Huntington Ingalls Industries, Inc. Q1 FY2024 Earnings Call

Ladies and gentlemen, thank you for standing by, and welcome to the First Quarter 2024 HII Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the call over to the Vice President of Investor Relations, Christie Thomas. Mrs. Thomas, please go ahead.

Thank you, operator, and good morning. I'd like to welcome everyone to the HII First Quarter 2024 Earnings Conference Call. Joining me today on the call are Chris Kastner, our President and CEO, and Tom Stiehle, Executive Vice President and CFO. As a reminder, statements made today that are not historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results to be materially different from future results expressed or implied by these forward-looking statements. Please see our SEC filings for important factors that could cause our actual results to differ materially from expected results. Also, in their remarks today, Chris and Tom will refer to certain non-GAAP measures. For reconciliations of these metrics to the comparable GAAP measures, please see the slides that accompany this webcast, which are available on our website's Investor Relations page at ir.hii.com. With that, I would like to turn the call over to our President and CEO, Chris Kastner.

Thank you, Christie, and good morning, everyone. Today, we released quarterly results that showed steady performance in shipbuilding and significant growth in Mission Technologies. We achieved record first quarter revenues, driven by strong customer demand for our products. As we highlighted at our Investor Day in March, we are dedicated to delivering value to all our stakeholders: customers, employees, shareholders, suppliers, and communities. Now, let’s review our results. Our record first quarter revenue was $2.8 billion, and diluted earnings per share were $3.87 for the quarter, an increase from $3.23 in the first quarter of 2023. New contract awards in the quarter totaled $3.1 billion, resulting in a backlog of $48.4 billion at the quarter's end, with $27 billion currently funded. In terms of shipbuilding milestones, we completed builders and acceptance trials for LPD 29, Richard M. McCool Jr., at Ingalls, leading to its delivery last month. At Newport News, we delivered the first Columbia-class stern, floated off SSN 798 Massachusetts, and completed acceptance trials for SSN 796 New Jersey, which was also delivered in April. We received an advanced planning contract for CVN 75 USS Harry S. Truman's RCOH and undocked CVN 74 USS John C. Stennis as part of its RCOH in April. Furthermore, we announced the first integration of an Australian company into the Newport News shipbuilding supply chain with the purchase of steel from Australian manufacturer, BISALLOY Steel. This steel will be used for training and testing, allowing us to begin the qualification process for the additional steel volume required under AUKUS, marking an important step toward a collaborative U.S., U.K., and Australian supply chain. In Mission Technologies, we achieved record first quarter revenue with sales of $750 million, a 20% increase over the first quarter of 2023. Besides strong sales growth, Mission Technologies secured strategic contracts, including a $305 million agreement to safeguard U.S. regional interests in the Republic of Korea, a $74 million contract for enhancing vertical launching systems onboard U.S. Navy surface ships, and an order for a REMUS 620 unmanned underwater vehicle for an international client. Turning to our activities in Washington, we were pleased that the fiscal year 2024 budget cycle concluded in March. There was continued bipartisan support for our programs in the final Defense Appropriations Act, which included funding for two Arleigh Burke-class destroyers, two Virginia-class attack submarines, and one Columbia-class ballistic submarine. Additionally, the appropriations measure allocated $500 million for advanced procurement funding for LPD 33. The final bill also supported the submarine industrial base and large surface combatant shipyard infrastructure while authorizing the Navy to enter a multiyear procurement contract for Virginia-class submarines. In March, the President submitted the fiscal year 2025 budget request, which is currently under consideration by Congress. This proposed budget continues investment in shipbuilding programs, requesting funding for two Arleigh Burke-class surface combatants, one San Antonio-class amphibious warship, and the lead Block VI Virginia-class submarine. It also covers the first year of the three-year refueling and complex overhaul of CVN 75 USS Harry S. Truman and continues funding for investment in the submarine industrial base and R&D for next-generation large surface combatants and nuclear submarines. From an operational perspective, the challenges faced in accessing skilled manufacturing labor, along with supply chain labor issues, continue to impact our programs. In response, we hired over 1,700 craft personnel in the first quarter, keeping us on track to achieve our target of approximately 6,000 for the full year. Additionally, both our shipyards celebrated over 230 apprentice graduates in the first quarter, who will become the future leaders in their fields. We are committed to workforce retention and development, collaborating with our customers and local governments to address these challenges. We are utilizing overtime, contract labor, and outsourcing to manage risks and enhance our progress and schedule stabilization. In summary, we are focused on fulfilling our commitments to customers and will continue investing in our people and facilities to meet the anticipated demand for our products and services. Now I will turn the call over to Tom for remarks on our financial results.

Thanks, Chris, and good morning. Today, I'll briefly review our first quarter results. For more detail on the segment results, please refer to the earnings release issued this morning and posted to our website. Beginning with our consolidated results on Slide 3 of the presentation. Our first quarter revenues of $2.8 billion increased 4.9% compared to the same period last year and represent a record first quarter result for HII. This increased revenue was attributable to growth at Mission Technologies and Ingalls. Operating income for the quarter of $154 million increased by $13 million or 9.2% from the first quarter of 2023, and operating margin of 5.5% compares to operating margin of 5.3% in the same period last year. Net earnings in the quarter were $153 million compared to $129 million in the first quarter of 2023. Diluted earnings per share in the quarter was $3.87 compared to $3.23 in the first quarter of the previous year. And backlog increased to end the quarter at $48.4 billion. Moving to Slide 5. Ingalls revenues of $655 million in the quarter increased $78 million or 14% from the same period last year, driven primarily by higher volumes in surface combatants and amphibious assault ships. Ingalls operating income of $60 million increased 9% from last year, and operating margin was 9.2% in the quarter, primarily due to the higher volumes I just mentioned. At Newport News, revenues of $1.4 billion decreased $72 million or 5% from the same period last year, primarily driven by lower volumes in aircraft carriers and the Virginia-class submarine program. Newport News operating income for Q1 was $82 million and operating margin of 5.7% was relatively flat with the prior year. Shipbuilding operating margin in the first quarter was 6.8%, slightly behind the outlook we provided for the quarter. Our shipbuilding revenue and operating margin outlook for the full year remains unchanged, and as we previously noted, our expected shipbuilding milestones for 2024 are concentrated largely in the second half of the year. At Mission Technologies, revenues of $750 million increased $126 million or 20% compared to the first quarter of 2023, primarily due to higher volumes in C5ISR in cyber electronic warfare and space. Mission Technologies operating income of $28 million compares to operating income of $17 million in the first quarter of last year. The increase in operating income was driven primarily by the higher volumes I just mentioned. First quarter results for Mission Technologies included approximately $25 million of amortization of purchased intangible assets. Mission Technologies EBITDA margin in the first quarter was 7.7%. Turning to Slide 6. Cash used in operations was $202 million in the quarter. Net capital expenditures were $72 million or 2.6% of revenues. Free cash flow in the quarter was negative $274 million. This compares to cash used in operations of $9 million, net capital expenditures of $40 million or 1.5% of revenues and free cash flow of negative $49 million in the first quarter of 2023. The use of cash in the first quarter was expected and was due to timing of collections. We reaffirm our free cash flow outlook for 2024 of $600 million to $700 million and our 5-year free cash flow outlook of $3.6 billion. Cash contributions to our pension and other post-retirement benefit plans were $10 million in the quarter. I would also like to note that we made the remaining $145 million debt payment on our term loan associated with the Alion acquisition in Q1. Also during the quarter, we paid dividends of $1.30 per share or $51 million in aggregate. We also repurchased approximately 223,000 shares during the quarter at a cost of approximately $62 million. To summarize, we delivered strong year-over-year revenue growth in the first quarter, driven by Mission Technologies and Ingalls, and expect Newport News volumes to ramp up throughout the remainder of the year. In addition to its very strong sales, Mission Technologies continued to win new contracts and has a robust opportunity pipeline that has grown now to $80 billion. We're off to a solid start for the year in revenues and operating income. And as typical, we expect free cash flow to ramp up throughout the year. Looking forward, we are confident in reaffirming our 2024 outlook and our 5-year free cash flow outlook of $3.6 billion. Before I end my remarks, I'd like to thank you again for attending and for watching the webcast of our Investor Day on March 20. Chris and I and the HII leadership team appreciated the opportunity to showcase the details of our strategy, investment thesis and financial plans. With that, I'll turn the call back over to Christie to manage Q&A.

Operator, I will turn it over to you to manage the Q&A.

Our first question comes from Scott Deuschle from Deutsche Bank.

Chris, sorry if I missed one. Where is CVN 79? Yes, where is CVN 79 at in terms of percent complete?

It's right around 90%. It's progressing well. They're into the test program. We're actually seeing dead loads fired off the ship. So that's a positive sign. So yes, they're progressing very well.

Okay. And then, Tom, to hit the midpoint of the shipbuilding margin guide, it looks like you'll need to do second half margins about, I guess, 150 basis points above the first half. It sounds like it's driven by better milestones. Maybe you can just walk through in a bit more detail as to where that uplift comes from.

Yes. So we do have a shape of our margin, and it's backloaded in the year because of the milestones. And we guided to 7%. We came in at 6.88%, just a little light on the margin there. And then on the operating income, the sales being under Q2. But timing on that cost and labor is here, working ourselves to progressing on that front. But on the back half of the year, as we make our milestones, I do anticipate a ramp. We're guiding for Q2 to be a 7% quarter as well in shipbuilding. And then obviously the back half of the year, we'll kind of lift that up.

Our next question comes from Robert Spingarn from Melius Research.

Chris, just going to touch on the labor situation, but the Navy controller was saying recently that the Navy just can't simply buy its way out of programmatic challenges and delays. And I assume that has to do the delays, of course, we've talked about this a lot, are just driven by labor constraints. I was wondering if you could expand a little bit on that. And is there any possibility that maybe some subsidies to shipbuilders might relieve the situation?

Yes. That's interesting. Obviously, subsidies would help. More important than that is that some of the industrial-based funding that's been appropriated in '24, where there's real line of sight on projects that are going to improve performance within the industrial base, in the supply chain, in the labor force and in capacity. So I think that targeted effort by the Navy and the shipbuilders to identify spaces where we can make investments and get improvements is appropriate, and the teams are working very hard to do that.

So it sounds like it's really then not just labor. There are these other things you can do.

Well, there are other things you can do. But labor is the primary issue, is manufacturing labor in the United States and then shipbuilding labor in the United States. Simply the amount of labor that's necessary to build the ships, the access to labor, and then the labor rates that we need to develop to be able to access more labor. We're working very hard on the apprentice schools, in workforce development with the State of Virginia and Mississippi and the community colleges. And it's really kind of a change in approach relative to ensuring that manufacturing labor is a good job and a good-paying job that people want to do coming out of high school. So I don't think it's a one-size-fits-all sort of solution to this. But labor is, I believe, the most contributing factor. And when you think about the supply chain, it's labor in the supply chain as well. So manufacturing labor is definitely a priority that needs to be fixed for the nation, I believe.

Okay. And then just quickly on Mission Technologies. Andy had real good sales in the first quarter here ahead of the guidance run rate. So I was just wondering if we could talk about what's expected for the rest of the year there. What drove the quarter? And then do we fade a little bit in the rest of the year? Or is that just being conservative?

So Rob, I'll give you some insight on that. Yes, it was a strong quarter, coming in at $750 million, compared to $745 million in Q4 last year. We are being conservative in our guidance, maintaining it at $2.7 billion to $2.75 billion. If you calculate the run rate for the rest of the year, it's $650 million, aligning with the midpoint of our forecast. I believe there is potential for better performance, but we don't want to get ahead of ourselves. It depends on the awards that he has planned this year, converting backlog on contracts into sales, and him ensuring that his team adheres to his labor and hiring strategy. I think there are potential tailwinds in that area, but we need to let the year unfold. Currently, I feel confident. We finished last year with a 13% growth from 2022 to 2023, and now we have a quarter with over 20% growth quarter-over-quarter. It’s a fantastic start to the year, and his pipeline has expanded from $60 billion to $80 billion. The opportunities available have also increased. I anticipate a strong second half of the year from Mission Technologies, but we'll have to see how it develops.

Our next question comes from David Strauss from Barclays.

Chris, I wanted to ask you, you've now in Q1 and Q2, you're going to knock off a lot of these milestones that were supposed to happen late last year. But at the same time, we really haven't seen any of that perceived upside come through in terms of the margins based off of what you did in shipbuilding in Q1 and what you're forecasting for Q2. So if you could just square that, why we're not seeing some of that upside that we would think would be there that is not coming through with these milestones being completed.

Yes. Well, no doubt that when you miss milestones and you extend schedules, there's going to be additional cost. So unfortunately, as we came through those amidst the end of the year and then got them done, 798, we floated off in the first quarter, we got the 2 deliveries in the second quarter, and there's just less opportunity. So yes, unfortunately, schedule equals cost, we've got to make our milestones. You think of the balance of the milestones in the year, they're all holding. I would say the VCS milestones for the back half of the year are going to be a challenge, but the team is committed to getting those done, and they're holding now. But that's why we give you the milestones, you can get a barometer of how we're executing.

Okay. That's helpful. Tom, could you provide some insight on the guidance for free cash flow burn in Q2? It seems like it's going to be a very back-end loaded year. How should we consider the timing of the CapEx increase? We didn't see it in Q1, so when can we expect a rise in CapEx, followed by what I assume will be a significant recovery in working capital?

Yes. So from a cash perspective, we came in at $274 million here. We're guiding another minus $100 million. So we'll work ourselves through that. Not uncommon, we burn cash at the beginning of the year, and not unanticipated here. Yes. So we wanted to make sure everyone's aligned with us on that front. From a CapEx perspective, we spent 2.6% of sales in the first quarter here. And as we get into those projects this year, we'll ramp on the back half of the year. So we held the guidance at 5.3% of CapEx of sales for the entire year, and you'll see that ramp as we get into the back half of the year here.

Our next question comes from Doug Harned from Bernstein.

The Navy has remarked on the Columbia-class issues regarding the bow work at Newport News. Can you provide an update on the status and how it might impact your workflow on the Columbia-class?

Sure. So yes, widely reported on that issue. The team has come through the first-of-class issues on the bow that impacted the schedule. Those are essentially behind us now. And then there's just volume work to get the bow complete. We're actually a bit ahead of schedule to the recovery plan. The team is very focused on it. It's really our top priority, it's the top priority of the Navy. So unfortunate that we encountered those first-of-class issues, but we think the specific issue that drove the schedule delay is behind us at this point.

Okay. Good. Regarding the Virginia-class, you mentioned the milestones for this year. I’m trying to understand the progress toward achieving the goal of delivering two per year. A letter from the House has come out with many Congress members advocating for including two Virginia-class submarines in the 2025 President's budget. Does this matter? Essentially, I want to know if it is significant to include the second one in the 2025 budget, especially since reaching the target of two seems challenging at the moment.

Yes. So I'll tell you, there has been incremental improvement as we move through the first part of the year on improving the rate on the VCS program. It's not good enough. There needs to be additional improvement. In regard to the budget, I think the most important thing relative to the discussion on 1 or 2 boats procured in '25 is the signal it sends to the supply chain, is we need to make sure that we buy a full boat of materials, we keep the supply chain healthy so that we eliminate that risk for them. The last thing we want to do is create risk within the program. So I think we've communicated that with the customer, and with Congress, they understand it. And as you know, we're just at the beginning of the budget discussions. So ultimately, we expect it to get resolved. But it's very important that we get the supply chain under order for both of the boats.

Our next question comes from Ronald Epstein from Bank of America.

This is Mariana Perez Mora on for Ron today. So the first question is going to be related to Australia. As you see this first order for steel delivery from an Australian company, how should we think about, like in the near term, you benefiting from like this early investment to actually make the Australian submarine supply chain stronger?

Yes, that's a great question. From an AUKUS perspective, we see this as an opening of two markets for us, which presents a significant opportunity. We believe we are taking the necessary steps to prepare for a substantial impact on the corporation. This initial step is crucial as we are working on qualifying a vendor in Australia that could eventually become part of our supply chain. We are starting on a smaller scale, but we aim to develop them into a sovereign-ready submarine provider. This is merely the first step. While we do not expect immediate material revenue from this, it is an important move to ensure we can support Australia effectively.

Perfect. And also in the line of AUKUS, there has been talks that South Korea would like to join this trilateral agreement. If that goes through, how do you see this impacting the potential of the program demand and even the supply chain environment?

Well obviously there would be further upside related to that. I think there are discussions about that, but I don't want to get ahead of ourselves. Let's focus on AUKUS at this point, and I'll leave those sort of discussions to the Pentagon and the Navy.

Our next question comes from Gautam Khanna from TD Cowen.

I was wondering if you could give us the EACs by segment in the quarter? Then I have a follow-up.

Okay. Yes. So it was $53 million up, $51 million down for net $2 million. And the makeup of that was Ingalls was positive $13 million, Newport News was the negative $12 million, and Mission Technologies was $1 million.

Okay. At Newport News, the margins were a little light of our expectation. I'm just curious, any step backs in productivity or labor to speak of broadly at Newport News or elsewhere?

Yes. So I'll start and then Tom can jump in. Yes, as you know, Gautam, we evaluate our EACs every quarter, and we have to take step-ups or step-backs. We do that, none more material in nature. But you saw the slip of the milestones which impacted some programs. So there were minor step-ups and step-backs throughout.

But nothing material on that.

Yes, nothing material.

I'll comment, too, here. So yes, 6.8% versus guidance of 7.0%. A year ago this quarter, it was 6.7% push. So not that far off. From a Newport News perspective, again at 5.7% for the quarter. A year ago, there were 5.6%. We finished off last year at 6.2%. So slightly off of that, just working through getting that production line working, material and labor on deck plate at the same time, trying to get that rework down and keeping the production line going here. So we're fighting through it. And really not that far off the guide, so.

Yes. And then just lastly, on LPD 29, was that EAC taken in the first quarter? Or was the delivery actually in the second quarter, and therefore it's more of a second quarter event?

Yes. So we obviously assess the EACs in the first quarter, but it's a second quarter event. And it's included in our guide for the second quarter and our expectations for the second quarter.

Our next question comes from Seth Seifman from JPMorgan.

Tom, just first a quick clarification. I know you mentioned the CapEx really stepping up in the second half along with the cash generation. So I assume you're also expecting a step-up in the Navy support for that CapEx in the second half-plus.

It's aligned. It's all baked into the plan we have and the guidance that we give.

Right. Okay. And then regarding the margin rates in the shipyards, Q1 is similar to last year, slightly higher. However, Q2 is around 7%. Looking at the Q1 margin rates, they appear to be at the lower end of what one might expect for each of the yards. Therefore, one would typically anticipate some sequential improvement across the yards, potentially exceeding 6% at Newport, while Ingalls often achieves double digits. Is there any reason to consider that might be affecting margins in the second quarter? Or, as you mentioned one milestone, could it be that a lack of overall milestones is contributing to the 7% for the second quarter?

So it's tough to look at the margin rates from quarter-to-quarter, and we do try and forecast so that you can land about where we think that we will be. Behind the scenes is the maturation of where we are on EACs, where the milestones are going to fall, where we see the potential risk burned out, so we've been taking the step-ups in the booking rates. And it's just the first half of the year. We've had this for a couple of years now, that the first half of the year is lighter than the back half. Obviously, the major milestones, the deliveries and the launches are back half-loaded, so we expect to see that there. I'm not surprised on where we are. A couple of tenths here or there is not a huge deal overall. And we're working through our risks and opportunities going forward here.

Our next question comes from George Shapiro from Shapiro Research.

Yes. Just following up a little bit on Seth's comment, but trying to get into some more detail. To get to the low end of your 7.6% margin guide for shipbuilding for the year would imply something like 8.3% or 8.4% in second half margins, which would imply an incremental $70 million to $75 million in profit. Are the milestones that you're projecting for the second half going to give us all that $70 million to $75 million? Or is there something else?

It's a mix of the milestones that we have, incentives, all the aspects that we have and burning down risk. So all that plays out. I will tell you from a margin perspective, if you look over the last 3 years, right, whether it's shipbuilding at 7.7%, 7.7%, last year it was 8.3%. Even when you take the claim out, that we had that recovery, it was 7.5%. From a Newport News perspective, which is the preponderance of where the risk is right now, we were 6.2%, 6.1%, 6.2%. So that margin rate has been stable. What we're talking about is a lift here going forward. And as long as we stay on pace, the tempo of hiring, material and cost efficiency, as we've said in the past, we expect that incrementally to improve annually here. So we'll keep you informed. Right now, 6.8% versus 7.0% is pretty much on top of what we thought we'd expect, and we're guiding to 7% right now, yes. So the back half of the year, George, will be a lift.

Okay. And a follow-up, a different question on the working capital. I mean, receivables were up like $253 million, contracts assets up $124 million in the quarter. That was well above last year's first quarter. So can you just kind of talk as to what caused it?

Yes. So it's the working capital, it's timing, it's trade working capital between the billings and the receipts, the AR and the AP that we have right now. We have the cost in hand. At times, it's either making the progress or being able to bill, working ourselves through incentives for collections as well as progress restrictions that we have. So a little bit higher than we guided to at minus $200 million here and minus $400 million for Q2. Not uncommon, like in 2022, where we ran the first 3 quarters in a deficit in cash, and then we came back strong in Q4. So we're watching that closely, and I think we're on plan right now going forward.

Our next question comes from Myles Walton from Wolfe Research.

I would like to ask a question regarding the milestones. I understand you don't provide size estimates for them individually, but there's no milestone chart in the slide deck, so I wanted to clarify. Is the Massachusetts milestone the most significant one for Newport News this year? Also, have any of the milestones for 2025 that you presented last time changed?

No, '25 has not shifted, and all the milestones are important. It is critical on the VCS program, that they meet their commitments because it is an assembly line and you need to roll crews to the next boat. So yes, those VCS milestones are important.

Okay. And then on the supply chain, I guess, some of the testimony emerging, I was talking about merchant suppliers of propulsion systems for ships. And I'm curious, Chris, if you just give us a little baseline of where you are in terms of the whack-a-mole game here of containing issues? And is it supplier component? Is it workforce? And I know you're going to say all of them. But maybe you can just give a little bit more color as the Navy Secretary was willing to offer up Northrop as a source of issues is a little bit of an incremental step in the direction of emerging of where the supply chain constraints might be.

Yes. Thank you, Myles. Workforce is a significant challenge. We believe we've addressed the hiring part of that challenge. We've brought on over 1,700 employees this quarter towards our goal of 6,000, and we are putting considerable effort into reducing attrition. We have several pilot projects at each of our shipyards focusing on factors affecting attrition such as pay, recruitment sources, and flexibility. These efforts are beginning to show some positive results, but it’s not enough for me to be fully confident yet. While we see some encouraging signs, they aren’t sufficient, and we will keep working on this. Regarding the supply chain, we are facing impacts from major equipment issues within several of our programs. Overall, the supply chain is more stable than it was a couple of years ago and even a year ago, but some key suppliers are affecting our ship construction, and we are making significant efforts to address these issues with our subcontractors.

Okay. Is it concentrated to just a couple? Or is this really widespread?

No. Let's say 2 to 5.

Our last question comes from Noah Poponak from Goldman Sachs.

Tom, you mentioned that the shipbuilding margin has remained relatively flat year-over-year and is close to the guidance for the quarter. I appreciate that there can be fluctuations from quarter to quarter. However, last year, the full year results fell short of the initial expectations, and you've pointed out that some milestones shifted from the end of last year to the beginning of this year. Could you provide insight on your visibility regarding the milestones for the second half of this year compared to your perspective at this time last year?

I believe both years were quite close to expectations, particularly regarding margins and cash flow. This year has more milestones set for the second half, and their completion is crucial. Last year, three events were pushed from the fourth quarter into the first quarter and then into early second quarter. We've emphasized the importance of sticking to our schedules, and while delays of two to four months aren't ideal, they aren't catastrophic either. We currently have plans to achieve our milestones by year-end, although there is some risk associated with a few of them. We'll have to see how things unfold. This year will likely mirror 2023. Regarding your comments on previous targets, last year we guided in the upper 7% range and ended up at 8.375%. The year before also saw us finish a few tenths off. I believe our guidance is realistic, and we have a plan in place to achieve it, so it's now about execution with eight months remaining in the year.

Okay. Makes sense. And how should we think about the pacing of the buyback through the year? And I guess also, what's the minimum cash balance, just given the shape of the free cash flow through the year?

Yes. So we did buy back $62 million in the first quarter. We talked about a target of $300 million by the end of the year. So you can do the math on that. That should ramp up as we go through the back half of the year. We follow a very disciplined buying grid. We have algorithms against that where we see value. So we'll continue to employ that process. It has served us well. We reiterated our targets, so I don't see a change in that going forward right now. And then from a minimum on the cash balance, it's not per se a minimum. From time to time, we will dig into our revolver or our commercial paper. So that's not uncommon, we've seen that in the past. And as we're into the seasonality of Q1 in the first half of the year, being cash users, that's not a concern or a problem right now. So there isn't like a threshold or a minimum balance of cash that we have that would tie to being opportunistic and seeing value in the repo. So they're kind of independent.

Got it. And Chris, you've touched on labor and attrition here. I think at the Investor Day, you quantified that attrition improved around 20% last year. It sounds like that continues to get better. I don't know if there are any numbers you can put around how much better that needs to get to be kind of fully normal or stable, or what you've seen year-to-date?

Yes. We don't publish our target there. It's definitely not back at pre-COVID levels, so we still need to improve our performance from a retention standpoint.

I am not showing any further questions. At this time, I would now like to hand over to Mr. Kastner for any closing remarks.

Okay. Thank you, everyone, for your interest in HII, and we will continue to focus on the fundamentals of our business in support of our customers. Have a good afternoon.

And this concludes today's conference call. You may now disconnect your lines.