator: Your next question comes from the line of Matt Akers from Wells Fargo. Matthew Akers: I wanted to ask kind of a high-level question on pilots for biz jet. On the commercial side, lack of kind of staffing with standing like pilots and crews has been kind of a pacing item. What's your sense for business jets or your customers kind of better off in that respect? Or could that potentially be a bottleneck for biz jet as well? Phebe Novakovic: Well, I think during the height of COVID, there was so much disruption at all labor markets that we may have seen some issue then. But frankly, it didn't impact us. We're not seeing anything at the moment that is impacting our ability to fly, our customers' ability to fly or frankly, flying hours. Operator: Your next question comes from the line of David Strauss from Barclays. David Strauss: The G700 is in there. Is software validation, the pacing item still? And if so, how far are the way through that are you? Phebe Novakovic: No, it is not. And we are in pretty good shape here with respect to our certification. And look, this is an extremely mature, safe and sophisticated aircraft. So we're working very closely with the FAA to ensure that they've got the proper resources here to execute the certification, but it is coming. David Strauss: Okay. A quick follow-up. Jason, you mentioned 8 resumptions of the AJAX payments. Can you update us on kind of the schedule for the liquidation there? How you expect that to play out and also on the Canada program? Jason Aiken: Yes. So obviously, it was a positive development to see the payments resume here in the first quarter as we expected. The path forward with the customer is an ongoing discussion, we've worked through the revised schedule for the program. But some of the other particulars around milestone payments and progress on that schedule are still in the works. So it would be probably remiss of me to get out ahead of that. In terms of the Canadian program, things are continuing to proceed well. That customer for the past 3-plus years has paid on time as per that schedule we negotiated. And so a couple more payments to come this year. And then really, what you can think about it is the entire arrears that we were dealing with some 2, 3 years ago will have been paid down and will be in a normal program cadence and schedule at that point, so by the end of this year. Operator: Your next question comes from the line of Ken Herbert from RBC Capital Markets. Kenneth Herbert: I just wanted to see -- I wanted to see if we could put a finer point on the Aerospace margins in the second quarter with supply chain issues and other timing around the certification and prebuild. Is it -- or second quarter margins expected to be similar to first quarter or was first quarter expected to be the trough for the year? Phebe Novakovic: I think you may need to think about the second quarter being our lowest quarter and then with a very steep and executable ramp-up in third -- third and fourth quarter, I tried to give you guys an awful lot of color in the remarks about the puts and takes on all the margins with respect to Aerospace. But we -- we'll get through the second quarter. And frankly, these first 2 quarters are aberrational in terms of Gulfstream margins, and then we ought to see nice pickup in third and fourth quarter. Kenneth Herbert: Okay. And then just as a follow-up, just considering the roughly 100 aircraft implied in the guidance for the second half deliveries and the supply chain issues, are you having at this point to maybe look at second sources? Or is there anything else you're doing now? Obviously, it's very late in the game, but to maybe improve or do you further derisk the supply chain beyond just the execution? Phebe Novakovic: So we've been doing that for some time. As you all know, the supply chain on the Aerospace side has been taxed for quite a bit of time. So they were not taking any new actions that we haven't already executed, and we're just ramping up some of those actions as we -- in the first quarter and then as we go into the second. But we have, as I said earlier, a very clear line of sight into the third and fourth quarters and the majority of these suppliers fully anticipate getting better. And we'll work with the remaining ones to ensure they've got the resources to execute the contract. Operator: Your next question comes from the line of Ron Epstein from Bank of America. Ronald Epstein: Maybe just a quick question, maybe 2. What are the synergies so far from merging the 2 businesses in kind of mission Tech? How has that gone? Jason Aiken: So keep in mind, Ron, when we talk about merging those businesses, they still remain 2 independent and stand-alone operating units within our model. So not really anything to think about from a cost synergy perspective, I think the way to think about that is more of a revenue synergy point of view in that what we talked about is -- those 2 businesses are seeing a real convergence on a number of fronts within their markets, what their customers are interested in procuring in terms of end-to-end solutions that include the IT service side, software solutions as well as hardware as well as where their competitors are going in the market to address those demands. So bringing those 2 businesses together has put us on a good footing to address that market and those demands. And that's what we're seeing, and you're seeing that in the positive order performance in the quarter and book-to-bill, capture rates, win rates and so on. So all of that gives us good confidence in terms of the trajectory of the outlook that we see for each of those businesses. Ronald Epstein: Got it. Got it. And then maybe just one quick follow-on. How much of the free cash flow in the quarter can be attributed to AJAX? Phebe Novakovic: Yes. So we have factored the net of payments to the supply chain, which has been very patient through this whole period into our estimates for the year. Jason Aiken: Yes. So I want to make sure I understood your question correctly. It was a roughly GBP 480 million payment that was received. And to Phebe's point, that the net impact of that after paying out supply chain elements on the program, all of that's factored into the outlook that we have for the year. So that 105-ish percent conversion rate for the year that we talked about is now intact and all that much more certain based on the activity in the first quarter. Operator: Your next question comes from the line of Pete Skibitski from Alembic Global. Peter Skibitski: The issues on the Virginia supply chain, it seems like it's been a little bit of a black box. So just -- I was wondering if I can get more detail. Does it relate to multiple suppliers? And can you give us a sense of what parts are involved? And then are we feeling good that as the mix shifts to the Block 5 that margins will improve there? Phebe Novakovic: So it's multiple suppliers, some large and some small. And we have, again, continued to work with the Navy to address the challenges that they all have faced. And even though you have different sized businesses, many of them have been confronted with the same labor dysfunctions that we saw coming out of COVID. The Navy has been providing as well as the Congress been and providing funding to address some of the challenges within the industry -- some Marine industrial base, and we're hopeful that over time, that will resolve. And we'll continue to see, I believe, improvement as we get into Block 5 and the supply chain stabilizes, but we've got ways to go there. And I think importantly, and this is the way we certainly think about it, Electric Boat just has to get better and faster to overcome any unexpected additional future supply chain challenges that may hit us. But we're not going to get into listing parts. This is an enormous supply chain. You can imagine with thousands of suppliers all over the nation. Peter Skibitski: That's fair. And kind of one follow-up Phebe. How is the -- how are you judging the pace of hiring and the labor risk kind of through the midterm at EB, just given the kind of the huge increases in volume that are required there? Phebe Novakovic: So again, coming out of COVID, I think we all felt a little bit of the labor constraint. But one of the reasons that we saw increased revenue in this quarter was extremely strong throughput coming out of as a result of robust hiring that they have executed and the training of those workers so that they hit the ground running, and we're able to have additional -- execute additional throughput up at So we consider that a good bellwether for our ability to continue to hire to meet our needs. Operator: Your next question comes from the line of Robert Spingarn from Melius Research. Robert Spingarn: Phebe, Combat has been discussed throughout the call, but just a couple of quick things. Would you -- is it fair to assume that the book-to-bill will continue to be above 1 for this year and beyond, just given the strength? And then the second part of this is, as armament munition sales grow will they be margin accretive or dilutive to the overall segment? Phebe Novakovic: So when you look at historically Combat orders, they tend to be pretty lumpy. I think the important way to think about it is the underlying credit could exist, let's say, it is an increasingly insecure and threat-driven environment, and that will drive additional orders, when those execute, will be a little bit lumpy, but we have -- we expect to see a continued demand, including on the munition side. But we have planned in -- for our plan this year, we've executed, we've anticipated margins that are pretty consistent with what they've been doing. It's just executing, operating, ensuring that we've got operating leverage, including on these new facilities that we're putting in place. But recall, this is a group that has extremely strong operating leverage and based on their efficiency and blocking and tackling on the shop floor. So we'll expect to see margins continue. Howard Rubel: And operator, we'll take this one last question, please, and then we'll wrap up the call. Operator: Certainly, your final question comes from the line of Cai von Rumohr from TD Cowen. Cai von Rumohr: Yes. So Phebe, I'm still a little confused about your statement that Q2 earnings should be the lowest because pretty clearly, it looks like Marine should be better absent the VCM charge. Combat usually is a little better. GDIT is stable. And you've highlighted Aerospace, but the volume is going to be higher than it was in the first quarter. Margins given where the volume was actually looked pretty good in the first quarter. So it would seem to imply a pretty steep drop-off in margins. Could you give us some color in terms of what is creating that situation? And is that something we should be worried about will continue in the third and fourth quarter? Phebe Novakovic: I tried to be pretty clear that we do not anticipate any -- at Gulfstream, the margin performance in these 2 first quarters replicating in third and fourth quarter. In fact, we see a fairly strong ramp to increase margins. These margins are aberrational and we do expect some additional perturbations on the supply chain and out of station work Gulfstream as well as mix issues. With respect to Marine systems, it's material timing between first and second quarters. And in technologies, it's transitioned from mature programs that are winding down and being replaced by some follow-on new starts. So in each one of these groups, we are seeing a convergence of in the quarter, particularly lower margins and lower earnings and sales than we typically see. We usually have a steady build through the year. This is rather, as I said, aberrational, but we'll get through this. And importantly, we don't see these issues leading into third and fourth quarter, we anticipate a very strong third and fourth quarter, and that is unchanged. Howard Rubel: Thank you for joining our call today. And as a reminder, please refer to the General Dynamics website for the first quarter earnings release and highlights presentation. If you have additional questions, I can be reached at 703-876-3117. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

Operator: Good morning, and welcome to the General Dynamics Q4 2022 Conference Call. All participants will be in listen only mode. Please note, this event is being recorded. I would now like to turn the call over to Howard Rubel, Vice President of Investor Relations. Please go ahead. Howard Rubel: Thank you, operator, and good morning, everyone. Welcome to the General Dynamics fourth quarter and full year 2022 conference call. Any forward-looking statements made today represent our estimates regarding the company's outlook. These estimates are subject to some risks and uncertainties. Additional information regarding these factors is contained in the company's 10-K, 10-Q and 8-K filings. We will also refer to certain non-GAAP financial measures. For additional disclosures about these non-GAAP measures, including reconciliation to comparable GAAP measures, please see the press release and slides that accompany this webcast, which are available on the Investor Relations page of our website, investorrelations.gd.com. With my introduction complete, I’d turn the call over to our Chairman and Chief Executive Officer, Phebe Novakovic. Phebe Novakovic: Thank you, Howard. Good morning, everyone, and thanks for being with us. Earlier this morning, we reported earnings of $3.58 per diluted share on revenue of $10,850 million, operating earnings of $1,230 million and net earnings of $992 million. Revenue is up $559 million or 5.4% against the fourth quarter last year. Operating earnings are up $41 million or 3.5%. Net earnings are up $40 million or 4.2% and earnings per share are up $0.19 to 5.6%. So, the quarter-over-quarter results compare very favorably and are in most respects consistent with our forecast and sell side consensus. The sequential results are even better. Here, we beat last quarter's revenue by $876 million or 8.8%, operating earnings by $129 million or 11.7%. Net earnings by $90 million or 10% and EPS by $0.32, a 9.8% improvement. As promised that it would be, the final quarter is our strongest for the year in both revenue and earnings. In fact, earnings per share, operating margins, net earnings and return on sales improved quarter over the previous quarter throughout the year. It was a nice steady progression of sequential improvement. For the full year, we had revenue of $39.4 billion, up 2.4%, net earnings of $3.4 billion, up 4.1% and earnings per fully diluted share of $12.19, up $0.64, a 5.5% increase. So overall, the year was also reasonably consistent with our forecast and modestly better than the sell side. It was a very solid year in a difficult environment. Let me ask Jason to provide detail on our overall order activity, very strong backlog and cash performance in the quarter and the year. Jason Aiken: Yes. Thank you, Phebe, and good morning. Order activity and backlog were once again a very strong story with a 1.2:1 book-to-bill ratio for the company for the fourth quarter and a 1.1 times for the full year. Order activity in the Marine and Aerospace groups led the way. We finished the year with a total backlog at an all-time high of $91.1 billion and total estimated contract value, which includes options and IDIQ contracts of nearly $128 billion. I should note that foreign exchange rate fluctuations continued to be a headwind, reducing year-end backlog by nearly $600 million with the vast majority of the impact in Combat Systems. Turning to our cash performance for the quarter and the year. It was another solid quarter with operating cash flow of $669 million, which brings us to $4.6 billion of operating cash flow for the year. After capital expenditures, our free cash flow for the year was nearly $3.5 billion, a cash conversion rate of 102%, slightly ahead of our target for the year of 100% of net income. As discussed on previous calls, Gulfstream enjoyed particularly strong cash performance throughout the year on the strength of its order activity and the Technologies Group once again delivered outstanding cash performance. That said, when we talked with you in October, we discussed three potential constraints to cash in the fourth quarter; the pending outcome of congressional action on the tax treatment of R&D expenditures; the timing of resumption of cash collections on the Ajax program in the UK; and an anticipated uptick in capital expenditures as we progress through our ongoing facility investments. As it turns out, the Congress did not act to remedy the requirement to capitalize R&D costs, we did not receive any payments from the UK, though we now expect payments to resume this quarter, and our capital investments were in fact elevated, consistent with expectations. I'll discuss that in more detail a little later in the call. The net result was a lighter fourth quarter from a free cash flow perspective but slightly better than we had expected and rounds out a very strong year in terms of cash performance despite the headwinds I discussed. I should also point out that free cash flow per share has grown at a 22% compound annual growth rate from 2019 through 2022. Phebe Novakovic: Thanks, Jason. Now let me review the quarter in the context of the business segment, paying modest attention to the quarter-over-quarter sequential and annual comparisons that are rather straightforward and set out in the press release. First, Aerospace. The story in aerospace is found in the sequential and year-over-year improvement as well as a continuing strong demand for Gulfstream aircraft, along with the overall strength of Gulfstream service business and the continuing improvement of Jet Aviation. In the quarter, Aerospace had revenue of $2.5 billion and earnings of $337 million. This represents a 4.4% increase in revenue and an 8% increase in earnings on a sequential basis. For the full year, revenue of $8.57 billion is up $432 million from the prior year, even though we delivered only one more aircraft than we did in 2021. The increase in both revenue and earnings was driven by higher service revenue at both Gulfstream and Jet Aviation. Earnings were also helped by somewhat higher margins on delivered aircraft. Fourth quarter revenue and earnings comparison on a quarter-over-quarter basis aren’t as attractive because three aircraft we plan to deliver in the fourth quarter slipped into the first quarter this year. Gulfstream had 38 deliveries in the quarter when we had planned to deliver 41. As a result, Aerospace revenue and earnings are somewhat less than anticipated by the sell side for the quarter and for the year, but generally consistent with our forecast. I should also point out that Aerospace margins improved consistently quarter-over-quarter throughout the year. Aerospace demand remained strong. The book-to-bill was 1.2 times in the quarter and 1.4 times at Gulfstream alone. Orders in the quarter were $3 billion, up from $2.7 billion in the third quarter. The aerospace book-to-bill for the year was 1.5 times. To give you a little more color, Gulfstream received 430 new aircraft orders over the past two years, over 400 net orders after default and backlog adjustments as a result of the settlement of a case in arbitration. All said and done, aerospace backlog is up 20% in 2022 and a staggering 68% over the past few years. As we go into the new year, the sales pipeline remains strong and sales activity is at a solid pace. At midyear 2022, we told you to expect revenue of about $8.6 billion and an operating margin of around 12.9%. We actually finished the year with a 13.2% operating margin. In short, we were spot on with respect to revenue and 30 basis points better on operating margin, which led to a $25 million more than forecast in operating earnings. With respect to G700 development, we estimate it will certify this upcoming summer but much depends on available FFA resources. So far, the effort has been very collaborative and is proceeding according to plan with no surprises. In summary, Aerospace exhibited very strong performance in the quarter and for the year. We look forward to a significant increase in deliveries in 2023 at Gulfstream and improved operating margin, but more about that as we get into guidance. We also expect continued growth and margin improvement at Jet. Next, Combat Systems. After a relatively slow start to the year, Combat Systems finished with a powerful fourth quarter. In fact, the fourth quarter of 2022 proved the highest revenue and earnings for Combat Systems in over 10 years. Revenue in the quarter was $2.18 billion, and it's up 15.5% from the year ago quarter. Operating earnings of $332 million are up 18.1% on a 30 basis point increase in operating margin. OTS alone captured more than one-third of its revenue and earnings in the fourth quarter. The revenue growth was largely driven by Mobile Protected Firepower, Abrams for Poland and the large international order in Canada. OTS enjoyed higher revenue across all lines of business with particular strength in artillery rounds. Not surprising, the sequential comparisons are even better. Revenue is up $391 million or 21.9% and earnings are up $61 million or 22.5% on the strength of a 15.2% operating margin. From an orders perspective, Combat had a very good year in 2022 with a book-to-bill of 1.1 times, driven by MPS, very strong international demand for the Abrams main battle tank as well as growing demand on the munition side of the business. By the way, Combat's annual performance is fairly consistent with the forecast we provided you earlier in the year. Revenue and operating earnings are up somewhat and operating margin is a little lower. In short, this group had a wonderful quarter, continued its history of strong margin performance and had good order activity and a strong pipeline of opportunity as we go forward. Marine Systems. The Marine Systems growth story continues. Fourth quarter revenue of $2,970 billion is up 3.4% over the year ago quarter. Revenue was also up 7.2% sequentially and 4.9% for the full year. Operating earnings are up about 1% over the year ago, of less than 0.5% sequentially and up 2.6% for the full year. Once again, this is the highest full year of revenue and earnings ever for the Marine group. A little perspective may be of assistance here. Marine Systems has grown revenue from $8 billion in 2017 to $11 billion in 2022, this is a 5.3% compound annual growth rate with an average increase of $600 million per year. Earnings have grown from $685 million in 2017 to $900 million in 2022, a 5.5% compound annual growth rate. In addition, Marine had strong orders in the quarter, generating a 2.2 times book-to-bill, including the receipt of a $5.1 billion contract modification to Colombia. Our forecast to you in July of last year anticipated revenue of about $10.8 billion, operating margin of 8.3% and operating earnings of $896 million. We came in above that for revenue, a little lower on the predicted operating margin and right on the forecasted earnings. So, Jason is going to give you a little color on the Technologies Group, his new responsibility, provide a bit of perspective on balance sheet, other income and expense items, and I will close with our outlook for 2023. Jason Aiken: The Technologies Group as a whole had a very strong finish to a solid year and a very challenging operating environment. Revenue in the quarter of $3.25 billion was up 9.3% over the prior year and up 6% sequentially. Operating earnings of $340 million were up about 2% over the fourth quarter of 2021 and sequentially, were up an impressive 19%. The main driver of the fourth quarter performance was Mission Systems' ability to overcome some of the logjam in its supply chain and deliver some of the product that was held up at the end of the third quarter. While these issues have not been completely resolved, the fourth quarter performance gives us good reason for optimism that they're starting to see their way through this. For the year, revenue of $12.5 billion was up just slightly from 2021. Breaking that down, GDIT once again grew in the low single digits, up 1.6% after 2.2% growth in 2021. Mission Systems was down 2% despite the strong end to the year. Earnings for the year of $1.23 billion were down 3.8% on a 40 basis point contraction in margin to 9.8% as a result of the mix shift between product and service revenue as GDIT reported its highest margin since the CSRA acquisition and its highest ever earnings, but Mission Systems was down for the reasons discussed. With respect to backlog, the Technologies Group had a solid year, notwithstanding an ongoing trend of customer solicitations pushing to the right and recurring award protests. GDIT received over $11 billion in awards during the year, almost 20% higher than 2021, representing more new work than any year since the CSRA acquisition. And Mission Systems finished the year with a 1.1 times book-to-bill and a capture rate in excess of 80%, putting them in a good position to emerge from the supply chain headwinds they've been facing. With that, I'll turn to some of the financial particulars before turning it back over to Phebe to give you our guidance for 2023. Starting with capital deployment in 2022. Capital expenditures, as I noted, were elevated in the fourth quarter at $494 million or 4.6% of sales. That brings us to $1.1 billion for the full year. At 2.8% of sales, full year capital expenditures are slightly higher than our original expectation due strictly to timing. We expect capital expenditures to start to step back down below 2.5% in 2023 and continuing to trend towards historic levels. We also paid $345 million in dividends in the fourth quarter bringing the full year to $1.4 billion, and we repurchased approximately 440,000 shares of stock in the quarter, bringing us to over 5 million shares for the year for $1.2 billion at just under $226 per share. With respect to our pension plans, we contributed $50 million in 2022 and we expect that to increase to approximately $200 million in 2023. This includes a modest voluntary contribution to one of our commercial plans, which was made this month and fully funds the plan that had a funding gap of more than $500 million within the past two years. Concurrently, we shifted the investment mix to hedge the plan's $2 billion of liabilities, thus eliminating any funding risk associated with market volatility or discount rate fluctuations. However, as a result of the change in investment mix, our pension income will be lower in 2023. Following this derisking activity, we expect our corporate operating expense for 2023 to be approximately $140 million and our other income to be approximately $80 million, a combined reduction of roughly $125 million in nonoperating noncash income from 2022. Speaking of pension income, the fourth quarter had higher than anticipated other income as we benefited from higher discount rates for measuring liabilities on our nonqualified pension plans, which are mark-to-market at the end of the year. We also repaid $1 billion of fixed rate notes in the fourth quarter. After all this, we ended the year with a cash balance of over $1.2 billion and a net debt position of $9.3 billion, down approximately $600 million from last year. We have $1.25 billion of debt maturing in 2023. Our net interest expense in the fourth quarter was $85 million, bringing interest expense for the full year to $364 million. That compares to $93 million and $424 million in the respective 2021 period. Pending our decisions with respect to the scheduled debt maturities, we expect interest expense in 2023 to remain essentially consistent with 2022. Turning to income taxes. We had an 18.1% effective tax rate in the fourth quarter, which brings our full year rate to 16%, consistent with our guidance. Looking ahead to 2023, we expect the full year effective tax rate to increase to around 17%, reflecting higher taxes on foreign earnings. The sum total of these below-the-line items versus the comparable levels in 2022 is a net negative impact on 2023 diluted earnings per share of $0.63. And finally, with respect to our outlook for free cash flow, following a strong 2022, we expect cash conversion in 2023 to be better than 100%, roughly in the 105% range, assuming the resumption of Ajax receipts in the first quarter, as I mentioned earlier. That concludes my remarks. I'll turn it back over to Phebe. Phebe Novakovic: Thanks, Jason. So, let me provide our operating forecast for 2023 with some color around our outlook for each of the business groups and then a company-wide roll-up. In 2023, we expect Aerospace revenue to be around $10.4 billion, up between $1.8 billion and $1.9 billion. Margin is expected to be up 140 basis points to 14.6%. Gulfstream deliveries will be around 145, up a little over 20%. This is all consistent with the multiyear forecast we gave you in January of 2021 and at the end of Q2. In Combat Systems, at this time last year, we had anticipated revenue to be down slightly in 2023, following a modest decline in 2022 with a return to low single digit growth later in our planning horizon. Since then, the threat environment has clearly changed. Continuing the better-than-expected performance in 2022, we expect the group to hold steady again in '23 with revenue of $7.3 billion and operating margin once again towards the high end of their reliable 14% to 15% range at 14.7%. The improved outlook is a result of strong order activity we saw in 2022, including the MPF Award and growing international demand, particularly the tank order in Poland, which came in sooner than had been anticipated. We're seeing demand signals resulting from the war in Ukraine, but we've only just begun to see that manifest in our backlog at this point. To the extent those demand signals start to convert into order activity, we could see some opportunity for additional revenue in the latter part of the year, particularly in our armaments and munition business. As I noted earlier, Marine Group has been on a remarkable growth journey, averaging $600 million a year. Our outlook of $400 million to $500 million per year over time remains unchanged. However, the supply chain constraints of the Virginia program will drive some annual variability this year. As a result, the group's revenue for 2023 will remain essentially flat at $10.9 billion as well their operating margin rate at 8.1%. We anticipate a return to growth in 2024 and 2025 at around $600 million a year. We expect revenue in the range of $12.5 billion to $12.6 billion in the Technologies Group. To give you a little color behind this outlook, GDIT will continue to grow at a low single digit pace consistent with the past two years. Mission Systems, however, will be challenged from a revenue perspective, particularly in the first half of the year as they work through the lingering supply chain issues they've been dealing with for the past 18 months. As a result, their revenue will be down slightly compared with 2022. The resulting shift in the group's revenue mix, with stronger service activity but lower hardware volume was yield in operating margin in the 9.5% range, sustaining their industry leading performance, albeit slightly lower than 2022. So, for 2023, company-wide, we expect to see approximately $41.2 billion to $41.3 billion of revenue, an increase of almost 5%. We anticipate operating margin of 10.9%, up 20 basis points from 2022. This all goes up to a forecast range of $12.60 to $12.65 per fully diluted share. On a quarterly basis, we expect a pattern similar to what we've seen in recent years with sequential increases in revenue and operating margins throughout the year. As always, this forecast is purely from operations. It assumes we buy only enough shares to hold the share count steady to avoid dilution from option exercises. Beating our EPS guidance must come from outperforming the operating plan and the effective deployment of capital. Let me close with an observation. Our forecast comes from our operating plan. It is conservative as it must be in this environment of unpredictable financing of the government. However, the threat environment suggests increases in defense spending. In short, I see more opportunity than risk in our forecast. With that, I'll turn it over to Howard to start the Q&A. A - Howard Rubel: Thanks, Phebe. As a reminder, we ask participants to ask one question and one follow up so that everyone has a chance to participate. Operator, could you please remind participants how to enter the queue? Operator: [Operator Instructions]. Our first question comes from Myles Walton with Wolf Research. Myles Walton: I was hoping maybe you could touch on a couple of things. One, Jason, your new role and how you sort of think about balancing the act between the CFO and the operating segment roles and responsibilities which you intend to focus on there. And then maybe on the capital deployment front for '23 at 105%, obviously, you've got a lot of excess cash. Should we expect you to pick up repurchase activity in '23 versus '22 or relatively similar? Jason Aiken: Myles, I think with respect to your first question, looking at the new responsibility and that opportunity. First and foremost, it's important to remember that these businesses are run by two excellent and accomplished presidents. And frankly, I have the highest level of confidence in them and their teams. When I look back over recent history in this role, Chris Marzilli, really helped steer this business through a period of remarkable change and transformation, not to mention COVID. And I don't think as I look ahead that this market is going to become any less dynamic. So I think the focus really is on continuing to make sure that the businesses continue to focus on their bottom line, earnings and cash as always but frankly, also finding our way to a sustainable top line growth trajectory, and that will really be the emphasis. In terms of balancing the two, I'm humbled and honored to have this dual responsibility, fortunately entering my tenth year in the role as CFO. So I feel confident about the ability to handle both at the same time. Phebe Novakovic: So with respect to our capital deployment, we'll continue to invest in our business where prudent. We'll continue to maintain our dividend and we'll repurchase shares accordingly. So I don't see any big change in the priorities at least for our execution. Operator: Our next question comes from David Strauss with Barclays. David Strauss: Phebe, could you touch on -- you mentioned three deliveries that slipped out. Was that customer preference, was that supply chain related? And then it doesn't appear that you're going to -- your prior guidance was 148 deliveries this year, now you're talking 145. So it doesn't seem any makeup there. And then last thing, the 170, I think you forecasted for '24 deliveries. Does that still hold? Phebe Novakovic: So let me go in order. We had, as I noted, three airplanes have slipped into this quarter. One was simply an issue that we just couldn't get it completed in time and two of them were customer preferences for international deliveries. With respect to the production next year, we are confident that we can make that and our trajectory going forward past this year remains the same. So directionally and we're right on track, and we're comfortable we get there. Operator: Our next question comes from Seth Seifman with JPMorgan. Seth Seifman: I wonder if you could talk a little bit more about Marine and the supply chain challenges at Electric Boat. And specifically, what we should be looking for in terms of any particular metrics, whether it's hiring or deliveries or certain milestones to get a sense that things are firming there and kind of also what the risk is of further deterioration in schedules. Phebe Novakovic: So let's deconstruct that and I think we have to posit few truth. We went into COVID with scheduled variants on Virginia. Virginia is also about a third of the Electric Boat revenue. COVID had a profound impact on many aspects of our lives, but particularly lasting one on the workforce. We had labor discontinuities throughout the United States and we also experienced something that we had not anticipated abnormally large retirement of experienced workers. In a business that is heavily manpower dependent, these impacts had a disproportionate effect on additional schedule variants. We are working with the Navy who's been quite active and engaged in helping develop a plan and a really detailed action list on how to address these issues. And ship building and the supply chain are fixed by incremental improvements over time. So, what do we see at the moment? We see stabilization in the workforce. I think across the nation, we've got a little bit better labor dynamics than we did immediately coming out of COVID. We also have additional experience in what some of the challenges have been. So the way I look at it, this year will give us a bit of a chance to dig further see funds to the velocity of the material coming into Electric Boat. And that ought to be a good thing for all involved despite and notwithstanding the considerable issues around schedules. I would note that the Submarine Industrial base delivered two submarines last year, and we're going to deliver two more this year. So, I think maintaining that cadence of delivery is important. But in much of shipbuilding, milestones are difficult to identify really until you get the ship in the customers' hands. So, as I said, we're working very closely with the Navy to ensure that we could just get back some of that schedule variance on the remainder of the Block 4 ships and on the Block 5 ships. Seth Seifman: And maybe just to follow up specifically on that. Most of the discussion -- our discussion today and then the trade press has been about Virginia. How's the Columbia schedule holding up? Phebe Novakovic: So we're about 30% done on the first ship and we are ahead of the contract schedule. Operator: Our next question comes from Peter Arment with Baird. Peter Arment: Phebe, maybe just to stay on Seth's line of question just on Marine. Maybe you could just -- there's been a lot written about just the industrial base, and you just mentioned it. How are you thinking about just maybe the CapEx profile and in particular, things start to get unveiled on [ACAS] (ph), what the plans might be there? Just should we expect any further step-up in CapEx [Technical Difficulty]? Phebe Novakovic: Not with respect to ACAS. And I think we have, as I've said on earlier calls and to many of you in person, we'll just take our lead from our Navy customer on how they want us to respond to all of this. So this is really an intergovernmental series of discussions and agreements and we will, of course, support whatever the Navy plan is going forward. Peter Arment: And just as a quick follow-up, just maybe just in general on the supply chain. You talked about the constraints in marine and some of the issues at Mission Systems. Has it gotten worse submission or do you think it's actually kind of stabilized? And this is just -- if is what it is, what's going on in the marketplace? Jason Aiken: So I think with respect to Mission Systems, we have to really focus on what it is we're talking about here, which is really chips and microelectronics, right? So unlike some of the other parts of the business, which are heavily labor and availability of workforce driven. So this is really, obviously, for Mission Systems an issue that's impacting industries much broader than just us or us in the Aerospace and Defense side. And I think when these issues first surfaced, Mission Systems did a really nice job of developing workarounds, right? Finding alternate sourcing, certifying substitute parts and so on. So, all of those actions were predicated on the expectation that the supply chain would kind of come through this and get over the hump within, call it, a year plus or minus. But frankly, as we've continued to work our way through it, it's become clear that we're not always at the top of the priority list for some of these sources of supply. So when they saw the bottlenecks we were dealing with were going to persist somewhat longer than expected, the team really adapted to this new normal with a whole new set of tactics. That includes procuring key components with longer lead times anywhere from 12 to 18 or even 24 months, as well as working with key suppliers to improve the forecasting that we were giving them and the reliability of demand so that they could have confidence in where we were going and allocate additional capacity to us and our priorities. So, all of that is in place and underway. As you might imagine, some of those things take a little longer to yield results. So that's why we're expecting that to kind of come through in the second half of this year. But we do feel like they've got a good plan in place, they've taken great corrective actions, and we just need to see that all sort of roll out and to get to the other side of this, but it's likely to be toward the second half back into this year before that all takes hold. Operator: Our next question comes from Ron Epstein with Bank of America. Ron Epstein: You've talked about this a little bit in your prepared remarks about the impact that the Ukraine could potentially have on Land Systems. Maybe from a bigger strategic point of view, it seems like in the past, the logic had always been the Army was a bill payer for the Navy and the Air Force. Is that -- are we learning a different lesson now out of the Ukraine and what kind of implications potentially does that have for your Land Systems business? Phebe Novakovic: So, if you look at the services funding over, I'd say, in the modern air post World War II, the Army gets funded when they're tactical challenges and tactical problems, either a hot war, relatively cold war or preparedness, this is an issue where we've got both strategic challenges in which the Navy and the Air Force tend to get funded. And as I noted, the threat environment has materially changed. So that has driven increased interest in a number of Army and land forces capabilities. And as we've begun to see those show up in our in our backlog and in our order book, but we've got more room to grow and more room to go there as some of this demand converts into actual orders. So, when I think about what's going on in Europe, our European Combat Vehicle business has done quite well in securing a number of contracts, both historically but increasingly recently and on a -- what we expect on a going forward basis. They've been active in Poland, Romania, Switzerland, Germany, Denmark, Spain, Sweden, Luxembourg. By the way, I wrote all those down because that's a lot of countries. So I think the closer you are to the threat, the more urgent you feel your funding requirements. So all of which is to say, we have changed our expectations for Combat Systems growth. By the way, overarching all of this is a need to increase our ammunition and projectile output, and we've been working with the Army for the last three, four, five months on exactly that kind of plan. So as we've always posited, the threat environment really drives demand for defense products and we're seeing some of that now. Operator: Our next question comes from Jason Gursky with Citi. Jason Gursky: Jason, I want to take the opportunity to ask you a question about the Technologies Group. I know you've been in the seat for just a small amount of time, but I'm maybe curious to know as you settle into your seat, the kinds of investments that you think you might want to make either in technologies or new products and services or in processes BD in order to accelerate revenue. Just kind of get your first impressions on the needs there in the group and what might change with you now taking over leadership of that group. Jason Aiken: So I think the way to think about this group between GDIT and Mission Systems, technologies taken together, is that we currently are and have been for quite some time, in a model and of the capability set that a lot of the peer companies out there are trying to get to. That is a well balanced and comprehensive set of offerings between the traditional federal IT services offerings as well as cyber, hardware and other elements of that portfolio. And so I don't think we have to necessarily play catch up as much in that game. I think there's always opportunities to refine and enhance the portfolio. As I mentioned earlier, this is not going to stop being a dynamic environment. We are, as always, have continued to invest internally in new technology capabilities, that will continue to be the case. As you know, I'll say what I know Phebe would say if she were talking right now. We're not going to speculate about M&A. There's always the possibility for bolt-on acquisitions. I would note, by the way, since you brought up the point that since we acquired CSRA in 2018 and essentially transformed the face of this group with the size and capability of our federal IT services business. There have been -- if I look at GDIT's competitor group, call it, the top five or six main peers, there have been some 40 to 45 acquisitions in that space that those companies have taken on and we have not done any. We've done a couple of small bolt-ons in Mission Systems during that time, but nothing in GDIT space. And so it's interesting to see how the others are behaving in the aftermath of that activity and a lot of the consolidation that's happened in the industry. But I think we put ourselves in very good stead and we see a lot of a lot of others following suit. So I don't think there's a massive sea change in what we have planned ahead, but we'll continue to focus on maintaining our leading position in the market. Operator: Our next question comes from Cai von Rumohr with Cowen. Cai von Rumohr: So you margin was up a little bit sequentially at Gulfstream and yet my understanding was you had some software warranty charges in the second and third quarter associated with the G500 and G600. So were there any other -- what were the reason the margins weren't a bit better there in Aerospace? Phebe Novakovic: The margins are pretty darn good. We have performed what we had told you. And so we were pretty pleased with that. I would note that one of the headwinds is R&D. So the additional work that has been required from the airworthiness directive and the new FAA requirements as a result of the MAX have driven increased R&D. And we'll continue to see some of that and then that will begin to unwind. But I think those are very strong margins and better than we had anticipated in our guidance to you. Cai von Rumohr: And Jason, the guide for Mission Systems margins is down over 200 bps from where you've been. Once things start to sort out, where do you see Mission Systems margins can go? Can they go back to where they were? Jason Aiken: So I want to make sure I think you're saying technologies as a whole because we don't really give -- or business unit specific margin guidance within the group. But given what you're saying, I think if you look back to prior to the CSRA acquisition, when the IT services side of the business became, frankly, our largest business group and the lion's share, the sort of two thirds, if you will, or more of the technologies grew. We used to -- the combined margin of those businesses used to be in the, call it, the low double digit range, it's usually between 10% and 11% on a fairly consistent basis. Since we acquired CSRA, we've averaged over the past five years 9.8% margin for the group. So what we're seeing right now is really just a shift in the moment where we've had GDIT come through that significant integration effort for the first couple of years followed immediately on the footsteps of that with the impacts of COVID, they've really embarked on a nice steady trajectory now of low single digit growth for several years now, and we expect to see that continue. As Mission Systems in the moment is dealing with the supply chain issues that have been, I think, well addressed, their volume is down a bit. So what we're seeing in terms of the group's margin, aggregate margin, is really nothing more than a shift in the mix between the two. So that's with the increased service side of the business and the lower volumes on the product and hardware side of the business. So as Mission Systems comes through this and gets back on track to a growth level, which we do expect to see happen once they come through these issues, you ought to see the margin on an aggregate basis tick back up. And by the way, that's not -- shouldn't overlook the fact that GDIT on its own is continuing to improve and harvest its margins as it grows. I think I said before, they had their highest margin as a business since we acquired CSRA and their highest earnings contribution to the company ever. So everything, I think, is headed in the right direction, just got to come through the supply chain issues at Mission Systems and that will help influence the mix, and we ought to see a trend back up toward the 10% level over time. Operator: Our next question comes from Pete Skibitski with Alembic Global. Pete Skibitski: Just following on to Ron's question earlier on combat and that was standing the flat outlook for this year, but you talked about the international demand, and it seemed like Congress added quite a bit of money for Stryker and Abrams to the '23 budget. So can you give us any sense of kind of the CAGR that you think is a reasonable expectation after 2023 when things begin to -- or when the demand begins to actually convert for you? Phebe Novakovic: So I think what we're looking at now is low single digit growth. So if we see anything over time that accelerates that, we'll certainly let you know that that's our best planning in the moment in consultation with our customer. Operator: Our next question comes from Sheila Kahyaoglu with Jefferies. Sheila Kahyaoglu: Maybe overall on the defense portfolio as a whole, all three segments. When you think about it, you're guiding the business flat on the top line perspective and EBIT as well. The budget is up 10 and you have some pretty good programs in there. How do you think about that delta and when it catches up to the budget and EBIT growth resumes? Phebe Novakovic: So I think that's more in '24. One of the big issues there, as I said, is Virginia. But look, the way I look at the defense portfolio, we have an extremely strong backlog and now it's just a question of executing, executing across that portfolio. So I'm not too worried about growth on the defense side at all nor on the aerospace side. There is one thing that I think we're focused on, we should be focused on, and I neglected to mention this earlier. But with respect to execution, one of the things that we can do on Virginia and frankly at EB, in general, is to continue to improve our operating performance. That provides us more ability to cover some of the perturbations that are coming out of the supply chain. So I really think about all of this as execution. Growth comes when it comes. We've got the backlog to support it. And so I like the position we're in, frankly. Sheila Kahyaoglu: And then if I could ask one more. I don't know if you provided it. Can you give us an update on the G700, G800 certification processes? Phebe Novakovic: So we still expect the G700 to convert -- get certified this summer. And the G800 will be about six months after that, so we don't see any change in that. And the relationship has been going very well with the FAA. So we are continuing to look forward to finishing all the certification processes. Now that -- I will tell you that is outside our complete control, a lot of this is FAA resources and their ability to focus, given all the other demands that they have on them, but so far so good. Operator: Our next question comes from Ken Herbert with RBC. Phebe Novakovic: I guess, we lost him. Ken Herbert: Sorry about that. I was muted. I wanted to first ask, within Aerospace, really good growth in the services business. What's the outlook for services growth in '23 as part of the aerospace guide? And can you talk a little bit about investments that you're making in that business? Phebe Novakovic: We expect low single digit growth in our service side. And we continue to invest prudently when we see the need for more service capacity. But at the moment, we're pretty -- nothing really outstanding in that regard. You've got the capacity to accommodate what we see as reasonable steady growth. Ken Herbert: And just a quick clarification on the 700 certification this summer. As obviously, you commented you're working with the FAA closely and a lot of this is -- or some of this is out of your control. How would you characterize your visibility or sort of the ongoing risks around I guess, FAA capacity to support that? I mean do you feel like you're well through that risk retirement or is there still substantial uncertainty and risk associated with that summer time frame? Phebe Novakovic: I think the FAA has done a good job managing its portfolio and a series of complex and multifaceted requirements. And so far, we are sticking to what we believe is a reasonable expectation for the certification. Operator: Our next question comes from Robert Stallard with Vertical Research. Robert Stallard: Just a couple of quick ones from me, Phebe. First of all, on Ukraine, it looks like they're going to get Abrams tanks. At what point does capacity in some form or other particularly staffing become an issue? And then secondly, just for Jason, what sort of book-to-bill have you assumed in aerospace for 2023 in your cash flow guidance? Phebe Novakovic: Staffing is not an issue here. There is plenty of capacity on the combat vehicle side, both tracked and wheeled. So to the extent that the US government intends to execute any contracts with respect to some of these bilateral agreements that they are developing, we can -- it's well within the capacity of the industrial base to accommodate. Jason Aiken: And then, Rob, with respect to your second question, as it relates to aerospace book-to-bill, much like going into 2022, we've assumed a return to a 1:1 book-to-bill and that is one of the predicates for our cash flow forecast. So to the extent they outperform, obviously, that could provide some upside. Operator: Our next question comes from Scott Deuschle with Credit Suisse. Scott Deuschle: Phebe, you touched on it a bit in your prepared remarks. I was curious if you could comment a bit more in depth on the sales pipeline at Gulfstream and the latest trends you're seeing there, both from individual buyers and the corporate buyers. And then for Jason, I was just wondering if you could identify what the unbilled receivable balance was on Ajax at the end of the year and how much of that you expect to burn down this year? Phebe Novakovic: With respect to our pipeline, I noted that it remains strong. I would also say that corporate America has been very active, both public and private companies, high net worth individuals. Europe remains slow. Mid East just picked up. Southeast Asia, let's say, not China, has been increasingly active. So we've got a good demand across all of our offerings in all of our aircraft. Jason Aiken: And then on your second question, as it relates to the Ajax unbilled, that's at the end of the year, roughly $1.7 billion is where we stand right now. I don't want to get into the specifics of how much we expect to collect this year, that's part of ongoing discussions with that customer. But needless to say, as I mentioned in my remarks, we do have good reason to expect those cash receipts to resume before the end of this quarter. And so we'll start to see that unbilled balance come down. Howard Rubel: Operator, this is Mr. Rubel. We'll take one more question, please and then we'll wrap the call up. Operator: Our final question comes from Robert Spingarn with Melius Research. Robert Spingarn: Phebe, going back to an earlier question on entry into service for 700 and 800. When would might we expect the R&D to decline, I don't know how much the 400 would use, and what would the incremental margins at Gulfstream look like once that happens? I imagine that's 24 or is it 25? Phebe Novakovic: So I think we expect R&D to begin to go down at the end of next year. And look, we have Gulfstream is an extremely high performing operationally strong company. And so I think we have demonstrated incremental improvement in margins as our operating efficiency and discipline in our supply chain, engineering. And really on the shop floor, all of that has improved. So I think there's upward over time, margin opportunity, but we're not going to get into parsing specifics until we have good clarity. But we're very comfortable that we will improve steadily and repeatedly. Robert Spingarn: And just a clarification on the FAA, you talked about it earlier. Are they still in the discovery process as they evolve their system after what's happened at peers over the past couple of years, or is there a set process that is in stone at this point? Phebe Novakovic: Yes, I think that that's a broader question than I'm able to answer. What I can tell you is that our relationship and working relationship with the FAA has matured significantly. And we think we all have a very clear understanding of what the new requirements are and how to execute them. Robert Spingarn: Okay, thank you very much. Howard Rubel: And thank you all for joining us today on this call. As a reminder, please refer to the General Dynamics Web site for the fourth quarter earnings release, highlights presentation and outlook. If you have any additional questions, I can be reached later today on my office at (703) 876-3117. Operator? Operator: There are no further questions at this time, which concludes today's conference. Thank you for attending today's presentation. You may now disconnect.

Operator: Good morning and welcome to the General Dynamics Third Quarter 2022 Earnings Conference Call. All participants will be in a listen-only mode. Please note, that this event is being recorded. I would now like to turn the conference call over to Howard Rubel, Vice President of Investor Relations. Howard, please go ahead. Howard Rubel: Thank you operator and good morning everyone. Welcome to the General Dynamics third quarter 2022 conference call. Any forward-looking statements made today represent our estimates regarding the company's outlook. These estimates are subject to some risks and uncertainties. Additional information regarding these factors is contained in the company's 10-K, 10-Q, and 8-K filings. We will also refer to certain non-GAAP financial measures. For additional disclosures about these non-GAAP measures, including reconciliations to comparable GAAP measures, please see the slides that accompany this webcast which are available on the Investor Relations page of our website, investorrelations.gd.com. With that completed, I turn the call over to our Chairman and Chief Executive Officer, Phebe Novakovic. Phebe Novakovic: Thank you, Howard. Good morning, everyone, and thanks for being with us. Earlier this morning, we reported earnings of $3.26 per diluted share and revenue of $10 billion. Operating earnings of $1.1 billion and net earnings of $902 million. Revenue is up, $407 million or 4.3% against the third quarter last year. Operating earnings are up $18 million or 1.7%. Net earnings are up 4.9% and earnings per share are up 6.2%. So the quarter-over-quarter results compare favorably. The sequential results are even better. Here we beat last quarter's revenue by 8.6%, operating earnings by 12.3%, net earnings by 17.8% and EPS by 18.5%. We beat consensus by $0.11 per share on somewhat higher revenue than anticipated by the sell side. Operating margin is about as anticipated. Most of the beat came from various other items including a lower tax rate than anticipated by the sell side. On a year-to-date basis, net earnings are up $93 million or 4% and earnings per share are up $0.45 a strong 5.5%. We also had another very strong quarter from a cash perspective, net cash flow provided by operating activities is $1,280 billion. Free cash flow was $1.03 billion, a 114% of net income. This follows a very strong cash performance in the first half. Order performance was good in the quarter across all segments and particularly strong at Gulfstream. You will hear more detail on cash and backlog from Jason a little later. In summary, we enjoyed a strong quarter particularly so unlighted supply chain foreign exchange and inflation headwinds. So let me move right into some color around the performance of the business segments. First Aerospace. Aerospace had revenue of $2,350 billion and operating earnings of $312 million with a 13.3% operating margin. Revenue is $281 million more than a year ago quarter up 13.6%. Operating earnings up $50 million more, up 19.1% on higher revenue and a 60 basis point improvement in margins. The sequential improvement is even better, revenue is up $480 million or 25.7% and operating earnings are up $74 million or 31.1%. To be fair, the prior quarters revenue and earnings were somewhat lower as a result of the inability to deliver for Aircraft, due the airworthiness directive, which was fully resolved in the third quarter. From an audit perspective, this was yet another good quarter reflecting continuing strong demand. The Aerospace book-to-bill was 1.15:1, Gulfstream Aircraft alone had a book-to-bill of 1.3:1 and 1.9:1 year-to-date. The first point and perspective since the end of the third quarter of 2021, Aerospace total backlog has grown $4,362 billion, to reach a very robust $19.1 billion. Despite apparent macroeconomic headwinds, we continue to experience a strong level of interest, good activity and a replenishing pipeline, Certainly, demand in the quarter was not as super-heated as prior quarters, but still the book-to-bill was very good against a significant increase in deliveries. Only time will tell about the macroeconomic impact, but we continue to see strong interest in Gulfstream aircraft and services. From a product perspective, the G500 and G600 of now seen FAA removed the wind-related airworthiness directive right on the schedule we had previously forecast. Almost the entire fleet had received the installation of the upgraded software by the end of the quarter. We have delivered 188 of these aircraft to customers through the end of the quarter. The G500, G600 together led the quarter in orders follow closely by G650. This is a very successful program with real market momentum. With respect to G700 development, the control law software validation is scheduled to begin FAA-type inspection authorization during the first week of November. We estimate we will certify this upcoming summer but much depends on available FAA resources. Gulfstream had 35 deliveries in the quarter. If everything goes as planned, we'll deliver 40 to 41 aircraft in the fourth quarter. I haven't said much about Jet Aviation, but suffice it to say, it performed well in the quarter with improving margins in its MRO activities. In short, Aerospace exhibited very strong performance in the quarter and should have an even stronger fourth quarter. Next, Combat. Combat Systems had very similar results on a quarter over year ago quarter basis, but with strong improvement sequentially. The Combat Systems revenue of $1.790 billion is up 2.5% from the year ago quarter. earnings are down 1.8% on a 60 basis point reduction in operating margin. Nevertheless, the operating margin in the quarter is an impressive 15.2%. On a sequential basis, Combat Systems revenue is up $122 million or 7.3%, while operating earnings are up a very significant 10.6% on a 50 basis point improvement in operating margin. Demand across the segment provided a book-to-bill of 1.3:1 with a large order for Abrams main battle tanks for Poland, orders for $370 million for munitions and ordinance, and in order for 39 labs from the Canadian government. We also received our first order related to the Ukraine at our munitions business. All of this increases the Combat Systems total backlog to $13.8 billion. In summary, this was an impressive new business quarter with strong operating performance once again by the Combat Systems group. Next, Marine. Revenue of $2.8 billion is up $132 million, 5% over the year ago quarter. This quarter's revenue growth was distributed fairly evenly between electric boat and NASCO. Revenue is also up $118 million or 4.5% sequentially. Year-to-date revenue is up $415 million or 5.4%. Revenue in this group has been up for the last 20 quarters on a quarter-over-quarter basis. This is very impressive continued consistent growth. Operating earnings are $238 million in the quarter, up $9 million or 3.9% on operating margins of 8.6%. On a sequential basis, operating earnings are $27 million or an impressive 12.8% on a 60 basis point improvement in margin. At Electric Boat, the Columbia first ship remains on cost and on contract schedule. The ship is more than 25% complete. NASCO had a particularly good quarter with improved TAO revenue and better margins across the board. From an orders perspective, Electric Boat received a large maintenance and modernization order for the USS Hartford. NASCO received orders for an additional ESB and 2 TAO oilers. As a result, book-to-bill was 1.1:1, leading to a $400 million increase in backlog. Throughout the group, we have a solid backlog of new construction and repair work. Our programs are also well supported in the FY '23 budget. In summary, revenue growth is clearly visible. And as I've said before, the real opportunity given the steady revenue visibility is margin improvement over time. Moving to Technologies. This segment has revenue of $3.71 billion in the quarter, down $49 million from the year ago quarter or 1.6%. The revenue decrease was fairly evenly split in dollar terms between Mission Systems and IT. Mission Systems suffered from nagging supply chain disruptions and the failure of some government customers to obligate funds for authorized and appropriated products. In the case of IT services, it was largely timing and program mix. Operating earnings of $285 million are down $42 million or 12.8% on a 120 basis point reduction in operating margin, exclusively attributed to Mission Systems and largely related to the issues impacting revenue. Total backlog remains relatively consistent over all comparative periods with a book-to-bill of 1:1 in good order prospects on the horizon. The pipeline remains very active at both businesses. GDIT enjoyed another solid operating quarter with healthy earnings and particularly strong cash in part due to good results in the federal civilian division. While we continue to see procurement delays, GDIT's year-to-date wins exceeded full year 2021 awards in dollar terms. These wins highlight the nice momentum in the business as GDIT begins to realize the benefits from targeted investments in the technical differentiation of its offerings. And this, despite the more than $3.5 billion tied up in prolonged protest and nearly $17 billion pending adjudication at the end of the third quarter. On the people front, GDIT remains focused on attracting and retaining the very best technology talent. The culture of this business has created. One of empowerment, accountability and inclusivity is a clear differentiator and a fiercely competitive talent market. Mission Systems experienced a series of challenges in the third quarter, additional supply chain disruptions, inflation, labor availability and select intel programs and customer contracting delays. Many mission system customers have a serious shortage of contracting officers that have hampered their ability to execute on programs of record. In addition, quite understandably, customer focus has been redirected in some areas to meet the more urgent demands of the Ukraine. The business has offset some of the bottom line impact by productivity improvements and cost-cutting initiatives. They will make every effort to catch up in the fourth quarter. Nonetheless, we anticipate these fact of life realities to continue for a while. I have more to say on that subject in a moment. That concludes my remarks with respect to a solid quarter for the entire company. So as we look toward the end of the year, we expect performance to be largely in line with the update to guidance that we gave you on the last call. As I just referenced, we expect technologies to fall short of our previous estimates, but we expect aerospace to run somewhat ahead of our previous forecast. All up, they should offset each other. In all other respects, our guidance remains the same. We stand by our previous EPS guidance. I'll now turn the call over to our CFO, Jason Aiken, for further remarks. Jason Aiken: Thank you, Phebe, and good morning. Starting with our cash performance. It was another strong quarter with operating cash flow of nearly $1.3 billion. This was achieved once again on the strength of the Gulfstream orders and particularly strong cash performance from our Technology segment. This brings us to $3.9 billion of operating cash flow through the first 9 months of the year, which also includes the ongoing collections on our large international combat vehicle contract according to the contract restructure that occurred back in 2020. Including capital expenditures, our free cash flow was just over $1 billion for the quarter and $3.3 billion year-to-date, yielding a conversion rate of 137% through the first 9 months. The continued strong performance positioned us very well to achieve our target for the year of free cash flow conversion at or above 100% of net income. With respect to the status of the tax treatment of research and development expenses, I think everyone can sense that despite the broad-based bipartisan support for immediate expensing of these investments, the window of opportunity for action in 2022 is quickly closing. As we've said all throughout the year, if the Congress acts to defer or reverse the capitalization requirement, we would expect free cash flow for the year at or above 110% of net income. Looking at capital deployment. Capital expenditures were $255 million in the quarter or 2.6% of sales. That's up from last year, consistent with our expectation to be around 2.5% of sales for the year. For the first 9 months, we're at 2.2% of sales, but 2.5% remains our full year target, so obviously an implied uptick in capital investments in the fourth quarter. We also paid $345 million in dividends during the quarter, bringing the total deployed in dividends and share repurchases through the first 9 months to just over $2.1 billion. The net result at the end of the third quarter was a cash balance of $2.5 billion and a net debt position just under $9 billion, down over $1.5 billion from this time last year. Net interest expense in the quarter was $86 million, down from $99 million in the third quarter of 2021. That brings the interest expense for the first 9 months of the year to $279 million, down from $331 million for the same period in 2021. At this point, we continue to expect our interest expense for the year to be approximately $380 million, including the assumed repayment of $1 billion of notes that mature in the fourth quarter. The tax rate in the quarter was 14.3%, bringing the rate for the first 9 months to 15.1%. This is consistent with our guidance last quarter to expect a lower rate in the third quarter and a higher rate in the fourth. So no change to our outlook of 16% for the full year, which, of course, implies a higher tax rate in the discrete fourth quarter. One more comment on the tax front. The inflation Reduction Act, which was signed into law in August included a 15% corporate minimum tax and a 1% excise tax on stock buybacks. We don't expect either of these provisions to have a material impact on our financial results. Order activity and backlog were once again a strong story in the third quarter with a 1.1:1 book-to-bill for the company as a whole. As mentioned earlier, Aerospace continued to have a strong order activity with a 1.2 times book-to-bill in the quarter and 1.6 times over the trailing 12 months. On the defense side, the combined book-to-bill was 1.1 times, with each of the segments achieving a book-to-bill of at least 1 times. We finished the quarter with a total backlog of $88.8 billion, while total potential contract value, including options and IDIQ contracts was $125.8 billion. The increase in backlog was particularly notable given a headwind from foreign exchange rate fluctuations of approximately $275 million in the quarter and $650 million year-to-date, with the vast majority of the impact in Combat Systems. Incidentally, the FX fluctuations also negatively impacted Combats revenue by $55 million in the quarter and $123 million in the first 9 months of the year due to the surging dollar versus the euro and the British pound. But for the FX headwind, the Combat Systems Group's revenue would have been up by 5.6% in the quarter and down only 3.9% for the first 9 months. That concludes my remarks, and I'll turn it over to Howard to start the Q&A. Howard Rubel: Thanks, Jason. As a reminder, we ask participants to ask one question and one follow-up, so that everyone has a chance to participate. Operator, could you please remind participants how to enter the queue? Operator: [Operator Instructions] Our first telephone question today comes from Seth Seifman of JPMorgan. Seth, please go ahead, you may begin. Seth Seifman: Thanks very much. Good morning. Sorry, Jason, to waste a question on pension here, but you guys are a little bit different than your peer group in terms of the way that you account for things. When we think about where interest rates and asset returns are year-to-date and we think about the income below the line next year, where that might migrate to you. And when we think about the cash impact if any, in terms of the contributions that you would expect. Can you give us an update on that? Jason Aiken: Yes. As you said, Seth, we are somewhat different from most of the peer group in this regard. And as a result, right now, we're not expecting anything material from an income perspective on the pension front. Obviously, that's something we'll roll up as part of our full operating plan process here in the fourth quarter and give you more specific detailed guidance in January. But I think the bottom line is both from an earnings as well as from a cash perspective, we don't expect that at this point to be a material item. Seth Seifman: Okay. Just to clarify, the $40 million or so of income below the line each quarter, that kind of continues? Jason Aiken: Some version in that range. I don't have an exact number at this point. You can expect it to decline as you would modestly. But again, that's not 100% pension income there. It's a big piece of that is pension income on the commercial side of the business. So it should down take a little bit, but not in a material way. Seth Seifman: Okay. Okay. And then maybe as a quick follow-up, we saw some news during the quarter about the Australian sub and the potential to do some work on that outside of Australia. And we all kind of know about the capacity constraints on sub building right now. Maybe could you talk a little bit about your thinking on that topic? Phebe Novakovic: Yes. So we are driven entirely by the demand of our customer and the prioritization of our customers. So we're working with them, our U.S. Navy, to determine what the focus should be going forward. And as we work through these -- some of these capacity issues then how do we accommodate not only U.S. demand but potentially other demand. Seth Seifman: Okay, great. Thanks very much. Operator: Our next question today comes from David Straus of Barclays. David, go ahead. David Strauss: Thanks, good morning. Phebe, were there any unusual costs at the Aerospace segment in the quarter related to the 500, 600 software fix? Jason Aiken: Yes, David, we did have, I think you're aware, some customer accommodation related to the software issue, both in the second quarter and the third quarter wasn't material to the results, but that has been absorbed in the numbers that you see and is inherent in the improved margins that the group posted in the quarter. David Strauss: Okay. And it's completely behind nothing lingering in Q4, Jason? Phebe Novakovic: Right. Jason Aiken: That's correct. It's behind us at this point. David Strauss: Okay. Great. And a follow-up on free cash flow conversion. Given where you are year-to-date, I mean over 100% for the full year looks pretty conservative unless there's something unusual, I guess, from a working capital perspective that you're expecting in or baking in in Q4. Can you just elaborate on that? Jason Aiken: Yes. As you point out, the cash flow has been particularly strong through the first 9 months. So as I said in the opening remarks, we're very comfortable with the 100-plus percent for the year. To be completely candid, there's probably some opportunity for some upside there. If I look at the things that we're monitoring, number one, to the first 9 months, we've had a significant benefit from working capital reduction. Some of that's timing. So some of that could turn in the fourth quarter. We'll watch that. The other big piece is, as I noted, we're still expecting or forecasting CapEx for the year to be in the 2.5% of sales range. So that implies a pretty meaningful uptick in CapEx in the fourth quarter. I'll acknowledge that often chased our CapEx forecast and rarely hit it. So there could be some upside opportunity there if we don't get everything in, in the year. But if we do that, that's a headwind to the fourth quarter. And frankly, the third item is something that everybody continues to monitor and that is we need to resolve our situation on the Ajax program. So those are some of the things we're monitoring for the fourth quarter. We come through all that. And certainly, to your point, we have some opportunity for some upside. David Strauss: Thanks very much. Operator: Our next question today comes from Ron Epstein of Bank of America. Ron, you may begin. Ron Epstein: Good morning. Just maybe the supply chain question. It seems like you guys are navigating it really well. Most airplane companies today are having aren't going to deliver more than they thought they were going to deliver the opposite problem. So I guess my question for you is how is the supply chain going for Gulfstream? And then b, when you look at the defense business you have, you heard kind of across the sector, similar issues on chips and so on and so forth. How is it going there? Phebe Novakovic: So we've had a fair number of supply chain challenges on the aerospace side, which we have accommodated heretofore. But supply chain remains a potential challenge going forward. And as we go through our planning process in the fourth quarter, we get a lot more clarity airplane by airplane of what the supply chain is able to do. But we have so far managed. There are, however, as you quite rightly note, a fair number of headwinds out there. On the defense side, we have accommodated most of the supply chain perturbations, except obviously in the Marine group. But most profoundly in the quarter and most impactfully is at Mission Systems. And while they had with a lot of the more pedestrian supply chain challenges, specialty chips continue to dog them and the additional delays that they experienced in the quarter were very, very hard for them, in fact, impossible for them to overcome. Mission Systems is a very high-performance organization, and they produced several high-value complex products that have experienced delays before, but again, even beyond some of the chip problems, some of the specialty products going into that production those production lines were also impacted. So the Mission System is credit. They have taken a lot of cost-cutting and restructuring initiatives to offset the margin impact and earnings impact of the revenue decline, but we're going to have to work through some of that. And so more to come as we look into the fourth quarter and then into next year. Ron Epstein: Got it. Got it. And then maybe as a follow-on, on the labor side, what are you seeing across the businesses, right? We clearly hear from the Navy that they want to have more shipbuilders out there. But I mean what are you seeing across all the businesses you have in the portfolio in terms of skilled labor? Phebe Novakovic: Yes. So there are some across the businesses, there are some specialty engineering and specialty fields that have had some headwinds on labor, but those are beginning to resolve in terms of manufacturing, we had some perturbation in -- we've had a lot of perturbation in the labor market, but felt that particularly at constant point, but that's beginning to resolve itself. When you think about shipbuilding, shipbuilding is a very complex, high touch labor business. And when you have a nationwide perturbation in the labor market is going to be impacted. I mean while we kept open, not all of the supply chain did, but we also lost a number of experienced shipbuilders as well as experienced people manufacturing folks in the supply chain. So all of that at a higher level than we normally experience. And I don't think that we are alone in that. People took the opportunity in the middle of the pandemic to retire. So we've got to work through some of that. But ultimately, we do not see and I think this is an important point here. We do not see labor as constraint for our revenue growth at the moment. Certainly not in the longer term. Ron Epstein: Got it. Thank you. Operator: Our next question today comes from Rod Stallard of Vertical Research. Rod, please proceed. Robert Stallard: Good morning. Steve, your comments suggest that we're finally seeing some of this strong defense demand turning into orders. But what sort of time line are you expecting for these orders to actually convert into deliveries. Phebe Novakovic: You talking about combat? Robert Stallard: Well, across the defense divisions, but firstly, combat. Yes. Phebe Novakovic: Yes. Let's talk about Combat because I think -- and then we can talk if you want a little bit about technologies. And before I get to combat, marine is pretty clear. The orders continue to be healthy. The revenue projection, while you have some quarterly lumpiness, it signifies nothing for the long-term growth. With respect to combat, we saw a number of things in the quarter, primarily Stryker and Abrams as well as MPF is beginning to ramp up as in Poland. And we saw some munitions orders also related to the Ukraine. So I suspect that -- and if we parse through, we focus in on the Ukraine, what we anticipate that our U.S. Army customers telling us they want more ammunition and munitions. So we're working with them to ramp up production. In Europe, we've seen demand for bridges because frankly, a lot of water in Europe. And we've got a very nice business in Germany to provide river crossings at various widths and weight levels. And then we’re seeing -- beginning to see increases in vehicle orders and vehicle RFPs coming out, particularly, but not exclusively in the former Eastern block. So technologies is really, I think, a tale of two cities. GDIT has had good bookings. They grew last year. We anticipate them to grow this year. This is all about Mission Systems, as I think, tried to give you a fair amount of detailed color on what's impacting them. The demand for their high-value products is out there. It's just our -- the inability to deliver because of the supply chain is constraining some of the orders, but they're there. They're just waiting to be executed once we get through all of this, and we will, we will get through it. Robert Stallard: So just to follow up on combat, and these orders you've had from Europe, for example, is there roughly a 12-month to 2-year lead time between the contract getting signed and actually GD delivering? Phebe Novakovic: Completely depends on the product. Less so on the bridge side and it depends and again, less so potentially on the vehicle side, it just depends on the vehicle, and exactly what modifications or changes folks want. We're not looking at clean sheet vehicles. We're looking at changes to existing vehicles that we have updated consistently and throughout the years. So it will depend. I suspect a year, in some cases, 18 months. Certainly, I don't expect a whole lot more than that. Robert Stallard: Yes, it was great. Thanks so much. Operator: Our next question comes from Myles Walton of Wolfe Research. Myles, please go ahead. Myles Walton: Thanks. Good morning. I know that there's the $1 billion maturity coming in November, but curious maybe, Phebe, how you're thinking about capital deployment in a broader sense, obviously, cash flow coming in ahead of expectations. I think. Go ahead. Phebe Novakovic: Yes, yes. No, no, no. And that's a very good question. Our capital deployment priorities remain the same. But let me give -- ask Jason to give you a little bit more color on the details. Jason Aiken: Yes. I think the way to think about it, Myles, we've talked about the $1 billion coming due in November. We do plan to pay that down. When you think on the debt side, we'll have additional maturities coming up in 2023, and that's where we said we'll start to look, think back to the CSRA acquisition and the additional debt we took on, we would bring it down to a point where it's some undefined point in the future, we'd start to think about whether we've hit the right level or not. And I think when we get into next year, we'll start to have that conversation in a more substantive way in terms of decision making. When you look at the other elements, share repurchase, as you know, is always tactical and opportunistic. It was a very volatile market in the third quarter. So we were a little more hands off just kind of trying to see what -- where things shake out, but that doesn't change our long-term approach to share repurchase in a tactical and opportunistic way. And I think importantly, the dividend is always going to be there. You've always heard us talk about that, and we'll continue to expect to be on that trajectory that we've been on for the past quarter century, frankly. So as Phebe said, no changes in the deployment strategy. It will just be a matter of what's in the moment in a given quarter. And I think importantly, our cash flow performance and our liquidity resources afford to see optionality to address all of those priorities without having to forgo one for the sake of the other. Myles Walton: And just a quick follow up, Phebe said, it’s the M&A market attractiveness. Is that improved become worse the same? Phebe Novakovic: We're just not going to comment on M&A. So I think we can leave it at that. You want one more shot, one more question? Myles Walton: No. I'll stay through. I don't want to get Howard Angry. Phebe Novakovic: Yes, that's a scary thing, Isn't it? Operator: Our next question comes from George Shapiro of Shapiro Research. George, go ahead. George Shapiro: Yes. Jason, I wonder if I could pin you down a little bit as to how big a number of the software fixes were in the margin for Gulfstream in the quarter. Are we talking a few million dollars or something more? Jason Aiken: George, I don't actually have a discrete number on the software fix. I mean, I have a sense of the overall R&D budget and that sort of fits into that context. So I think as David asked earlier in terms of impacts to aerospace in the quarter, you saw the nice margin improvement, frankly, even a little bit ahead of where we were expecting, which is why as Phebe alluded, we think we'll -- the group perform better for the full year. But even within those strong results in the quarter, we did have an impact, an adverse impact in terms of the accommodations we made with customers on the 500, 600 airworthiness directive. Again, that's fully behind us. And we are in a, at this point, sustained elevated R&D mode. Part of that was the resources that were diverted from the 700 over to the 500, 600 AD fix, and that will sustain through next year, as we've talked about as we continue towards certification of the 700 and then ultimately the 800. So I'll give you a little more color around that, but I apologize, I don't have a discrete number around the airworthiness directed fix. George Shapiro: Okay. And then a quick one, Phebe, a usual question. There's a $59 million difference between the gross and the net bookings in Aerospace. Was that a cancellation? Was it FX related? Or if you can quantify that? Phebe Novakovic: All of the above. I mean really absolutely immaterial. George Shapiro: Okay. And let me sneak in one last one. Phebe Novakovic: You're risking Howard's ire. Go, George. George Shapiro: I always got Howard's ire. That's okay. when you commented about your deliveries in '23 and '24, it presupposed the book-to-bill of 1. Obviously, we've run a lot better than that. So are you thinking of changing those delivery forecasts or just stay conservative with the delivery forecast that you have out there? Phebe Novakovic: Not at the moment. We assumed 1:1, and at the moment, I don't see any reason to change that. But as we go through our planning process, to the extent that we need to modify it, we certainly will and we'll be very explicit about that in the fourth quarter. George Shapiro: Okay. Thanks very much. Operator: Our next question comes from Kristine Liwag of Morgan Stanley. Please go ahead. Phebe Novakovic: Kristine. Hello? Kristine Liwag: Sorry about that. You guys hear me. Phebe Novakovic: Yes. Kristine Liwag: Okay. Great. Thanks. Good morning, everyone. And Phebe, on international defense sales, we're seeing changes in relationship between the U.S. and Saudi Arabia. With your foreign military sales to Saudi Arabia through Canada, how do we think about this evolving relationship potentially affecting your business? Phebe Novakovic: We see no indication of that in a moment. You want to ask one more. Kristine Liwag: Yes, following up on what George was asking about on aerospace. I mean book-to-bill was at 1times at aerospace. We've seen this above 2 times in the past few quarters. But at the same time, the backlog is at record levels. Can you provide some color on the demand resilience you're seeing? Is this a demand from corporate customers, individuals? And then also, is there some sort of level of backlog where you're comfortable at so not to extend the duration of when people have to wait for their aircraft. Any color you could provide there would be really helpful. Phebe Novakovic: Sure. So we -- let's take your question in the inverter. We always watch the delivery times for our aircraft to our customers. And so far, that's all been manageable. Well, just to remind you, starting in mid-February of last year, we frankly entered the hottest in notranic demand market that I've ever seen. And the order level in the quarter was by any measure, spectacular. So we've seen strong U.S. demand, Fortune 500 Mideast, Southeast Asia. And our demand interestingly, and I think not surprisingly, our pipeline going into the fourth quarter looks very much like the pipeline going into the third quarter. So at the moment, we've got some pretty good visibility of what orders look like. Operator: Our next question comes from Cai Von Rumohr of Cowen. Cai, please go ahead. Cai von Rumohr: Yes. Thanks so much, and good results, Phebe. So how is the software accommodation split between the second and third quarter. And as we look going forward, with that out of the way, and presumably R&D flat to down and volume up, what should we look for about the margins in the fourth quarter and going forward? Phebe Novakovic: So we'll see some margin upside, which we alluded to or about stated rather, in our guidance for the year. But the software fixes work almost entirely done by the end of the second quarter and the financial issue, it's about 50-50. So we're -- we like where we are. And frankly, you haven't asked this, but let me just give you a little bit of transparency around that. The transparency of the engineering resources that -- and the cooperation between the FAA and the Gulfstream was very strong and very apparent throughout that process. So we expect that kind of relationship to continue. Jason Aiken: If I could add just 1 thing. Cai, there was a predicate in your question that R&D would be coming down, we don't yet expect R&D to be coming down. If you look through next year with the 700 and the 800 will remain at a sustained and potentially even elevated level next year. So I just want to make sure that point is also clear. Phebe Novakovic: Yes. Good point. Cai von Rumohr: Excellent. And as a follow-up, if we turn to GDIT, you mentioned $3.5 billion in protest, $17 billion in bids awaiting. How does that compare with the second quarter? And given that they lifted the occupancy restrictions at DoD in the middle of September, have we seen a pickup in any of that flowing through to bookings? Phebe Novakovic: Yes, we have. But tell me again what the first part of your question was? Cai von Rumohr: Well, you had $17 billion in business awaiting at $3.5 billion in progress. Phebe Novakovic: Some of the protests have resolved to our favor. And these are -- when we say protest, these are items that we've won that have been protested. And we've got one in there that's got to be approaching the federal level of number of protests. So hopefully, we'll get through that in the fourth quarter. And I think there's -- it's down somewhat, as I said, because they've resolved. But we still see a fair amount of proposals in the decision-making cycle, which has, as we've said elongated. But even given that, GDIT continues to grow. Cai von Rumohr: Thank you, very much. Operator: Our next question comes from Ken Herbert of RBC. Ken, proceed. Kenneth Herbert: Yes, good morning. Thank you. I wanted to first ask on the schedule for the 7 and the 800. Is it fair to assume that resources that were diverted from the 700 are now 100% back on that program? And in the last few months, considering issues, okay, great, considering issues on the 5 and 6 have been resolved. Are you seeing anything else from the FAA that could potentially put entry to service schedules at risk? Phebe Novakovic: So as I said, we've cooperated very well with the FAA. We expect that to continue. I would note that we learned a lot in that process of how to work through the new software requirements from the FAA. I think that, coupled with the fact that the G700 is the most mature aircraft to enter the FAA certification process as a result of its software system and considerable and successful testing that preceded FAA review. We see -- we're sticking with our at the moment with our summer 2023 estimate. But look, when we give you sort of our best guess on when the certification is. That's a result of a lot of things that we control and that we can talk about with certainty. But ultimately, this is an FAA issue, and it's the availability of their resources, and they are the regulator and they're going to control it. So we've always tried to be transparent about that, but recognize that the U.S. government controls ultimately the pace. Kenneth Herbert: Okay. Very helpful. And if I could, just 1 quick follow-up. On the defense side, how would you look at the risk of your business if for whatever reason, we have a continuing resolution that extends into calendar '23? Phebe Novakovic: At the moment, we don't see a particular risk. And if we get 3 to 4 quarters in the entire year of a CR, which I find in this threat environment, very difficult to imagine. And we'd have to come back at you. But nothing we hear would suggest that it's the desire of Congress to do that. Kenneth Herbert: Great. Thank you. Operator: Our next question comes from Doug Harned of Bernstein. Doug, please go ahead. Doug Harned: Good morning. Thank you. When you look at the demand you're seeing at Gulfstream right now, can you give us kind of a picture of how this looks? And what I mean is we're seeing a lot of things such as first-time customers going straight to large cabin jets, perhaps shifts in international versus U.S. Can you give us a picture of what that outlook is today for you? And has that changed some over the past couple of years? Phebe Novakovic: So I think you and I, a couple of years ago, had a discussion about structural versus cyclical change. And I still think it's premature to see any to declare that there's been a structural change. We've certainly seen some increase in first-time buyers, but that was in part because a lot of wealth was created during the pandemic. The higher the pandemic. So I don't have exact data about what's in the pipeline, but I can imagine that it will be much different than this quarter, which is heavy U.S. Fortune 500, again, Southeast Asia and the Middle East. Doug Harned: And then just switching over, earlier when you talked about munitions, this is something that also looks like -- it looks like there's a lot of potential growth here. How do you think about this? I mean, I think of it as a high-margin business for you within Combat and potential to have orders well beyond that 3.70 that you got this quarter? Phebe Novakovic: So -- and I think I may have alluded to this in my remarks that, our customer has expressed an interest in increasing that demand. So we're working with them on increasing production. But I think your predicated about a high-margin business is not quite based. In fact, we are -- OTS where we do all of this work is a high-performance organization with respect to operating leverage. But that comes from a very wide and vast portfolio. So we do okay, but I wouldn't say that they were additive. Doug Harned: So you don't think of it as a higher-margin business. I just thought traditionally, it was a higher-margin business than perhaps some of the other parts of combat vehicles, and that's not the case? Phebe Novakovic: OTS, on occasion, will be a higher-margin business, but that's largely about mix, and it's not driven by 1 particular line of business. They've got an awful lot of contracts and the high-velocity contract turnover. So I think that's how you should think about them. Howard Rubel: Thanks, Doug. Lisa, we'll take one more question, please. This will be our final. Operator: Our final question today comes from Scott Deuschle of Credit Suisse. Go ahead. Scott Deuschle: Good morning. Thanks for taking my question. Jason, I think ROIC is something that you've historically been very focused on. And honestly, it's held up really well here despite the capital that you put in the business. So just curious, as you get past the bulk of the CapEx phase of marine working capital comes out of the business and you have margins reflected aerospace? Where do you think ROIC can go over the next few years? Jason Aiken: It's a great question. Obviously, as we've been in this period of extended investment, you'd expect to see ROIC become a little bit muted as a result. And we saw a little bit of a downtick in that during that investment period. But as we emerge having had essentially the investment period behind us. To your point, we absolutely expect to see ROIC back on decline. We'll see that this year, and we expect to see it next year and beyond. So our targets over the long term ought to be back in the range as we were in prior to the investment period we entered into a few years ago, and that's what you should expect as well. Scott Deuschle: Okay. Great. And then Jason, does the recently announced facility expansion of Savannah, does that have any impact to the prior guidance you gave on '23 CapEx? Or was that embedded in the 2% figure you previously talked about? Thank you. Jason Aiken: Yes, that's all embedded and now look we've given previously. So no change to those projections. Scott Deuschle: Great. Thank you so much. Operator: Thank you. That concludes the Q&A session. I'll hand back to the management team for any closing remarks. Howard Rubel: Thank you all for joining us today. As a reminder, please refer to the General Dynamics website for both our earnings release and, of course, our highlights presentation. If you have any other questions, I can be reached at 703-876-3117. Thank you. Operator: Thank you all for joining today's call. You may now disconnect your lines.

Operator: Good morning and welcome to the General Dynamics Second Quarter 2022 Earnings Conference Call. My name is Brica and I will be your event specialist today. [Operator Instructions] I now have the pleasure of handing the call over to our host, Howard Rubel, Vice President of Investor Relations. So, Howard, please go ahead. Howard Rubel: Thank you operator and good morning everyone. Welcome to the General Dynamics second quarter 2022 conference call. Any forward-looking statements made today represent our estimates regarding the company's outlook. These estimates are subject to some risks and uncertainties. Additional information regarding these factors is contained in the company's 10-K, 10-Q, and 8-K filings. We will also refer to certain non-GAAP financial measures. For additional disclosures about these non-GAAP measures, including reconciliations to comparable GAAP measures, please see the slides that accompany this webcast which are available on the Investor Relations page of our website, investorrelations.gd.com. With that completed, I would like to turn the call over to our Senior Vice President and Chief Financial Officer, Jason Aiken. Jason Aiken: Thank you, Howard. Good morning everyone and thanks for being with us. Before we get started, I want to let you all know that our Chairman and Chief Executive Officer, Phebe Novakovic isn't able to join us this morning. She recently came down with COVID, but not to worry she's on the mend and doing well, but she's asked me to cover today's call. With me is Bill Moss, our Vice President and Corporate Controller who will cover some of the financial particulars that I would normally address. So, with that let's get into the results. Earlier this morning, we reported earnings of $2.75 per diluted share on revenue of $9.2 billion, operating earnings of $978 million, earnings before taxes of $923 million, and net income of $766 million. Revenue was essentially flat against the second quarter last year, but operating earnings were up $19 million. Earnings before taxes were up $42 million and net earnings were up $29 million. Earnings per share were up $0.14, a 5.4% increase. To be a little more granular, we enjoyed revenue increases at Aerospace and Marine Systems offset by declines at Combat Systems and Technologies. We also had margin improvement in three of the four segments which led to higher operating earnings and earnings before taxes against the year ago quarter. From a slightly different perspective, we beat consensus by $0.03 per share on somewhat lower revenue, but somewhat higher operating margin than anticipated by the sell side. This led to the modest earnings beat. On a year-to-date basis, revenue, for all practical purposes, was even with last year's first half. Similarly, operating earnings were essentially flat, but earnings before taxes were up $46 million, net earnings were up $51 million, and EPS was up $0.25, almost 5%. In the quarter, free cash flow of $435 million was 57% of net income. Cash flow from operating activities was 86% of net income. This was pretty good in light of the powerful first quarter cash. To that point, year-to-date free cash flow of $2.3 billion was 151% of net earnings. In summary, we had a solid quarter from an earnings perspective and the year-to-date results give us a solid start to the year. So let me move right into some color around the performance of the business segments, have Bill add color around cash, backlog, taxes and deployment of cash and then I'll provide updated guidance. I'll try to keep my remarks brief to leave ample opportunity for questions. First, Aerospace. Aerospace had revenue of $1.9 billion, operating earnings of $238 million and a 12.7% operating margin. Revenue was $245 million more than the year ago quarter or 15.1%, largely as a result of higher service center sales at Gulfstream and higher service volume particularly FBOs at Jet Aviation. Operating earnings are up $43 million or 22.1% on a 70 basis point improvement in margins. So increased sales volume coupled with improved margins leads to very good operating leverage. We captured improved revenue on only 22 deliveries. We didn't deliver four G500 and 600s that were scheduled to deliver in the quarter. They've been deferred at customer request to the third quarter awaiting removal of the FAA wind directive. However, nine G500 and 600s in fact were delivered to customers in the quarter. So we delivered nine of the 13 that were planned in the quarter. From an order perspective, we did very well once again. In dollar terms, Aerospace had a book-to-bill of 2:1. Gulfstream aircraft alone had a book-to-bill of 2.7:1 even stronger if expressed in unit terms. As previously discussed, sales activity truly accelerated in the middle of February 2021 and continued on to the second quarter of this year. The pipeline and sales activity remain strong as we enter this quarter. The Farnborough Air Show was a good one for us. From a new product perspective, the G500 and G600 continue to perform well. Margins are improving on a consistent basis and quality is superb. We're making good progress in the flight test of the software update for landing and high winds and expect removal of the FAA directive in mid-September. You may recall that last quarter we advised you of a risk of a three to six month delay for certification of the G700 to second quarter 2023, as a result of the time-consuming work on model-based software validation. As a result of the flight sciences engineering resources we needed to redeploy onto the work related to the G500 and 600 FAA limitation on landings and high wind conditions, the risk to the G700 schedule has become a reality. As we've previously advised, this will not adversely impact our financial plan for 2022 and 2023. We feel confident that the G800 will follow the G700 by about six months. Looking forward, we've planned 123 deliveries for the year and we fully expect to do just that. Turning to Defense. Combat Systems had revenue of $1.7 billion, down 12.3% over the year ago quarter. Revenue was impacted by Ajax at both Land Systems and ELS bomb bodies at OTS and some program mix. Operating earnings of $245 million were off against last year's quarter by 7.9% with a 70 basis point improvement in margins. Operating margin was a strong 14.7%. On a sequential basis, revenue was very similar to the first quarter, but operating earnings were up 7.9% or $18 million on a 110 basis point improvement in operating margin. For the first half, Combat Systems revenue was down 10.2% and operating earnings were down only 7.5% on a 40-basis point improvement in margins. In June, Land Systems was awarded the Mobile Protected Firepower contract the first all-new combat vehicle for the army in decades. The initial award for LRIP-1 was $410 million for 25 vehicles. The program of record for LRIP is $1.1 billion for 95 vehicles through 2026. The entire program requirement is 500 vehicles for more than $5 billion. The program fills a critical gap in the Army's infantry brigade combat force and we expect to move out swiftly on the program. The quarter was very good for Combat Systems from an orders perspective with a 1.4:1 book-to-bill leading to an increase in total backlog and estimated potential contract value. Demand for our products particularly our combat vehicles, remains strong with Europe leading the way. International order opportunities for Abrams are particularly strong. This was an impressive operating performance once again by the Combat Systems group in a constrained revenue environment. At Marine Systems, revenue of $2.65 billion was up $115 million over the year ago quarter. It was flat sequentially, but up year-to-date. In the quarter growth was led by Columbia, TAO and repair work volume. For the first half revenue was up $283 million or 5.6%. This is very impressive continued growth. Operating earnings were $211 million in the quarter essentially flat with the year ago quarter as a result of a 30-basis point reduction in margin. The margin compression was the result of the impact on Electric Boat of additional scheduled delays in the Virginia program from the supply chain as it struggles with recovering from COVID. EB is working closely with the Navy and suppliers including embedding operating and engineering personnel on-site to restore the necessary Virginia program cadence. Nonetheless, Electric Boats performance remained strong and while still early in the Columbia first ship construction contract, the program remains on cost and schedule. Total backlog of almost $42 billion remains robust and is by far the largest of our operating groups. And lastly, Technologies. The segment had revenue of $3 billion in the quarter down $158 million from the year ago quarter or 5%. Two-thirds of the decline was attributed to Mission Systems, largely related to their continuing struggle with a shortage of chips which continues to plague their ability to deliver certain products. On the other hand, operating earnings of $304 million were down only $4 million or 1.3% on a 40-basis point improvement in operating margin to 10.1%. EBITDA margin was an impressive 14.1% including state and local taxes which are a 50-basis point drag on that result. Operating performance at GDIT was particularly strong 140-basis points better than the year ago quarter. These are industry-leading margin figures. Technologies had a good order activity in the quarter with book-to-bill of 1:1 and good order prospects on the horizon. Mission Systems had nice orders for many of their product offerings, especially those impacted by the chip shortage. The IT pipeline remains healthy in most of our federal IT lines of business as the government continues to modernize and upgrade its mission support systems. GDIT has the opportunity to submit $35 billion in opportunities this year including $17 billion in the third quarter, most of which represents new work. That concludes my remarks with respect to a solid quarter and first half. I'll now turn the call over to Bill for further remarks and then I'll provide our updated guidance. Bill Moss: Thank you, Jason, and good morning. Starting with cash performance in the quarter. From an operating cash flow perspective, we generated over $650 million, which following our strong first quarter performance brings us to over $2.6 billion for the first six months of the year. This was achieved once again on the strength of the Gulfstream order book and additional collections on our large international combat vehicle contract, which continues to receive payments as scheduled according to the contract restructure that occurred in 2020. Including capital expenditures, our free cash flow was $435 million for the quarter and $2.3 billion year-to-date, yielding a conversion rate of 151% year-to-date. The strong performance so far reinforces our outlook for the year of free cash flow conversion at or above 100% of net income. And of course, as a reminder that outlook assumes current law with respect to the tax treatment of research and development expenditures. If the Congress acts to defer or reverse the current capitalization requirement we would expect free cash flow for the year at or above 110% of net income. Looking at capital deployment capital expenditures were $224 million in the quarter or 2.4% of sales. That's up from last year consistent with our expectation to be around 2.5% of sales for the year. For the first six months we're closer to 2% of sales, but 2.5% remains our full year target. We also paid $349 million in dividends and spent approximately $800 million on the repurchase of 3.6 million shares. That brings year-to-date repurchases to 4.9 million shares for just shy of $1.1 billion. The net result at the end of the second quarter was a cash balance of $2.2 billion, and a net debt position of $9.3 billion, down more than $2 billion from this time last year. As a result, net interest expense in the quarter was $95 million, down from $109 million in the second quarter of 2021. That brings the interest expense for the first half of the year to $193 million down from $232 million for the same period in 2021. At this point, we continue to expect our interest expense for the year to be approximately $380 million, including the assumed repayment of $1 billion of notes that mature in the fourth quarter. The tax rate in the quarter was 17% bringing the rate for the first half to 15.6%, so no change to our outlook of 16% for the full year. But of course that implies a rate in the mid-16% range for the second half of the year, to arrive at that outcome. To shape that for you, we expect the rate to be somewhat lower in the third quarter and higher in the fourth. Order activity and backlog were once again a strong story in the second quarter with a 1.1:1 book-to-bill for the company as a whole. As Jason mentioned, order activity in Aerospace led the way with a two times book-to-bill, which is the fifth consecutive quarter the book-to-bill for the group has been 1.6 times or higher. As a result Aerospace backlog is up over $5 billion in the past year, an increase of almost 40%. During the quarter, we finalized negotiations on the restructure of the last of our arrangements with a fractional aircraft operator, which resulted in a roughly $300 million reduction in the Aerospace backlog and a $900 million reduction in aircraft options. This action essentially clears our backlog of any exposure to fractional customers and has no impact on our production and revenue forecast for 2022 and beyond. On the Defense side, Combat Systems and Technologies also had solid quarters with a 1.4 times and a one times book-to-bill respectively. The increase in the Combat Systems backlog was particularly notable given a headwind from foreign exchange rate fluctuations of over $200 million in the quarter and $300 million year-to-date. Incidentally, the FX fluctuations also negatively impacted Combat's revenue by $65 million in the first half of the year as the euro fell to near parity with the dollar. We finished the quarter with a total backlog of $87.6 billion while total potential contract value including options and IDIQ contracts was $126 billion. That concludes my remarks. I'll turn it back over to Jason to give you an update on our guidance for 2022 and wrap-up remarks. Jason Aiken: Thanks, Bill. Let me do my best to give you an updated forecast. The figures I'm about to give you are all compared to our January forecast, which I won't repeat. There is, however, a chart with respect to this that will be posted on our website, which should be helpful. In Aerospace, we expect an additional $200 million of revenue with an operating margin of around 12.9% which is 10 basis points higher than we previously forecast. This will result in additional operating earnings. There could be some upside here if we can deliver out a few more planes in the year. With respect to the Defense businesses, Combat Systems should be on the low end of our revenue range with an improvement of up to 50 basis points of operating margin. So total revenue of around $7.1 billion and operating margin around 15%. There's no change to Marine Systems revenue, but 30 basis points lower margin. So annual revenue of $10.8 billion with an operating margin around 8.3%, for the reasons I have previously described to you. Technologies revenue will be in the middle of the forecast revenue range at the same operating margin driven by GDIT with 3.5% year-over-year growth. So for the group, we expect annual revenue of around $12.9 billion with an operating margin around 10%. So, on a company-wide basis, we see annual revenue at the higher end of our initial guidance and an overall operating margin around 10.8%, which is unchanged. This rolls up to EPS at the high end of our previous guidance range. In short, we expect only modest deviation from our initial guidance. That concludes my remarks, and we'll be pleased to take your questions. Howard Rubel: Thank you, Jason. As a reminder, we ask participants to ask one question and one follow-up, so that everyone has a chance to participate. Operator, could you please remind participants how to enter the queue. Operator: Thank you. [Operator Instructions] We have our first question from Robert Stallard of Vertical Research. Please go ahead when you ready, Robert. Robert Stallard: Thanks so much. Good morning. Jason Aiken: Good morning, Rob. Robert Stallard: Jason, I'll kick it off with one for you. The big question we've been getting from folks is what the impact could be on business jet and the Aerospace division from a slowdown in the global economy. I was wondering if you could give us some perspectives on how this could play out and how aerospace is differently positioned from where it was say in 2007 2008? Jason Aiken: Yes. So, I think the most important point here, Rob, is the robust nature of the demand we've seen up to this point, the order activity that's resulted in the extended backlog that that provides us. Not to mention frankly -- and Bill spoke to this a little bit in terms of some of the cleanup in the quarter, but the durability of the backlog that continues to just increase the quality of that order book as we move forward. So, obviously, we can't predict when and what any type of slowdown will look like. There's a lot of talk out in the market about interest rates, inflation, the stock market recession potential and so on. But to be completely frank with you, we have not yet seen any impact of that in terms of our order pipeline and the resulting order activity that we've seen. There continues to be a very strong customer demand. We're continuing to see that as we embark here into the third quarter. And so I think bottom line between the size of the backlog, the ongoing order activity the durability of that backlog, which at this point is in excess of 2.5 times our annual sales for the group. Notwithstanding, the possibility of economic slowdown or similar conditions, we remain very confident and steadfast in our outlook for the next couple of years that we provided in terms of 2023, 2024 and beyond. Robert Stallard: Okay. Thanks. And then as a follow-up, you mentioned the AJAX program in the Combat Systems division. Could you give us an update of what the situation is there and how it's to pan out from here? Thank you. Jason Aiken: Sure. So the program is proceeding. The vehicle tests are continuing and they continue to confirm frankly the vehicle performance that we've seen to date. With respect to some of the things that the customer has been focused on when it comes to vibration in the vehicle, some concerns that emerged in some of the early customer trials have been addressed at this point. And we are working right now on -- with the customer on securing appropriate communications gear. So I think the key here at this point is that this is going to really be all about how soon approvals can move through the system as we undergo this series of deliberate tests that take time as would be the case on any new platform development program. Frankly this is not inconsistent with experience that we would expect on any new platform development. But like I said we continue to work with the customer and they continue to assure us of their commitment to the program as well as of their need for this transformational capability. So it's an ongoing path forward, continuing to make progress and we expect to see ourselves to the other side of this testing and trials period soon enough and onward and upward with the program. Operator: Thank you. We now have a question on the line from Seth Seifman of JPMorgan. Please go ahead when you're ready. Seth Seifman: Thanks very much, and good morning. Jason Aiken: Good morning Seth. Seth Seifman: Good morning. Just to start off, I'm sure you've gotten this question a bunch of times but with regard to moving forward on G500 and 600 and the landing restriction, it sounds like you're still on track to have that lifted this quarter. And just any color you can give on what gives you the confidence there given that the Gulfstream, I think has done all its work but you're dependent on the FAA to do their work? Jason Aiken: No you kind of summed it up nicely there Seth. The fact is we have the software fix for this issue completed. It's been developed. It has been tested. It has been flown. And so we have great confidence in the efficacy of that software fix. And we are currently working with the FAA Gulfstream and the FAA working concurrently toward the initiative to get this airworthiness directive resolved. The program plan for that is to complete by or before mid-September. To your point, we are in part dependent on the resources of the FAA to make that happen. But they have been very good about this. They are committing the resources that we think are necessary and the teams are working together. And right now, everything seems to be right on track for a resolution of this, by the end of the third quarter. Seth Seifman: Great. Thanks. And then just as a follow-up still in Aerospace. This might be kind of a crude measure, but just looking at the revenue per aircraft in the quarter, it looks pretty strong. But obviously, we don't necessarily have all the information about mix and price and stuff like that. Can you tell us what the service growth was to help us hone in on that? And then, you mentioned a fractional settlement. Did that have any impact on the revenue in the quarter or any other backlog mechanics? Did those affect revenue? Jason Aiken: Yes. So, on the service side, we did see very strong growth in the quarter. That's continuing a trend that we've seen, since we've been emerging from the pandemic, both including sort of flight hour ramp-up as activity and flight activity picks up around the world, as well as FBO activity at our Jet Aviation business, particularly on the US side. So I think we had somewhere in excess of 35% growth year-over-year in the quarter, in service activity. And it's frankly that service activity that is driving the upside to the revenue and the outlook for the Aerospace group for the year. As I mentioned earlier, we're still expecting our 123 aircraft deliveries for the year. So, a couple of hundred million dollars of additional revenue for the year is coming from that service side of the business. And I know you referenced, the cleanup we mentioned the backlog, but I sort of missed the latter part of your question. Do you mind repeating what you were getting at there? I'm sorry, Seth. He has already dropped off the line. Perhaps, you were getting at, whether any of the cleanup in the backlog has affected any of the revenue or other aspects of the Aerospace outlook. And the fact is, no, we're in good shape there. The cleanup as I mentioned or I think as Bill mentioned in the remarks was related to an ongoing negotiation we had with our really last sizable fractional customer in that backlog, and we've come to a settlement with that customer, removed some of the airplanes and expired some of the options there. And none of that activity has any impact on the outlook for the business. So all forecasts remain intact. Seth Seifman: Great. Thank you. Jason Aiken: Operator, hope we have our next question on. Operator: We now have our next question from David Strauss of Barclays. Your line is open, David. David Strauss: Thanks. Good morning. Jason Aiken: Good morning, David. David Strauss: Jason, when we were down at Gulfstream back in June, I think you talked -- Gulfstream talked about being about 70% of the way through the software validation test on the 700. Can you just give us an update exactly where that stands today? Jason Aiken: Yes. I don't have an exact number on the update of 70%. Obviously, the progress on that software validation has been slowed somewhat by the fact that we've had to divert common resources in terms of those flight sciences engineers over to the fix on the 500 and 600. So that, as I mentioned before is really what's sort of affirming our risk on the slip of the 700 entry into service. So there's been some modest progress there, but call it in that 70-plus percent range remains where we are at this point. As soon as we get through that airworthiness directive resolution, we'll get those resources back on that program and moving forward to that updated EIS date. David Strauss : Okay. And as a follow-up, can you update us on supply chain? Any constraints you're kind of seeing on the Gulfstream side of things? I think when we were down there it was discussed about some shortages on the engine side. How do you feel about the overall supply chain at Gulfstream and your ability to hit that 123 delivery number for the full year? Jason Aiken: Yes. So as you referenced supply chain is definitely -- not to sugar coat it, it's an ongoing issue for the industry. It's no surprise or no secret that I think the commercial aerospace industry has had a fragile supply chain even before COVID hit. So it's probably no surprise that that's only been exacerbated. And I'd say, it's a daily battle. But that said I think there's no team that I'd rather have tackled this issue than the Gulfstream team down there. They have people embedded throughout the supply chain actively managing these issues with our partners to help them meet our commitments to our customers. And so I think while there can be issues from supplier-to-supplier and it's an active management activity that's going on. It's important to consider the impact of any part or subsystem or so on to the overall tack time of the airplane production process and ultimately the delivery schedule. So just because, let's say, a particular part may be missing its due on dock date doesn't necessarily mean that that's going to impact overall completion of the airplane or delivery of the customer between workaround that our team has and other efforts to keep the overall aircraft flow moving we don't see any impact to the delivery outlook that we have for the year. Obviously, these types of activities aren't optimal. We want to get this corrected frankly for the benefit of the entire ecosystem. But we continue to have great confidence in the team at Gulfstream to get through the challenge and they'll meet their aircraft delivery forecast for the year. David Strauss : Thanks very much. Jason Aiken: Sure. Operator: Thank you for that. We now have the next question from Ron Epstein of Bank of America. Please go ahead when you’re ready, Ron. Ron Epstein: Yes. Hey, thank you. Good morning everyone. Jason Aiken: Good morning, Ron. Ron Epstein: Question for you on again kind of maybe going back to the supply chain, but focusing a little bit more on Defense. So it seems like at Gulfstream, you guys are managing the constraints well. We've heard from some of the engine producers that castings and forgings and things are tight and you're managing through that. But it seems like you've got a lot more flexibility in your commercial business than you do in your defense business. And one of the themes that seems to have emerged from this quarter is that because of the way defense contracting is done we continue to hear shortages of A, B and C. Is there anything you guys can do about chip shortages buying inventory ahead, or are you just so constrained by the kind of the materials management acquisition rules that you can't do that? Because it seems like defense is just sort of fundamentally this sort of just-in-time business, but we're in sort of a just-in-case world if you get the gist of the question. Jason Aiken: Yes. No, it's a great question Ron and I'll kind of break that down into two aspects of our business sort of the short-term side and the long-term side. And the piece that we're seeing a bigger issue in on the short-term side and you referred to the chip shortage it's really that the Mission Systems piece that we've talked about for some time now. And again that's because these are quick turn orders. They're product-driven. They're dependent on these chips and you got to get them out the door. And obviously these are highly engineered high-end design engineering type products. So to your point the specifications are quite specific. That said, number one, I think the team is doing a tremendous job trying to develop work around. They are out there ordering parts in advance where they can. It's tough to get your spot in line because this is an issue affecting not just the industry, but the broader economy, but they're doing their best they can on that front. They are also working to change designs, modify designs, accept alternate parts where they can and be as nimble as they can on that front, but that obviously takes some time. I think importantly for that side of the business, this is just a timing issue we've seen here. If you take for example the second quarter and the product it wasn't able to ship at the end of the quarter, we've seen the vast majority of that actually get shipped in the first month of the third quarter. So that is flowing through. It doesn't mean we're out of the woods yet. I think this is going to be something that's going to bug us for the balance of the year and maybe spill over a little into next year. But the fact is we've seen some of the strongest order activity from the customer in this area. So I think this is just a timing thing. We'll come through it and the order demand is there so that this will continue on into the balance of this year and beyond. So that's sort of on the short-term side of the business. The other big supply chain side that we're seeing frankly is a little bit different. It's on frankly the longest – longest leg side of the business and that's in the shipbuilding side. And really there it's less about parts or material availability. It's about the availability of labor the price and availability of skilled labor. And so we're seeing that really hit the supply chain for us. And for us it's focused primarily on the Virginia Class program. When you think of NASCO out on the West Coast and frankly the Columbia program at Electric Boat those are all hitting this in stride. But on the Virginia program, the supply chain has stumbled a little bit more. And when you think about it we have been working hard even prior to COVID to ramp-up our resources on those programs to support two per year Virginia as well as the addition of Columbia. And we were making pretty good headwind on that. And then COVID hits and you take two steps back instead -- or at least a pause instead of needing to take two steps forward. So when you think about shipbuilding and the nature of that business -- a shock like that to the system can hit it quickly, but it just takes time for it to recover. And so that's what we're seeing on the Virginia program as the supply chain is struggling to catch back up and, sort of, hit that cadence that they need to be on. But again like Gulfstream like Mission Systems Electric Boat has got all the resources that we can bring to bear and all the sense of urgency to apply to that supply chain. And once we can get that schedule right I think we'll be back on track. But in the meantime that schedule extension brings cost and that cost brings an impact to margins and that's what's affecting our outlook for that business. So that's -- I'm trying to give you a complete answer as I can on the supply chain as it hits the defense side. So that's sort of both into the spectrum from my perspective. Ron Epstein: Yes. Got it. And then maybe just one quick follow-up on combat. With all the awards that have been coming in and the activity in Europe when would you expect that to flow through the business? Is that a 2023 kind of thing? When would we expect to see that kind of -- at least on the top line? Jason Aiken: Yes, good question. I want to take a step back and maybe give a little clarity on what we've seen through the first half of this year and then what that means for where we're going. Obviously in the first half of the year we're down notionally a little bit more than you would expect given our full year outlook. I think we're about 10% down year-to-date. If you do some quick checking you'll see that what that's really a function of it that last year, our revenue per quarter was essentially consistent throughout the year, first quarter, second quarter, third quarter, which is really in contrast to the tried and true annual cycle that we see in Combat Systems and we're frankly once again seeing this year which is a sequential ladder, if you will, lowest in the first quarter, rising to the fourth quarter. So, that created a little unusual headwind in terms of the year-over-year comparisons. But we're still -- based on the way the second half plays out, still expecting to be at the low end of our revenue forecast. So, what does that imply? That implies about a 3.5% growth in the second half versus the second half of last year and I think that's imminently achievable by that group. But looking beyond that to your point, there's a tremendous amount of activity in this market. Obviously, as I mentioned before, the MPF award is a big one for us. That's a whole new additive space in the infantry brigade combat structure there. And there's tremendous demand signals internationally as you mentioned. Obviously, we're working toward the tank opportunity in Poland. There's other international tank opportunities as I mentioned before. And then you alluded to sort of demand generally internationally and everybody has kind of the suspicion that everything going on in Eastern Europe is going to lead to significant growth for the -- on the defense side. And certainly we are seeing those demand signals. I think the key thing that we all have to keep in mind here is to keep and check our expectations with respect to timing. The demand signals are there. We are having regular dialogue and ongoing conversation with those customers about that interest. But it just takes time for interest to turn into budgets to turn it into appropriations to turn into contracts to turn into revenue. So, I think it's all consistent with our long-term outlook that by 2024 and beyond we ought to see a nice uptick trajectory in Combat Systems. We're still talking low to mid-single-digit growth, but we ought to see an inflection point to growth out in that period and all of that is supportive of this. But in the meantime I'd just reiterate our emphasis that the focus and the story for Combat Systems is a margin one. And you've seen how well once again this group can perform on the margin side and be a really good cyclical no matter what's happening on the topline. Operator: Thank you. The next question comes from Robert Spingarn of Melius Research. Your line is open Robert. Robert Spingarn: Hey, good morning. Jason Aiken: Good morning. Robert Spingarn: Jason I just want to go back to labor and talk across all the businesses where you stand where -- obviously, you said shipbuilding is a tough one. So, maybe that's the most challenging area. But when you look across the business, what is the labor and talent acquisition situation? Jason Aiken: Yes, you touched on it Rob. The shipbuilding side has been the toughest one. We've seen that in Maine. We've seen that all over sort of the New England shipyards as we've tried to ramp up. And frankly those are the two shipyards at EB and Bath that we have the most opportunity to ramp up. And so you got -- it's not like a lot of other industries where you're hearing things about remote work the ability to pull people from all over the country and all over the world. You've got to get shipbuilders in those states and in those regions to do that work and so that's what presents the challenge. The good news is we -- as I mentioned well before COVID, we had been ramping up and anticipating ramp-up. And so we've had a lot of resources put in place as well as great partnerships at the state and local levels to get the kind of trade schools and apprenticeships and so on to make that happen. So, I think the resources are in place. We've just got to keep our flow moving through those processes, keep our training capabilities up and running, and we can catch back up with this. It's just going to take time. And again that's just sort of the nature of shipbuilding and it's a challenge that those teams are up to. When you look on the other end of the spectrum, I think it's all about GDIT. And obviously, they are in a hypercompetitive market for hyper-skilled talent, and that only gets more competitive all the time. I think the leading positions they have in their markets, the strong culture they have and continue to build with that workforce and the opportunities that they provide their workforce within the company, continue to I think put them in a good position to compete and keep and grow that talent, it's -- I'm not going to sugarcoat it though, it's a war for talent every day. And we just -- it's our job to keep up with that and punch above our weight, and continue to retain and draw in the kind of talent they need to do that work and as that business grows. So those are kind of the two ends, of the spectrum. I think the other area, that we monitor it closely, is at Gulfstream. Obviously, with the growth they have you need people to do that. I think, not to underestimate the challenge that they have, but I think they've done a really good job of keeping up with it and I don't see that as being as high a nail, an item for Gulfstream in the moment. There's nothing that we can take our eye off the ball, and they've got to keep at it, but I think they're up to that challenge as well. Robert Spingarn: Okay. And then just as a follow-up, going specifically to Electric Boat and the focus on getting Columbia ramped up and the labor situation, you just talked about there. Have we seen any work packages moved between Electric Boat and Newport News, in order to manage volumes and address labor shortages either for you or for them? Jason Aiken: So, Rob, I hate to give you this answer, but that's the kind of thing I don't think, I should probably get into too great a detail. We obviously, work very closely with them as our teaming partner on Virginia, as well as our subcontractor on Columbia. It's a three-part conversation between us, Newport and the Navy, to make sure that we're doing everything we can to support that customer and the growth that they need. And I think, that's the most important message is we're going to do everything we can, to support that customer and we're working together as a team to do that. And both sides, I think have a mutuality around that that's very important and very supportive. So... Robert Spingarn: Okay. Fair enough. Thanks, guys. Jason Aiken: Sure. Operator: Thank you. We now have the next question on the phone line from Doug Harned of Bernstein. Please go ahead when you’re ready. Doug Harned: Hi. Good morning. Thank you. Jason Aiken: Good morning, Doug Doug Harned: Good morning. I wanted to see, if you could give us a little bit of a picture on the mix of Gulfstream orders. And in particular the G650, has extended longer than I think you all, first expected strong demand. Can you give us a sense of, what the mix is and then also, how you're looking at G650 production over time? Jason Aiken: Yes, you're absolutely, right. The G650 order activity continues to be robust, frankly, beyond even what we I think perhaps conservatively expected. I think we've said, a couple of times now in the past and it continues to be the case that the announcement of the G700 and the G800 have absolutely for our market and our customers clarified, where we are with this family of aircraft. And it clarifies, what the 650 is in terms of an opportunity for those customers. So that airplane, I think, continues to have legs to it. To make no mistake about it, the 800 is the replacement for the 650. And as the 800 comes into service, we will work the 650 out. There may be some modest overlap as we feather in from one to the other. But I think, what this outsized demand on the 650 does is it gives us a lot of optionality. It gives us opportunity, if this demand environment continues. With respect to our outlook for 2023 and 2024, we'll have to see how that plays out. It's also giving us the optionality, to deal with some of these issues, we've talked about with the certification process. As the 700 slips, we're not backtracking on our commitments to the delivery units, the revenue and the earnings forecast that we've given for 2022, 2023 and 2024. And frankly the 650 demand is helping with that, as well as the demand environment in general. And to that point, you kind of asked about the whole portfolio. And I think there's some question and speculation out there among the community about the airworthiness directive and what that might mean for the 500 and 600. And I'd tell you again, we delivered the vast majority of the airplanes that we intended to this quarter. We expect that to be resolved by the end of the third quarter. And when you look at the order activity in the second quarter, I think, the 500 and 600 represented about half the order activity that we had. So there's no signs of slowing down there. Our customers understand what this little bump in the road is and so, those platforms continue to be very well supported. So across the board -- and I didn't even mention the G280, that continues to have great order demand. I think the mid-cabin space has really picked up in the aftermath of COVID. So really across the board, in the portfolio, we see broad-based demand for our airplanes. Doug Harned: Well -- and then just as a follow-up, switching over to Technologies, I mean, I know there's been -- you've had challenges with award protests and so, there have been some difficulties. But this is something where we've been looking for growth for a long time. And if you look out over the next few years, I mean, how are you thinking about Technologies in terms of a growth trajectory? Because we just haven't really seen it yet. Jason Aiken: So, obviously, this is a conversation we've been in for some time now. And I think if you look back, we had low single-digit growth last year. We're expecting modestly better growth this year. And as I reiterated earlier our updated outlook for the year is spot on in the middle of our revenue forecast range we gave back in January. Obviously, we're off to a little bit of a slower start to the year, but I'd say a little bit of a slower start and that's largely attributable to Mission Systems. I won't reiterate those issues, but we do believe that that is a timing issue for us. GDIT is flat for the first half, but we absolutely have a clear line of sight to growth for them in the second half. And so, look, I mean, what gives us confidence in this outlook? I think, the way we look at it is not any one particular win or loss or one program or another. It's really about all of the key, what I think about as, leading indicator data or statistics that are around a business that is made up of thousands of contracts across the portfolio. You're talking about order activity, win and capture rates on new as well as recompete business, book-to-bill, backlog, potential contract value, so on and so forth. And all of those metrics for us continue to support an outlook for this business of low to mid-single-digit growth. And when you look at GDIT, for example, they had awards in the first half that were valued at about $7 billion. And that's significantly higher than the first half of last year and the vast majority of that represents new work. So, obviously, this can be frustrating, I think, for you all. And sometimes it is for us, given the particularly lumpy aspect of this business when it comes to the protest and delayed award adjudication process. So it can come in fits and starts. But we remain bullish on this and we think bottom line, we're talking about a low to mid-single-digit growth outlook. And frankly, as I think about it, you may have noticed a couple of weeks after the quarter, we had the announcement of the Air Force European support contracts some $900-plus million opportunity. If that had happened a couple of weeks earlier, it would be kind of a completely different conversation around the book-to-bill for the Technologies group in the quarter. So that's just a one-off example, but it speaks to the point that, while timing can be frustrating and lumpy and the pipeline can be a challenge to get through, it doesn't change our long-term outlook for this business. Operator: Thank you. We now have Peter Arment of Baird. Please go ahead, when you are ready, Peter. Peter Arment: Yeah. Thanks. Good morning, Jason. Jason Aiken: Good morning. Peter Arment: Maybe we can get just your updated thoughts on -- we've seen the markups from defense budget working their way through the Senate and House. How is that impacting some of your defense business? And obviously I mean there's been a focus on combat and technology so kind of returning to growth. And just kind of any color you can provide there that would be helpful. Jason Aiken: Yeah. I think the two things that I'd point out. It's obviously still very early in that process. But bottom-line as you'd expect shipbuilding remains extremely well supported. You can see the numbers there. And so that I think just continues to be supportive of our -- an underpinning of our outlook for the ongoing $400 million to $500 million a year growth in the Marine Systems business, so all positive there. I think the greater area of maybe anxiety or speculation is around Combat Systems and the Army budgets. We'll see where that goes. This is obviously something that ebbs and flows and has a lot higher beta in terms of an Army budget on an annual basis than on the Navy strategic side. But the fact is we can't ignore the fact that there is a significant amount of support among the Congress for increasing defense budgets. So Abrams, Stryker those continue to be very critical assets in the Army infrastructure and we think there's continued support for those. And so while there's a lot of chatter around it those are going to decline and what's going to happen. Let's just see how it plays out. I think we'll have to stay tuned and see. Peter Arment: Okay. And just as a quick follow-up. Your thoughts on just any impact if we have a continuing resolution, obviously this is not -- you guys have managed through a lot of continuing resolutions. So, just thoughts on any impact there? Jason Aiken: Yeah. I don't see any real high anxiety in the moment. It's obviously something to your point that we've learned to work with and work around. It's certainly not desirable by any stretch of the imagination, but it's almost become part of our annual reality. I think until these things get into a six-seven-month-plus type of situation that's when it really starts to affect our shorter-cycle business on the technology side, perhaps in the ammunition side. But beyond that we really don't see a significant impact at this point. Again, it's unfortunate. We don't like it but we've learned to try to operate around it. Operator: Thank you. We would now like to have the next question from Sheila Kahyaoglu from Jefferies. Please go ahead, when you are ready. Sheila Kahyaoglu: Hi. Good morning guys. Thank you for the time Jason and Howard. Jason Aiken: Yeah, morning Sheila. Sheila Kahyaoglu: Hi. I wanted to maybe ask a shorter-term question to follow-up on Doug's on Technologies. It was down 3% in the first half and up 10% growth in the second half implied with the guidance. GDIT seems to be doing well like fairly flat. Can you maybe bridge us on mission? And how you think about supply chain getting back growing in the second half timing of funding because a lot of the GDIT peers have complained about that, maybe if you could just bridge us shorter term. Jason Aiken: Yeah. You've touched on the key issues, but I think the biggest piece of it is what I mentioned before is that we're already seeing here in the third quarter our ability to catch back up on some of that delayed product shipment from the second quarter. We really got that balled up there toward the end of the second quarter and that hampered the revenue for the first half. But we -- look, I don't want to sugarcoat the challenge is Mission Systems is not out of the woods. So they're going to fight and scrap their way, but they're seeing their way toward workarounds on that supply chain side. And I have a good deal of confidence that they can get there. On the GDIT side, it is a frustrating environment in terms of the slow pace of the outlays. Frankly, we've seen that a bit on both the Mission Systems and GDIT side. But I think the hill that they have to climb in the second half is not as high. And I think we've got reasonable line of sight in terms of the work that's in the books and they just got to go execute on that should get them there in the second half. They've just got a little bit of go to get in the second half. So I feel even greater confidence on the GDIT side. Sheila Kahyaoglu: Okay. Thank you. And then I just wanted to ask a cleanup on aerospace. When we think about the 123 delivery side, how much of that includes G700s? And then given the raise was on service how much of the services business is in the backlog? Jason Aiken: So I don't necessarily get into detailed order – backlog and ordering cancellations on an aircraft-by-aircraft basis. I apologize I'm going to have to punt on that one. But on the service side, we typically don't have much in the way of service activity in the backlog. We have a very modest amount in the aerospace unfunded backlog category that is related to longer-term maintenance arrangements that we have with some larger customers. But the service activity across the board at Jet Aviation and Gulfstream is really a book-and-bill basis on a quarterly and annual basis so sort of a one-to-one typically there. Howard Rubel: Operator, we will just take one more question. Operator: Thank you. We have the last question from Cai von Rumohr of Cowen. You may proceed with your question. Cai von Rumohr: Yes. Thanks so much. So orders at Gulfstream for aircraft you mentioned about half in the quarter was for the 500, 600. You mentioned that the 650 is doing well. How is the 800? Because that's been introduced relatively lately. You now have a new competitor in the market that looks like they match you in range with four versus three sections. So how is the 800 doing? Jason Aiken: Yes. The demand for that aircraft is quite solid Cai. It's doing well every quarter. Booking orders I think between the fact that the 650 is still taking orders and the fact that the EIS for the 800 is still a good ways out, we're not expecting a massive surge in orders. As we start to move closer to that transition, you might expect it to pick up and shift more from the 650 to the 800. But right now I'd tell you it's just good solid order activity that is very much supportive of our EIS timing and our expectations for that airplane. Cai von Rumohr: Terrific. And could you – could give us a little bit more color in terms of the order potential for combat? You mentioned Europe is strong. You mentioned Abrams. How about the rest of your vehicles? How about the munitions business? Jason Aiken: So the rest of the vehicles you have to think about our European Land Systems business. They have an extremely large installed base of wheeled and tracked combat vehicles that on the one hand have a replacement cycle with them that offers some opportunity in the out years, as well as it provides incentive for those who are trying to bring up their level of defense spending to do so in a way that aligns with their allies. And if their allies are operating and fighting one particular platform or another, that's an incentive for those who are starting to spend up more to achieve commonality with those allies. So we think that puts us in good stead for these opportunities that are coming out of threats in Europe. Across the board, though to be a little more specific, a lot of this stuff is either in the backlog or on the horizon when you think about the Spanish 8x8 vehicle. You've got again the potential – or the – I shouldn't say the potential, the impending order for tanks out of Poland. We're talking with Romania, Switzerland all of those are sort of bread and butter countries are all looking at increased spending on a variety of platforms. So that plus just sort of this, again, generic increased level of indicated interest across Europe, particularly Eastern Europe, I think it provides tremendous potential opportunity. It's just too early to try and count any of that and anticipate exactly when or what that looks like. Timing in Europe often can be a challenge. So it would probably be a bit of a fool's errand for me to try and get too specific around that. But we do see a good robust environment as supportive of combat. Cai von Rumohr: Thanks, again. Jason Aiken: You’re welcome. Howard Rubel: And Brica, operator, I think we are done with the question-and-answer period. And I thank everybody for joining the call today. As a reminder, please refer to the General Dynamics website for the second quarter earnings release and the highlights presentation, which will contain our earnings outlook. If you have any additional questions, I can be reached at 703-876-3117. Brica, you can now indicate the call is over please. Operator: Thank you. That does conclude today's call. Thank you all again for joining. You may now disconnect your lines.

Operator: Hello, and welcome to the General Dynamics First Quarter 2022 Conference Call. My name is Alex, and I'll be coordinating the call today. [Operator Instructions]. I will now hand over to your host, Howard Rubel, Vice President of Investor Relations for General Dynamics. Over to you, Howard. Howard Rubel: Thank you, operator, and good morning, everyone. Welcome to the General Dynamics First Quarter 2022 Conference Call. Any forward-looking statements made today represent our estimates regarding the company's outlook. These estimates are subject to some risks and uncertainties. Additional information regarding these factors is contained in the company's 10-K, 10-Q and 8-K filings. We will also refer to certain non-GAAP financial measures. For additional disclosures about these non-GAAP measures, including reconciliations to comparable GAAP measures, please see the slides that accompany this webcast, which are available on the Investor Relations page of our website, investorrelations.gd.com. With that completed, I would like to turn the call over to our Chairman and Chief Executive Officer, Phebe Novakovic. Phebe Novakovic: Thank you, Howard. Good morning, everyone, and thanks for being with us. As you can discern from our press release, we reported earnings of $2.61 per diluted share on revenue of $9.4 billion, operating earnings of $908 million and net earnings of $730 million. Revenue is flat against the first quarter last year. Operating earnings are down $30 million, but net earnings are up $22 million in line which distorts the truly strong performance of the operating units. The improvement in net earnings was aided by less interest expense and a lower provision for income taxes against the year ago quarter. Earnings per diluted share are up $0.13 or 5.2% year-over-year. The operating margin for the entire company was 9.7%, 30 basis points lower than the year ago quarter. This was as anticipated in our earlier guidance to you, but also shaped by the aforementioned expense at the corporate other line. From a slightly different perspective, we beat consensus by $0.10 per share. We have roughly $400 million more in revenue than anticipated by the sell side and almost $20 million more in operating earnings. We also beat our own expectations, particularly so in aerospace, about which I will have more to say shortly. As we indicated in our press release, cash from operating activities is just shy of $2 billion and about 270% of net income. After capital expenditures, free cash flow was $1.8 billion, 250% of net income. This is particularly impressive following a very strong cash performance in the fourth quarter of last year and not at all typical for us in a first quarter. Obviously, we are off to a good start here. This is particularly impressive following a very strong cash performance in the fourth quarter of last year and not at all typical for us in a first quarter. Obviously, we are off to a good start here. This is, in important respects, a very strong quarter, a good foundation for the year. So let me move right into some color around the performance of the business segments, have Jason add color around the spectacular cash performance, backlog, taxes, deployment of cash and the makeup of the corporate other line then we'll answer your questions. First, Aerospace. Aerospace enjoyed another strong quarter. It had revenue of $1.9 billion and operating earnings of $243 million with a 12.8% operating margin. Revenue was $16 million ahead of last year's first quarter despite the delivery of 3 fewer aircraft. Revenue was almost $180 million higher than anticipated by the sell side. The difference is almost entirely growth at Gulfstream Services and Jet Aviation. Operating earnings of $243 million or $23 million ahead of last year's first quarter, a 10.5% increase and well ahead of sell-side expectations. The 12.8% operating margin is 110 basis points higher than the year ago quarter. Here, the gross margin on delivered aircraft was slightly better, particularly the 500, but fully offset by increased R&D spending. The improvement comes from higher service revenue, coupled with significantly better margin on net revenue. On the Gulfstream side of the service business, it was the result of an extremely attractive business mix. For Jet Aviation, it was strong performance at the FBOs in the United States. Aerospace also had another very strong quarter from an order perspective with a book-to-bill of 1.7:1. Gulfstream aircraft orders alone had a book-to-bill of 2.1:1. The order activity at Gulfstream was strong across the board, but driven by orders for the 650. Strong sales activity and customer interest continues so far this quarter as well. The U.S. market remains robust with some slight improvement in Southeast Asia and the Middle East. China remains slow. The Russian invasion of Ukraine has stopped activity in Eastern Europe and slowed activity in Western Europe. All of this, however, is trumped by the strength of the U.S. market. I should add that flight activity is increasing in Western Europe, including flights to the U.S. This is a good leading indicator of an improving market in Western Europe. On the new product front, the G500 and G600 continued to perform well. Margins are improving on a steady basis and quality is superb. As of the end of the quarter, Gulfstream has over 160 of these aircraft in service, will support in the U.S. and Abrams interest from U.S. allies is increasing. Land Systems had a book-to-bill of 1.2:1. Orders in Europe were higher, primarily from negotiations that have been ongoing. The pipeline in Europe, however, has increased as nations are contemplating higher defense spending to respond to the threat. Turning to Marine Systems. Once again, our shipbuilding units are demonstrating impressive revenue growth. Let me begin with a little recent history. The first quarter of 2020 was up 9.1% against the first quarter in '19. 2021 first quarter was up 10.6%. In first quarter of 2022, with the revenue of $2.7 billion, is up 6.8% over '21. The growth was led by Columbia class construction and repair volume. We also enjoyed nice increases in TAO and DDG-51 construction volume. I'm pleased that the growth is spread over all shipyards. Operating earnings are $211 million in the quarter, up $11 million or 5.5% on operating margins of 8%. We will strive to improve our operating margin as we progress through the year. The total backlog of almost $43 billion remains robust and is the largest of our operating groups. Finally, Technologies. This segment has revenue of almost $3.2 billion in the quarter, down $36 million from the year ago quarter, about a 1% decrease. However, GDIT enjoyed a $55 million increase in revenue quarter-over-quarter and a stunning $286 million sequentially. This was GDIT's highest revenue quarter in over 2 years. Operating earnings at $298 million are down $8 million, roughly 2.6% on a 9.4% operating margin. Once again, GDIT was up $12 million quarter-over-quarter and $16 million sequentially. Technologies EBITDA margin was a strong 13.1%, including state and local taxes, which are a 50 basis point drag on that result. Total backlog grew $293 million sequentially and total estimated contract value grew $2.6 billion on the same basis. The book-to-bill for Technologies was 1.1:1, led by Mission Systems at 1.2:1, a good indication that their growth will soon resume. GDIT had good order activity with a 1:1 book-to-bill. Over 75% of this quarter's awards represented new business. The G700 flight test and certification program continues to progress well. We have 5 flight test aircraft that have completed over 2,800 flight hours. We also have conducted over 25,000 hours of laboratory simulated flying. All structural testing is complete and all structural requirements have been met. The aircraft design, manufacturing and the overall program are very mature. The new Rolls-Royce Pearl 700 designed specifically to match the G700 aerodynamic to optimize speed, range, emission and fuel burn will be certified in the next few months. The engine is performing well and exceeding key performance parameters. Our final step toward entry into service is to complete certification flying with the FAA. This is typically the most predictable part of our test program. All of this has been achieved during a pandemic and a certification process made increasingly rigorous due to industry events unrelated to Gulfstream. In that connection, this flight test process has a first-time requirement that was not part of our original flight test plan or any prior development effort. It is a model-based developmental software validation, a line-by-line examination of the plane software. The level of effort is considerable, completing 100% of the software validation is the impediment to finishing performance testing by the FAA and G800 first flight. I can assure you that the validation work to date has proceeded well and presented no surprises. It is just resource and time intensive. This leads me to some comments on the timing of certification. We continue to target certification of the G700 for the fourth quarter of this year, but the ultimate timing is dependent on the FAA. It seems prudent for us at this time to recognize the risk of a 3- to 6-month slip in the process and to plan for it accordingly. If such a slip were to occur, we have offset any impact to our 2022 financial plan with an increase of deliveries of current production aircraft. This would also not adversely impact 2023. It also remains our view that the G800 certification will follow the G700 by 6 to 9 months. Gulfstream remains committed to a safe and comprehensive certification test program. Production of customer G700 is underway, and we are preparing for entry into service. We will deliver a mature, high-quality aircraft. Looking forward to next quarter, we expect to deliver 26 aircraft with rapid increases in the third and fourth quarters as we have previously indicated. So far, supply chain issues have been in the news in this category. However, we expect an increasing number of issues in this regard later in the year and believe we are on a path to work through them successfully. In short, off to a very good start at Aerospace. Next, Combat. Combat Systems had revenue of $1.68 billion, down 8% over the year ago quarter. Earnings of $227 million are down 7%. The numbers are reasonably consistent with our outlook and sell-side expectations. Margins at 13.6% are a 20 basis point improvement over the year ago quarter, so strong operating performance. Stryker and Abrams have considerable support in the U.S. and Abrams interest from U.S. allies is increasing. Land Systems had a book-to-bill of 1.2:1. Orders in Europe were higher, primarily from negotiations that have been ongoing. The pipeline in Europe, however, has increased as nations are contemplating higher defense spending to respond to the threat. Turning to Marine Systems. Once again, our shipbuilding units are demonstrating impressive revenue growth. Let me begin with a little recent history. The first quarter of 2020 was up 9.1% against the first quarter '19. 2021 first quarter was up 10.6%. And first quarter of 2022, with the revenue of $2.7 billion, is up 6.8% over '21. The growth was led by Columbia-class construction and repair volume. We also enjoyed nice increases in TAO and DDG-51 construction volume. I'm pleased that the growth is spread over all shipyards. Operating earnings are $211 million in the quarter, up $11 million or 5.5% on operating margins of 8%. We will strive to improve our operating margin as we progress through the year. The total backlog of almost $43 billion remains robust and is the largest of our operating groups. Finally, Technologies. This segment has revenue of almost $3.2 billion in the quarter, down $36 million from the year ago quarter, about a 1% decrease. However, GDIT enjoyed a $55 million increase in revenue quarter-over-quarter and the stunning $286 million sequentially. This was GDIT's highest revenue quarter in over 2 years. Operating earnings at $298 million are down $8 million, roughly 2.6% on a 9.4% operating margin. Once again, GDIT was up $12 million quarter-over-quarter and $16 million sequentially. Technologies EBITDA margin was a strong 13.1%, including state and local taxes, which are a 50 basis point drag on that result. Total backlog grew $293 million sequentially and total estimated contract value grew $2.6 billion on the same basis. The book-to-bill for technology is 1.1:1 led by Mission Systems at 1.2:1, a good indication that their growth will soon resume. GDIT had good order activity with a 1:1 book-to-bill. Over 75% of the quarter's awards represented new business. So good order activity in the quarter and good order prospects on the horizon. GDIT alone submitted over $5 billion in the quarter, bringing the number of submitted proposals in the decision or protest queue to $29 billion. As you know, we never update guidance at this time of the year. We will, however, provide you a comprehensive update at the end of next quarter as is our custom. This concludes my remarks with respect to a very good quarter. I'll now turn the call over to our CFO, Jason Aiken, for further remarks and then we'll take your questions. Jason Aiken: Thank you, Phebe, and good morning. The first thing I'd like to address is the unusually high corporate operating expense of $71 million in the quarter, which is up from $32 million in the year ago quarter. Given our full year expectation of around $110 million in corporate expense this year, you might have expected a first quarter number similar to last year. However, this year was impacted by a change to some of the terms of our equity compensation plan, which resulted in the acceleration of the expense associated with those awards. This was a onetime noncash item, and you should expect a lower corporate expense in the remaining quarters to result in our full year outlook of $110 million. If you consider the performance of our operating segments in the quarter, excluding this corporate expense anomaly, the segment margins improved from 10.3% a year ago to 10.4% this quarter. Turning to our cash performance. We had the strongest first quarter we've seen in some time. Following several years of negative free cash flow in the first quarter, this quarter was a marked improvement due in large part to the strong order activity at Gulfstream and ongoing progress payments on our large international vehicle program at Combat Systems. For the quarter, we generated operating cash flow of nearly $2 billion for a conversion rate of 270% of net income. Including capital expenditures of $141 million, our free cash flow was $1.8 billion or a conversion rate of 250%. So the quarter was well ahead of our expectations, some of which was favorable timing in our operating working capital, but the performance certainly reinforces our outlook for the year of free cash flow conversion at or above 100% of net income. Looking at capital deployment, I mentioned capital expenditures were $141 million in the quarter or 1.5% of sales, which is consistent with last year. We're still planning for CapEx to be around 2.5% of sales for the year. We also paid $330 million in dividends and increased the quarterly dividend nearly 6% to $1.26 per share. And we spent over $290 million on the repurchase of $1.3 million of our shares at an average price of almost $225 per share. After all this, we ended the first quarter with a cash balance of $2.9 billion and a net debt position of $8.6 billion, down $2.8 billion from this time last year and about $1.3 billion below the year-end position. Net interest expense in the quarter was $98 million, down from $123 million in the first quarter of 2021. The decrease in 2022 is due to the $1.5 billion reduction in debt last year. We have another $1 billion of outstanding debt maturing later this year, and we'll have more to say about our plans related to those notes as we get closer to their maturity in November. The tax rate in the quarter at 14% benefited from the timing of equity compensation activity and associated deductions, consistent with our expectations. So no change to our outlook of 16% for the full year. But, of course, that implies a higher rate for the balance of the year to arrive at that outcome. Order activity and backlog were once again a strong story in the first quarter with a 1:1 book-to-bill for the company as a whole. As Phebe mentioned, the order activity in the Aerospace group led the way with a 1.7x book-to-bill, which is also the book-to-bill for the group over the last 12 months. As a result, aerospace backlog has increased by almost 50% in the past year. Technologies and Combat Systems also had solid quarters with a 1.1x and a 1x book-to-bill, respectively. We finished the quarter with a total backlog of $87.2 billion, while total potential contract value, including options and IDIQ contracts was $129 billion. Finally, a quick note on our expectations for EPS progression for the balance of the year. We expect the second quarter to be roughly $0.10 above the first quarter with more significant steps up in the second half of the year. Howard, that concludes my remarks. I'll turn it back over to you for the Q&A. Howard Rubel: Thanks, Jason. [Operator Instructions] Operator, could you please remind participants how to enter the queue? Operator: [Operator Instructions] Our first question for today comes from Ron Epstein of Bank of America. Mariana Perez Mora: This is Mariana Perez Mora on for Ron today. Phebe Novakovic: Before you get into your question, some of you may have noted an interesting juxtaposition of the subjects in my remarks. And I'll just note this the capacity for technology to air is endless. So nonetheless, I hope you got the message. All right, go ahead. Mariana Perez Mora: That's fine. We got the message, right, but we got it. So on aero, you mentioned strong volumes and margins at services, could you please give us some more color on what were the main drivers? And please help us understand how sustainable are those volumes on margins? Phebe Novakovic: So we had higher R&D, but we had a very strong margin performance in services and a particularly good mix in service R&D at Gulfstream. We had also some improvement in gross margins. So that mix drove margins. Mariana Perez Mora: And how sustainable are the volumes of services? Did anything change in the services business? Phebe Novakovic: We think that, that particular mix is going to be hard to replicate. But for the moment, we're sticking to our margin guidance that we gave you. Just to remind everybody, it is our custom to update you at the end of the second quarter with a full and detailed analysis of our prospects for the rest of the year by group and then a wrap up for the whole company. But we'll stick with what we've got now. We're off to a good start, however. Operator: Our next question comes from Myles Walton of UBS. Myles Walton: Phebe, on your comment around the software validation approach and the certification, is that something that's been recently added after the original certification plan was agreed to? Or is it just that you're getting to the point where you're having to accomplish this new element of your... Phebe Novakovic: No. This was an added process that we had not contemplated when we originally laid out our certification plan. And it's a result of events that are independent of us. Myles Walton: I see. Okay. And then on the free cash flow, Jason, is it the case it looks like unbilled was pretty favorable, and we know about the U.K. combat vehicle, but did the -- sorry, about the Canadian combat vehicle. But did the U.K. combat vehicle also start to pay out? Jason Aiken: No. As you point out, we continue to receive steady payments on the international program that we reset a couple of years ago. So that continues apace. We're still working through issues with the customer on the U.K. side. So we hope to see that resolved later this year. . Operator: Our next question comes from David Strauss of Barclays. David Strauss: Phebe, could you touch on a little bit more on marine margins, I think at 8%, that's the lowest we've seen in a while. I think you've talked in the past about that business eventually getting 9% plus kind of margins. So can you talk about what exactly happened in the first quarter and the progression from here to get to that above 9% level? Phebe Novakovic: So as we've noted before, margins will be compressed as we work down our learning curves on Colombia. And as you may recall, we are booking initial Columbia at a conservative margin. That, coupled with the well-publicized supply chain scheduling issues in Virginia, have driven some margin compression. But we expect those to stabilize over time as well. Jason Aiken: And just to add to that, David, and put another point on what Phebe mentioned there, the Columbia program, while we saw growth, as she mentioned in all 3 of the shipyards, the Columbia program did bring more than half of the volume increase in the quarter. So just from a mix perspective, those are early margin rates on that program are impacting the aggregate margin for the group, too. David Strauss: Okay. And Phebe, I mean the outlook for this business longer term, you still think it can -- as Colombia gets further into production, do you still think it can be a 9% to 10% margin business? Phebe Novakovic: Yes. As we get further into production, the schedule stabilize on Virginia and both Bath and NASSCO will also contribute. So we are targeting that, and we believe that, that is fully achievable. Operator: Our next question comes from Seth Seifman from JPMorgan. Seth Seifman: Phebe, you mentioned the outlook for Gulfstream, both for this year and reinforced the guidance for next year. So I understand that that's where we're headed in terms of deliveries. But I guess can you walk through the mechanics a little bit more? If Gulfstream needs to see a significant step-up in deliveries at the second half at the same time that we'll be seeing incremental supply chain issues and then there might be a need to backfill some G700 deliveries in 2023 with those supply chain issues potentially still out there kind of some of the things that give you confidence in that delivery outlook given those sort of qualitative headwinds that you talked about? Phebe Novakovic: So with respect to the supply chain, we are working through all of those. And we don't see those as impacting our '23 or '24 estimates that we gave you. Our estimates on Gulfstream are predicated on the current demand environment, which has been strong, as I noted, continues into this quarter along with our backlog. So we're pretty comfortable that we've got both the supply chain, the manufacturing capability to meet all of those 2 out-year requirements. And as I noted in my remarks, if -- should there be a slip, then we will increase in production aircraft this year. But look, with respect to that slip -- potential slip, we wanted to be as transparent as possible to give you some insight when we saw it and then tell you that how we were going to address that so that there's no economic impact from that in either year '23 or '24. Seth Seifman: And then as a follow-up, Jason, I guess, maybe you mentioned you talked about addressing the debt on the next call maybe, but we could ask for a little bit of a preview. Just in terms of how you're thinking about it generally, there's probably some debt due each year for the next several years. We just saw one of your peers look to kind of term things out for a while. How do you think about where you want to take the capital structure from here and the role of debt repayment now that interest rates are going up? Jason Aiken: Yes. I think our overarching approach to this remains unchanged. We continue to target the mid-A credit rating and want to get our metrics in line with that for the long term. In keeping with that, I think you can expect us to retire this debt that we see coming due later this year. What happens after that, I think, remains a little bit in play. We'll have to see because we talked about the elevated debt we had post CSRA acquisition and the fact that we intended to bring that down, but we never intended to get back to the level we had been with essentially 0 net debt prior to that acquisition. So now we're getting into the range looking ahead into the next couple of years where we're probably going to be evaluating, is this the place to land. We don't have an answer to that yet, but that's going to become more of the conversation. So we'll see where that plays out. I expect at this point that we'll go ahead and retire the debt that matures at the end of this year, but then we'll be more active in that conversation. But again, I think, ultimately, targeting that mid-A credit rating and everything that is attended to that. Operator: Our next question comes from Robert Stallard of Vertical Research. Robert Stallard: Phebe, you mentioned the very strong order performance in Aerospace this quarter. But I was wondering what sort of impact this has had on the lead time for Jet, specifically the G650 you mentioned? Whether this is starting to have any sort of impact on customer demand? Are people like saying it's going to take too long to get my jet? Phebe Novakovic: No, we've managed that lead times very successfully. So present and even given the robust demand, we do not see that as an issue. Robert Stallard: And just a follow-up, how is the pricing environment evolved over the last 3 months? . Phebe Novakovic: Well, as you know, we are reticent and loathe to talk about pricing, but you can imagine that the pricing has kept pace with other economic factors. Operator: Our next question comes from Robert Spingarn from Melius Research. Robert Spingarn: Phebe, I was hoping to dig in to Combat a little bit and just ask what types of products you expect European nations to demand most? And to what extent do you expect those to be products from Combat Systems and particularly from ELS? Phebe Novakovic: So should the recent threat environment drive increased spending in rearming and recapitalizing land forces, we will see an increase in demand. And I suspect it to be aligned along our ordinance business as well as our vehicle business, both in the United States and at ELS. But I'm careful not to get ahead of our customers here. Robert Spingarn: Do you see much opportunity in technologies, perhaps for mission or even GDIT maybe on the cyber side over there? Phebe Novakovic: There could be some because clearly in today's war fighting environment, interoperability on networks and communication is critical and reliable interoperability. So I suspect there could be some increased demand, but we have not seen any of that so far. Operator: Our next question comes from Doug Harned from Bernstein. Douglas Harned: Can you comment on inflation? When you look forward, obviously, we're in perhaps a difficult inflationary environment. In terms of how you see it affecting, both on the Gulfstream side and on the government customer side, in terms of what you can pass through? What could pressure margins? Phebe Novakovic: So let me address that holistically across the company because we've dealt with inflationary pressures and increases in commodity costs in varying ways through a portfolio of actions. One is our contract architecture. A second is to the extent possible price increases. We've cut costs in other areas to offset some of the increases and then where possible we've had commodity substitutions and part substitutions. So that combination of arrows in our quiver has mitigated any impact. And at the moment, we do not project a margin compression as a result of increased prices. Douglas Harned: So your -- so you see -- are these things that you would have not done before? Are you doing things that offset -- basically reduce your costs in other ways? Or is it more on the ability to pass through some of the price increases? Phebe Novakovic: I can't give you a very -- I can't unpack that and give you a very clear distinction between which of these capabilities or which of these tools has resulted in the largest impact on our ability to offset inflationary increases, but -- because it's a combination of things. In some contracts, you've got contract architecture that protects you. In other cases, you take additional cost cuts that you had not anticipated taking before. But one of the things you expect from a company with strong operating leverage is when a cost increases somewhere else, you have to find offsetting cost reductions. And so we have historically done that, and we're continuing to do that. And then in some instances, you can have product substitutions. That's not particularly frequently, but it can happen in some critical products. So I think it's that panoply of weapons that we've used to offset these increases. Operator: Our next question is from Sheila Kahyaoglu from Jefferies. Sheila Kahyaoglu: So I wanted to ask about R&D profile of the business for Gulfstream in 2022, '23 and '24, since you've given guidance for Gulfstream profitability. When we think about the G700, the G800 and the 400, what's the magnitude of the investment you have to put in to work with the FAA? Or is it more of a heavy time burden? Like how do we think about that, Phebe, in terms of dollar amount? Or is it just more time and a push out of notification and deliveries? . Phebe Novakovic: Well, as we've noted, it's more a question of time resources, certainly on the new requirements. But you saw an increase in R&D this quarter. And it was because that we have this new set of software validation requirements that we need to walk through, and we've accommodated that in our plan. Jason, I don't know if you want to add anything to that? Jason Aiken: Yes, just making sure we understand the nature of your question. I mean if it's about this potential risk that Phebe talked about and the additional effort we have to undertake in the certification process, it is both a time risk, but, of course, cost travels with time. And so there's the burden of the additional effort that goes on, the man hours that have to occur to accomplish those tasks. So it puts some pressure on the R&D budget. And as Phebe said, you saw some of that even in the first quarter. But I don't think any of this is enough to change the profile of what we've talked about either from an R&D spend in the aggregate in the '22, '23, '24 time frame or as we think about it in terms of the margin rate impact that it has on the business. So again, just to recap where we see this, we're in an elevated state this year. It will remain elevated in '23. And then once we get the 700 and the 800 certified, it remains somewhat elevated, but will notch down a step down in '24 as the effort shifts more towards the 400, and then we'll see it sort of return back to more of a normal run rate level beyond 2024. Sheila Kahyaoglu: And then maybe one more on technology. How are you thinking about the Technologies portfolio? I think it has a lot of good businesses in there, but organic growth hasn't been as robust as say Marine. So how do you think about the good businesses in that portfolio overall? Do you like it as a whole as a combined technology of an ammunition business? Or any thoughts to that? Phebe Novakovic: Yes. We spent a fair amount of time early on after the acquisition of CSRA, trimming that portfolio both in our IT business as well as in our Mission Systems business. So we like the mix of lines of business that we have right now. We believe they're complementary, and we believe that they're good growth engines, but I don't know that we heard your questions that clearly, but if one of them was -- and correct me if I'm wrong, but if one of them was comparing this to Marine growth, very few items in the defense budget are going to grow as reliably and as robustly as the submarine and shipbuilding accounts. So I wouldn't hold that as the metric, I think continued steady growth on the top line. But more importantly, the bottom line in Technologies has really been our focus. Does that make sense? Operator: Our next question comes from Mike Maugeri from Wolfe Research. Michael Maugeri: I think historically, sort of your commentary has been for $400 million to $500 million of annual revenue growth at Marine sort of implies some moderation from here. Growth has been strong over the last few years, maybe some risk retirements coming through on Columbia class. So with that said, I mean, is there any sort of good reason to think that growth should moderate over the next few years at Marine? Phebe Novakovic: No. We continue to project $400 million to $500 million a year on average. You'll see some perturbations in quarterly growth, largely driven by material sales, but nothing that changes the trajectory. Michael Maugeri: And then sticking with Marine, can you speak to the pipeline at Bath, maybe some upside there as it might relate to hypersonic work on DDG-1000, additional work for DDG-51? Or are we sort of pretty much tapped out there from a capacity standpoint? Phebe Novakovic: Well, yes, those are mixing kind of 2 different predicates. One, there's been a lot of talk about integrating various weapon systems on to shipboard platforms, but we haven't yet seen any of that materialize. And so it is not a question about capacity. We have adequate capacity that we expanded and updated and upgraded in the last few years through our capital deployment improvements at Bath and frankly, the other shipyards. So it's simply a question of the demand coming out of the U.S. Navy, and we haven't had any surprises there. They're continuing with respect to Bath and maybe have continued to support DDG-51 production. So we expect that to be a steady pace going forward. Operator: Our next question comes from Peter Arment from Baird. Peter Arment: Phebe, maybe just circle back on your comment regarding the pipeline increasing potentially with Combat. I'm just curious about your overall comments on how we should expect it's eventually show up in backlog. Should we consider this more of a '23 and '24 event when we're thinking about that? And then just as a follow-up related to kind of the budget outlook, just now that we've gotten the '23 requests and we saw what was enacted for '22. Maybe you could just give some high level thoughts on GD is faring given the request? Phebe Novakovic: If you're talking specifically about Combat, I think that it's hard to give projections about timing when, in fact, the budgets for the most part, have not materialized in significant increases. But were they to in the land forces and land forces modernization, we have every expectation that the vehicle -- combat vehicles demand will increase and ordinance and armaments will increase. So I think it's premature to bake in any assumptions about growth until you really see some of that. And I would say that one of the interesting things that we have not quite seen at the same level is the Abrams interest from multiple U.S. allies. So we'll have to see how that plays out over time. There are some potential out there. But as I said, I don't want to get too far ahead of our customers here, got to see how all this -- takes time to get from the threat to full funding to allocation of awards. I think you'll hear that from a lot of folks, not just us. Operator: Our next question comes from Cai von Rumohr from Cowen. Cai Von Rumohr: So Phebe, at Bath you recently had a mid-contract wage hike where the lower 5 of the 10 pay grades had a pay hike of over 20%. Now I assume mix is an issue, but could you comment on what that impact is on labor availability and cost and is there any read across to electric boat that this should be a concern there, too? Phebe Novakovic: So the wage increase at Bath is an attempt to help stabilize the manufacturing workforce and build ships faster. So this, in turn, will ultimately help competitiveness and margins. So we think we can fully address any cost impact. And I think the touch labor market has been less impacted by some of the well-publicized labor shortages and they tend to be more regional to the extent that they've existed. So we do -- we take each one of our lines of business on a case-by-case basis and then react accordingly. But Bath was a special set of circumstances given Maine and the realities in Maine regarding workforce. Cai Von Rumohr: And then switching gears a little bit, what impact do the Russian sanctions have on your business at Gulfstream? . Phebe Novakovic: So to the extent that we expected an impact we anticipated it to show up at Jet Aviation in some of their European locations. But they were -- Jet was able to offset that with additional volume. With respect to Russia, as I noted, I think, before, they are less than 5% of our Gulfstream backlog and we had no deliveries this quarter, obviously. We've had no cancellations. And we have, in this demand environment, been able to manage the relatively few number of Russian airplanes in our backlog. So we do not see an impact at the moment. Operator: Our next question comes from Matt Akers from Wells Fargo. Matthew Akers: I wonder if you could talk on Technologies, a couple of things. I guess, one, I think you commented on some supply chain impacts on Mission Systems, just how those are trending. And then also just the timing of some of these new awards and when they get start to ramp up. Phebe Novakovic: So we discussed, I think, with you, I think starting maybe in the third quarter and again in the fourth quarter, the -- some of the chip shortages that we were experiencing at Mission Systems that was constraining the ability to deliver a series of different kinds of products. So we have largely worked through those issues at Mission Systems, but we are now contending with the pent-up demand that resulted -- was generated by last year's slower deliveries as a result of chip shortages. And as we work through that, that ought to be upside for Mission Systems on the revenue side as we go forward. And then the timing of new orders typically at GDIT, they tend to be a -- tend to have a quarter lag or quarter and half lag from time of award to new starts. So we'll see some of the more recent larger awards begin to show up next quarter and then increasing over time. Matthew Akers: And if I could on Gulfstream, I mean one of the questions I've gotten is how sort of sustainable this business could be if we do go into a recession? I guess can you just talk about if that come up at all with your customers, are people concerned about the economic outlook, and sort of how resilient do you think this business could be if we do have a downturn? Phebe Novakovic: Well, we haven't heard a whole lot of that in the pipeline, but let's pass this prologue here. And I think what we have demonstrated repeatedly at Gulfstream is that Gulfstream is a very good cyclical. And in the past, what we've seen is relatively short economic perturbations and a pretty quick recovery at Gulfstream. So I think our job is to manage and play the cards that are dealt to us, and we've done so very effectively. So you can probably estimate the future of the U.S. economy better than we can. That seems to be a great support and get a Nobel prize if you get it right. But we're quite comfortable at the moment on where we stand, and I'm very comfortable with Gulfstream's ability to continue to be a good cyclical. Operator: Our next question comes from Kristine Liwag from Morgan Stanley. Kristine Liwag: Phebe, looking at the fiscal year '23 budget request, we're seeing a generational investment in the nuclear triad benefiting the Columbia-class. And we're also seeing advanced capabilities like safety systems seeing outsized growth. So as you look at your portfolio, with the IT business stable, leverage has come significantly down, what's your appetite to add a new vertical to the business to capture more of this outsized growth in advanced capabilities that you may not have today? Phebe Novakovic: No, I think we do not discuss potential acquisitions or divestitures, but we like where we are positioned to take advantage of the recapitalization of the triad. You want to ask another question? Kristine Liwag: Yes. And maybe following on capital deployment then. Understanding that you're not going to talk about large M&A, what about additional priorities for cash? How should we think about dividend payments versus share repurchases, particularly as you're in the leverage where you want to be and the business is generating significant amount of free cash flow? Jason Aiken: I think fundamentally, there's no change to the way we've articulated our capital deployment priorities. We talked a little earlier about the dividend increase earlier this year. That was the 25th annual -- consecutive annual increase. We've made pretty clear the significant investments we've been making in the business over the past several years. And now really, if you will, if there's any pivot at all, it's shifting back the attention more toward rewarding those patient shareholders with return of capital and share repurchases. And you've seen us do that last year. We embarked on that a little bit in the first quarter, and I think you should expect to see us continue that in a tactical and opportunistic way. M&A is always opportunistic. And as Phebe said, not something that we disclose out in front of anything. So that's kind of how you should expect us to behave. Howard Rubel: And operator, we'll take one more question, please. Operator: Our final question for today comes from George Shapiro from Shapiro Research. George Shapiro: Phebe, you had $104 million cancellation in the quarter. And I guess from what you said in response to the question before, it wasn't due to Russia. So if you could tell us where that might have been? Phebe Novakovic: We had one cancellation. And I have no clue where it was, but it wasn't Russia. And that... George Shapiro: Yes. That's fine. And then Jason, where the payments from the Canadian contract in the first quarter similar to last year's first quarter, which was around $1 billion? And also, do you expect more to occur this year as well? . Jason Aiken: Yes. Payment levels this year are very similar to last year, both in the first quarter and for the balance of the year. So the pattern should be pretty similar. And again, that customer has been very consistent in their payments since we negotiated the recast of that program. Operator: Thank you. That concludes the Q&A for today. I will hand back to Howard Rubel for any closing remarks. Howard Rubel: Thank you, Alex. And thank everybody else for joining our call today. As a reminder, please refer to the General Dynamics website for our first quarter earnings release and highlights presentation. If you have any questions, I can be reached at (703) 876-3117. Thank you very much for your attention today. Operator: Thank you for joining today's call. You may now disconnect.

Operator: Good morning and welcome to the General Dynamics Fourth Quarter and Full Year 2021 Earnings Conference Call. All participants will be in listen-only mode. Please note this event is being recorded. I would now like to turn the conference over to Howard Rubel, Vice President of Investor Relations. Please go ahead. Howard Rubel: Thank you, Operator, and good morning, everyone. Welcome to the General Dynamics fourth quarter and full year 2021 conference call. Any forward-looking statements made today represent our estimates regarding the Company's outlook. These estimates are subject to some risks and uncertainties. Additional information regarding these factors is contained in the Company's 10-K, 10-Q, and 8-K filings. We will also refer to certain non-GAAP financial measures. For additional disclosures about these non-GAAP measures, including reconciliations to comparable GAAP measures, please see the slides that accompany this webcast which are available on the Investor Relations page on our Web site, investorrelations.gd.com. Now, I would like to turn the call over to our Chairman and Chief Executive Officer, Phebe Novakovic. Phebe Novakovic: Good morning, and thank you, Howard. Earlier today we reported fourth quarter revenue of $10.3 billion, net earnings of $952 million and earnings per diluted share of $3.39. The sales in most respect consistent with our previous guidance sell-side consensus. The results in comparison with prior periods are rather straightforward and set out in our press release. I'll go through some of that detail quite briefly, as I give you my thoughts on the business segments. As we indicated, it would be, the final quarter is our strongest quarter of the year in both revenue and earnings. In fact, earnings, operating margin, net earnings and return on sales improved quarter over the prior quarter throughout the year. It was a nice steady progression of sequential improvements. On a sequential basis, suffice it to say that revenue was up $724 million, operating earnings were up $106 million, and earnings per share up $0.32. So, all in all, a solid quarter with good operating performance. For the full year, we had revenue of $38.5 billion, up 1.4% from 2020; net earnings of $3.26 billion, up 2.8% and earnings per fully diluted share of $11.55, modestly better than consensus and up $0.55 over 2020. We ended the year with a total backlog of $87.6 billion and total estimated contract value of $127.5 billion. Our business was strengthened by significant growth in aerospace backlog to $16.3 billion. I'll have more to say about that when we get to the business segment comments. The total company book-to-bill is one-to-one for the quarter and the year, led by the powerful order performance of Gulfstream. Our cash performance for the quarter and the year is very strong. The conversion rates of the quarter is 136% of net income and 104% for the year. Jason will have more fulsome comments on this subject and backlog in his remarks. Now let me turn to reviewing the quarter and paying some attention to quarter-over-quarter and sequential comparisons as well as full year in the context of each group and provide colors appropriately. So, first Aerospace. Aerospace revenue of $2.6 billion is up 5.1% over the year ago quarter on the delivery of 39 aircraft, 35 of which were large cabin. While this was the strongest delivery quarter of the year, it fell short of our expectation by one aircraft, which has flipped into 2022. For the full year revenue of $8.1 4 billion is up modestly from the prior year even though we delivered 119 aircraft, 8 fewer aircraft than we did in 2020. The increase was driven by higher service revenue at Gulfstream and a nice increase in revenue at Jet Aviation. Fourth quarter Aerospace earnings of $354 million are down $47 million from year ago quarter, even though revenue was $125 million higher, resulting in a 270 basis point reduction in operating margin. The major source of the variance is a $50 million increase in net R&D costs driven by the certification on the G700 and G800 and accelerated work on the G400. The year ago quarter was also helped by a significant launch assistant payment that was an offset to gross R&D. Nevertheless, Aerospace operating earnings and margins are better-than-anticipated by consensus. The same can be said for the full year results. I should also point out that Aerospace margins improved throughout the year and that was true with respect to both Gulfstream and Jet Aviation. At midyear last year, we told you we expect revenue of about $8.2 billion; operating margin around 12.4% with earnings of $1.01 billion. We finished the year with revenue of $8.14 billion; operating earnings of $1.03 billion and a 12.7% operating margin. In sum, we were slightly better on earnings and margin, but very close to our forecast on revenue. the most important story in the quarter for Aerospace and frankly for the company was the extraordinary order activity of Gulfstream. Last quarter, I told you that orders in the third quarter boarded on the spectacular. This quarter, they were significantly better. Order activity in the quarter was beyond anything we had seen since 2008 with the introduction of the G650. Demand that turned very good in mid-February and continued through the second and third quarters was red hot in fourth quarter. Let me give you the particulars. The Aerospace group in dollar denominated orders had a book-to-bill of 1.7 to 1. Gulfstream alone was 1.8 to 1 and in unit terms, it was over 2x. Remember that these multiples are off of an increased denominator with 39 deliveries. This translates into a very significant backlog growth. Aerospace added $1.6 billion to backlog in the quarter and $4.7 billion for the year. As we go into the new year, the sales pipeline remains robust and sales activity is brisk. The buildup in backlog and the pace of current demand leaves us with a rich problem, but a problem nonetheless. How do we satisfy the demand manifest in our current backlog supplemented by continuing brisk activity having previously turned down production? Can the supply chain support us? Are we ready? Well, the answer is we will increase production in 2022, but not to where it needs to be. Remember also that some of our increased production in '22 will be in building G700s, and G800s that will not deliver in '22, a prebuild, if you will. As it turns out, the long pull in the 10 is manufacturing wings, which we do ourselves. You may recall that we previously vertically integrated wing supply because of in the supply chain. So, what do we need to do? We need to expand our new modern wing facility and acquire another set of tools and fixtures. All of this is underway and will be in place to satisfy our needs for '23 and beyond. This leads to the question of what are the implications of this for 2022 guidance. I'll address '22 guidance a little later. Further, given the robust and enduring backlog of Gulfstream, we also feel comfortable with giving you a look at what is anticipated for '23 and '24 as well. Finally, on the new product development front, all 5 G700 flight test aircraft are flying and have over 2,200 flight test hours. We have completed over 65% of all required testing. Next Combat Systems. Revenue in the quarter of $1.89 billion is up 3.7% from the year ago quarter. Operating earnings of $281 million are off $28 million on a 90 basis point decrease in operating margin. Let me point out, however, that a 14.9% margin in the quarter is highly respectable. For the full year, revenue of $7.35 billion is up $128 million, a 1.8% increase after strong growth in 2019 and moderate growth in 2020. Operating earnings for the year of $1.07 billion are up $26 million, a 2.5% increase. By the way, this performance is in line with the guidance we provided earlier in the year. As we look forward for the next few years, we believe that Combat volume will soften somewhat in the increasingly constrained budget environment faced by the U.S Army. While our platform programs remain critical to the Army War fight, we may see some contraction in part offset by international growth in Abrams, and real combat vehicles. We will continue to drive margins as we always have. Remember that Combat Systems has had very good margins and much more constrained revenue environments. In short, this group has had a positive revenue growth for several years now, continued its history of strong margin performance, has good order activity and has a strong pipeline of opportunity as we go forward. Next, Marine Systems. The Marine Systems growth story continues. Fourth quarter revenue of $2.9 billion was up less than 1% over the year ago quarter. However, revenue is up 8.8% sequentially and 5.5% for the full year. Similarly, operating earnings are down somewhat in the quarter, but up sequentially and for the full year. Once again, this is the highest full year of revenue and earnings ever for the Marine group. In our initial guidance to you, we anticipated revenue of about $10.3 billion, operating margin of 8.3% and operating earnings of $855 million. We came in above that for both revenue and earnings and spot on the predicted operating margin. Our shipyards have continued to perform well overcoming most of the challenges that COVID lay in our path. First, continuing to operate without ceasing throughout COVID, and more recently managing labor shortages, part shortages, supply chain disruptions, and increasing commodity prices. Importantly, on the latter point, our long-term shipbuilding contracts provide protection from material escalation. I'm happy to report that we are working very well with the Bath unions and workforce and together we have worked put the past behind us and concentrate on improving schedule and performance. As a result, Bath has begun to see improvement on both scores. In response to significant increased demand from our needy customer that you'll see in these results, we continue to invest in each of our yards, particularly at EB to prepare for Virginia Block V, and the Columbia ballistic missile submarine. Suffice it to say that we are poised to support our Navy customer, as they increase the size of the fleet and deliver value to our shareholders as we work through this very large backlog. Finally, the Technologies group which consists of GDIT and Mission Systems. Just to remind you, this is the group in the defense segment that had have the most impact from COVID-19 with the most remote participation from employees and the most difficulty accessing customer locations whose employees also have been working remotely. It is also where we have the most impact from this short supply of chips and other key components that mission systems. With that said, let's turn to the results and commentary on the Group and the specific businesses. For the quarter, Technologies had revenue of $2.98 billion, up 7.9% from the year ago quarter. Operating earnings, however, of $334 million are up only 5.1% on a 30 basis point improvement margin. The operating margin of 11.2% is the strongest since the formation of this group. Revenue for the full year of $12.46 billion is up 1.5%, but earnings are up $64 million, or 5.3% on a 60 basis point improvement in operating margin. All considered the group performance showed good strength and earnings are in line with guidance from us. Revenue came in at $543 million below our guidance driven by mission system challenges that we have discussed last quarter, offset in part by 2.2% growth the GDIT. Margins at both companies were very good enabling us to meet our earnings forecast. So very good operating leverage in a very challenging environment. The group enjoyed a nice order quarter with significant wins and a book-to-bill of 1 to 1, a little bit stronger GDIT and a little bit lower at Mission Systems. Mission Systems did a very good job overcoming many of their supply chain challenges, was working hard to satisfy the pent-up demand that was driven by a significant backup of work orders in some customers sites and by supply chain shortages. Turning to IT. Our Fed and Civilian division had a particularly strong year in '21 and help drive a 60 basis point improvement in margin over 2020. And as been the case since the acquisition, GDIT's cash performance was outstanding. Well in excess of 100% of their imputed net income GDIT's backlog at the end of 2021 was $8.7 billion, 4% higher than yearend '2020. Book-to-bill was 1.1 to 1 on sales growth at 2.2%. This is notable in light of the dollar value of GDIT wins and snared and protests that went from about $800 million at the end of 2020 to a whopping $6 billion at the end of '21. While we expect these protests will resolve in our favor, protest resolution timing is outside our control. As we look into '22, we have a healthy pipeline of opportunities to pursue as customers focus on digital modernization, and over $32 billion of bids, largely all new work awaiting customer decisions. So, all in all, we expect a good year for the business. Let me turn the call over now to Jason Aiken, our CFO, for additional commentary and then return with our guidance for next year. Jason? Jason Aiken: Thank you, Phebe, and good morning. The first thing I'd like to address is our cash performance for the quarter and the year. As you can see from our press release exhibits, we generated $1.3 billion of free cash flow in the fourth quarter or 136% of net income with strong cash performance across all four segments. That resulted in free cash flow for the year of $3.4 billion, a cash conversion rate of 104%. That was nicely ahead of our anticipated 95% to 100% of net income, and again reflective of solid performance across the company, but in particular, the strong order activity at Gulfstream. That strong performance enabled us to continue our balanced and robust capital deployment activities. To that point, capital expenditures were $385 million in the quarter or 3.7% of sales. That's up more than 10% from the prior year, and brings us to $887 million for the full year. Of course, Marine Systems continues to drive the elevated CapEx with facilities investments in support of the unprecedented growth the Group is experiencing now and for the next decade plus. The full year total for capital investments at 2.3% of sales is slightly below our original expectation of 2.5%. That's due strictly to the timing of the phasing of those projects. While our investments to support the Navy's submarine programs have peaked, we expect capital expenditures to remain somewhat elevated at about 2.5% of sales in 2022, slightly higher than 2021, before returning as we forecast for some time to our more typical 2% range in 2023 and beyond. We also paid $332 million in dividends in the fourth quarter, bringing the full year to $1.3 billion, and we repurchased 1.8 million shares of stock in the quarter, bringing us to just over 10 million shares for the year for $1.8 billion at just under $179 per share. With respect to our pension plans, we contributed $135 million in 2021 and we expect that to decrease to approximately $40 million in 2022 as a result of the ARPA funding release. As we've discussed for some time, we expect to continue to generate cash in the 100% plus conversion range in 2022 and beyond. Our outlook assumes the unfavorable impact of the capitalization and amortization of research and development expenditures for tax purposes beginning in 2022, as called for under current law. There's proposed legislation to delay the effective date of this requirement, but we'll have to wait and see if it's approved by Congress and signed into law. Assuming there is a deferral of the R&D capitalization provision, we would expect our free cash flow to be in the 110% conversion range. We ended the year with a cash balance of $1.6 billion and no commercial paper outstanding, leaving us with a net debt position of $9.9 billion, down approximately $300 million from last year and the first time we've ended the year with net debt below $10 billion since 2018. Our net interest expense in the fourth quarter was $93 million, bringing interest expense for the full year to $424 million. That compares to $120 million and 477 million in the respective 2020 periods. The year-over-year reduction in interest expense is due to the retirement of $1.5 billion of long-term debt back in May. Our next scheduled debt maturity is a $1 billion in the fourth quarter of this year. And based on the declining net debt balance, we expect interest expense to drop to approximately $380 million in 2022. Turning to income taxes, we had a 15.9% effective tax rate in the fourth quarter and for the full year consistent with our previous guidance. Looking ahead to 2022, we expect the full year effective tax rate to remain around 16%. The rate for 2022 is not impacted by the R&D matter I discussed earlier because that legislation impacts cash taxes, not the effective tax rate. The 2022 rate also assuming there's no other enacted legislation impacting corporate tax rates. From a quarterly phasing perspective, we expect the first quarter rate to be lower due to the timing of certain tax items, so the rate for the remainder of the year will naturally be higher given the full year forecast. Quarter activity and backlog were once again a strong story with a 1 to 1 ratio for the company in the fourth quarter and for the full year. As Phebe mentioned, order activity in the Aerospace group led the way with a 1.7x book-to-bill on the quarter and 1.6x for the full year. As a result, the Group's backlog was up 40% in the past year. Technologies recorded a book-to-bill of 1 to 1 and within that group GDIT was 1.1x. We finished the quarter with a total backlog of $87.6 billion and total estimated contract value which includes options and IDIQ contracts of over $127 billion. That concludes my remarks. I'll turn it back over to Phebe to give you guidance for 2022 and wrap up remarks. Phebe Novakovic: Thanks, Jason. And with that, I will turn to your expectations for 2022. So let me provide our operating forecasts for '22 initially by business group and then a company-wide roll up. In Aerospace, we expect 2022 revenue to be around $8.4 billion, up around 4% over 2021 with about 123 deliveries, up from 119 last year. Operating margin will be around 4.8%. So, a little color here about what is driving this forecast. Well anticipated deliveries are up only 4 units from '21, production of completed aircraft is considerably more than in 2021. Last year, we produced fewer than 119 aircraft that were delivered. We delivered a number of test aircraft that were either produced and completed in prior periods as well as a few demonstrators all up about 11 aircraft. In 2022, production we are building some G700s and G800 test articles that will not deliver this year. Finally, our ability to ramp up further in '22 is limited by the wing supply issue I described earlier, which will be remedied for '23. This leads me to a quick look at '23 and '24. In 2023, we expect to deliver 148 airplanes, 25 more than in 2022 and have revenue of approximately $2 billion more than '22, with margin improvement around 200 basis points. In '24, we expect to deliver around 170 airplanes, up another 22 driving another $1.6 billion of revenue over '23 and another 100 basis points of margin growth. So, all up over that 2-year near-term timeframe, we expect to see $3.6 billion of revenue growth over '22 and 300 basis points of higher operating margins. Mind you, none of this is supported by heroic assumptions about continuing demand. We assume a book-to-bill of around 1 to 1 during the period, a notable reduction from this year's demand. If demand is greater, it will impact favorably '24 and '25. In short, we fully expect Aerospace to be a significant growth engine for both revenue and earnings in 2023 and 2024. In Combat Systems, we expect revenue in the range of $7.15 billion to $7.25 billion, a modest reduction against '21. We expect operating margin to be about the same at 14.5%. Growth should resume later in our planned period as developmental programs move into production and several anticipated international orders should be received. The Marine Group is expected to have revenue of approximately $10.8 billion, a $300 million increase over '21. Operating margin in '22 is anticipated to improve to around 8.6%. The long-term driver of growth here is submarine work, which will expand as the supply chain improves its efficiency and delivers modules to the Groton waterfront in a more timely fashion. Our biggest upside opportunity in this group is to increase margins in the period. We expect revenue in Technologies in the range of $12.8 billion to $13 billion. This is a growth of around 2.5% to 4.5%. We expect operating margins around 10%. So, for 2022, company-wide, we expect to see approximate $39.2 billion to $39.45 billion of revenue, and an operating margin of 10.8%. This all goes up to a forecast range of $12 to $12.15 per fully diluted share. On a quarterly basis, we expect EPS to play out much like it has in prior years, with Q1 about $2.45 and progressively stronger quarters thereafter. Let me emphasize that this forecast is purely from operations that assumes a 16% tax provision, and it seems we buy only enough shares to hold the share count steady with yearend figures so as to avoid dilution from option exercises. So much like last year, beating our EPS guidance must come from outperforming the operating plan, achieving a lower effective tax rate and the effective deployment of capital. Howard Rubel: Thanks, Phebe. As a reminder, we ask participants to ask one question and one follow-up, so that everyone has a chance to participate. Operator, could you please remind participants how to enter the queue. Operator: We take our first question from Ron Epstein from Bank of America. Please go ahead. Ron Epstein: Yes, good morning, Phebe and . Phebe Novakovic: Hi, Ron. Ron Epstein: I know you're going to get bombarded with Gulfstream questions. So, I'm not going to go there. I'll let everybody else do that. I just wanted to jump in -- yes, how about that. Maybe on Land Systems at first, right. I mean, the Ukraine and everything going on with Russia has been in the headlines, what does that mean for your international Land Systems business, particularly in Eastern Europe? Phebe Novakovic: Well, for some time now, the Eastern European demand for combat vehicles has been at elevated level. But I have to tell you that speculation about the considerable tension in Eastern Europe and any subsequent impact on budgets is just still advised given the high threat environment. So, we are hopeful for a peaceful resolution. But that is a national security issue for the U.S and its allies. Ron Epstein: Got it. And then maybe my follow-on question, if I can. And I shift back a little bit towards Gulfstream. Phebe Novakovic: Sure. Ron Epstein: You mentioned in your prepared remarks, you've got a little bit of a bottleneck in wing production. Have you thought about re-outsourcing wing? Or do you look at the wing as to something you guys want to keep? Because it's a key part of the plan. Phebe Novakovic: Outsourcing, you sort of add a question given the problems in the supply chain on wings, which then drove us to internally source. And frankly, our wing production efficiency is not equal by any. This is just simply a question of expanding a wing facility just to touch and we need another set of tools. But we are very good at wing production. So, I think that that's a capability set that reduces a lot of risk and frankly, provides opportunity for the program. Operator: The next question comes from Cai von Rumohr from Cowen. Please go ahead. Cai von Rumohr: Yes. Thanks so much, and congratulations on the good results. So, Phebe … Phebe Novakovic: Thank you, Cai von. Cai von Rumohr: … net R&D was up $50 million in the fourth quarter. What do you expect it to be up going forward? And as I look out there, the 100 bps margin uptick I haven't calculated exactly looks like less than a 25% incremental margin. So how come it's not better as we get out to 2024? Phebe Novakovic: Well R&D, we expect to be about $100 million for next year, but let Jason give you a little bit of color. Jason Aiken: Yes, so as Phebe said, roughly $100 million increase in the Gulfstream R&D for 2022 as we continue to progress, as you'd expect to the flight test program on the G700. If you normalize for that delta, margins for next year would be roughly 14% for the Aerospace group. So that really does kind of answer the question on incremental margins I think from our perspective. Otherwise, we do continue to see, as you'd expect, the incremental profit from in-production airplanes 500 and 600 in particular, continuing to be additive to the group's margin. So … Cai von Rumohr: Sure. And the last one … Phebe Novakovic: It is a pretty good margin in the out years. Cai von Rumohr: They are. R&D credit, how big are you assuming? Jason Aiken: So, as I said, we're looking without the R&D credit deferral, meaning assuming existing law persists, we'll be in the call at 100% plus conversion range. If the R&D credit is deferred -- current law is deferred, we're talking more in the 110% range. So that kind of gives you a size on what we're expecting. Operator: The next question comes from George Shapiro from Shapiro Research. Please go ahead. George Shapiro: Yes. Phebe, the four higher deliveries in '22 that you spoke about, are they G700 or what's the status? Because I know, you thought that you deliver some G700s in the fourth quarter. Phebe Novakovic: What we said I think is that we expected the certification in the fourth quarter with -- but I think the way I have, as I noted in my remarks, we're going to have some prebuild, about the 700s and the 800s, which we'll deliver shortly thereafter, the 700s little shortly thereafter the certification. Jason Aiken: And a little more color on that, George. I mean, just to think about it, obviously, we talked about, as Phebe said, fourth quarter certification and EIS of the 700. But there's also obviously with 2021, you have 500 -- excuse me, 550s that were delivered in the early part of the year that doesn't replicate. So, the incremental four is an offset of that decline as well as the test airplanes that Phebe mentioned that we delivered last year and some demonstrators, but otherwise steady increases in all of the in-production models, particularly 600 and 500. So, I think overall, if you look at in-production airplanes 650, 600 and 500, 280, we're looking at somewhere in the 15% year-over-year increase in production in those models. So that should give you some color on what's driving that increase. George Shapiro: Okay. And then one follow-up. There's a $211 million difference between when you have this gross orders, and effectively just the net orders. Now were there any cancellations, there reflecting the fact that some customers are getting the planes later than they would like to get or …? Phebe Novakovic: No, I don't think there was any particular driver. We have, I think three cancellations, but for no particular reason other than idiosyncratic customer issues. Operator: The next question comes from Myles Walton from UBS. Please go ahead. Myles Walton: Thanks. Good morning. Phebe, could you comment on the … Phebe Novakovic: Good morning, Myles. Myles Walton: … price environment for building out the backlog and I imagine you're now coming pretty close to lists on all of your programs. And maybe give us an impression of the skyline or the lead time for the large cabin miles at this point? Thanks. Phebe Novakovic: So, we've enjoyed some pricing pressure or some pricing increases and that's all good and wholesome, and we are quite comfortable where prices are. And our lead times within all production aircraft are well within the 24 or 18 months -- more than 18 months to 24 in that range that we like to see. Myles Walton: Okay, great. And 500 versus 600, can you just give a color on the two differences in demand there. And one might be particularly accretive on the 600, given the assembly commonality with the platform. Phebe Novakovic: Yes, so just to give you a little bit of background there, the 600 were the parade in the fourth quarter, followed by the 650 and the 500. The 600 margins are obviously quite nice and 500 are improving. And of course, 600, we've always enjoyed good or 650, we've always enjoyed good margins. So, we're seeing some very nice operating margins at the gross margins at the airplane level. Operator: The next question comes from Robert Stallard from Vertical Research. Please go ahead. Robert Stallard: Thanks very much. Phebe, maybe you can touch on some other issues. I just wonder if you can maybe give us some more clarity on the supply chain at this point and some of the obstacles you've been facing across the company whether they're getting any better. Phebe Novakovic: So, let me go group by group. In Combat, we haven't had seen any particular supply chain issues. At Gulfstream, we've managed the supply chain, and I think they were benefited by our reduction in production last year. So, we're quite comfortable with where they are. We reported pretty fulsomely on the Mission Systems challenges that they had with chip shortages and other key product material. And Electric Boat, in particular, we've seen some challenges in the submarine supply chain, largely manifests in Virginia scheduled variants. So, we’ve pretty widely reported that, but we're continuing to work with the Navy and to kind of shore up that supply chain, so we can get normalized Virginia schedules. Robert Stallard: Okay. And then maybe a follow-up to Myles's question on the Aerospace lead times. I think you just said 24 months is what you're seeing, in some case. That sounds a bit longer than what we've maybe heard in recent years. Are you seeing any customers, essentially saying that's too long, and maybe going somewhere else to get their jets? Phebe Novakovic: No, we haven't. And as I said, 18 to 24, but 24 is only a handful of cases. But we haven't had any customers say well, I'll go elsewhere, because we're in the backlog, I'm going to go elsewhere cancel my order because I want my airplane faster. And frankly, we're ramping up production to accommodate that demand, that backlog and what we see is a nice solid demand going forward. So, we're quite comfortable where we are in our lead times. Operator: The next question comes from Robert Spingarn from Melius Research. Please go ahead. Robert Spingarn: Hi, good morning. Phebe Novakovic: Good morning. Robert Spingarn: Just sticky -- Phebe, sticking with supply chain and labor, can you frame the risk to entry into service for the three new aircraft programs, the 700, 800 and the 400? And how we should think about potential slippage or whether you've got that covered at this point? Phebe Novakovic: Well with respect to labor, we've seen some wage increases in engineering forced at Gulfstream, but we have covered those with some increasing prices to offset that. But we don't see any labor issues with respect to the delivery of these airplanes. And as I say the supply chain has been pretty stable here . Robert Spingarn: On labor affecting or clearances affecting technologies at all, is it limiting growth? Phebe Novakovic: So, GDIT, particularly in the tech industry, any company that got large exposure to tech here, experts has certainly have their challenges and mobility, but I will say GDIT is holding up very nicely, attrition is at pre-pandemic levels. So, we're holding our own, but very mindful, this is a valuable workforce and coveted by many. Robert Spingarn: Okay, thank you. Operator: The next question is from Doug Harned from Bernstein. Please go ahead. Douglas Harned: Good morning. Thank you. At the Gulfstream, when you described a pretty high-class problem here in terms of demand. And when you get out to 2023 and 2024, though, you have a pretty diverse set of programs at that point. How do you look at this in terms of both your operations and the supply chain, just to manage that complexity? Phebe Novakovic: So, one thing that Gulfstream -- one of the many things that Gulfstream has been quite good at is managing its operations and having very strong operating leverage. And we have brought the supply chain along with us. So, all of our estimates that we're giving you fully accounting for what we expect the supply chain to be able to manage as well as our own operations. So, we're quite comfortable that we do not have an operating challenge. Douglas Harned: So, no, you're not really seeing any additional issues with this mix when you get out in that timeframe. Phebe Novakovic: No? Operator: The next question comes from Sheila Kahyaoglu from Jefferies. Please go ahead. Sheila Kahyaoglu: Good morning, guys. Thank you. Phebe, I'll take a question … Phebe Novakovic: Hi, Sheila. Sheila Kahyaoglu: … in 24 months. I'll wait for it. Hi. So, I'm going to ask about Aero because it is a lot of the EPS expansion we have between '21 and '24. So, you've been so generous with your comments, but I can't quite square away Aerospace margins for 2022. And I was wondering if you could help a little bit with that just given pricing should be a tailwind. And I think mix improved from '21. You have a 500, 600 going up the curve. And I think you previously talked about the G700 being accretive to margins right away. So maybe, can you talk about what's changed? And how do we think about that improvement into '23 and '24? And I know you already guided, but if you could square it away a little bit more? Jason Aiken: Yes, I mean, I think you've got a lot of the basic building blocks, we probably have to compare spreadsheets to see what's driving the ultimate outcome. I think the single biggest issue is probably the period-to-period fluctuation in our net R&D expenditures, right, between supporting the development programs and the net offsets that we get from time-to-time from suppliers. As I mentioned before, we've got about $100 million increase in R&D from -- in '22, relative to '21. So that if you normalize for that you're up from 12 -- 12.7 in 2021 to 14% plus in 2022. There's other puts and takes within that, as you know, pricing is a little better, the improvements along the manufacturing lines for 500 and 600 continue to get better growth in service business, obviously, which continues a pace year-over-year, while at good margins does come at margins that are in an aggregate dilutive to the overall group margin and certainly to new aircraft production margins. And so that's really the story I think, in terms of the puts and takes going into 2022. I think we can get into your details or your question maybe after the fact on '23 and '24. But I think 200 basis points improvement in '23 and another 100 basis point in '24. That kind of gives you that trajectory that we've talked about for some time about returning to the mid to high teens margins for the group. When you combine that with pretty significant top line growth that Phebe described, I think it's a pretty -- I think it's a pretty compelling story. Sheila Kahyaoglu: Can I just ask the follow-up on the R&D? Obviously, it peaks for G700 this year. When do we see that for the 400 and the 800? So, obviously, the 800 comes in -- into play shortly after the 700. So, you should kind of expect to see that following a similar pattern. I think we said the 400 enters service in 2025. So, keep in mind the 400 is an airplane that benefited significantly from commonality with the 500 and 600 in the way those airplanes were designed and engineered. So, we won't necessarily see as much of a blip associated with that, but all of this fits over time within the profile of our ongoing commitment to R&D and roughly 2% of sales for R&D. Again, it can fluctuate from quarter-to-quarter and year-to-year, but that's how you ought to see it play out. Operator: The next question is from Peter Arment from Baird. Please go ahead. Peter Arment: Yes. Good morning, Phebe, Jason. Nice results. Phebe, I wanted to ask you a question about Marine. How are they doing in terms of battling kind of the labor shortages out there. I know Pratt yesterday talked about having a shortage of welders, maybe what you could give some commentary how you're seeing that? Phebe Novakovic: So, we have worked for many years with our state and local governments to provide them pretty robust training programs that are still up and running. We are hiring this year at an accelerated rate over what we had anticipated, largely because of the backlog. In terms of hiring in COVID, obviously constrained. These are hiring levels for '22 at levels we have seen before and executed before. So, the question is all about the efficiency of your training programs. And we're pretty comfortable that once we get these people in the door, we can get them trained and have them go as new shipbuilders. They've got learning curves, obviously, as they get more proficient and become veterans, but we factored all of that in our thinking. Peter Arment: Appreciate that. And just as a follow-up to some -- just on Aerospace. It sounds like the customer base continues to expand, how would you kind of characterize it? Is it a lot of the corporates that are renewing? Are you seeing just a complete expansion during this kind of COVID -- post-COVID period? Phebe Novakovic: So, to give you a little bit of additional color on that, demand was quite good in the United States and also increased throughout the rest of the world we saw as we had begun to see earlier, a return to the Fortune 500 as well as private companies as well as smaller companies. So, it's pretty robust across the portfolio and the kinds of both individuals that we see, but also companies that we see. But I don't see any structural change here, if that's kind of what you're poking at in terms of . Operator: The next question … Phebe Novakovic: Go ahead, I’m sorry. Operator: The next -- apologies, the next question comes from Seth Seifman from JP Morgan. Please go ahead. Seth Seifman: Hey, thanks very much … Phebe Novakovic: Hi, Seth. Seth Seifman: … and good morning. Maybe if I could dig in for a couple of more Aerospace details. There any comments you could give about the services assumptions underlying the guidance, and also the CapEx impact and timing of completion of the additional wing capacity? Phebe Novakovic: So, I'll answer those in the inverse order, almost negligible CapEx. So, this is just simply a timing of -- timing issue of expanding an existing building somewhat and getting in place the tools and fixtures to effectuate the increased production. On the service side, we expect '22 to see some nice service growth at Gulfstream as well as Jet Aviation which have a nice year as well. And we expect service volume quite naturally to grow with the expanding fleet. And we have included those assumptions on a going forward basis. Seth Seifman: Great, thanks. And just as a follow-up, definitely heard earlier and appreciate the commentary about the multiyear outlook being conservative. I guess any other sort of support you can give to that characterization would be great. If we look at, I guess, if the backlog remains stable at about $16 billion, looking at like 1.3x coverage out in 2024. And if that's kind of what you're aiming for, and any other color that kind of gives you confidence in the conservatism of the outlook? Phebe Novakovic: Yes, so think about it this way. What I wanted to explain is that the guidance that we are giving you for '23 and '24, was based on a 1 to 1 book-to-bill. Clearly, if it's better than that, we'll increase production accordingly. But for planning purposes, that's what we have assumed and I think that's prudent planning. Operator: The next question comes from David Strauss … Seth Seifman: So maybe just -- go ahead. Phebe Novakovic: David? Operator: The next question comes from David Strauss from Barclays. Please go ahead. David Strauss: Okay. Phebe, can you hear me? Phebe Novakovic: Yes. Loud and clear. David Strauss: Okay. So, you give us a little bit of a longer-term outlook for Gulfstream. I want to ask about Marine and Combat. I think, Marine, you'd previously said expect kind of $400 million to $500 million in incremental revenue a year. Last year, you were at the high end of that, this year you're forecasting a little bit below that. So maybe if you could update us there on kind of the longer-term thinking. And then on Combat, I think you had said kind of low growth over the next couple of years. Now you're talking about a decline. So, what's the longer-term view, I guess, on Combat? And how much could the fiscal '22 budget that still yet to be decided, but it looks pretty good for you guys how that might influence things? Phebe Novakovic: So, let's talk about Marine. We have for some time said that we expected revenue growth in the $400 million to $500 million range. We still expect that. Next year is a little bit later, a $300 million increase and that's largely just workload timing. When I go to Combat -- so I think what we are anticipating is some decrease in pressure on the army budget. Look, we're in '23, in particular, so we're pretty early on in the budget for that fiscal year. We don't have full OMB or tax back. But I think that the pressures on the army budget have been very well articulated. And while we expect that ultimately the funding levels for our platform programs will be sufficient and relatively stable, we will see some rather dramatic drop offs in O&M funded accounts, like maintenance, for example. So, we are factoring all of that into what I see is that increased army pressure. We're factoring all of that into our estimate for between 1% and 3% lower growth this year, but we anticipate growth returning as a number of these international orders come in a couple of years as well as new army start. So, I think we have given you a balanced and realistic view of combat. David Strauss: Okay. A quick follow-up, what are you assuming for CR this year in terms of what's -- what you're baked into your defense guidance? Phebe Novakovic: So, for this particular CR, given our portfolio and the prior year funding levels, we don't see a material impact of all, almost nothing. Operator: The next question comes from David Strauss from Barclays. Please go ahead. David Strauss: You already got me. Thank you. Phebe Novakovic: You’ve already got David. I need to get . Operator: My apologies. We have Matt Akers from Wells Fargo. Please go ahead. Matt Akers: Hi, guys. Thanks for the question. There was some commentary around the budget discussions about potentially going to the three a year on Virginia class. Could you comment on how feasible that is and sort of what further investments required? What kind of time frame that might be possible? Phebe Novakovic: So, we've been talking to our navy customer and clearly, some investments would be required. But I think, too, at the moment, we need to get the supply chain stabilized on the two-a-year cadence before we actually think about really ramping up to three. It is doable. We just need some time for that supply chain to adjust from the ravages of COVID. Matt Akers: Great, thanks. And I guess a couple of details within the cash flow outlook for '22. Can you say how big the impact of that prebuild is that you discussed at Gulfstream and then also can you just update what's the latest on the large international receivable? And is that meaningful as an impact for 2022? Jason Aiken: Yes. I think on the Gulfstream side, while we are having, as Phebe mentioned, the ramp-up on the 700 and the prebuild on the 800, that's not a material impact that we see in terms of the headwind. Gulfstream wants to be a nice producer of cash again this year. Obviously, not quite to the extent that last year, we -- as we mentioned, we sold off the inventory, in particular, in the test airplanes. So, it won't have quite the trajectory it did last year, but it will still be a nice contributor on cash. So, don't see that as a headwind. On the international side, the international Canadian vehicle program we've talked about for some time remains on track. That program is in a great position, both in terms of the vehicle and the performance of the production line, and we continue to receive payments as scheduled for the renegotiated extension of that contract that occurred back in 2020. So, all in a good place in that regard. Howard Rubel: Operator, we will take one last question. Please go ahead. Operator: Thank you. So, our final question then comes from Richard Safran from Seaport Global. Please go ahead. Richard Safran: Hi. Good morning, Phebe, Jason and Howard. How are you? Phebe Novakovic: Good morning. Richard Safran: So, on Technologies, I was impressed by that $32 billion comment that you made. What percent of that is adjudicated in '22? Is it all of it? And would you be able to tell me how much of that is recompetes? And I asked because I'm assuming that recompetes come with a bit of a higher win probability. Phebe Novakovic: Those are largely new work in the $32 billion and the customer adjudicates that as they get to it. But I think we've recognized as well that not only is the customer decision cycle, but it's also their protests that affect the timing of any of these wins, and they're significant. Richard Safran: Yes. And just as a very quick follow-up here. Jason, I heard your opening comments about what you were going to do with debt. And I wanted to know, just to be clear, your fourth quarter maturities, is that the extent of debt reduction this year? And if you would, longer term, could you just tell me what your overall debt reduction target is? And when do you think you might be able to get there? Jason Aiken: Yes. The $1 billion that matures in November of this year is the only maturity this year. So, you've got that right. In terms of the longer term, we will obviously play that out as it goes. We've indicated that we have a reasonable debt laddered out over the next several years that offers us the opportunity to continue to step down the debt in, call it, $1 billion to $1.5 billion increments over time. That said, we've never indicated we were going to go back to the essentially zero net debt that we had before the CSRA acquisition. So somewhere in that period with flexibility remaining open, we will decide where the right point is to settle out on that. And frankly, if there's an overarching sort of guiding light that we have around that, it's continuing to target and try to sustain a mid-A credit rating. And obviously, there's a lot of factors that go into that, but that's really sort of the compass that we have around the debt trajectory. Howard Rubel: Well, thank you all for joining our call today. And as a reminder, please refer to our website for the fourth quarter earnings release and our highlights presentation, which will now include our outlook. If you have any additional questions, I can be reached at 703-876-3117. Thank you. Katie? Operator: Thank you all for joining. This now concludes today's call. You may now disconnect your lines.

Operator: Good morning, and welcome to the General Dynamics Third Quarter 2021 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Howard Rubel, Vice President of Investor Relations. Please go ahead. Howard Rubel: Thank you, operator, and good morning, everyone. Welcome to the General Dynamics Third Quarter 2021 Conference Call. Any forward-looking statements made today represent our estimates regarding the company's outlook. These estimates are subject to some risks and uncertainties. Additional information regarding these factors is contained in the company's 10-K, 10-Q and 8-K filings. We will also refer to certain non-GAAP financial measures. For additional disclosures about these non-GAAP measures, including reconciliations to comparable GAAP measures, please see the slides that accompany this webcast, our earnings press release and our filings with the SEC, all of these which are available on the Investor Relations page of our website, investorrelations.gd.com. With that completed, it's my pleasure to turn the call over to our Chairman and Chief Executive Officer, Phebe Novakovic. Phebe Novakovic: Thank you, Howard. Good morning, everyone, and thanks for being with us. Earlier this morning, we reported earnings of $3.07 per diluted share on revenue of $9.6 billion, operating earnings of $1.08 billion and net earnings of $860 million. We beat consensus by $0.09 per share on somewhat lower revenue than anticipated by the sell side. However, operating margin is up about 40 basis points more than anticipated. This led to the earnings beat. Revenue is up 1.5% against the third quarter last year. Operating earnings were up less than 1%. Net earnings are up 3.1%, and earnings per share are up 5.9%. This is all reasonably good, but the real story for us is the sequential results. Here, we beat last quarter revenue by 3.8%, operating earnings by 12.6%, net earnings by 16.7%, and EPS by 17.6%. On a year-to-date basis, revenue is up $733 million or 2.7%. Operating earnings are up $137 million or 4.8%, net earnings are up $140 million, and earnings per share are up $0.64, a strong 8.5%. We had a powerful quarter from a cash perspective. Cash flow from operating activities was $1.47 billion. That is 171% in net earnings. Free cash flow was $1.275 billion, 148% of net income. This follows a very strong cash quarter performance in the second quarter. In summary, we enjoyed a good quarter in almost all important respects. So let me move right into some color around the performance of the business segments, have Jason give you additional color around cash, backlog, taxes and deployment of cash and then answer your questions. First, Aerospace. At the outset, let me remind you that in April of last year, we announced that we were cutting production as a result of certain supply chain issues. Shortly thereafter, it became clear that there was a reduction in demand related to COVID. That resulted in additional cuts to production. Those production cuts were preplanned and implemented slowly over the ensuing months and reached their low point in the second quarter of this year. We had anticipated renewed post-COVID demand in the second half of this year and planned increased production for the second half with 32 planned deliveries in the third quarter and 39% in the fourth quarter. In fact, demand accelerated in mid-February, a full 4 months earlier than we had anticipated. This created opportunities but also operations and supply chain challenges for us, particularly for 2022. On balance, it is a rich problem to have. With that, let me turn to the Aerospace results in the quarter. Aerospace had revenue of $2.07 billion and operating earnings of $262 million, with a 12.7% operating margin. We managed delivery of 31 aircraft as opposed to the 32 planned, 1 slipped into the fourth quarter on customer preference. Revenue is $91 million more than the year-ago quarter, up 4.6% on 1 fewer aircraft delivered. On the other hand, operating earnings are down $21 million on a 160 basis point degradation in margins. This was the result of an additional $28 million in G&A expenses driven by higher R&D expense and around a $20 million settlement of a supplier claim related to the allocation of warranties after the end of G550 production. This was offset, but only in part, by improved gross margins on delivered aircraft and better margins in the Gulfstream service centers. The real story here is the quarter-over-quarter sequential improvement. Sales, earnings and margins are ramping up as planned. I will not dwell on these numbers. They are available in the charts attached to the press release. From an order perspective, this quarter boarded on the spectacular. In dollar terms, Aerospace had a book-to-bill of 1.6:1. Gulfstream alone had a book-to-bill of 1.7:1. The second quarter was the strongest order quarter in the number of units that we have seen in quite some time. This quarter was slightly better. As previously discussed, sales activity truly accelerated in the middle of February and continued on through the remainder of the first quarter. The pipeline that developed in that quarter rolled over into the second quarter and increased demand continued through the third quarter. We continue to experience a high level of interest activity and a solid pipeline. As a result of the order activity, Gulfstream backlog this quarter is the highest in the last 6 years. From a new product perspective, the G500 and G600 continued to perform well. Margins are improving on a consistent basis, and quality is excellent. We have delivered 131 of these aircraft to customers through the end of the quarter with 20 scheduled for delivery in the fourth quarter. These are the metrics of a successful program building further momentum. The G700 has approximately 1,800 test hours on the 5 test aircraft. The new Rolls-Royce engine is performing well, but much remains to be accomplished. We remain on track for entry into service in the fourth quarter of 2022, with the G800 to follow in 6 to 9 months. As I mentioned earlier, we had planned 32 deliveries in the third quarter and came up on short. The slip was attributable to customer preference. We had planned for 39 in the fourth and LAD-1 that slipped into the quarter. If everything goes as planned, we will deliver 40 aircraft in the fourth quarter. The story in Combat Systems quarter-over-quarter sequential and year-to-date is all about operating excellence and continued strong margin performance. Combat Systems had revenue of $1.745 billion, down 3.1% from the year ago quarter. However, earnings are up 2.2% over the year ago quarter on the strength of an 80 basis point improvement in operating margin, yet another example of strong operating leverage from Combat Systems. Further that theme on a year-to-date basis, Combat System revenue was up $201 million or 3.8%, while operating earnings are up a significant 7.4% on a 50 basis point improvement in operating margins. Demand for our combat vehicles remained stable in the U.S., with a brigade of Abrams main battle tanks per year and half a brigade of Strykers per year. Domestic upside is possible from the MPF program where our vehicle is performing well. In the near term, we are stable internationally but opportunity rich in the intermediate period with order potential in Poland, the Czech Republic, Romania, Denmark and Switzerland. You may have read in the press about some noise and vibration issues in Ajax that have emerged during the programs test phase. We are working very closely with both the British Army and the Ministry of Defense and are confident that both technical issues can be resolved. In summary, this quarter was an impressive operating performance once again by the Combat Systems Group. Turning to Marine Systems. Revenue of $2.64 billion is up $232 million, above 9.6% over the year ago quarter. The current quarter revenue growth was distributed fairly evenly across the 3 shipyards. It is also up sequentially and year-to-date. Year-to-date revenue was up 7.5%. This is very impressive continued growth. In fact, revenue in this group has been up for the last 16 quarters on a quarter over year ago quarter basis. Operating earnings are $229 million in the quarter, up $6 million or 2.7% on an operating margin of 8.7%. On a sequential basis, operating earnings are up $19 million, on a 40 basis point improvement in margins. Electric Boats performance remained strong, and while still early in the Columbia first ship construction contract, the program remains on cost and schedule. We had a particularly strong quarter in our ship repair business, continuing to support our Navy customer. Throughout the group, we have a solid backlog of new construction and repair work, and our programs are well supported in the FY '22 budget. In summary, revenue growth is clearly visible. The real opportunity given this steady revenue visibility is margin improvement over time. Moving to Technologies. This segment had revenue of $3.120 billion in the quarter, down $130 million from the year ago quarter or 4%. The revenue decrease was attributable to Mission Systems from timing on several programs in part driven by chip shortages. On the other hand, Information Technology grew revenue against the year ago quarter at a rate of 1.4%. Operating earnings of $327 million are up $13 million or 4.1% on a 10.5% operating margin. EBITDA margin is a truly impressive 14.4%, including state and local taxes, which are a 50 basis point drag on that result. Most of our competitors carry state and local taxes below the line. This quarter revenues decrease will impact the year, and we now expect revenue to be around $12.6 billion or $400 million less than our second quarter update. Earnings will, however, remain the same on better margins. Total backlog remains relatively consistent over all comparator periods, so good order activity in the quarter with a book-to-bill of 1:1 and good order prospects on the horizon. The book-to-bill at GDIT was a little better than 1:1 and somewhat less in Mission Systems. The pipeline remains active at both businesses. From an opportunity perspective, cybersecurity is a top priority throughout the government and the budget calls for tens of billions of dollars in unclassified spending in both the defense and civil spaces. This is a significant opportunity for which we are well positioned to support our customers' needs, particularly as more and more customers move toward a 0 trust model. So that concludes my remarks with respect to a very good quarter and first 9 months. As we look toward the end of the year, we expect performance to be in line with the update to guidance that we gave you on the last call, except as I referenced in my remarks about Mission Systems. However, EPS guidance remains unchanged. I will now turn the call over to our CFO, Jason Aiken, for further remarks. Jason Aiken: Thank you, Phebe, and good morning. I'll start with our cash performance in the quarter. Operating cash flow was $1.5 billion in the quarter, once again on the strength of Gulfstream orders and from continued strong cash performance from our Technology segment. Including capital expenditures, our free cash flow was $1.3 billion or a 148% net earnings conversion. Through the first 9 months, our conversion rate is 91%, approaching our full year outlook for free cash flow conversion in the 95% to 100% range. For those of you who followed us for some time, this performance through the first 9 months of the year is better than we've seen in the past several years and gives us good line of sight to achieving the upper end of our target cash range for the year. Looking at capital deployment. Capital expenditures were $196 million in the quarter or 2% of sales. That puts us a little under the 2% of sales for the first 9 months, so trending somewhat below our forecast for the year. We're still projecting full year CapEx in the range of 2.5% of sales. So that obviously implies an uptick in spending in the fourth quarter. We also paid $332 million in dividends and spent $117 million on the repurchase of 600,000 shares in the quarter. That brings year-to-date repurchases to 8.5 million shares at an average price of just under $174 per share. We repaid $500 million of notes that matured in July. And although there were no new issuances, we ended the quarter with $2 billion of commercial paper outstanding. We expect to fully retire that balance before the end of the year. So we ended the third quarter with a cash balance of just over $3.1 billion and a net debt position of $10.5 billion, down more than $800 million from last quarter and down $1.4 billion from this time last year. With the scheduled CP repayment in the fourth quarter, we expect to end the year with a net debt balance below $10 billion for the first time since 2018. As a result, net interest expense in the quarter was $99 million, down from $118 million in the third quarter of 2020. That brings the net interest expense for the first 9 months of the year to $331 million, down from $357 million for the same period in 2020. The tax rate in the quarter was 15.3%, bringing our rate to 15.9% for the first 9 months, consistent with our full year outlook, which remains around 16%. Order activity and backlog were once again a strong story in the third quarter, with a 0.9x book-to-bill for the company as a whole, bringing us to a 1:1 ratio for the first 9 months and a 1.2x ratio for the trailing 12 months. As Phebe mentioned, the order activity in the Aerospace group led the way with a 1.6x book-to-bill in the quarter, while technologies recorded a book-to-bill of one-to-one. Foreign exchange rate fluctuation resulted in a $300 million reduction in backlog in the quarter, with the majority of that impact in Combat Systems. We finished the quarter with a total backlog of $88.1 billion. That's up 8% over this time last year, and total potential contract value, including options and IDIQ contracts was $129.6 billion. That concludes my remarks, and I'll turn it back over to Howard to start the Q&A. Howard Rubel: Thank you, Jason. [Operator Instructions] Operator, could you please remind participants how to enter the queue? Operator: [Operator Instructions] Our first question today comes from Myles Walton of UBS. Myles Walton: Phebe, I wonder, could you talk a bit about the transition potential margin impact of the new generation of the 400 and the 800 coming online? It seems like the 800 is a pretty advantageous move for the 650 engine with the 700 engines. And you usually would expect some level of reset on margins, but I'm curious if that reset will be materially lighter than we'd normally expect with the new entry into service. Phebe Novakovic: So we get a fair number of questions on this, so I think it's worthwhile walking through each element here. And first, let's take a look at margins. I'll make some comments that I'd like, Jason, to maybe elucidate a couple of points, and then we'll get into a little bit of earnings. So when you think about margins and the new product development, at present, we have about 3 models in production, soon to be joined by the 700. The 800 replaces the 650, and the 400 comes later. Importantly, we have all the modern plant property and equipment to do everything we need to do. We need to add some more CapEx to undergird the increase in wing production. Remember, we're doing all of our wings. But here's the important part, and it goes to the design for producibility that we built into these airplanes and the implied productivity that's embedded in that design for producibility. And remember, too, we are seeing margin improvement in every single one of our airplanes in services. This now tells you -- and again, I think it shines the spotlight on the operating leverage of Gulfstream. But to amplify all of that and really give an additional uplift, remember, all these aircraft are related. They all have the Symmetry flight deck. The G700 and 800 are the same engine and wings and the same basic fuselage. The G400 and 500, 600 have the same engines or similar engines from the same family from 1 supplier and the same basic fuselage. So this commonality align -- allowed us to design for producibility, which is going to be an uplift to our margins. Now if we unpack that a little bit, we get an awful lot of questions about R&D. And I'd like Jason to talk a little bit more, and perhaps not for all but for some, a bit of a tutorial on R&D accounting. Jason Aiken: Yes. So to Phebe's point, we get a lot of questions around will this new product investment have any impact on the overall R&D spend and what does that do to margins over time. And as a reminder, we have a long-term steady commitment and demonstrated performance of investing in Gulfstream's product development and new technologies over time. So I think if you look over a multiyear period, we've averaged company-sponsored R&D in the call it, roughly 1% of sales range, and we don't expect that to change. Largely, the 800, I wouldn't say it's behind us, but it's been part and parcel to that spend over time. R&D is spent as a period expense over time. As Phebe mentioned, the G400, while a clean sheet airplane is part of the 500 and 600 development, and so the commonality among those helps keep that spend down. And so both of those airplanes are right within that profile of R&D spend. I think to the extent you see any lumpiness in R&D as we did this quarter, and we'll expect to see a little bit next quarter, that has more to do with supplier offsets that we receive. You're probably familiar with those where suppliers contribute to the program development efforts. And those come in lumps and chunks, so that tends to create the quarterly perturbations and R&D spend. But overall, the period expense for these programs, including the 2 that were announced this month, are right inside that line of company-sponsored R&D. So we don't expect that or the -- frankly, the introduction once they come to have an overall impact in the margin improvement trajectory that we see for Gulfstream over time. Phebe Novakovic: So what does all that mean if you step back? So margins this year are at their low point in aerospace. Next year margins will improve, and '23 margins will improve. Earnings were better in '21 than they were last year. They're going to be better in '22 and '23. And by the way, when we give you guidance on the next call, we're going to give you some color and some insight into both of those years to help explain and amplify again what we're looking at, at Gulfstream. So I hope that helps answer your question, Myles. Operator: We'll now move on to our next question, which will be coming from David Strauss. David Strauss: Phebe, I wanted to ask you, you highlighted that the Gulfstream backlog is the highest it's been in about 6 years. I think if I just take kind of the aircraft revenue, you've got something like 2.5 years in backlog based on today. So how -- and at the same time, you also comment on supply chain challenges. So how do you balance all that as you think about where production rates go at Gulfstream? Phebe Novakovic: So the increased demand supports increased production. We'll get into all of that specificity on the next call. But as I noted, after we reduced production last year in response to COVID, supply chain challenges that were in large part driven by COVID and COVID demand, the supply chain needs to gear back up. So there's a little bit of a headwind. But that's why I wanted to give you the color around the margin and earnings performance. David Strauss: Okay. But all that being said, we should see higher production in '22 and '23? Phebe Novakovic: We're anticipating that to drive a higher revenue. So as I said in my remarks, this is a rich problem to have. I wanted to be as transparent with you as possible to tell you, hey, look, we've got this. There's a nice strong backlog. We've got very good demand, a continuing demand. But as we ramp up, and we will be ramping up, there are some challenges. We can manage those challenges and manage through them, but I thought it was important that you guys understand that. Operator: We're now going to move over to Robert Stallard of Vertical Research. Robert Stallard: Phebe, I was wondering if you could elaborate on these challenges. You obviously face some chip issues in Mission Systems, but it seems you're also conscious of some potential headwinds in the aerospace division that ramps up. And one of your peers also talked about broader supply chain challenges in its Defense business. I was wondering if you could comment on this topic generally and what you could be seeing in the future. Phebe Novakovic: So I tried to give you some measured look at the Aerospace issues. But on supply chain, the chip shortage impacted Mission Systems. I would note how -- and we do expect that to go into next year somewhat. I would note, however, even since the close of the quarter, they have begun to significantly mitigate some of those chip impacts. But across the portfolio of our defense businesses, we are not seeing significant or even material supply chain challenges. So we've been able to manage through that pretty well. So for us, and I can only speak for us, that hasn't been a significant issue other than its impact at technologies and driven by Mission Systems. Robert Stallard: Yes. And in aerospace, the challenge is there. Is that just a lead time issue with suppliers? Or is it specific parts that you're finding particularly tight? Phebe Novakovic: It's primarily a lead time. The fact that we pulled down last year adds a little bit of headwind to the increase in production that we see on a going-forward basis. But I don't see any particular problems at the moment impacting that. This is really just a timing issue and getting folks back up to speed. Operator: We're now going to move over to Cai von Rumohr of Cowen. Cai Von Rumohr: Yes. So Phebe, could you give us some color on demand at Gulfstream, specifically high net worth versus corporate versus fractional? And most importantly, are you seeing any opportunity for improved pricing in this sector? Phebe Novakovic: Let me answer those in the inverse order. We have seen some upward pressure on pricing, and then let me unpack your demand. So look, our own view of our increased demand is a combination of factors. One, the very attractive product mix, a strong economy, the return of the Fortune 1000, increase high net worth individuals. And in fact, COVID did create in pockets some wealth creation and the pent-up demand that's built up during the pandemic. The demand is -- and I think importantly is spread evenly pretty much across our product line. And there's nothing unusual to report on customer mix or geographic distribution other than the North America was quite, quite strong. Operator: And we're now going to move to Ron Epstein of Bank of America. Ronald Epstein: Just maybe changing gears a little bit. I think everybody is going to focus on bizjet, so I'm going to maybe not do that. A while back, there was some discussion... Phebe Novakovic: Oh my, how innovative. Ronald Epstein: Imagine that, right? There were some discussion in the press around the Polish defense ministry purchasing some Abrams tanks and 1 Abrams. I think maybe 250 of them, if I remember right. Where does that stand? And if you can give some color on that and maybe some of the other international business going on in the Land Systems business. Phebe Novakovic: Yes. So we're working very closely with our customer as well as the Department of Defense to support a potential order of 250 tanks out of Poland. If we -- and frankly, this is a powerful system for the polls to have given their geographic location and their historical experience, particularly with folks stream and West. So if we think through again the FMS process, and this is an FMS sale, we're looking at somewhere between maybe in the 2-year period. But just to give you a little bit of additional color we see increased demand signals coming out of Czech Republic, Romania, Denmark, Switzerland, Spain and, of course, the Middle East. The world hasn't gotten any safer. Operator: We'll now move over to our next question from Richard Safran of Seaport Research Partners. Richard Safran: Phebe, Jason, Howard, with such great cash flow performance, I wanted to get an update on how you're thinking about capital deployment, invest in the business, dividends, repurchases, commercial paper. Now, Jason, I heard your remarks about retiring commercial paper. But as we look ahead, are you thinking about maintaining your current strategy? Or are you considering any changes? I think in the past, you've stated you invest in the business depending on need and that dividend should be repeatable. But I was just curious if there's any update here on how you're thinking about it. Phebe Novakovic: So let me give you the strategic framework, and then Jason can fill in any specifics. But essentially, our capital deployment strategy remains unchanged. We invest opportunistically in small acquisitions or in investments to grow the business where we can get a good capital return, return on our capital. Dividends and opportunistic share repurchase. This has been our strategy from the day 1 and the advent of this management team. Jason? Jason Aiken: Yes. I think the only thing I'd add to your point on the commercial paper repayment and future priorities around debt is that commercial paper will mature here in the fourth quarter. We've got more than sufficient cash on hand, so we'll just repay that in normal course as it comes due. The next debt maturity is in late next year. I think it's around $1 billion that will come due. So no real imminent issues there, so we can focus on the priorities Phebe mentioned. And then as those elements of the debt ladder do mature, we'll pay those down in due course up to a point until we get to a comfortable place that we think long term continues to support our target mid-A credit rating for the company. Operator: We'll now be taking our next question from Seth Seifman of JPMorgan. Seth Seifman: Phebe, when you think about the certification timeline for the 700 and the 800, I guess, is there anything you'd point out to as a long pole in the tent? And thinking specifically about the engine certification, which you mentioned today, and then also the changes in ODA that Steve Dickson outlined last week testifying before Congress. Phebe Novakovic: Yes. So our estimate at the moment still remains late next year for the 700, with the 800 to follow 6 to 9 months later. For those of you who have followed engine certification for years and decades, some of you, you'll know that they are always challenging. This engine is performing extremely well in terms of its capability in either meeting or outperforming its design specification. We've got a lot of test growth on a going-forward basis to get through. So we don't see any particular issues at the moment, but we are mindful that these are always complex and challenging processes to work through. And we've adapted to changes in the -- in our regulators in the FAA's game book before. And at the moment, we don't see any reason to adjust our estimates. But if we do, we'll let you know. Seth Seifman: Great. And then maybe just as a follow-up for Jason. If you could update us on where you expect to be on working capital at the end of this year and then kind of maybe without specific guidance, just what the opportunity buckets are in working capital for '22. Jason Aiken: Sure. I think as you can see from the exhibits this morning, working capital was a benefit, call it, in the couple of $300 million or $400 million in the quarter. That is largely from the performance at Gulfstream, the significant order activity that we've seen throughout the year and the quarter as well as the continued sale of the last of the test articles from the 500 and 600 program. So that really is the big benefit in the quarter. Working capital is still a bit of a headwind year-to-date, just as the business grows and we work through some of that. But I think as you look ahead, we would expect to see working capital to continue to be a benefit in the fourth quarter and beyond as we get back to that 100% conversion level this year. We're approaching that level this year and certainly expect to get above 100% conversion next year. So part of that is the continued demand cadence at Gulfstream. Once we get through the 700 program, we would look to sell off those test articles as well. And then, of course, you've got the ongoing benefits at Combat Systems. You've seen us achieve a regular order on the large international program there in Combat Systems. And that will continue to be a tailwind, really even more of a tailwind, I think, into '22 as well as into '23. So those are some of the major movers. The other side of it, of course, is where we should be peaking this year in terms of the capital expenditure investment profile in Marine Systems. So that will start to come down next year and return more to the normal historical level we see by 2023. So those are really the big movers there and should give you a sense of where we ought to see the working capital moving over the next 2, 3 years. Operator: Our next question will be from Kristine Liwag from Morgan Stanley. Kristine Liwag: Phebe and Howard and Jason. Phebe, how do you anticipate the vaccine executive order will affect labor and production? And also, do you have a sense of the percentage of GD employees that are currently vaccinated? Phebe Novakovic: Yes. So before I get into the mandate, I'd like to take the opportunity to reiterate again our acknowledgment of our workforce. I think it's important to remember that we were declared a critical national infrastructure business early in the onset of the pandemic. And as a result of that, our workers stayed on the factory floor in the shipyards and in places where they were needed, frankly, throughout the pandemic. They stood their watch and, from my perspective with courage and fortitude, to produce the goods and services that are necessary for our national security. I personally am fully cognizant of the sacrifices they made, and I'm proud of the courage they showed. Now let me turn to the mandate. As you well know, as a federal contractor, we are covered by the executive order on the mandate. The corporate office mandate has been fully executed. Two of our largest businesses are in the process of executing the mandate, and many others are set to implement accordingly. And because of our customer, operational and geographic diversity of many of our businesses, we are working with our customers as contract modifications are received that could trigger an implementation. So we keep a pretty running tally. We're at, we believe, in some form of either full or partial vaccination in the 75% range or so. And then yes, so we understand the mandate. Kristine Liwag: And then maybe if I could add one on supply chain and aerospace. We're seeing that some of the suppliers also have to comply with the mandate. How are you mitigating potential supply chain issues in aerospace if you're not able to get parts? And how do you think about that with regards to your production rate plans for Gulfstream? Phebe Novakovic: Well, frankly, to the extent that there is an impact in the supply chain of this mandate, it will affect a lot of lines of business throughout the defense aerospace world. So I don't see a particular challenge at Gulfstream or in the moment at any of our other large lines of business. But we will certainly be mindful and deal with any workflow perturbations should they emerge. Look, we have a history of dealing with challenges methodically, systematically and thoroughly. So you'd expect us to approach that operating discipline and apply that operating discipline to any emerging issues that may or may not arise. Operator: We'll now move to our next question from Peter Arment of Baird. Peter Arment: Phebe, maybe just to ask on the Technologies segment, just given the strong operating performance there. Is there any -- just a clarification, is there any onetimers in the 10.5% that you had this quarter? Phebe Novakovic: No. Peter Arment: And just if not, do you view this segment being able to sustain its kind of 10% or a double-digit margin going forward or just any color around that? Phebe Novakovic: Yes. Double-digit margin going forward. Okay? Peter Arment: Yes. No, I just -- any -- are you seeing any changes there or your ability to kind of manage that in terms of I know it's a very price competitive environment. Phebe Novakovic: No. I mean not at the moment. We've been pretty consistent in our margin performance across this entity. So I don't see any systemic change that should impact that. Operator: Our next question comes from Matt Akers of Wells Fargo. Matthew Akers: I wonder if you could talk about for the G400, 800, just kind of early feedback. And how much, I guess, of the demand you're seeing there, sort of customers that are sort of incremental that wouldn't have bought some of your other platforms versus potentially kind of cannibalizing some of the other aircraft? Phebe Novakovic: We have no instances of cannibalization to date. The 800 is ultimately a replacement for the 650. About 650 demand remains pretty steady. And the customer base is pretty much our typical customer base. There may be incremental adds here and there, but I would argue that we see that in both the 700 and 800 and frankly, the rest of that portfolio to the extent that there are incremental here and there. And this tend to be high net worth individuals or some new Fortune 1000 or 500 companies. But I think there's nothing particularly notable here in terms of being exceptional outside the norm. Other than there's a lot of good interest here. We've taken a good number of orders. Operator: Our next question comes from Pete Skibitski of Alembic Global. Peter Skibitski: Phebe, I was wondering if you could share your thoughts on the fiscal '22 defense budget. There seems to be a lot of tailwind to the President's request in Congress. And I'm wondering if you could share with us if you see some of the support, incremental support, occurring to GD programs and maybe you'd wager odds if that budget could be signed into law by the end of this calendar year or not. Phebe Novakovic: So I think you know as much as I do, given the fulsome and in-depth reporting on congressional budget processes about the likelihood of signing, so I'm not going to go speculate on hypothetical timing. But I think, importantly, all of our major and frankly all of our programs were well supported, and some are beneficiaries of increased spending on the part of the Congress. So all in all, we had no particular surprises, by the way, up or down. So we were quite comfortable on how this budget is being played out. Operator: Our next question will be coming from Noah Poponak of Goldman Sachs. Noah Poponak: Phebe, the -- in the business jet market at large, the end market and investors keep debating the sustainability of this recent uptick in demand and some people feel like it's... Phebe Novakovic: I haven't heard a lot of that. Noah Poponak: Yes. Exactly. Well, you've made, I guess, the pragmatic decision to kind of not wait in there. And I guess, I just wonder if you've had enough time or you speak to so many customers, if you've heard enough from real deal new customers to perhaps have more of a view on the sustainability of what we're seeing. Phebe Novakovic: Well, I wouldn't be taken little about this. I think that -- and nor should anybody. I think the demand that we're seeing is, I tried to reiterate before, is across our existing customer base. The Fortune 1000 is back in force. There are, as I noted, new entrants into that market as some companies have increased their profitability over the last 2 years. And there are additional high net worth individuals who have entered into the market. So I think that the data -- and I can only speak for Gulfstream. The data would suggest that given our attractive product mix as strong, as I noted earlier, strong economy and the fact that our customers are back and broad-based demand, I'm not worried at the moment about sustainability. These are -- Gulfstream is in and business jet market is in a cyclical market, driven in part no small measure by the economy. But we have been the most resilient in terms of demand through most economic cycles. So again, I think we are [ very resilient ] and we've got a good pipeline going forward. Noah Poponak: That's helpful. Do you have a sense, even if directionally, how many of your customers in the last 18 months are truly brand new? Phebe Novakovic: We're not going to parse it, but it's pretty -- we've gotten a fair number of new folks, but also our regular and historic customers. They're back on some new customers from market share increases. So as far as I'm concerned, we had very, very good demand, and the pipeline remains robust. As that was our final question, I would like to hand back to Howard Rubel for any closing remarks. Howard Rubel: Thank you, Melissa. Thank you, all, for joining us on our call today. As a reminder, please refer to the General Dynamics website for the third quarter earnings release and highlights presentation. If you have any other questions, I can be reached (703) 876-3117. That will now end our call. Operator: This concludes the General Dynamics Third Quarter 2021 Earnings Call. Thank you, all, for joining, and have a great rest of your day.

Operator: Good morning, and welcome to the General Dynamics Second Quarter 2021 Earnings Conference Call. All participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Howard Rubel, Vice President of Investor Relations. Please go ahead, sir. Howard Rubel: Thank you, operator, and good morning, everyone. Welcome to the General Dynamics second quarter 2021 conference call. Any forward-looking statements made today represent our estimates regarding the company's outlook. These estimates are subject to some risks and uncertainties. Additional information regarding these factors is contained in the company's 10-K, 10-Q and 8-K filings. With that completed, I would like to turn the call over to our Chairman and Chief Executive Officer, Phebe Novakovic. Phebe Novakovic: Thank you, Howard. Good morning, everyone, and thanks for being with us. Early this morning, we have reported earnings of $2.61 per diluted share on revenue of $9.2 billion, operating earnings of $959 million, and net income of $737 million. Revenue was essentially flat against the second quarter last year but operating earnings are up $125 million and net earnings are up $112 million, earnings per share are up $0.43. To be a little more granular, revenue on the defense side of the business is up against last year's second quarter by $308 million or 4.2%. Aerospace is down $352 million, pretty much as planned. Operating earnings on the defense side are up $98 million or 14.3%, and operating earnings in aerospace are up $36 million on a 390 basis point improvement in operating margin. The operating margin for the entire company was 10.4%, 140 basis points better than the year ago quarter. From a slightly different perspective, we beat consensus by $0.07 per share on somewhat lower revenue than anticipated by the sell side. However, operating margin is 20 basis points lower than anticipated coupled with a somewhat lower share count, this led to the earnings feed. On a year-to-date basis, revenue is up $596 million or 3.3% and operating earnings are up $129 million or 7.3%. Overall margins are up 40 basis points. The defense numbers are particularly good with revenue up $752 million or 5.2%, and operating earnings up $143 million or 10.3%. On the aerospace side of the business, revenue on a year-to-date basis is down $156 million or 4.3%, but earnings are up $16 million or 4% on a 90 basis point improvement in operating margins. The quarter was also very strong from a cash perspective; free cash flow of $943 million is 128% of net income. Cash flow from operating activities was 151% of net income and had a very solid quarter from an earnings perspective across the board. The year-to-date results give us solid start to the year and enabled us to raise our forecast for the full year which I will share with you at the end of these remarks. Jason Aiken: Thank you, Phebe, and good morning. I'll start with our cash performance in the quarter. From an operating cash flow perspective, we generated over $1.1 billion on the strength of the Gulfstream order book and additional collections on our large international Combat Vehicle contract. Including capital expenditures, our free cash flow as Phebe noted was $943 million or 128% net earnings conversion. You may recall that for the past several years, our free cash flow has been heavily weighted to the back half of the year, so the strong quarter derisks that profile somewhat and reinforces our outlook for the year of free cash flow conversion in the 95% to 100% range. Looking at capital deployment; I mentioned capital expenditures which were $172 million in the quarter or 1.9% of sales, that's down from last year but our full year expectation remains in the range of 2.5% of sales. We also paid $336 million in dividends and spent approximately $600 million on the repurchase of 3.3 million shares; that brings year-to-date repurchases to 7.9 million shares at an average price of just under $173 per share. We have 279.5 million shares outstanding at the end of the quarter. We repaid $2.5 billion of notes that matured in May, in part with proceeds from $1.5 billion in notes we issued in May. We also issued $2 billion of commercial paper during the quarter to facilitate the repayment of those notes and for liquidity saving purposes, but we expect to fully retire that CP before the end of the year. Phebe Novakovic: Thank you, Jason. Now let me do my best to give you an updated forecast. The figures I'm about to give you are all compared to our January forecast, which I will not repeat. In Aerospace, we expect an additional $200 million of revenue with an operating margin of around 12.4% which is 10 basis point below what we previously forecast; this will result in an additional $10 million of operating earnings. There could be some upside here if we can squeeze out a few more planes in the year. With respect to the defense businesses, Combat Systems should have another $100 million of revenue and add another 10 basis points of operating margin; so total revenue of $7.4 billion and operating margin of around 14.6%. Marine Systems has an additional $300 million and 10 basis points of improved margin, so annual revenue of $10.6 billion with an operating margin around 8.4%. Technology revenue will be down $200 million from our previous forecast but add 30 basis points of operating margin, so annual revenue of $13 billion with an operating margin of around 9.8%. So on a company-wide basis, we see annual revenue of about $39.2 billion and an overall operating margin around 10.6%, this rolls up to EPS around $11.50, $0.45 to $0.50 better than our forecast going into the year. Howard Rubel: Thanks, Phebe. As a reminder, we ask participants to ask one question and one follow-up, so that everyone has a chance to participate. Operator, could you please remind participants how to enter the queue. Operator: Absolutely, sir. Today's first question comes from Peter Arment with Baird. Please go ahead. Peter Arment: Hi, yes. Good morning, Phebe and Jason. Phebe Novakovic: Hi, Peter. Peter Arment: Nice results. Phebe, maybe just to start with Combat and my follow-up will be related to that. Just -- maybe, could you just talk about, I think there is really strong performance that you're seeing, but also, we're seeing a lot of activity in the international market that -- for some of your key platforms. Just how you think about Combat growing in what is a domestically flatter budget environment but based on how you're doing in terms of a lot of your works ? Thanks. Phebe Novakovic: So domestically both of our large platform programs, and Stryker and Abrams are continuing to grow, particularly Stryker, as the army assigns new missions and capabilities to that platform. There are also, as you all know, a number of developmental programs that factor into our longer-term thinking. Externally, outside the United States, demand is increasing, primarily driven by Europe. And again, that is focused and centered on our Combat vehicles, both -- both of our wheeled vehicles, as well as our track vehicles, most specifically, the Abrams main battle tank. Peter Arment: And just as a follow-up. Just as you talked about, I guess, some of that activity , have you -- do you expect that the discussions around recent comments around Poland, will that would be closing this year potentially? Phebe Novakovic: So, you know, Poland's been a very dangerous neighborhood. And I think there is no stronger deterrent than the Abrams main battle tank. I think press reports have suggested that they want 250 tanks for working very closely with the U.S. government to ensure we meet whatever ultimately United States and Poland determine that they want. I think our initial estimate to close is probably good solid year plus out; but again, more to be -- more to come, and then we'll keep you informed as that program unfolds. Peter Arment: Appreciate it. Thanks a lot for the color. Operator: And our next question today comes from Seth Seifman with J.P. Morgan. Please go ahead. Seth Seifman: Thanks very much, and good morning. Phebe Novakovic: Hi, Seth. Seth Seifman: Hi. I wanted to follow up on something you mentioned in the remarks, Phebe, about what needs to be done on the engine for the G700. And I wonder if you could tell us specifically what milestones we should be looking for? And what risks that the engine poses to the schedule for the program? Phebe Novakovic: So as I noted, we continue to make progress on both, the airplane and the engine development; but as I'm sure you know being a student of new engine development programs, they are always difficult to get through certification, and while there is no particular issue at the time, we still have a ways to go with respect to that certification process. But at the moment, we don't have any particular issues that would impact our overall estimation of timing. Seth Seifman: Okay, great. Thanks very much. And then, just as a follow-up. There's been a lot of discussion in the press about the AJAX program; how that's going and that it doesn't really seem to be having too much of a negative impact on the segment's financial results but -- the way that it's playing into financial performance of Combat? Phebe Novakovic: So, our U.K. customer is constructively and actively engaged in this program, and we're working very closely with them on two issues that were identified during customer test; one is noise and one is vibration. And given our long decade-long history of Combat vehicles design and production, you know, interestingly enough, this is a transformational vehicle for the U.K. army, and with many transformational programs it has emerged during the testing process. So, we will then are dealing with both of those issues quite closely with our U.K. government customer. Seth Seifman: Hey, great. Thanks very much. Operator: Next is Kristine Liwag with Morgan Stanley. Please go ahead. Kristine Liwag: Hi, Phebe and Jason. Phebe, can you provide more color on the type of our profile at Gulfstream or the demands from corporate or individual of U.S. versus international? Phebe Novakovic: Sure. All in all we see a reasonable balance across the broad cross section of buyers. The U.S. had a particularly strong quarter, generating more of this quarter's orders, some of the new customers and a broadening of the market and importantly, our core Fortune 500 customers have re-engaged. So in all that the markets we are looking at the moment is robust. Kristine Liwag: Thanks. And my follow-up is on pricing. Since there doesn't seem to be too many used jets in inventory, are you getting more pricing power for new orders? Phebe Novakovic: Well, let's just say as a matter, of course, we never talk about pricing. So, I am not about to break my discipline, but let me let me give you a little context here. Gulfstream has always been extremely disciplined about its pricing and that long history of disciplined control around pricing will continue. Price is precious and once you on rely on your discipline around pricing, it's a long way back up the hill. Kristine Liwag: Great. Thank you, Phebe. Operator: And our next question today comes from Robert Stallard with Vertical Research. Please, go ahead. Robert Stallard: Thanks so much. Good morning. Phebe Novakovic: Good morning. Robert Stallard: Phebe, just a follow-up on that topic and the strength of the demand environment in the order intake at aerospace. At what point would you feel comfortable raising business jet production? Phebe Novakovic: Well, we're increasing our business jet Gulfstream production rates throughout the remainder of this year. We've got 71 deliveries to go and we will, as you well know, set production for next year, in the fall of this year and then report fully to you on those production levels in next year. Robert Stallard: Okay. And just a follow-up on the pricing issue. Are you seeing -- you might call maybe irrational -- on the new pricing front? Phebe Novakovic: Well, that's your word, not mine. Hey look, we tend not to -- first of all we don't compete on price most importantly and I never comment on other people's behavior. That's a wise injudicious stance to adhere to. Robert Stallard: Okay, fair enough. Thanks so much. Operator: And our next question today comes from Sheila Kahyaoglu with Jefferies. Please, go ahead. Sheila Kahyaoglu: Hi, good morning and thank you for the time, Phebe, Jason and Howard. Maybe, on mission. If we could just talk about what's going on there for a second. I appreciate the divestiture in the semiconductor chip issue, but it seems like it was flat year-over-year organically and then the book-to-bill is slightly below one. So, maybe Phebe, can you talk about what the drivers in that business are and what you're seeing? Phebe Novakovic: Well, I think you need to look -- as you well noted, our divestiture of our SATCOM business. But I believe absent that and given the chip issue that we and others have had and that we are working assiduously to address, we have seen some growth and we anticipate some additional growth going forward. But it will be best measured. Jason Aiken: And I think to add on to Phebe's point, assuming that business can overcome some of the supply chain issues that they've seen, which at this point they're getting good signals, that they'll be able to do in the second half. We ought to see some modest organic growth out of that business for the full year. Sheila Kahyaoglu: Okay. And then maybe just one on Combat, that was also a really good quarter there and the first half is up, I think, 7%. It implies a deceleration into the second half. What's may be falling off there? Phebe Novakovic: Well, I think it's a only slightly in percentage terms. We think we had originally guided to an increase burst what impetus behind growth in the first half will repeat in the second half and that's logic and vehicle production deliveries in both the United States and outside the United States. Sheila Kahyaoglu: Okay, thank you so much. Operator: And our next question today comes from George Shapiro with Shapiro Research. Please go ahead. George Shapiro: Yes, Phebe. Could you commented on what services did in the quarter? I imagine it was up and what you expect for the rest of the year? Phebe Novakovic: You mean in aerospace services? George Shapiro: Yes in Gulfstream. Phebe Novakovic: Yes, well, our services include both jet aviation services as well as Gulfstream. So, we saw some nice order, nice recovery in the United States, but here in Middle East and Asia recovering a little more slowly. So, I think we had anticipated about $0.5 billion increase in revenue. I think that is a bridge too far in the moment and I think we're looking more along the lines of... Jason Aiken: Call it $375-ish million for the year at this point. Phebe Novakovic: So, not tremendously off our original estimate, but as I said, it's the international recovery. That's been just a touch slower than we anticipated, but the U.S. has been very, very strong. Jason? Jason Aiken: And George, on to that point, I think it's driven a nice rebound this year, I think to the tune of around 25% growth over last year and importantly, I think that some people are watching the levels we've seen through the first half of this year or within, call it 95-ish percent of where we were at this time in 2019. So, I think that's a good initial indication of the strength of the recovery in that business here in 2021. George Shapiro: Okay. I'll stick with my one. Thank you. Phebe Novakovic: Thanks, George. Operator: And our next question today comes from Doug Harned with Bernstein. Please, go ahead. Doug Harned: Good morning. Thank you. Phebe Novakovic: Good morning. Doug Harned: I wanted to go back to Gulfstream because when you talk about the demand where it's obviously very good, you talked a little bit about where they're coming from. But can you give us a sense of the psychology of your customers? By that I mean, are you seeing these orders come in really as kind of pent up demand that's been slowed recently? Or are you seeing people actually think about the use of business jets differently coming out of ? Phebe Novakovic: So, we have no evidence that there has been any fundamental shift in thinking about the use of business aviation, I think that it would be way, way, too premature to get real clarity about that. You're kind of getting a question that we've received a number of times and that goes to kind of, is there a structural change as a result of this pandemic in business aviation? And if you think critically about change, what we know is that structural change is almost never apparent prospectively. It almost always is apparent retrospectively. And so, I believe that it is premature to assume any pronouncements about structural change. Now that said, we've seen our customers are the same kinds of customers that we've had historically back in -- I think there was some slowing obviously. There was some slowing of demand last year and a number of our customers, particularly in the Fortune 500 are on their aircraft replacement cycle. That remains unchanged. We did see some new entrants into the market as some industries have expanded in the COVID environment, creating opportunities for those companies. But yes, I think psychology is an interesting word, but I think I've gotten to the essence of your question. Doug Harned: And a little bit related to that, you described the unit book-to-bill is higher than the revenue book-to-bill. Have you seeing a mixed shift towards a smaller aircraft and what do you see driving that difference in unit versus revenue book-to-bill right now? Phebe Novakovic: Well, we have not seen a movement particularly into the smaller jets. I think the 280 was maybe about less than that 20% of the order book and really, it's demand for both the in-service airplanes, the 500, 600, 650 and of course in 700. So, really a strong demand pull across all of our airplanes. I don't think there's anything in particular discern from that. These are our regular customers back buying to replace the airplanes in the missions that they need and they have and the airplanes that they buy, then with each one of those missions since the way we think about it. Doug Harned: Okay, very good. Thank you. Operator: And our next question today comes from David Strauss with Barclays. Please, go ahead. David Strauss: Thanks. Good morning. Phebe Novakovic: Good morning. David Strauss: Phebe, on Gulfstream production, just to kind of level set us, you talked about it coming down in COVID. Are you taking Gulfstream -- I guess just looking at holistically on the large cabin side and adjusting for the G550. Are you taking large-cabin production back to where we were prior to all this or above that? Phebe Novakovic: Follow-up, we are increasing on a reasonable basis. Our production of all of our existing now airplanes and we are not back at the 2019 production levels, but to-go basis we're looking at second half orders of 71 and so that in it of itself suggests that we've got solid production I will tell you and that production plan contemplates increased production in each and every one of our in-service large-cabin fleet. David Strauss: Okay, all right. And Jason, quick follow-up. Just given the strength of Gulfstream order activity and advances you're seeing there, could you be looking at closer to kind of 100% or maybe even a little bit above that free cash flow conversion this year? Jason Aiken: Yes, I think, David, as I alluded to in the remarks, I think the way to think about the strength of the first half and the strength of the activity at Gulfstream is it somewhat derisks the profile for the second half and getting to that 95% to 100% range. You'll recall over the past several years, we've had a pretty steep slope in the second half on our free cash flow generation with frankly at times most, if not all, of our free cash flow for the year coming in the second half is not even most in the fourth quarter. So, that's not anything I would put together by design and I'm really encouraged by the shift in that slope that we've seen this year. So, it does give us, I think even reinforced confidence to getting to that 95% to 100% range. I think if you think about that range as a percentage of net income and combine that with Phebe's guidance on increasing net income, you can imply increasing free cash flow to support that number. And frankly, if I'm going to lean a little forward, I think it could possibly put us towards the top into that range of the 95% to 100% range. I don't know, but I'd want to get out above 100% this year. I think we still look to next year and beyond to be nicely above 100%, but bottom line, I think this reinforces improvement in overall free cash flow and maybe pushes us up towards the higher end of that 95% to 100% range. David Strauss: Great. Thanks very much. Operator: And our next question today comes from Myles Walton with UBS. Please, go ahead. Myles Walton: Thanks. Good morning. Phebe, you talked about the 12.4% margins in aerospace and obviously in the first half, you're slightly under that, but the first quarter included a charge in the second quarter, I'm sure had production inefficiencies because of the manufacturing being close point. So I'm just curious, it would look like there is more upside in the second half, barring some pickup in in R&D or other expenses. Is that an area of conservatism that we should be ? Phebe Novakovic: So, when we think about the second half margins, they will be better than our first half margins -- our first half margins were at low point. But we will see some negative impact from two factors. One is the absence of the 550 deliveries as that airplane is now out of service and a higher R&D as we move toward G700 certification. Myles Walton: Okay, all right. And then, maybe just give us some color if you can, if you want to on the first availability of delivery slots, particularly on the 500, 600 at this point? Phebe Novakovic: We got out of the practice of doing that because it became a lot less meaningless with new airplane deliveries -- with new airplanes. So, we're not going to, I think, reinstitute that. Myles Walton: You can't go back to there? Phebe Novakovic: Yes, go back to there, but I think if you think about the environment that we're looking at now and we think we've been very clear and consistent about this -- starting really, it was in mid-February, we saw an increase in demand and it was consistent and steady throughout that first quarter that led to the order quarter you saw this quarter and second quarter. And then, as we look at both the pipeline and the market, at the moment, it is robust. So, we're seeing a return as I said, of our Fortune 500 customers, as well as new entrants and North America is quite strong. So all in all, I think we're looking at about a pretty good market. Myles Walton: Thank you. Operator: And our next question today comes from Matt Akers, Wells Fargo. Please, go ahead. Matt Akers: Yes. Hi, good morning. Thanks for the question. A couple on the IT business. I guess, anything in particularly you can point to that kind of drove the strength this quarter either by customer or product? And then I think you said you were seeing some delayed awards. Is that the comment, sort of the protest that you mentioned or is that kind of a broader statement about the market? Anything you can elaborate on there. Phebe Novakovic: Yes, sure. So, our growth in the quarter with shield across many of our 7,000 contracts, but notably proportionately a bit more from our new contract awards. So, contract awards for new work, I think which is significant, we have seen a delay in contract awards from two fundamental factors. One, there has been an increase and elongation in the customer decision cycle; and two, we've seen an increase propensity of many in the IT industry to protest repeatedly. Early and often seems to be the mantra. So, both of those have increased our expectations for when we can see that growth coming, but I think I mentioned that we've got about $34 billion already in customer hands awaiting some sort of decision and we've got about $20 billion in the pipeline. So, all of that drives growth. It's just given this elongated cycle and given this increased propensity to protest, it's going to make the recognition of that revenue a little bit lumpier. Matt Akers: Got it. Okay, thank you. Operator: And our next question comes from Robert Spingarn with Credit Suisse. Please go ahead. Robert Spingarn: Hi, good morning. Phebe Novakovic: Good morning. Robert Spingarn: Phebe, just maybe one on shipbuilding. A little bit strategic, but one of your peers in shipbuilding stated that the future of the Navy is going to be Platform Plus, where shipbuilding platforms will be tailored around capabilities and technologies that are key differentiators. Would you agree with this? I'm not sure it applies to submarines as much surface ships, but would you agree with this and would GD need to make any additional investments either organically or inorganically to position yourself from this? Phebe Novakovic: Platform Plus. I'm not sure I can give you any real insightful color around that. I will tell you how we see our ships. Let's talk about the surface combatants first in the DDG . That is an extraordinarily versatile ship that has over the years had multiple instantiation of improvements and remains a very, very agile ship in terms of its ability to upgrade. So, we're already on the block. Our fight free upgrade which gave an additional capability, I suspect that that ship and others like it can be the type of platform that evolves over time to address different kinds of missions. I think that that's pretty much regular order. I don't know that that's a systemic change in the way the Navy has ever looked at it's combatant fleet. With respect to our auxiliary ships, I think that those tend to be , and I'm thinking the oilers, EPS, those tend to be purpose-built ships for a particular mission. And then submarines, submarines remain a pivotal competitive advantage for the United States and what we have historically focused on and will continue to focus on is integrating any new technologies or capabilities up that's submarine. I think it's very important when you're in a complex business like shipbuilding and particularly submarine design and construction, that you focus on the business of designing and building those ship and ensuring that you can successfully integrate any new capabilities that your customer wants, and we have a long history of that and I suspect us to continue that for some time to come. Howard Rubel: Raquel , we'll just take one more call, please. Operator: Yes, sir. And our final question today will come from Cai von Rumohr with Cowen. Please, go ahead. Cai von Rumohr: Yes. Thanks so much. So GDIT, when do you expect those two protests to be kind of adjudicated? And secondly, you have an above-average exposure to fed civil, which where the funding is strong, Q3 normally is the strongest booking quarter for the sector's book-to-bill quarter. So, give us some color on what we should expect this quarter to the extent? Phebe Novakovic: So, Cai, you got a glass to judge . We have very little insight, like none into the timing of protest resolution. That really is up to the reviewing authority. With respective to the federal civilian, I think we've been with many of those customers for 30 years and we have a lot of customer intimacy across several many key federal civilian agencies. And I would imagine that as they receive more funding and the ubiquitousness of IT infrastructure to all of their missions, I would see that is some additional upside and potential for us. When that comes, again, we'll depend on whole series of issues around timing. But you can rest assure that in that pipeline on a going forward basis that we're looking at, we've got some good work in there. Cai von Rumohr: Great. And so a follow-up on the AJAX; you mentioned you're . Phebe Novakovic: So far we've had -- I think we had two issues . Cai von Rumohr: Okay, two issues. Good point. But I believe it's a fixed price contract and there has been call there that basically you pay for all the state-issue expenses. Do you see that jeopardizing profitability on the contract? Phebe Novakovic: We have been able to make any changes here before in a very cost-effective and time-efficient manner to meet the needs of our customers for the testing program. But I do not see at the moment any impact on our EACs, or frankly on our ability to produce this vehicle efficiently. The kinds of changes we're likely to see that we anticipate, typically are cut into the production line. So, I don't see a whole lot of motivations from a cost or schedule impact from the changes that we can envision resulting from this -- from the resolution that we come to our customer with on these particular issues. Cai von Rumohr: Terrific, thanks so much. Howard Rubel: Thank you for joining our call today. As a reminder, please refer to the General Dynamics website for the second quarter earnings release and of course, the highlights presentation, which includes our revised guidance. If you have any additional questions, I can be reached at 703-876-3117. Thank you, Raquel. Thank you, everybody. Operator: Yes, sir. Thank you as well. We thank you, all, for attending today's presentation. You may now disconnect your lines. You have a wonderful day.

Operator: Good morning everyone, and welcome to the General Dynamics First Quarter 2021 Earnings Conference Call. All participants will be in a listen-only mode. Please also note, today's event is being recorded. At this time, I would now like to turn the conference over to Howard Rubel, Vice President of Investor Relations. Sir, please go ahead. Howard Rubel: Thank you, operator and good morning everyone. Welcome to the General Dynamics first quarter 2021 conference call. Any forward-looking statements made today represent our estimates regarding the company's outlook. These estimates are subject to some risks and uncertainties. Additional information regarding these factors is contained in the company's 10-K, 10-Q and 8-K filings. Phebe Novakovic: Thank you, Howard. Good morning everyone and thanks for being with us. As you can discern from our press release, we reported earnings of $2.48 per diluted share on revenue of $9.4 billion, operating earnings of $938 million and net income of $708 million. Revenue is up $640 million or 7.3% against the first quarter last year. Operating earnings are up $4 million and net earnings are up $2 million. To be a little more granular, revenue on the Defense side of the business is up against last year's first quarter by $444 million and Aerospace is up $196 million. The operating earnings on the Defense side are up $45 million or 6.4%, while operating earnings in the Aerospace side are down $20 million, but still nicely above consensus. I'll have more to say about this A bit later. The operating margin for the entire company was 10%, 70 basis points lower than the year ago quarter. This was driven by a 250 basis point lower margin rated Aerospace, as was fully anticipated in our guidance to you, combined with $21 million more in corporate operating expense. From a slightly different perspective, we beat consensus by $0.18 per share. We have roughly $500 million more in revenue than anticipated by the sell side and have 50 more operating earnings. So, it's a pure operations beat. I must confess that we were also beat our own expectations rather handsomely. This is in almost all respects a very solid quarter. It's hard to find something not to like about it. It's a very good start to the year. So, let me move right into some color around the performance of the business segments, have Jason at color around cash, backlog, taxes, and deployment of cash. And then we'll answer your questions. First, Aerospace. Aerospace enjoyed revenue of $1.9 billion and operating earnings of $220 million, with an 11.7% operating margin. Revenue is almost $200 million higher than anticipated by us and the sell side. Revenue is also $196 million higher than the year ago quarter. The difference is almost exclusively more G500 and G600 deliveries than the year ago quarter. The 11.7% operating margin is lower than the year ago quarter, but consistent with our guidance and sell side expectations. Finally, we took some mark-to-market charges with respect to our G500 test inventories. Without the charge from a pure operating perspective, performance in the quarter was superb. Aerospace also had a very strong quarter from an orders perspective with the book-to-bill of 1.3 to one. Gulfstream alone had a book-to-bill of 1.34 to one. In unit terms, this is the strongest order quarter for the last two years, excluding the fourth quarter of 2019 when we launched the G700. Jason Aiken: Thank you, Phebe and good morning. I'll start with our cash performance in the quarter. From an operating cash flow perspective, we essentially broke even for the quarter. Including capital expenditures, our free cash flow was negative $131 million. For those of you who followed us for some time, you know we've been a fairly significant user of cash in the first quarter for the past several years. This quarter was a marked improvement from that pattern due in large part to the strong order activity at Gulfstream and ongoing progress payments on our large international Combat Systems program, consistent with the contract amendment Phebe referenced earlier. So, the quarter was nicely ahead of our expectations and reinforces our outlook for the year of free cash flow conversion in the 95% to 100% range. Looking at capital deployment. I mentioned capital expenditures, which were $134 million in the quarter or 1.4% of sales. That's down between 25% and 30% from the first quarter a year ago, but we're still expecting full year CapEx to be roughly 2.5% of sales. We also paid $315 million in dividends and increase the quarterly dividend by a little more than 8% to $1.19 per share. And we spent nearly $750 million on the repurchase of 4.6 million shares at an average price of just over $161 per share. After all this, we ended the first quarter with a cash balance of $1.8 billion and a net debt position of $11.4 billion, down $1.3 billion from this time last year. Net interest expense in the quarter was $123 million, up from $107 million in the first quarter of 2020. The increase in 2021 is due to the incremental debt issued last year in conjunction with the refinancing of maturing notes. We have $3 billion of outstanding debt maturing later this year, and we plan to refinance a portion of those notes to achieve a more balanced deployment of capital. But this will still result in a declining debt balance this year and beyond. During the quarter, Congress passed the American Rescue Plan Act. As you may be aware, it contains two provisions that affect our business. First, it extended the provision of the CARES Act that allows reimbursement of contractor payments to workers who were prevented from working due to COVID-related facility closures. This will continue to benefit our technologies business, although it does not provide for fee on those costs. So that will have an ongoing diluted impact on the segments margins. Howard Rubel: Thank you, Jason. As a reminder, we asked participants to ask one question and one follow-up, so that everyone has chance to participate. Operator, could you please remind participants how to enter the queue? Operator: Ladies and gentlemen, at this time, we will begin the question-and-answer session. Our first question today comes from Jon Raviv from Citi. Please go ahead with your question. Jonathan Raviv: Hey, good morning, everyone. Thanks. Thanks for the opportunity to hear. Question on actually on GDIT. The staffing , you guys had talked about 7% growth this year. You did 5% of the first quarter, so definitely a good start. So, any kind of milestones to look upon there. And then just overall commentary on the environment. We've heard of some delays and slowness in awards. Some other contractors have been highlighting, some disruptions that impact the organic growth. So, any view as to how that's impacting your 2021 and how that could flow out over 2022, some of these new businesses -- using awards come through. Phebe Novakovic: So, as I noted, we submitted a very large number of proposals in the quarter, and we are waiting over $30 billion in customer’s decisions on contracts. And COVID, obviously, had some impact on those -- that decision-making process. But we suspect that as -- we expect that as the government gets back to full operating cadence that we will begin to work through some of that backlog on the order decisions. Jonathan Raviv: And then as -- thank you, Phebe. As a brief follow-up, again, sticking to the technology and maybe also like key market. When you look at this huge -- almost backlog of things to be adjudicate, you mentioned that a lot of it is new business. Would you consider a lot of this new business to be takeaways from other contractors, or is this some that element of whites-pace almost with the government creating and doing more things that are contractor addressable? Phebe Novakovic: So, I think, it's a combination. I think, we're winning more than our fair share, number one. Number two, the government is combining a number of preexisting current workload in the larger contracts given that the scale and magnitude of the effort that's required again is a good thing for us to bid on those large contracts. And then, some of it is just pure program programming. So, I think that's pretty much how we see that market unfolding. Jonathan Raviv: Thank you very much. Operator: Our next question comes from Seth Seifman from JPMorgan. Please go ahead with your question. Seth Seifman: Thanks very much and good morning. Phebe Novakovic: Hi, Seth. Seth Seifman: I was wondering if you could -- I think you mentioned some inventory right downs on G500, I was wondering if you could quantify that. Just so we could have a cleaner look at the Aerospace margin. Phebe Novakovic: Yeah. So, we're not in the habit of giving detailed product by product margin. We did have a mark-to-market on some of our test airplanes, on the 500 test airplanes, which is pretty much to be expected with test airplanes. But we see that as largely behind us. So, I noted that just to tell -- to give you awesome color that absent that we would have seen even better operating performance. Seth Seifman: Right. I guess maybe without quantifying it, is there -- is it possible to talk a little bit about the -- I guess the trajectory of margins at Aerospace, when we should expect through the year and sort of as we go into Q2? Phebe Novakovic: So, we expect, as I noted, deliveries to be lower in Q2, margins to be compressed in Q2, but increasing nicely then quarter-over-quarter, as we go through Q3 and into Q4. But recall, we admitted before that we see 2021 as our lower margin year for all the reasons that we noted, not the least of which is we took about 10 airplanes, largely as -- on our production last year largely as a result of the -- ended the 550 production and some mid-cabin. So, when the demand begins to increase or increasingly picks up and we ought to see some return to what we had considered our normal production rate and hence delivery rate. So, that'll drive margin. Seth Seifman: Okay. Thanks. Phebe Novakovic: By the way, when you think about margin, particularly out the impact of the entry into service of the 700. Operator: Our next question comes from Cai von Rumohr from Cowen. Please go ahead with your question. Cai von Rumohr: Yes. Thanks so much. Good quarter, Phebe. Phebe Novakovic: Thank you, Cai. Cai von Rumohr: So, could you give us some more on demand at Gulfstream? You basically said it's broadly based. But first, what are we looking at in terms of corporate demand, which we've heard is still weak and ultra high net worth, which we've heard is very strong. And any color on specific models. Like I think you said you had 70 orders for the G700, are those -- is that number moving up at a decent pace? Phebe Novakovic: indoor 22:46: So, look, if you think about demand, as we see the lifting of the international travel restrictions and removal of quarantine restrictions and the increased confidence of obviously the U.S. economy, but also global economies, we expect to see demand continue to increase and should it, we see Gulfstream as being in very good stead. Cai von Rumohr: So, you mentioned demand getting better. And we know that pre-owned prices are continuing to come down and we have the weird situation where all of this happening, while international routes are not opening up. Given the strength in demand, if you wanted, or if the demand were there to sort of deliver more planes, how long would it take you to kind of uptick your production rate so that we can see those deliveries moving up? Phebe Novakovic: So, on average, it takes about six months lead time. But we're -- looking at just a few more production airplanes, as I noted in my remarks, and we'll continue to adjust and be sufficiently agile as we see demand continue to increase. So I liked how we balanced ourselves right now. Prudent, yet forward looking and we are pretty efficient when it comes to that to ramping up. But it does take the lead time of about two quarters. Cai von Rumohr: Thank you. Operator: And our next question comes from David Strauss from Barclays. Please go ahead with your question. David Strauss: Thanks. Good morning. Phebe Novakovic: Good morning, David. David Strauss: Phebe, want to follow-up on some of your earlier comments around the margin in Gulfstream. So, over time we got used to this being a mid to high teens business. Is that still the right way to think about this business going forward, particularly when the 700 comes in? And do you expect the 700 to be margin accretive when it starts to deliver? Phebe Novakovic: So, the 700 will be margin accretive when we begin deliveries. We think about this on -- given our portfolio and our place in the firmament as a mid-teen margin business for the short-term. But as you can imagine, we'll continue to work margins. And as we've talked about many times before our margins at Gulfstream are a whole host -- driven by a whole host of issues, not the least of which is service mix, mix of airplanes. And when we were -- a couple of years ago, that was, as you recall, an acceleration of the 650 backlog, which kind of solitary effect of better aligning 650 demand with the backlog. So, there wasn't too much of wait for people. But also helping us transition through that period when we were replacing the 450, 500 -- the 450, 550 with 500 and 600. So that is largely behind us. And we -- as I said, expect to see some nice margin accretion as we go forward. David Strauss: Great. That's helpful. And do you think -- could you comment a little bit on the moving pieces of capital and what to expect there? Inventories come down a bit, advances, benefit of headwind. So, just -- how we should expect the different pieces within working capital to move from here? Thanks. Jason Aiken: Sure. You'll recall the major moving pieces that we've talked about, sort of outside the normal run rates for the business, in general, have been the elevated inventory level at Gulfstream as we have invested in the new models between test airplanes and the buildup for production and entry into service. That obviously has been a headwind for several years now. We saw that start to turn at the end of last year, a little bit better than we thought was going to happen, a little earlier than we thought was going to happen. And so we -- that helped us outperform our cash flow expectations for 2020. You can think about that for Gulfstream continuing to normalize this year. We'll start to see the 500s and 600s hit that inflection point and no longer be a headwind. But at the same time, keep in mind, we're building up on the 700 as that program moves toward entry into service. So, that'll become a little more neutral this year and then eventually shifted into a tailwind in the 2022 period and beyond. The other piece is, obviously, the large international program at Combat Systems, which again was a headwind for several years, that turned with the modification to that contract that Phebe discussed earlier into a more neutral event last year. So that stabilized last year and becomes a very modest tailwind this year, and then becomes a more meaningful tailwind in 2022, 2023, and a little bit more in 2024. So, when you think about the way those two pieces are moving, that kind of gets us on a cash flow trajectory from -- if you go back to 2019, we were in the 60%-ish range moving toward an expectation of the 80% range. Last year, we outperformed that a little bit as Gulfstream did a little better. And now we're in the high -- mid to high 90% range. The one piece there that's still sort of keeping us out of the 100% range really is the elevated investment profile in CapEx at Marine Systems. So, once that normalizes, next year, it gets back into the 2% of sales range. You should expect to see us the whole business at large being in the 100% to 100%-plus range, really with those two working capital pieces at Gulfstream and Combat Systems becoming the tailwinds that allow us to get even nicely above a 100%. So, that's kind of the trajectory for all those major moving pieces. Hopefully that gives you a sense of where we're going and the basis for our expectation for the improvement that we see ahead. David Strauss: Yeah. Absolutely. Thanks very much. Operator: Our next question comes from Ron Epstein from Bank of America. Please go ahead with your question. Ronald Epstein: Yeah. Good morning. Phebe Novakovic: Good morning, Ron. Ronald Epstein: How are you? Switching over to the ship business? How is the electric boat adjusting to both having the Virginia Class and the Columbia Class in -- everything that they got to do in terms of workforce, supply chain, so on and so forth, and how's that going? Phebe Novakovic: It's going very well, on both ramping up Virginia and equally importantly, more significantly Columbia. There's something important to remember when you think about Columbia. We started work on that program 14 years ago. And in that 14-year-period we have worked assiduously with the Navy to reduce all known potential risks that we could foresee in the ramp up of a very complex new program that -- and that included workforce hiring and training, supply chain readiness, facility readiness, construction prototyping, technology readiness, retiring potential known risks -- the potential risks in new high-end technologies and then the design maturity. That -- this boat entered into construction with a 83% design completion level and break contest to Virginia, which has been an exemplary program at 43%. So all of this prior planning and 14 years of detailed blocking and tackling at every conceivable level has mitigated an awful lot of risk and allowed us to -- for verbally hit the ground running on Columbia, and so far so good. I will know, it’s a very complex program, so you can't declare victory on any ship building program right out of the bat, but we have taken unprecedented and historically unprecedented measures to retire all the known risks going forward. So that has really allowed us to execute coming right out of the gates very strongly. They've done a very good job. Ronald Epstein: Got it. Got it. Got it. And it seems like the focus on the Pacific's been good for the ship business. How's it been for Gulfstream? I mean, when you think about U.S., China relations, has that had an impact on Gulfstream demand in the region? Phebe Novakovic: Not that we can see. So, our demand in Asia has been quite steady and good. We've got nice, large install base, a lot of customer intimacy there. So, today we have not seen it, that particular impact. Ronald Epstein: Got it. Got it. Thank you. Operator: Our next question comes from Myles Walton from UBS. Please go ahead with your question. Myles Walton: Thanks. Good morning. Phebe Novakovic: Good morning, Myles. Myles Walton: Heard your thoughts on M&A for a little bit, so I was hoping maybe we could go there. Obviously, you're getting to a point on your leverage, which is getting pretty attractive, building up plenty of firepower. What are you looking at in terms of landscape GDs, always historically been an acquisitive company. Is the appetite growing there? Phebe Novakovic: So, we have been through a significant investment period across many of our large lines of business and our focus here is on execution and primary focus. We will -- we always look for potential niche bolt-ons here and there. But we don't see anything on the horizon here of any significant opportunities that would entice us. Myles Walton: Okay. And Jason, what's the target ratios that we're aiming for? I know you said you'll refinance some of it, but maybe a little color there. Jason Aiken: Yeah. I think perhaps less of a target ratio then -- we're going to continue to prioritize our mid A rating. That's always going to be sort of where we seek to land long-term. And so, the key for us right now is we had -- as you're aware of sort of an outsize level of debt maturing this year versus if you look out over the next 10 to 20 years what our debt ladder maturity phasing looks like. And so, really what we're aiming to do is sort of bring that into more of a balanced picture of capital deployment that allows us to step down the debt over time in reasonable measures, as well as have considerable flexibility and firepower available for other deployment opportunities. Myles Walton: Thank you. Operator: And our next question comes from Sheila Kahyaoglu from Jefferies. Please go ahead with your question. Sheila Kahyaoglu: Good morning, everyone. Thank you. Phebe Novakovic: Hi, Sheila. Sheila Kahyaoglu: Hey. Phebe, maybe a big picture question for you, because I know Howard always has us covered on the numbers. You've been at GD as the -- over almost a decade now and at the company for 20 years, how do you think about where GD goes over the next decade, whether from a portfolio focus or customer focus as the budget flat lines or where operating leverage comes from that? Phebe Novakovic: So, from a strategic perspective, we decided several years ago to invest in a number of our significant lines of business, where we believe that we could realize the best return on invested capital and really drive value. We have been in that period at Gulfstream, GDIT, primarily the Gulfstream, GDIT and the Marine Group. So the key now from my perspective is all about execution. And execution has been the hallmark of everything that we do here, and it is the undergirding of all financial performance. And it requires a discipline across -- it requires discipline across a series of elements and that are faster than all operations. But really, as I see the next several years, it's all about execution and wise deployment of capital to drive nice value creation. Ultimately, long-term value creation is based on good product. It's a perm execution wise investments and smart capital limit. So that's what I see us doing. Sheila Kahyaoglu: Thank you very much. Operator: Our next question comes from Pete Skibitski from Alembic Global. Please go ahead with your question. Pete Skibitski: Hey, good morning, Phebe and Jason and Howard. Phebe Novakovic: Good morning. Pete Skibitski: Phebe, I was wondering -- in Combat, I'm wondering if you could give us a sense of what international orders are out there for you, maybe both kind of sole source expectations as well as competitive opportunities. Phebe Novakovic: So, international consists of two items, primarily sales outside the United States from entities outside -- from our business units outside the United States, as well as FMS sales emanating from the United States. And unfortunately, for the state of humankind, the world has become an increasingly dangerous place. And so, we see the reflection of that concern in many of U.S. allies with increased demand for many of our products in Europe, Eastern Europe, a little bit in Asia, parts of the Middle East, and in the former Commonwealth nations and in the U.K. as well. So, we looked for nice, steady demand signals coming from outside the United States for our business units that are domiciled ex-U.S. And FMS, United States has had a long history of providing its allies with FMS opportunities. And we have a number of those in our comp opportunities and our Combat Systems again, selling through the U.S. government to key us allies positions in particularly dangerous. So, we see that nice cadence continuing in terms of our orders. Pete Skibitski: Okay. And U.S. wise, you expect programs that you're competing for this MPS and all MSP. Do you think they survive any budget tightness? Phebe Novakovic: So, new programs are always the most vulnerable. But with MPS, we were -- the only person -- they're only contracted to develop -- I think there were 12 prototypes. We delivered those last year. We liked our offering. We think it's what the army wants. But we are very attuned to army demands and how they see their site. And that's where -- intimacy with the army helps significantly. That plus -- so with all of them at MSP, that program got stretched considerably. So, we are taking it seriously and participating, but there's a long way to go before that comes to fruition. But recall another element and a key element of army modernization is upgrading with key -- with important and innovative new technologies, their existing platforms. And for us that means Stryker and Abrams, and both are undergoing major upgrade programs. So, all-in-all, we see the demand for our programs continuing to go strong. And there is nothing like -- going back to the earlier comments about execution. There's nothing like performing on schedule and on budget to amplify and provide a bit of an antidote to any potential cuts that come in the future. So, Combat is the army's major integrator of Combat Wheeled Systems and will remain such. So that ensures that our place in the firmament remains pretty strong. Pete Skibitski: Right. Thank you very much. Operator: And our next question comes from Peter Arment from Baird. Please go ahead with your question. Peter Arment: Yes. Thanks. Good morning, Phebe, Jason. Phebe, a question on the budgets, I guess just kind of following up on your comments there. Just -- we got the skinny budget from the new administration, and obviously we're to get some -- a lot more details soon. But how are you thinking about just the alignment with the new administration priorities when you think it look at GDs portfolio? Thanks. Phebe Novakovic: So, clearly, as I think -- perhaps it was Ron mentioned the demand for products that meet the pacific theater have -- has increased that puts our ship building business, particularly submarines in a very good stead. And you can see all of -- both the rhetoric of funding supporting increased submarine production. And we are executing on the current programs of record and working with the Navy to -- additional submarines can be executed in a relatively short-term. With respect to our Combat Systems Group, unfortunately, but regrettably the case, the hottest theater at the moment is Russia. And so whether we like it or not, that is the reality with which we were faced and this administration has been very quick to respond appropriately to the Russians. And so you see -- we believe that Combat System is highly aligned with that reality that we're now faced with in Europe. So, all-in-all, we liked our positioning with the new administration's priority. Remember, and particularly administration and this president has been an advocate of strong national security throughout his long and distinguished career. U.S. National Security strategy is driven by the threat of the perception of threat that has not changed. So, we will see some changes in relative priority among systems, but in all instances, we see ourselves very well aligned. Peter Arment: And just as a quick follow-up. Something that doesn't get talked a lot about, but you have a lot of CyOps capabilities. Maybe you could just give us a little color on how you see the opportunities there. Thanks. Phebe Novakovic: So, if you mean from both cyber, cyber is embedded in all of our business and if you get to -- but I think you referred to CyOps. One would be -- it would be the height of fallen to discuss any of that. But let's just put it this way. We have always been on the leading edge of innovations with respect to cyber and electronic technologies that apply to the real world site in the moment. Peter Arment: Appreciate all the color. Thanks, Phebe. Operator: Our next question comes from Richard Safran from Seaport Global. Please go ahead with your question. Richard Safran: Phebe, Jason, Howard, good morning. How are you? Phebe Novakovic: Fine. Richard Safran: First question I had is, I was interested in the announcement and I think it was back in February where at IT you added Amazon cloud services to the milCloud 2.0. What I wanted to know is, how much does the addition of Amazon enhance your offering? Was this something that just improve the cost on the program, or is this something that maybe opens up new opportunities for expanding cloud service to the government? Just anything you can tell us regarding the size of the opportunity, or what this does, would be appreciated. Phebe Novakovic: So, not surprisingly, the U.S. Department of Defense is moving as all major institutions are increasingly to the cloud. And so, our cloud offerings are -- an incrementally important part of our offerings that we believe will ultimately drive increased adoption across our existing contracts and adoption of the technology suite that we offer. And frankly, an expansion of the market. So, cloud presents a significant opportunity, and we are well-positioned to execute on it. Richard Safran: Okay. Thanks for that. And then second -- and just to kind of a broad strategic question for you and your comments about execution. Over the past year or so, you've made a number of changes to adjust how you're operating, clearly for obvious reasons. I was just wondering, what are the more permanent changes and how you operate -- and that are going to persist long after COVID? I was just wondering if you discuss how these changes? How you're thinking about that impacting and improving margins. Phebe Novakovic: So, let me infer a little bit from the question you're asking. We hear a lot of anecdotal evidence that there may be systemic changes emanating from COVID that have to do with work-at-home and what that might mean for a commercial real estate footprint. We still believe it is too soon to declare any change structural. We do expect to see some -- the extent to which remains to be seen, but some work-from-home either in hybrid capacities, or in some cases more completely. But I don't see that move as something that is dispositive and determinative of real performance and execution. I think what you saw -- going back to execution through COVID -- and frankly, this company's performance across its business units during COVID was really a manifestation of the discipline that we have in all of our operating -- and our operating performance and our operating leverage. The more disciplined a company is the better they were able to adapt to the vagaries and some of the really significant challenges that COVID provided both to the workforce and frankly, the costumers and the environment. So, I think that, to me, it underscored, amplified our operating excellence. And I suspect that that will continue -- then understanding of that will continue to permeate as we go forward. And we will continue to build on that. Operating excellence is never static. It has to get better and better and better. That's what continuous improvement is all about. And frankly, we have a longstanding discipline of around that. So, I don't think there'll be a structural change in our operating performance, but it's simply undergirds the importance of that discipline that focuses on performance. Richard Safran: Excellent color. Thanks. Howard Rubel: And Jamie, we will have time for just one last question, please. Operator: And our final question comes from Robert Stallard from Vertical Research. Please go ahead with your question. Robert Stallard: Thanks very much. Good morning. Phebe Novakovic: Morning. Robert Stallard: Phebe, just a couple of quick ones on the Aerospace division. Clearly, a very strong first quarter here. But I was wondering if you had seen any demand pulled forwards into the first quarter from the second quarter. And then secondly, you talked this before. How is the lead time for aircraft looking at? Are we still looking at roughly 12 months between an order and a delivery? And also how has pricing fed in the first quarter? Thank you. Phebe Novakovic: So, think of that demand, less about pull forward, demand comes when it comes and you execute it as it arrives on your doorstep. So, what we saw with respect to demand is starting -- as I noted in mid February, we start -- and we saw a nice steady increase in demand across a broad specter of our customer base and the U.S. Our initial estimates show or indications are that that demand is carrying through into the second quarter. Pricing is holding up very well. As you all know, we are very disciplined about our pricing. It is precious once lost. You don’t get it back. We’ve had a hard slog. So, pricing has done very well. And as I noted earlier, it’s about six months to ramp up additional production and I don’t see that interim significantly changing anytime soon, given all of the elements that have to perform. So, I hope that answers your question. Robert Stallard: Yeah. That’s very helpful. Thank you. Howard Rubel: Operator, this now ends our call. Thank you very much everybody for your time. And I will be available to answer your questions, and I can be reached in my office. Thank you very much. Operator: Ladies and gentlemen, with that we'll conclude today's conference call. We do thank you for attending. You may now disconnect your lines.