Good morning, and welcome to the General Dynamics First Quarter 2023 Earnings Conference Call. 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.

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.

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 respect, 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.

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.

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 to out-of-station work. They are doing well. I am pleased to report, but it had an impact. The other impact of late-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 aircraft 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 one-time 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.

Thanks, Phebe. Operator, could you please remind participants how to enter the queue?

Your first question comes from the line of Seth Seifman from JPMorgan.

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.

We believe that Q1 will be our quarter with the lowest margins, and we will continue to focus on that. Virginia will stabilize once we resolve the scheduling and supply chain issues, but for now, we need Electric Boat to improve in order to offset those costs. Regarding revenue, there is definitely the potential for growth, but we will hold off on any further comments for now. Moving on to Colombia, the Navy has clearly stated that we are ahead of the contract schedule, which is what really counts. To provide some perspective, we are 16 years into the 20-year lead ship schedule for Columbia. This reflects the actions we have previously taken and will continue to take to ensure that this program stays on track.

Your next question comes from the line of Robert Stallard from Vertical Research.

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?

Specifically, are you talking about a particular group?

Well, it seems like it's Aerospace and the Virginia-class submarine and marine.

Yes. In Aerospace, we have been dealing with supply chain issues for some time, but we have managed to navigate through them. This quarter, however, two large suppliers faced worsening conditions. Nevertheless, we see light at the end of the tunnel as we have clear visibility into the third and fourth quarters, during which we expect significant improvements in the supply chain. We are diligently working with all suppliers to provide support and encourage them to allocate the necessary resources to meet their contracts. We are confident that we can resolve these issues by the third and fourth quarter. Gulfstream has done an excellent job this quarter in managing these challenges. Regarding the Virginia-class program, we have discussed supply chain struggles for a while. In heavy and labor-intensive manufacturing projects, manpower is a critical factor, and the pandemic had a profound impact on that supply chain. However, we are starting to see improvements with assistance from the Navy and other support. We will continue to collaborate with our supply chain partners and our customer to ensure we can restore the Virginia-class production schedule.

Your next question comes from the line of Doug Harned from Bernstein.

Phebe, when we consider the situation in Europe right now, two things stand out to us regarding Combat. One is the demand for munitions. However, we were somewhat surprised to see a reduction in the budget for munitions in the 2024 budget. What are your thoughts on the trajectory there? Also, how do you plan to ramp up production over time, assuming we are going to see significant growth in munitions demand?

We have been working very closely with DoD and the Army to ensure that we 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.

Your next question comes from the line of Peter Arment from Baird.

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 2 years has been very strong.

Broad interest across all the models. We're doing quite well. Do you want to ask another question?

Yes, I appreciate that. Staying focused on Gulfstream, I understand there won't be an update on guidance, but regarding the deliveries missed this quarter, are they expected to recover in the second quarter? How should we interpret that? Is it related to the second half of the year?

We expect to resolve all of the supply chain issues. Consider the third quarter and fourth quarter to be quite strong. We anticipate executing approximately 145 deliveries for the year, and we are confident in reaching that goal. If we do not meet it, it will likely be by a small margin.

Your next question comes from the line of Myles Walton from Wolfe Research.

Phebe, could you explain how you manage the balance between the higher-priority national Columbia class, which has a lower financial risk due to its cost-plus contract, and the Virginia class, which faces higher financial pressure because it's under a fixed price contract? Additionally, how do you handle resource allocation in light of these financial risks?

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.

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?

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.

Your next question comes from the line of George Shapiro from Shapiro Research.

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?

Our plan leading up to March 10 was to anticipate a book-to-bill ratio of 1:1, with increased deliveries at that time. Going forward, we expect to maintain this ratio, and currently, we see no reason why that cannot be achieved.

Your next question comes from the line of Louie DiPalma from William Blair.

Is the lead Columbia approximately 1/3 complete now?

Yes.

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?

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.

Your next question comes from the line of Kristine Liwag from Morgan Stanley.

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?

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 the timing and specificity of their long-range planning?

It seems the Army is making a strong push to increase artillery production, especially for 155-millimeter shells, and plans to double monthly production to around 24 by the end of the year, with a goal of increasing production sixfold over the next five years. How do you view this opportunity? What steps do you need to take to meet this demand if it arises? Are you currently seeing any orders coming in?

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.

Your next question comes from the line of Matt Akers from Wells Fargo.

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?

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.

Your next question comes from the line of David Strauss from Barclays.

The G700 is in there. Is software validation, the pacing item still? And if so, how far are the way through that are you?

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.

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?

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 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.

Your next question comes from the line of Ken Herbert from RBC Capital Markets.

I wanted to clarify the Aerospace margins in the second quarter regarding supply chain issues and other timing related to certification and prebuild. Are second quarter margins expected to be similar to the first quarter, or was the first quarter anticipated to be the lowest point for the year?

I think you should consider the second quarter as our weakest quarter, followed by a significant and achievable increase in the third and fourth quarters. I provided a lot of detail regarding the various factors affecting margins in Aerospace. We will get through the second quarter, and honestly, these first two quarters are unusual for Gulfstream margins, after which we should see a nice improvement in the third and fourth quarters.

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?

We have been addressing this situation for some time. As you are aware, the Aerospace supply chain has faced significant challenges for an extended period. We are not implementing any new initiatives that we haven't already put in place; instead, we are increasing our efforts as we move through the first quarter and into the second quarter. However, we have a clear visibility into the third and fourth quarters, and most suppliers expect improvements. We will continue to collaborate with the remaining suppliers to ensure they have the necessary resources to fulfill their contracts.

Your next question comes from the line of Ron Epstein from Bank of America.

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?

When discussing the merging of those businesses, it's important to note that they still operate as two independent units within our model. There's not much to consider in terms of cost synergies; instead, it's more about revenue synergies. We've observed a significant convergence between the two businesses regarding market demands and customer interests, particularly in end-to-end solutions that encompass IT services, software, and hardware. This merger has positioned us well to meet those market demands. We're seeing positive results in order performance, book-to-bill ratios, capture rates, and win rates. All of this reinforces our confidence in the future outlook for both businesses.

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?

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.

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.

Your next question comes from the line of Pete Skibitski from Alembic Global.

The issues with the Virginia supply chain have been somewhat unclear. I would like to know if you could provide more details. Does this involve multiple suppliers? Also, could you clarify which parts are affected? Lastly, do you believe that as we transition to the Block 5, our margins will improve?

We are working with multiple suppliers of varying sizes and have continued our collaboration with the Navy to tackle the challenges they are facing. Many of these businesses have encountered similar labor issues that emerged post-COVID. The Navy, along with Congress, has been providing funding to address some of the industry's challenges, particularly within the Marine industrial base, and we are optimistic that these issues will be resolved over time. I believe we will see improvements as we advance to Block 5 and the supply chain begins to stabilize, although we still have a long way to go. Importantly, Electric Boat needs to enhance its efficiency to manage any unforeseen future supply chain issues that could arise. However, we will avoid specifying parts since the supply chain is extensive, involving thousands of suppliers across the nation.

That's fair. I have a follow-up question, Phebe. How are you assessing the pace of hiring and the labor risk at Electric Boat, especially considering the significant increases in volume that are needed?

Coming out of COVID, we all experienced some labor constraints. However, one of the reasons for our increased revenue this quarter was the strong throughput resulting from effective hiring and training of new employees, allowing them to quickly contribute. This gives us confidence in our ability to continue hiring to meet our demands.

Your next question comes from the line of Robert Spingarn from Melius Research.

Phebe, we have discussed Combat throughout the call, but I have a couple of quick questions. Is it fair to assume that the book-to-bill ratio will remain above 1 for this year and beyond, given the current strength? Additionally, as armament munition sales increase, will they positively or negatively impact the overall segment's margins?

Historically, Combat orders have been inconsistent. However, in a more insecure and threat-driven environment, there will be underlying credit that could lead to additional orders. Although the timing of these orders may be unpredictable, we anticipate ongoing demand, particularly in munitions. For our plans this year, we've kept margins in line with past performance. The focus is on executing our strategies, ensuring we achieve operational efficiency, especially with the new facilities we’re implementing. Our team has demonstrated strong operational efficiency, which should help maintain our margins moving forward.

And operator, we'll take this one last question, please, and then we'll wrap up the call.

Certainly, your final question comes from the line of Cai von Rumohr from TD Cowen.

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?

I want to clarify that we do not expect the margin performance at Gulfstream in the first two quarters to be replicated in the third and fourth quarters. In fact, we anticipate a strong increase in margins. These margins are unusual, and we do foresee some additional challenges with the supply chain, out-of-station work at Gulfstream, and mix issues. For Marine systems, the difference in timing between the first and second quarters is significant. In technologies, we are transitioning from mature programs that are winding down to some new ones starting up. Each of these areas is experiencing a combination of lower margins, earnings, and sales this quarter compared to what we typically see throughout the year. Usually, we see consistent growth over the year, but this situation is unusual. However, we expect to overcome these challenges and do not anticipate them affecting the third and fourth quarters. We are looking forward to a strong performance in those periods, and that outlook remains unchanged.

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.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.