Huntington Ingalls Industries, Inc. Q1 FY2026 Earnings Call

Ladies and gentlemen, thank you for standing by, and welcome to the First Quarter 2026 HII Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the call over to Christie Thomas, Vice President of Investor Relations. Mrs. Thomas, you may begin.

Thank you, operator, and good morning, everyone. Welcome to the HII First Quarter 2026 Conference Call. Matters discussed on today's call that constitute forward-looking statements, including our estimates regarding the company's outlook, involve risks and uncertainties and reflect the company's judgment based on information available at the time of this call. These risks and uncertainties may cause our actual results to differ materially. Additional information regarding these factors is contained in today's press release and the company's SEC 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 at ir.hii.com. On the call today are Chris Kastner, President and Chief Executive Officer; Kari Wilkinson, Executive Vice President and President of Newport News Shipbuilding; and Tom Stiehle, Executive Vice President and Chief Financial Officer. Now I'll turn the call over to Chris.

Thanks, Christie. Good morning, everyone. Before I begin today, I'd like to thank the men and women in the U.S. military and our shipbuilders for supporting our nation and our allies every day. Our ships, submarines and defense technology solutions are foundational to United States military operations around the globe, providing superior capabilities in a high-threat geopolitical environment. At HII, we are focused on delivering for mission success, and we are committed to providing quality platforms for the warfighter. Today, I'll start by discussing our results, the Ingalls and Mission Technologies division highlights and provide an update on our operational initiatives. I've asked Kari Wilkinson to join me to discuss Newport News updates, and then Tom will provide more details on our financial performance and outlook. Now turning to our results. We reported first quarter sales of $3.1 billion and diluted earnings per share of $3.79. Another strong quarter of shipbuilding sales growth at 18% year-over-year was driven by our shipbuilding division's focus on increasing throughput in our shipyards and supported by broader efforts underway to revitalize and rebuild the U.S. maritime industrial base. Customer demand for our products and services remains strong. First quarter contract awards were $4 billion. At Ingalls, in the first quarter, we achieved stern release on LPD 31 Pittsburgh, laid the keel for LPD 32 Philadelphia, loaded JP-5 fuel on LHA 8 Bougainville and continued to make test progress on LPD 30 Harrisburg, which we expect to deliver later this year. We also completed builder's trials for DDG 1000 USS Zumwalt and achieved crew certification. On the destroyer program, after delivering DDG 128 Ted Stevens at the end of last year, we loaded fuel on DDG 129 Jeremiah Denton, launched DDG 131 George M. Neal and achieved stern release on DDG 133 Sam Nunn. We also loaded main machinery on DDG 135 Cochrane and received the first 2 of 32 units in yard from our distributed shipbuilding partners on DDG 137 John F. Lehman. Moving to Mission Technologies. We had another quarter of strong sales of $748 million. We have a robust opportunity pipeline, and we were awarded a position on the $25 billion ceiling Advanced Technology Support Program, a Microelectronics multi-award contract and the $151 billion ceiling Missile Defense Agency Shield multi-award contract. We also secured a new $500 million contract to expand our Cyber Defense and Data mesh solutions for the Department of Defense. In support of the Navy's acquisition strategy and the government's approaches to procuring new technology programs, emphasizing corporate investment in product development and demonstration prior to formal contract award, we are increasing our investments in our autonomous solutions portfolio of products. We have multiple autonomous vessels in production, and we are actively extending the capabilities of Odyssey, our autonomy software, in strategic partnership with leading AI companies. We see significant award opportunities in this group as evidenced by material increases in the FY '26 funding and FY '27 budget documents and our international growth pipeline. Our expertise in unmanned technology and autonomy, coupled with strong technology partnerships and a comprehensive understanding of manned-unmanned interfaces, provides a strategic advantage that we can capitalize on to substantially grow this business. Moving on to an update on our operational initiatives. As for the first operational initiative, enhancing shipbuilding throughput, we are on plan through Q1 and continue to expect to achieve our goal of approximately 15% throughput improvement for the full year in 2026. We hired over 1,600 shipbuilders in the first quarter. We also graduated nearly 200 apprentices from our apprentice schools this year, and our apprentice schools are now at full enrollment. I'm confident that as our workforce continues to stabilize, our workforce will become more proficient. Also, we continue to make progress on our second operational initiative to rapidly grow our trusted industrial base network. Leveraging our distributed shipbuilding strategy, we are on track to grow our outsourcing hours year-over-year by 30%, and we will continue to identify capacity expansion opportunities to meet customer program demand requirements. The third operational initiative of securing new contract awards is on track, and we are making good progress on the Virginia-class Block VI and the next Columbia contract with awards expected in the second quarter. Shifting to activities in Washington. Congress finalized defense appropriations for fiscal year 2026 in February. In addition to the support for our programs in last year's reconciliation bill, we saw continued bipartisan support for our programs reflected in the 2026 Consolidated Appropriations Act, including funding for CVN 80 and 81, along with advanced procurement for CVN-82, continued funding for CVN 74 RCOH, funding for the Virginia-class and Columbia-class submarine programs, advanced procurement for the DDG 51 program and funding for long-lead materials for the new frigate program. In early April, the President submitted a top-level fiscal year 2027 budget request to Congress. The proposed budget reflects continued investment in our shipbuilding programs, funding two amphibious ships, LPD 34 and LHA 10, one DDG 51 surface combatant, two Block VI Virginia-class submarines, one Columbia-class submarine and the first FFX frigate. The budget request continues funding for Ford-class nuclear aircraft carriers and aircraft carrier refueling programs and provides initial advanced procurement funding for the lead ship of the new battleship program, the USS Defiant. Beyond shipbuilding, the fiscal year 2027 request reflects increased investments in capability enablers, including autonomous systems that align well with the advanced technology capabilities of our Mission Technologies division. Now to wrap up my remarks. In summary, we had a solid first quarter and remain focused on meeting our commitments to our customers and creating value for all our stakeholders. And now I'll turn the call over to Kari for her remarks on Newport News.

Thank you, Chris, and good morning, everyone. We've been busy at Newport News since the start of the year, beginning with our visit from the Secretary of the Navy for the launch of the 'Arsenal of Freedom' tour. Over the course of the day, the Secretary spoke directly to sailors and shipbuilders about the importance of what they do and how what we build directly supports the mission. Appropriately within just a few weeks of that engagement, we marked 140 years of service to our nation. In program milestones, we exited a very active and successful fourth quarter in 2025 and hit the ground running by successfully completing builder's sea trials of CVN-79 John F. Kennedy. We remain focused on preparing for CVN-79 acceptance trials later this year. CVN-80 Enterprise is now coming together at pace and is over 50% erected in dry dock 12 and CVN-81 units continue to move through steel fabrication and outfitting in support of planned delivery later this year. In our submarine programs, we completed sea trials and redelivery of SSN 796 USS New Jersey after her post-shakedown availability. We remain laser-focused on getting the last of our Block IV boats, SSN 800 Arkansas, to sea and delivering later this year. As Chris mentioned, we've made good progress on the framework for both Virginia Class Block VI and Columbia build 2 and anticipate contract awards in the second quarter, demonstrating our continued commitment to increased submarine delivery cadence. We also continue to invest in our future. Following our January 2025 acquisition of a fully operational facility with an established and talented team of shipbuilders in Charleston, South Carolina, we added nearly 0.5 million earned hours of progress to our programs in our first year operating as Newport News Shipbuilding Charleston operations. In 2026, our plan is to double Charleston throughput, including structural fabrication and more fully outfitted units that are ready for integration when they arrive at Newport News. We will also continue our capital investments to grow the site substantially over the next several years. And we will continue to transform our shipyard. In 2026, we are again making hundreds of millions of dollars of capital investment at Newport News, including significant investment in our manufacturing centers of excellence to support the submarine throughput our nation needs, finishing a multipurpose carrier refueling and overhaul work center and making pier updates to support carrier activation. Our investments in people will continue as well. Our shipbuilders continue to gain in proficiency, confidence and tenacity. In March, we congratulated 128 apprentice graduates as they walked across the stage and stepped into their leadership roles in our trades. We continue to partner with local high schools and community colleges as well as Hampton Roads manufacturing pipeline programs to expand our workforce, and we have already reached our strategic goal of onboarding more than 50% of our new shipbuilders through these more sustainable methods. We also continue to graduate our foremen from the leadership programs that our operations leaders have reimagined. This program reboot focuses on the critical skills identified through our process excellence organization and gives our frontline leaders the hard and soft skills they need to do the important work we are asking them to do. With our 2025 and 2026 successes in hiring, reducing attrition and our continued efforts to enable and strengthen our supply chain partners, I am confident we will continue to see improvement in Newport News outcomes. Now I'll hand the call over to Tom for some remarks on our financial results. Tom?

Thanks, Kari, and good morning. Let me start by briefly discussing our first quarter results, and then I'll provide some color on our expectations for the remainder of the year. For more detail, please refer to the earnings release issued this morning and posted to our website. Beginning with our consolidated results on Slide 5 of the presentation, our first quarter revenues of approximately $3.1 billion increased 13.4% compared to the same period last year. The higher revenue was attributable to year-over-year growth at all three divisions with particularly strong growth at both shipyards. Shipbuilding revenue was up 17.6% compared to the first quarter of 2025. Ingalls' revenues were $725 million, an increase of 13.8% compared to the first quarter of 2025, driven primarily by higher volume in surface combatants. Newport News revenues of $1.7 billion increased by 19.3% compared to the first quarter of 2025 driven by higher volumes across aircraft carriers, submarines and naval nuclear support services. Together, shipbuilding revenue was $2.4 billion, modestly ahead of the $2.3 billion guidance we have provided for the quarter. Mission Technologies revenues of $748 million increased by 1.8% compared to the first quarter of 2025, driven by higher volume in C5ISR, unmanned systems including growth in our autonomous UUV program, and Global Security, partially offset by lower volumes in warfare systems. Moving on to Slide 6. Segment operating income was $172 million and segment operating margin was 5.6% in the first quarter of 2026 compared to $171 million and 6.3% in the first quarter of 2025. At Ingalls, segment operating income was $49 million and operating margin was 6.8% compared to $46 million and 7.2% in the first quarter of last year. The increase in segment operating income was driven by the higher volumes in surface combatants that I noted earlier, partially offset by the lower performance in amphibious assault ships. The first quarter net cumulative adjustment at Ingalls was a negative $3 million, and none of the adjustments were individually significant. At Newport News, segment operating income was $88 million, and operating margin was 5.3% compared to $85 million and 6.1% in the first quarter of 2025. The increase in segment operating income was primarily driven by the higher volumes described earlier, partially offset by contract adjustments and incentives in the first quarter of 2025 from the Virginia-class submarine program as well as lower performance in aircraft carrier construction. Recall that Newport News results in the first quarter of 2025 had the benefit of meaningful contract incentives related to the award of a contract modification for the construction of two additional Block V Virginia-class submarines. For the first quarter of 2026, Newport News Shipbuilding's net cumulative adjustment was negative $9 million. None of the adjustments in the quarter were individually significant. Mission Technologies segment operating income was $35 million, and operating margin was 4.7% compared to $40 million and 5.4% in the first quarter of 2025. The decrease in segment operating income was primarily due to the timing of equity income from nuclear and environmental joint ventures, partially offset by higher performance in warfare systems. For the first quarter of 2026, Mission Technologies' net cumulative adjustment was a positive $13 million. None of the adjustments in the quarter were individually significant. Consolidated operating income for the quarter was $155 million, and operating margin was 5% compared to $161 million and 5.9% in the same period last year. The decrease in operating income was driven by higher noncurrent state income taxes, partially offset by the slightly more favorable segment operating income that I've just reviewed. Net earnings in the quarter were $149 million, and diluted earnings per share were $3.79 with both consistent with the results from the same period last year. The effective tax rate in the first quarter was 20.7%. We provided the tax guidance for 2026 of approximately 17% and still believe that is correct. The credit responsible for that lower tax rate is expected to be processed later this year. I will provide our view on the appropriate tax rate for the second quarter in a moment. Turning to Slide 7. Cash used in operations was $390 million in the quarter. Net capital expenditures were $71 million or 2.3% of revenues. Free cash flow in the quarter was negative $461 million. Free cash flow results in the quarter were better than the guidance we had provided largely due to stronger collections in the quarter as well as some disbursements moving out of the period. During the quarter, we did not repurchase any shares. We did pay a cash dividend of $1.38 per share, or $54 million in aggregate. Turning to liquidity and the balance sheet. We ended the quarter with a cash balance of $216 million and liquidity of approximately $1.9 billion. Moving on to our outlook on Slide 8. We are reaffirming all of the guidance elements that we provided on our last quarter's call for both 2026 and our medium-term outlook. I'll note that we continue to see the new battleship and frigate programs as meaningful upside opportunities to our medium-term outlook, and that we will need additional details before we can include those in our guidance outlook. As I noted on our last call, our guidance for 2026 is predicated on achieving the shipbuilding throughput improvements that we've outlined as well as reaching agreement on the next Virginia and Columbia class submarine contracts in the near term. Moving on to the second quarter look ahead outlined on Slide 8, we expect shipbuilding revenue of approximately $2.4 billion and shipbuilding operating margins between 5.7% and 6%. For Mission Technologies, we expect revenue of approximately $750 million and operating margin of approximately 4%, inclusive of the strategic investments that we expect to make in our unmanned capability and production capacity. We expect free cash flow in the second quarter to be between negative $100 million and positive $100 million. There are a number of factors, including the timing of the upcoming submarine contract award, regular working capital movement and CapEx timing that create variability in Q2. Regarding the effective tax rate, we believe it's prudent to use a tax rate of 21% for the second quarter though we still believe 17% is appropriate for 2026 with an expected research and development tax credit coming later this year. To close, it was a good quarter as we continue to make steady progress and execute against our 2026 operational initiatives. With that, I'll turn the call back over to Christie to manage the Q&A.

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

Your first question comes from the line of Scott Mikus with Melius Research.

You called out the battleship and frigate as being potential drivers of upside to the medium-term shipbuilding revenue growth outlook. In the 2027 budget request, there's a lot of funding in there for auxiliary and support ships. Just wondering how you're thinking about that opportunity set when it comes to Ingalls and could that put upward pressure on the medium-term growth outlook?

Yes. The auxiliary ships, when you take into consideration their current workload at Ingalls as well as we'd have to evaluate those on a case-by-case basis. But there's plenty of work at Ingalls when you look at their baseline business, the battleship, frigate, which we know we're going to build the battleship. We're just at the beginning of the design effort with the Navy. But I don't necessarily anticipate competing for those at this point, but we're going to evaluate it based on how they unfold and how the acquisition strategies unfold.

Got it. And then a quick one for Tom. If I look at the 2Q outlook in the 1Q results, it implies that you need to generate about $1 billion of free cash flow in the second half of this year. Just curious if you could talk about the level of visibility to achieving that? And what are some of the moving parts that could cause that to come in a little bit below or maybe even a little bit higher than that?

Yes, I appreciate the question, Scott. We're in the normal cycle here where we use cash at the beginning of the year. We beat guidance for Q1 as we were out in front by about $100 million. As I mentioned in my remarks, it was some disbursements that moved out to the right as well as we did better in collections than we anticipated. The Q2 guidance is about neutral, plus or minus $100 million, and that will kind of leave us at the midpoint about $460 million negative, which means we've got to pick up about $1 billion in the back half of the year. That's in line with our playbook and consistent with what we guided at the beginning of the year. That will come about through making progress through the back half of the year. We have some major milestones and deliveries as well. We have some tax credits and collections in R&D that will come about, which will provide a tailwind to our performance on free cash flow. As far as the opportunity set, there are opportunities and risks around that, but we're reaffirming the guide for the end of the year at $500 million to $600 million, and we'll keep you informed as we move forward. We usually don't want to get ahead of ourselves and we guide relatively conservatively. There are opportunities both for improvement or if there's a drag on performance here. But we still feel good about the range that we have as we start to tackle the back half of the year.

Your next question comes from the line of Scott Deuschle with Deutsche Bank.

Tom, does the 2Q guide include any margin benefit at Newport News from the expected contract awards that Kari mentioned?

Yes. So in Chris' remarks, we're expecting and working closely to finalize and execute that contract modification for those subs. There's opportunity sets around those for performance and incentives both in margin and cash collections. And that's just going to depend on the timing as far as when that — if and when it hits in Q2 and then how we push that through the system, both in modification, margin and cash. I would tell you that we have that kind of weighted, we factor these things. And it's anticipated, as I said at the beginning of the year, to happen in the first half of the year. It is a factor in the Q2 guide that we gave here but it's at a factor weight right now. So I'm comfortable with where we are making meaningful good progress with our customer on this front, and I anticipate that will work itself through the system in Q2 and the back half of the year.

And operationally, it's important to get that under contract so we can continue to make progress on the submarines. So that is just as large a factor as the margin and cash guide for the quarter as we need to stay on schedule, need to stay in sequence on the submarine program.

Okay. And then Chris, can you explain what is driving the additional delays for LHA 8, 9 and 10 that the Navy justification book shows? And then do you still feel confident that it will be a nice margin step-up on the post-COVID ships LHA 9 and 10, despite these additional delays?

Yes, I'm very confident in the post-COVID ships' ability to improve margin. What you found on LHA 8 was just some issues in the test program as we're working through it. We have some new systems on that ship that are having some challenges. We have seen over the last couple of weeks a bit of a ramp in the test rate. So that's positive. I wouldn't get overly concerned about the justification book scheduled date issues. That's kind of contextual and how the Navy communicates to Congress. We evaluate our EACs every quarter and we take into consideration schedule risk that we may have. So I'm confident in the performance of ships subsequent to LHA-8, and I have great expectations for their performance.

Your next question comes from the line of David Strauss with Wells Fargo.

Just a follow on to that — to Scott's question. The Ingalls margin performance, I think this is the lowest we've seen in quite some time there. So Chris, if you could just dig in there in terms of exactly what's driven the margin that's much lower and kind of the outlook from here for Ingalls' margin?

Sure. It was really what I would consider a pacing quarter for Ingalls, making good progress on the DDGs. As I said, we did have some risk we had to put into the LHA 8 EAC for the progress in approaching their delivery and risk related to their delivery. So we had to take an adjustment there. But I think Ingalls is making pretty good progress. It's what I consider, as I said, a pacing quarter. DDGs are showing some improvement. Milestones are in place and holding. LPD 30 making really good progress. DDG-129 is making progress and should deliver this year. So yes, I've got a lot of confidence in the Ingalls team. It's pretty stable there. We just had to take a minor adjustment through on LHA 8.

Okay. And in terms of the shipbuilding revenue profile for the year based on the guide you gave for Q2, it doesn't look like you're forecasting much in the way of sequential second half versus first half shipbuilding revenue growth. Typically we see a fair amount of growth in the second half in terms of absolute revenue. If you could just talk about the profile for the year?

I'll take that one. I'm comfortable with what we're seeing in shipbuilding. It's a third quarter in a row where it's double-digit growth compared to prior year. From Q3, Q4 and Q1, again, we see both yards overachieving our guide of 6% as we go forward. So I think it's fairly linear. At Newport News, their growth was about two-thirds in labor and one-third in material and at Ingalls, it was the other way around, about one-third in labor and two-thirds in material. So strategically we're trying to get more throughput and capacity, insourcing, outsourcing, hiring, additional overtime, additional progress here. So I think it will be linear as we work through the year. And as we increased the guidance from 4% to 6% last year, we said we'd take a look at it. I want to see a little bit more run rate for a couple more quarters. But the backlog has increased to $54 billion. So the work is there and demand is strong. The FY '27 draft looks like there's even more appetite for additional ships. So I would anticipate a consistent, steady incremental ramp as we go forward here from quarter-to-quarter in shipbuilding.

Your next question comes from the line of John Godyn with Citi.

This is Jeremy Jason on for John Godyn. Last quarter, you provided a nice layout for some major milestones for 2026 and 2027. I was kind of wondering if you could provide an update on that chart. And if you have sort of any indication of when those could hit beyond 2Q?

Sure. Of the 2026 milestones, obviously, we delivered 128 with the sea trials on DDG 1000. We did launch DDG 131 and we're on track for delivery of LPD 30, which will be in the back half of the year. Newport News acceptance of CVN-79 will still happen on schedule. CVN-80 and CVN-81 activities are on schedule this year. We already did redeliver SSN 796 and delivery of SSN 800 is towards the back half of the year as well. So timing of these, especially the significant ones, are towards the back half of the year and 2027 is all on schedule.

Your next question comes from the line of Seth Seifman with JPMorgan.

Just wanted to ask on the carrier. When you talked about some of the performance on the carrier in the quarter and it comes on top of the year-ago quarter, where there were some challenges on performance there as well, what do you think it will take to gain confidence in the estimates on the carrier and have the profitability outlook there stabilized?

We did have a minor adjustment in the quarter just to deal with some schedule challenges as we're working to get back into sequence. I'll ask Kari to talk about some of the things we're working on with the aircraft carrier.

So as Chris mentioned, we've previously talked about some of the missing equipment in the ship and having that equipment delivered now and being on pace to erect out the ship is really going to help us from a performance perspective. Those delays are costly, as you're familiar. Over the quarter, we did three super lifts over the course of just ten days. That's the kind of pace I was referring to in my initial remarks. What that does for us is it really enables the completion of distributed systems. The team is getting after that in a more meaningful way and getting the ship integrated. Coming through those delays and working ourselves back into a more reasonable sequence is a very important part of that strategy, and the team is working hard to execute on that strategy.

Excellent. That's helpful. And then maybe to turn to the crude side of the business. You talked about some incremental investments there. What's the timeline when you think about when you might see the types of awards to get production going in that area of the business in a way that would stand out to us on the outside?

I don't think it's immediate. If you look at the budget in '26 and '27, you see significant increases in the unmanned and autonomous system budgets. We think we're well positioned to take advantage of that. We have made significant investments in unmanned already. We have our unmanned undersea business; it's mature. We have our Romulus family of systems and Odyssey with premier technology partners teamed with Odyssey software. All that combined with our manned platforms means we're uniquely qualified to take advantage of that business. Do I think it's immediate? No. There are immediate opportunities that we're competing for, both domestically and internationally. I think it will start to ramp. I don't think it will be material this year, but over the next couple of years you'll see material growth in the unmanned business for HII.

Your next question comes from the line of Gautam Khanna with TD Cowen.

I was wondering if you could just describe whether the fit-up and delivery schedules aligned with what you're expecting as of a quarter ago. Were there any surprises? You got the question on LHA just in general—were there any delivery timelines that were inconsistent with your internal thinking expressed in the '27 pivot?

Not necessarily. I have high confidence in LPD 30 being delivered this year. I think it will happen this year. As I said previously, some of what you see is contextual and a different communication tool. We're evaluating these things every quarter. Off the top of my head, LPD-30 is the only one I think we should do a little bit better on, but beyond that, I'd have to do some research on those specifics.

Okay. And I know you guys pushed through some wage increases at the Ingalls shipyard. I was wondering if you've seen any notable improvements in attrition since then, any changes really?

That's an interesting question. We did adjust Newport News wages last year, and it took a while for the additional applications to go through the system where we were able to accelerate hiring, and we're seeing meaningful improvements in attrition and the right level of retention at Newport News. I think you'll see the same at Ingalls. We did adjust wages and put in place a very positive labor agreement there. We do see some increase in applications, but it's going to take a while to run through the system. We do have improved retention within both shipyards. But I don't think you're going to see meaningful improvement in Ingalls immediately. It takes a couple of quarters for that to work through the system.

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

You guys talked about increasing outsourcing — I think I remember you talked about maybe increasing 25%–30% in 2026. How is that going? How is the South Carolina facility ramp progressing? And can you discuss at all the MOA with Hyundai, how is that evolving? And is that going to impact capacity?

We do anticipate a 30% increase in outsourcing hours in 2026 over increases we had in 2025. We continue to expand our distributed shipbuilding network. Charleston is doing well; I'll ask Kari to comment more. From a Hyundai standpoint, we are still engaging in discussions with them and evaluating potential. We don't see them in the network for this year in a material way, but they could provide upside if we're able to jointly invest in some operating manufacturing footprint. That would be upside. We think there could be very positive results from the Hyundai relationship, not only in manufacturing but also in efficiencies in how we build ships.

Charleston is tracking to plan. Last year, we spent a lot of time coming up on plan with respect to structural fabrication and the team there did a fantastic job meeting the commitments they made at the beginning of the year to go from closing in January on our facility to producing almost 0.5 million man-hours over the course of one year — that was phenomenal. This year, we are tracking to the commitment to increase throughput there and moving into outfitting more meaningfully. Starting with structure and moving into outfitting allows us to ramp in an even more meaningful way. I mentioned in my remarks we'll do some additional capital investments to continue that growth trajectory, but I'm really pleased with what that team is doing. We are also working with other distributed shipbuilding partners in our network and those relationships are strengthening as well, getting back to the normal ebb and flow of what naturally happens in our industry, and we're certainly in a place where we're able to stretch and grow there, and that is tracking pretty well from my estimation.

Great. And then maybe just one quick one. Any update on the Romulus unmanned systems and the Odyssey autonomy stack? Any production contracts visible that you could discuss or hint at for 2025?

I hate to discuss ongoing competitions in detail, but the obvious one right in front of us is the MUSV program and then some armor concepts in the U.K. that could be interesting. We're talking about manned-unmanned teaming and we're uniquely qualified to do that. We have a breadth of product sets to compete for a number of opportunities in the space, and the MUSV program is the one right in front of us.

Your next question comes from the line of Noah Poponak with Goldman Sachs.

Last quarter, when you provided the initial 2026 outlook, I think we were all a little surprised at a low growth rate in shipbuilding revenue given what happened in the second half of last year and the funding environment. You just logged another high growth rate and outperformed in 1Q. In reiterating the full year, it would actually now require shipbuilding revenue to be down year-over-year for the rest of the year to hit the midpoint of the guide. Is that possible? It would imply the recent ship revenue growth was a one-time bump. It seems like what's happening in the industry is more long-term and structural than that.

I'll take that one. I don't think the math is quite as you described. We have seen good growth three quarters in a row and there's a strong opportunity set. The guide is conservative; we don't want to get ahead of ourselves. We won't see a contraction in revenue in the back half of the year. There's a strong opportunity for us to exceed the guide. We're holding the guide right now because we want to see us monetize backlog and see new awards come on board. But I still expect incremental quarterly growth in shipbuilding going forward.

Tom, if we were able to see your internal estimate for the mix of pre-COVID versus post-COVID ships each remaining year through the end of the decade, and then next to it the version you had a year ago, do those look significantly different? Has there been a lot of movement, or would they look pretty similar?

They look on top of each other right now. We're on plan and on the guide that we've given. We laid out a couple of years ago that in 2027 we would swing over from pre-COVID to post-COVID, and we're right on track for that. We'll finish 2027 with more post-COVID work than pre-COVID work. From a backlog perspective, it's about 50-50 right now, and as the subs are awarded and new CVN and RCOH and advanced procurement come on, we'll see more of that shift. There's been no material change since we provided that pathway.

Okay. And is it possible to provide any more color on the sticking points in getting to the finish line on the next batch of nuclear submarine contracts? It's been several months now versus the original timing forecast. Can you help us better understand what points in the contract are holding it up?

I think it's just a large contract that needs significant review and approval; it's complicated and we're going through the approval process. I don't want to comment on specific negotiation points. It's a very significant and important contract that we all need to get right.

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

I was wondering if you could comment on the reports about the Navy revisiting the carrier design and what, if any, impact that might have on ongoing work and/or disruption?

I'll start and then I'll turn it to Kari. I'm not worried about reviews of the aircraft carrier. Those happen from time to time. At the end of those reviews it's usually found that it's an amazingly capable platform and it's required. We can see the value in its operating role today. I'm not worried about it. Long lead for CVN-82 will happen this year and we'll continue on the aircraft carrier program.

It's routine for us to evaluate new capabilities as systems progress in order to incorporate those capabilities on classes of ships in both yards that we build. We're confident and will support whatever the Navy needs. As we evaluate any given system, we're able to incorporate changes over time pretty routinely, so I'm comfortable with our position.

Okay. And then maybe one for Chris. Regarding workforce size — should we expect the workforce size to start to grow in line with the sales growth of the company on a go-forward basis? You've had roughly the same size with a 20% increase in sales historically, but I imagine that will have to start increasing? Or is the outsourcing initiative enough to carry the load?

Not entirely. You should expect to see labor increases as well. We need to adjust for contractors that come in to do work who won't be on the payroll. Outsourcing will play a significant part, but you should see headcount start to trend up too.

I'm not showing any further questions at this time. I would now like to hand the call back over to Mr. Kastner for any closing remarks.

Thank you for joining the call today. I look forward to updating you throughout the year as we continue to make progress on our operational initiatives and deliver on our commitments. Thank you.

That does conclude today's conference call. You may now disconnect.