Earnings Call Transcript
GENERAL DYNAMICS CORP (GD)
Earnings Call Transcript - GD Q2 2022
Operator, 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. I now have the pleasure of handing the call over to our host, Howard Rubel, Vice President of Investor Relations.
Howard Rubel, Vice President of Investor Relations
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. With that completed, I would like to turn the call over to our Senior Vice President and Chief Financial Officer, Jason Aiken.
Jason Aiken, CFO
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, Vice President and Corporate Controller
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 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.
Jason Aiken, CFO
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. 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, Vice President of Investor Relations
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, Operator
Thank you. We have our first question from Robert Stallard of Vertical Research. Please go ahead when you're ready, Robert.
Robert Stallard, Analyst
Thanks so much. Good morning.
Jason Aiken, CFO
Good morning, Rob.
Robert Stallard, Analyst
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, CFO
Yes. The key point here is the strong demand we've experienced up until now, reflected in the order activity that has created a substantial backlog for us. Additionally, as Bill mentioned regarding some cleanup this quarter, the ongoing durability of the backlog continues to enhance the quality of our order book as we progress. Although we cannot predict the specifics of any potential slowdown, there has been extensive discussion in the market about interest rates, inflation, and the possibility of a recession. However, to be frank, we have not observed any impact on our order pipeline or the associated order activity. Customer demand remains very robust as we enter the third quarter. In summary, considering the size of our backlog, ongoing order activity, and the stability of that backlog—which currently exceeds 2.5 times our annual sales—we remain confident in our outlook for the next few years, including 2023, 2024, and beyond, despite any potential economic downturns.
Robert Stallard, Analyst
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, CFO
The program is progressing well. Vehicle tests are ongoing and have consistently confirmed the performance we've observed so far. Regarding customer concerns about vehicle vibration that arose during initial trials, those issues have now been resolved. We are currently collaborating with the customer to secure the necessary communications equipment. The main focus at this point is on how quickly we can obtain approvals as we navigate through a series of thorough tests, which is standard for any new platform development. This aligns with our expectations for new programs. We are actively working with the customer, who has reaffirmed their commitment to the project and their need for this transformative capability. We are making steady progress and anticipate advancing beyond the testing and trials phase soon.
Operator, 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, Analyst
Thanks very much, and good morning.
Jason Aiken, CFO
Good morning Seth.
Seth Seifman, Analyst
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, CFO
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, Analyst
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, CFO
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, Analyst
Great. Thank you.
Jason Aiken, CFO
Operator, hope we have our next question on.
Operator, Operator
We now have our next question from David Strauss of Barclays. Your line is open, David.
David Strauss, Analyst
Thanks. Good morning.
Jason Aiken, CFO
Good morning, David.
David Strauss, Analyst
Jason, when we visited Gulfstream back in June, you mentioned that Gulfstream was about 70% done with the software validation test for the 700. Can you provide us with an update on where that stands today?
Jason Aiken, CFO
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, Analyst
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, CFO
Yes, supply chain issues continue to be a significant challenge for the industry. The commercial aerospace sector has had a fragile supply chain even before the COVID pandemic, and this situation has only worsened. It's a daily challenge, but I have great confidence in the Gulfstream team. They are actively managing these issues with our partners to ensure we meet our commitments to our customers. While there are supplier-specific issues, we are focused on how any part or subsystem affects the overall production timeline and delivery schedule. A single part delay does not necessarily mean the overall aircraft completion or delivery will be impacted. Thanks to our team's efforts and additional measures, we don't foresee any impact on our delivery outlook for the year. Although these circumstances are not ideal, we are committed to correcting them for the benefit of the entire ecosystem. I remain confident that the Gulfstream team will meet their aircraft delivery forecasts for the year.
David Strauss, Analyst
Thanks very much.
Jason Aiken, CFO
Sure.
Operator, 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, Analyst
Yes. Hey, thank you. Good morning everyone.
Jason Aiken, CFO
Good morning, Ron.
Ron Epstein, Analyst
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, CFO
Yes, that's a great question. I'll break it down into short-term and long-term aspects of our business. We're experiencing significant issues on the short-term side, particularly related to the chip shortage impacting our Mission Systems segment. These are quick orders that rely heavily on specific chips, which must be delivered promptly. These products are highly engineered, and their specifications are precise. The team is doing an excellent job developing workarounds, ordering parts in advance where possible, although it's challenging to secure a spot in line due to this widespread issue affecting not just our industry but the economy as a whole. They're modifying designs and accepting alternative parts to stay agile, although this process takes time. Importantly, this is primarily a timing issue. For instance, in the second quarter, products that couldn’t be shipped at the quarter's end were mostly shipped in the first month of the third quarter. While we’re not entirely out of the woods yet, we’ve seen strong order activity from customers in this area, indicating this is a timing challenge, and we expect demand to continue through this year and beyond. On the long-term side, particularly in shipbuilding, the main challenge revolves around labor availability, specifically skilled labor rather than parts or materials. This is particularly affecting the Virginia Class program, and to some extent, the Columbia program at Electric Boat. We’ve been trying to ramp up resources to support two Virginia Class ships per year alongside Columbia, but the COVID-19 pandemic hindered our progress. Shipbuilding is susceptible to shocks like this one, which can quickly disrupt operations, but recovery takes time. While Electric Boat is leveraging all available resources and urgency to address the supply chain challenges, delays are leading to increased costs, which in turn are impacting our margins and outlook for this segment. Overall, that's a comprehensive view of how the supply chain is affecting our defense business.
Ron Epstein, Analyst
Yes, understood. I have a quick follow-up regarding combat. With all the awards received and the activity in Europe, when do you anticipate this will impact the business? Is this something we can expect in 2023? When should we expect to see this reflected in our revenue?
Jason Aiken, CFO
Yes, that's a great question. I want to take a moment to provide some clarity on what we've observed in the first half of this year and its implications for our future. So far this year, we are down slightly more than anticipated based on our full year outlook, with a year-to-date decline of about 10%. The main reason for this is that last year our quarterly revenue remained fairly consistent throughout all four quarters, which contrasts sharply with the traditional annual cycle we usually see in Combat Systems. We're observing a sequential increase this year, starting low in the first quarter and rising through to the fourth quarter. This created some unusual headwinds in terms of year-over-year comparisons. However, depending on how the second half of the year unfolds, we still expect to be at the lower end of our revenue forecast. This suggests around a 3.5% growth in the second half compared to the same period last year, which seems quite achievable for the team. Looking further ahead, there is a substantial amount of activity in the market. The MPF award, as I mentioned earlier, is significant for us and represents a new addition to the infantry brigade combat structure. We also see strong international demand, as you've noted. We're pursuing tank opportunities in Poland and other international markets. The ongoing developments in Eastern Europe are likely to spur considerable growth in defense spending, and we are indeed observing these demand signals. It’s important to manage our expectations regarding timing, though. While the demand signals are present and we are in regular discussions with customers, it takes time for interest to translate into budgets, appropriations, contracts, and eventually revenue. I believe that aligns with our long-term outlook. By 2024 and beyond, we anticipate a positive growth trend in Combat Systems, likely in the low to mid-single-digit range. There should be an inflection point for growth during that time, and all indications support this view. In the meantime, I want to emphasize that our key focus for Combat Systems remains on margin performance, and we've demonstrated our capability to perform well on that front, regardless of what’s occurring with top-line revenue.
Operator, Operator
Thank you. The next question comes from Robert Spingarn of Melius Research. Your line is open Robert.
Robert Spingarn, Analyst
Hey, good morning.
Jason Aiken, CFO
Good morning.
Robert Spingarn, Analyst
Jason, I want to return to the topic of labor and discuss the situation across all the businesses. You mentioned that shipbuilding is particularly challenging, but how does the labor and talent acquisition landscape look overall for the business?
Jason Aiken, CFO
Yes, you brought up a good point, Rob. The shipbuilding sector has been particularly challenging. This has been evident in Maine and throughout the New England shipyards as we've attempted to increase production. The two shipyards at EB and Bath offer the most potential for us to ramp up. Unlike many other industries where remote work allows for flexibility in hiring talent from anywhere, shipbuilding requires skilled labor to be present in specific states and regions. This geographical limitation creates a significant challenge. The positive aspect is that we had been preparing for this ramp-up well before COVID, implementing resources and forming strong partnerships with local and state agencies to create trade schools and apprenticeships. Consequently, I believe we have the necessary resources in place. We need to maintain our workflow through these processes, ensure our training capabilities remain active, and we can catch up, although it will take some time. This is just part of the shipbuilding nature, and I am confident our teams can handle it. On the other end, GDIT operates in a very competitive market for specialized talent, which is becoming increasingly fierce. Their leading market positions, positive company culture, and the opportunities they provide to employees place them in a strong position to attract and retain talent. However, I won't downplay the fact that it's a constant struggle for talent, and we must keep up with the demands and attract the necessary skilled workers as their business expands. Additionally, we're closely monitoring Gulfstream's situation. With their growth, the need for personnel is critical. While they face challenges, I believe they have managed their growth effectively and it's not currently a major concern for them. We must remain vigilant, and while they need to keep pushing forward, I trust they can meet this challenge as well.
Robert Spingarn, Analyst
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, CFO
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...
Operator, Operator
Thank you. We now have the next question from Doug Harned of Bernstein. Please go ahead when you’re ready.
Doug Harned, Analyst
Hi. Good morning. Thank you.
Jason Aiken, CFO
Good morning, Doug.
Doug Harned, Analyst
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, CFO
Yes, you're absolutely right. The order activity for the G650 remains strong, even exceeding our conservative expectations. We've mentioned several times that the introduction of the G700 and G800 has clarified our position in the market and for our customers regarding this family of aircraft. It highlights the opportunities presented by the G650. The G650 still has significant demand. It's important to note that the G800 will replace the G650, and as the G800 enters service, we will gradually phase out the G650. While there may be some overlap during this transition, the high demand for the G650 gives us considerable flexibility moving forward. Regarding our outlook for 2023 and 2024, we will see how that develops. This demand also allows us to address some of the challenges we've faced with the certification process. Despite the delays with the G700, we remain committed to our delivery units, revenue, and earnings forecasts for 2022, 2023, and 2024, and the demand for the G650 is helping support that, along with the broader demand environment. In relation to the overall portfolio, there have been questions and speculation about the airworthiness directive and its implications for the G500 and G600 models. I want to emphasize that we delivered the majority of the airplanes we planned for this quarter, and we anticipate resolving these issues by the end of the third quarter. Looking at the second quarter order activity, the G500 and G600 accounted for about half of our total orders, indicating there is no sign of a slowdown in demand for these models. Our customers are aware of the temporary challenges, and those platforms remain well-supported. Additionally, the G280 continues to see strong order demand, and the mid-cabin segment has gained traction following COVID-19. Overall, we see strong, widespread demand for our aircraft across the entire portfolio.
Doug Harned, Analyst
Well, as a follow-up, switching to Technologies, I know you've faced challenges with award protests and other difficulties. However, we've been anticipating growth in this area for a long time. Looking ahead over the next few years, how do you view the growth trajectory for Technologies? We haven't really seen that growth yet.
Jason Aiken, CFO
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, Operator
Thank you. We now have Peter Arment of Baird. Please go ahead when you are ready, Peter.
Peter Arment, Analyst
Yeah. Thanks. Good morning, Jason.
Jason Aiken, CFO
Good morning.
Peter Arment, Analyst
Could you share your updated thoughts on how the recent defense budget markups in the Senate and House are affecting your defense business? There's been a focus on combat and technology, signaling a return to growth, so any insights you can provide would be appreciated.
Jason Aiken, CFO
I think the two key points to highlight are that it's still early in the process, but shipbuilding remains very well supported, which is reflected in the numbers. This situation continues to bolster our outlook for a consistent annual growth of $400 million to $500 million in the Marine Systems business. On the other hand, there seems to be more concern regarding Combat Systems and the Army budgets, which can fluctuate significantly from year to year compared to the Navy's strategic side. However, it's important to recognize the strong support in Congress for increasing defense budgets. Assets like the Abrams and Stryker are essential to the Army's infrastructure, and we anticipate ongoing support for those programs. While there is much discussion about potential declines and uncertainties, we need to wait and see how it all unfolds. We'll have to stay tuned for further developments.
Peter Arment, Analyst
Okay, and just as a quick follow-up, what are your thoughts on any impact from a continuing resolution? You have managed through many continuing resolutions before, so I'd like to know your thoughts on any potential effects.
Jason Aiken, CFO
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, 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, Analyst
Hi. Good morning guys. Thank you for the time Jason and Howard.
Jason Aiken, CFO
Yeah, morning Sheila.
Sheila Kahyaoglu, Analyst
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, CFO
You've highlighted the main issues, but the most significant point is that in the third quarter, we're starting to recover from the delayed product shipments we experienced in the second quarter, which negatively impacted our revenue during the first half. However, I don't want to downplay the ongoing challenges at Mission Systems. They are still working hard to address these issues and are making progress on supply chain solutions. I'm confident they will find their way through. On the GDIT side, the situation is frustrating due to the slow pace of funding outlays. We've observed this slowness in both Mission Systems and GDIT. That said, I believe the challenges they face in the second half are more manageable, and we have a clear view of the work lined up that needs to be executed. I feel increasingly confident about GDIT's prospects as they move into the second half.
Sheila Kahyaoglu, Analyst
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, CFO
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, Vice President of Investor Relations
Operator, we will just take one more question.
Operator, Operator
Thank you. We have the last question from Cai von Rumohr of Cowen. You may proceed with your question.
Cai von Rumohr, Analyst
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, CFO
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, Analyst
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, CFO
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, Analyst
Thanks, again.
Jason Aiken, CFO
You’re welcome.
Howard Rubel, Vice President of Investor Relations
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, Operator
Thank you. That does conclude today's call. Thank you all again for joining. You may now disconnect your lines.