Q4 2025 Earnings Call Transcript

Welcome everyone. The Fourth Quarter 2025 Huntington Ingalls Industries, Inc. Earnings Call Conference will begin shortly. In the meantime, if you would like to preregister to ask a question, please press star followed by one on your telephone keypad.

If you change your mind, please press star followed by two. Once again, today's call is going to start shortly. Thank you for your patience. Ladies and gentlemen, thank you for standing by, and welcome to the Fourth Quarter 2025 Huntington Ingalls Industries, Inc.

Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. During the session, if you change your mind, please press star followed by 2 on your telephone keypad.

Please be advised that today's conference is being recorded. If you need further assistance, please star 0 to reach an operator. I would like now 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 Huntington Ingalls Industries, Inc. Fourth Quarter 2025 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 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 irhii.com.

On the call today are Chris Kastner, President and Chief Executive Officer, and Tom Stiehle, Executive Vice President and Chief Financial Officer. Now I'll turn the call over to Chris.

Thanks, Christie. Good morning, everyone, and thank you for joining us on our Fourth Quarter 2025 earnings call. Before discussing the results, highlights, and guidance, I'd like to take a moment to reflect upon our progress over the past year. The solid results we posted this morning are the outcome of a measurable increase in shipbuilding throughput, a key indicator for schedule performance.

During 2025, in partnership with our government customers, we've taken steps to increase our hiring, improve our retention, and strengthen proficiency levels within our workforce. What these efforts represent are thousands of skilled shipbuilders, engineers, technologists, and professionals who are committed to Huntington Ingalls Industries, Inc.'s mission. I'd like to say thank you to our 44,000 employees. Every improvement in our operations, every efficiency we unlock, every day we reduce from a schedule translates directly into capability our customers urgently need and can deploy to protect American interests.

Now turning to our 2025 results, revenues of $12.5 billion grew 8.2%, and EPS was $15.39. 2025 awards totaled $16.9 billion. All three of our divisions reached record revenue levels and hit key milestones. Now I'd like to share some of the 2025 division highlights starting with Mission Technologies. In 2025, Mission Technologies delivered another year of top-line growth with record revenues topping the $3 billion mark for the first time.

Throughout 2025, we announced key milestones that highlight the breadth of our defense technology offerings. These included developing the US Army's high-energy laser weapon system, debuting Grimm's spectrum dominance EW solution, delivering Lionfish small unmanned underwater vehicles to the US Navy, expanding shipboard and shore-based training for US and coalition forces, and delivering our 750th Remus autonomous underwater vehicle. To accelerate support of a hybrid fleet, we unveiled the Romulus family of unmanned surface vessels powered by our own Odyssey autonomy software suite. And construction of the first prototype is well underway on the Gulf Coast.

In summary, the Mission Technologies team is executing well, and we are confident in continuing this success, particularly given how closely our portfolio maps our defense customers' needs. Shifting to shipbuilding. At Ingalls, we delivered our Flight III destroyer DDG 128 Ted Stevens, launched DDG 129 Jeremiah Denton, and authenticated the keel of DDG 135 Thad Cochrane. Also in January, we completed sea trials on DDG 1,000 Zumwalt.

On the amphibious ship programs, we christened LPD 30 Harrisburg and began fabrication of LPD 32 Philadelphia. And LHA 8 Bougainville is actively in the test program and has achieved generator light-off. We also signed a memorandum of agreement with HD Hyundai Heavy Industries reinforcing our strategic collaboration to explore future partnership opportunities. Additionally, in December, the US Navy announced a Golden Fleet which includes a Trump class battleship as well as a frigate which will leverage the proven design of the Ingalls-built Legend class national security Cutter.

I have great confidence in Ingalls' team to execute this program and in our ongoing efforts with our partners to successfully expand the US shipbuilding industrial base to meet the Navy's needs. In 2025, at Newport News Shipbuilding, we delivered Virginia class submarine SSN 798 Massachusetts, launched SSN 800 Arkansas, laid the keel of SSN 804 Barb, and undocked SSN 790 New Jersey in preparation for a redelivery to the fleet. We also delivered the bow of the first Columbia class submarine SSBN 826 District of Columbia. Our aircraft carrier programs, last year, we completed dock trials on CVN 79 Kennedy, and the team is now finishing up her first sea trial evolution, moving another step closer to preliminary acceptance and delivery.

In addition, having completed deck over of both engine rooms post receipt of the remaining major engine room components, CVN 80 has now reached 50% erected in the dry dock, and CVN 81 keel units are in fabrication, and we continue to receive major material components in support of production. After delivering two ships in 2025, DDG 128 and SSN 798, we expect to deliver another two ships in 2026, SSN 800 and LPD 30, as well as complete preliminary acceptance of CVN 79. I'll note that we've accelerated our forecast of LPD 30 delivery into 2026 and adjusted LHA 8 Bougainville delivery to 2027. This ensures that we avoid any potential conflicts, people, or equipment, and establishes clear and consistent priorities for the joint Ingalls and Navy teams throughout all the interim milestones leading to delivery.

Now I'd like to update you on our operational initiatives. In 2025, we set out to improve throughput and achieve a 14% year-over-year increase. As we continue to invest with our customer partner, in our workforce, facilities, technology, and supply chain, we've established our 2026 target to increase throughput by another 15%. Supporting the throughput increase, we hired over 6,600 shipbuilders in 2025 and expect to hire at least this many in 2026. Given recent investments in wages and workforce, we expect continued improvement in our retention rate and will continue to develop our workforce to maximize productivity.

We also plan to continue to ramp our distributed shipbuilding strategy. While we doubled outsourcing year-over-year in 2025, we are planning to increase outsourcing by another 30% in 2026. Our second operational initiative in 2025 was a reduction target of $250 million, which we met by removing mostly overhead and support labor costs for improved efficiency. Lastly, we expect several shipbuilding contract awards in 2026, including Virginia class block six, Columbia bill two, CVN 75 RCOH, and CVN 82 longleaf material. Regarding capital allocation, we have historically taken a very balanced approach, leading with reinvestments into our shipyards.

Stakeholders that have visited our yards have seen firsthand the tremendous amount of investment we have made over the past decade at both Ingalls and Newport News. In 2026, we will again target hundreds of millions of dollars of capital investment in the shipyards. Specifically, at Newport News, these projects include finishing a multipurpose carrier refueling and overhaul work center, making peer updates to support carrier inactivation, significant investments in manufacturing centers of excellence to support higher submarine throughput, and completion of the new parking garage that began construction in 2025. Now I'd like to say a few words about guidance, and Tom will provide more detail on his remarks.

With our keen focus on execution, the progress made this past year, the large investments in shipbuilding, and the unprecedented demand for our products and services, we are raising our medium-term shipbuilding revenue growth guidance from approximately 4% to approximately 6%. We did have some sales driven by material timing move into 2025 that were expected in 2026, so our current year outlook for shipbuilding revenues is between $9.7 and $9.9 billion and shipbuilding margins in the range of 5.5% to 6.5%. For Mission Technologies, we expect revenues between $3 billion and $3.2 billion and margins of approximately 5% with EBITDA margins between 8.4% and 8.6%.

Our free cash flow outlook for 2026 is between $500 million and $600 million. Turning to activities in Washington for a moment, Congress on a bipartisan basis passed the National Defense Authorization Act for fiscal year 2026 in December. Fiscal year 2026 NDAA strongly supports our shipbuilding programs, including incremental funding and block buy procurement authorization for CVNs 82 and 83, incremental funding and procurement authorization for up to five Columbia class submarines, and continuous production authority for a range of Virginia class components to optimize construction schedules and supply chain resilience.

Fiscal year 2026 defense appropriation bill shows strong support for our programs. The bill includes continued incremental funding for CVNs 80 and 81, along with advanced procurement for CVN 82, continued funding for CVN 74, our COH, 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. Combined with the shipbuilding funding provided in a budget reconciliation bill that was enacted into law in July 2025, FY '26 defense appropriations bill continues the strong support for the shipbuilding industry.

In summary, we've made meaningful progress over the past year and have increased throughput and improved execution. We must build on this momentum and continue to increase our shipbuilding throughput. The US Navy and all of our defense customers need our ships and technologies now more than ever. The global security environment demands that we operate with a sense of urgency and purpose that matches the seriousness of the threats our nation faces.

Now I will turn the call over to Tom for some remarks on our financial results. Tom?

Thanks, Chris, and good morning. Today, I'll review our fourth quarter and full-year results. Also, provide some additional color regarding our outlook for 2026. 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 six, our fourth quarter revenues of $3.5 billion increased approximately 16% compared to the same period last year.

The higher revenues were driven by growth at all three segments. Ingalls' fourth quarter 2025 revenues of $889 million increased $153 million or 21% compared to the fourth quarter of 2024, driven primarily by higher volumes on amphibious assault ships and surface combatants. At Newport News, fourth quarter 2025 revenues of $1.9 billion increased $303 million or 19% from 2024, primarily due to higher volumes in both submarines and aircraft carriers. At Mission Technologies, fourth quarter 2025 revenues of $731 million increased $18 million or 2.5% from 2024, primarily driven by higher volumes in Warfare Systems, global security, and unmanned systems.

Moving to slide seven, segment operating income for the quarter was $195 million, and segment operating margin was 5.6%. This compares to $103 million and 3.4% respectively in 2024. Results at all three segments improved compared to 2024. Ingalls' fourth quarter 2025 operating income of $68 million and margin of 7.6% compared to $46 million and 6.3%, respectively, in 2024. The improvement was due to the higher volumes I noted as well as lower unfavorable cumulative adjustments for amphibious assault ships and surface combatants compared to 2024. Newport News' fourth quarter 2025 operating income of $84 million and margin of 4.4% compares to $38 million and 2.4% respectively, in 2024. If you recall, these results are lapping 2024, which included unfavorable cumulative adjustments for Virginia class submarines and new carrier construction as well as contract incentives related to the Columbia class program.

Fourth quarter 2025 results also include favorable contract adjustments on the Virginia class program. Shipbuilding margin for 2025 was 5.5%. Mission Technologies' fourth quarter 2025 operating income of $43 million and segment operating margin of 5.9% compares to $19 million and 2.7%, respectively, in 2024. Improvement was driven by better performance in Warfare Systems, global security, and unmanned systems, as well as the high Mission Technologies volume I noted earlier. Net earnings in the quarter were $159 million compared to $123 million in the fourth quarter of last year.

Diluted earnings per share in the quarter were $4.44 compared to $3.15 in the fourth quarter of the previous year. Moving on to consolidated results for 2025 on slide eight. Revenues of $12.5 billion increased $949 million by 8.2% compared to 2024. While each segment contributed to the higher revenue, growth was particularly strong at Ingalls and Newport News Shipbuilding. Ingalls' revenues of $3.1 billion in 2025 increased $311 million or 11.2% from 2024, driven primarily by higher volumes in surface combatants and amphibious assault ships.

At Newport News, 2025 revenues of $6.5 billion increased by $538 million or 9% from 2024, due to higher volumes in both submarines and aircraft carriers. At Mission Technologies, 2025 revenues of $3 billion increased $107 million or 3.6% from 2024, primarily driven by higher volumes in warfare systems, global security, and unmanned systems. Moving to slide nine, segment operating income for the year was $717 million, and segment operating margin was 5.7%. This compares to $573 million and 5% respectively in 2024. Ingalls' operating income of $233 million and margin of 7.6% in 2025 compares to $211 million and 7.6% respectively in 2024. The increase in operating income was primarily driven by the higher volumes noted earlier and favorable contract adjustments in surface combatants, partially offset by lower performance in amphibious assault ships.

Newport News' 2025 operating income of $331 million and margin of 5.1% compares to $246 million and 4.1% respectively in 2024. The increases were primarily driven by favorable contract adjustments in the Virginia class submarine program, partially offset by contract adjustments and incentives in 2024 in the Aircraft Carrier Refueling and Complex Overhaul program. Shipbuilding margin for 2025 was 5.9%.

Within the guidance range we provided for the year and consistent with my commentary on our last earnings call. This represents a 70 basis point improvement over 2024's results. Net cumulative adjustments for the year were negative $28 million. Newport News' net cumulative adjustments were negative $64 million, which included adjustments related to CVN 80 and CVN 81 carrier construction.

The negative Newport News cumulative adjustment was partially offset by positive net cumulative adjustments at Ingalls of approximately $16 million and Mission Technologies of approximately $20 million. Moving on, Mission Technologies' 2025 operating income of $153 million and segment operating margin of 5% both improved from $116 million and 3.9% respectively in 2024. Improvement was driven primarily by the lower purchased intangible amortization, better performance in warfare systems, as well as higher revenue volumes noted earlier. Mission Technologies' 2025 results included $89 million of amortization of purchased intangible assets compared to approximately $99 million in 2024. Mission Technologies' EBITDA margin for 2025 was 8.6%, up from 7.9% in 2024. Net earnings in 2025 were $605 million compared to $550 million in 2024. Diluted earnings per share in 2025 were $15.39 compared to $13.96 in 2024. Turning to cash flow on Slide 10, 2025 free cash flow was $800 million, above the guidance range we had provided for the year, as we finished the year very strong from a working capital position.

We slightly underran our planned capital expenditures for the year. During the year, the company invested $396 million in capital expenditures, or 3.2% of sales, as we continue to prioritize investments to drive higher throughput in our shipyards. We paid dividends totaling $213 million in the year and did not repurchase any shares during the year. We ended 2025 with $774 million in cash and cash equivalents on hand and liquidity of approximately $2.5 billion.

Cash contributions to our pension and other post-retirement benefit plans totaled $54 million in 2025. You can find our updated five-year pension outlook in the appendix of today's presentation on slide 14. Turning to slide 11 and our financial outlook. First, I will highlight that the guidance we are providing today 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 first half of the year. Regarding our multiyear targets, we are updating the medium-term growth targets that we have provided previously.

We now expect the consolidated Huntington Ingalls Industries, Inc. medium-term top-line CAGR of approximately 6%. This is comprised of shipbuilding growth of approximately 6% and Mission Technologies growth of approximately 5%. We believe this shipbuilding growth has additional upside as the forecast does not yet account for the recently announced frigate and battleship programs. We will need to revisit these growth assumptions once we have a better understanding of how each of these programs will proceed forward.

Regarding our 2026 expectations, Chris provided our outlook, but let me provide a bit more color on our free cash flow expectation for the year. We expect 2026 free cash flow of between $500 million and $600 million. At the midpoint, that puts combined 2025 and 2026 free cash flow at $1.35 billion, an increase from the $1.2 billion target we discussed last quarter for the two-year projection. As I noted earlier, we finished 2025 very strong from a working capital perspective.

Overall, working capital was a tailwind of approximately $170 million in 2025. We think careful working capital management along with beneficial cash tax impacts from the one big beautiful bell will continue to be a cash tailwind in 2026. As Chris mentioned, we continue to prioritize strategic capital investments into our shipyards. We expect 2026 capital expenditures to be approximately 4% to 5% of sales. This represents approximately $500 million to $600 million of investment to drive capacity and throughput. You can find additional 2026 guidance elements on the 2026 outlook table on slide 11 of the presentation or in the earnings release.

This includes an anticipated 2026 effective tax rate of approximately 17%. This lower tax rate is primarily attributable to an expected reduction in total tax expense related to research and development credits. Turning to our provided look ahead for 2026, we expect approximately $2.3 billion for shipbuilding revenues and $700 to $750 million of Mission Technologies revenues. With shipbuilding operating margin near 5.5% and Mission Technologies operating margin up between 4% and 4.5%.

Consistent with normal cash flow cadence, we expect first quarter free cash flow to be negative, representing a use of approximately $600 million as some of the fourth quarter working capital benefit unwinds. To close my remarks and echo Chris' comments, we have exited 2025 with good momentum and are focused on a clear set of goals and objectives for 2026 that are aligned to our customers' needs and our national security while continuing to create value for the Huntington Ingalls Industries, Inc. enterprise. With that, I'll turn the call back over to Christie for Q&A.

Thanks, Tom. As a reminder to everyone on the call, please limit yourself to one initial question and one follow-up so we can get as many people through the queue as possible. Operator, I will turn it over to you to manage the Q&A.

Thank you, Christie. To ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. Our first question is from Robert Stallard from Vertical Research. Your line is now open. Please go ahead.

Thanks so much. Good morning.

Morning.

Chris, I'd like to follow-up on those productivity numbers that you gave, the 14% progress in 2025. I was wondering if the performance there was the same across the various shipbuilding programs. Then how much more is needed, for example, on the Virginia class? If you're gonna get consistently to two a year?

Yeah. It was pretty broad-based improvement across the programs. The Virginia class program actually did very well in 2025. Remember, those schedules were reset post-COVID. So there's an incremental walk-up in throughput required to get to the two Virginia class per year.

But they had a very good year last year. But it was really broad-based improvement across the portfolio both at Newport News and Ingalls.

Okay. And then quickly as a follow-up, you mentioned that there's a step up in CapEx this year. How do you expect the long-term CapEx to progress from here? Do you expect it to remain around 4% of sales going forward?

Well, we don't have guidance beyond this year yet, Rob. But I do expect it to continue to be elevated simply because there's such opportunity out there. Tom, I don't know if you want to give any more additional details related to that, but I do expect it to continue to be elevated. But we're not gonna provide additional guidance at this point.

That's right, Chris. I just comment on that. And as he says, there's opportunity, the awards plenty for going forward. Obviously, that's gonna drive the top line.

There's gonna be a need for capital and investments. So from our Navy partner and ourselves in that. Haven't provided that yet, but I would expect it to be higher than where we've been in the past. And probably consistent with where we are right now going forward in 2026.

Okay. That's great. Thanks so much.

Thanks, Rob.

Thank you, Robert. Our next question is from Doug Harned at Bernstein. Your line is now open. Please go ahead.

Good morning. Thank you.

Know, you've got

Yeah. Good morning.

So you saw really good revenue growth in Q4, and, you know, both yards. And in Newport News, though, your margins are still pretty low. You know, Tom, you mentioned the two negative EACs on the CVN program. But when you look across the programs at Newport News, my assumption is you're working hard to get those margins higher.

How do you see each of the programs in terms of their ability to improve and get to the goals that you're really looking for longer term?

Appreciate the question. There. Yeah. So when we look at Newport News and the EACs are stable, the booking rates, obviously, we want to get those up right there.

It's gonna be a function as we've described in the past of working off the existing portfolio we have right now. Have these pre-COVID shifts that have been impacted by schedule inefficiency. And as those continue to evolve out, we talk about the portfolio in 2027. Becoming more post than pre-COVID. That's gonna assist in that list.

I believe, you know, what we've done in wages and what we've done in contract adjustments, some change management RIAs that we have in that will assist in that too. A piece of what we're seeing at Newport News is fairly consistent across all four quarters there. It's just a mix. Of, the portfolio itself, contract type, additional work scope that we have.

The growth, which is good on the top line, is coming about, both in labor and material. But on the material side, it's hitting contracts that need an advanced procurement. Which have restrictions on margins and fee right now. And then as we kind of work ourselves forward and definitize either those contracts or new contract awards, we'll see, you know, a moderate ramp and either fee on the existing contracts or incentives that can come in place on the new awards there.

So that's the playbook going forward. We're working hard to kind of stabilize performance. We've seen, you know, improvement in hiring attrition moderately improvements in rework. So it's stabilization, the AC making on milestones, working off the existing portfolio, and getting into those new start contracts.

Well, when you look at you've got a lot of money you know, for the industrial base off those last two block five. But as you as you commented, the '26 budget has really, you know, big support for shipbuilding. One of the things that, you know, we found challenging is money can be there, but it's getting it through, the throughput that you're talking about. You know, right now, you've probably seen, you know, a lot of the commentary about a pretty significant addition to the, 2027 budget potentially.

Which could include money for the industrial base. When you look at it from a shipbuilding standpoint, do you need more? Or are you in already a good position given the large amount of funding that's come in? Is that enabling you to get where you need to be with respect to your industrial base?

And so, Doug, let me take that, and I can Tom, if he wants to add, that's great. But, definitely, the block five two boat contract, assisted us, from a capital standpoint and a wages standpoint to increase throughput. At Newport News, there is more capital required if we're gonna continue to ramp, the throughput within Newport News on the submarine program and the aircraft carrier program, so there will be additional capital requirements. We hope to partner with our Navy customer to provide that capital, both our internal capital as well as incentives.

But there's plenty of opportunity to increase throughput in both internally within the shipyards and then through distributed shipbuilding as well. It's because it's not just labor. It's not just additional labor. And throughput within the shipyards.

We need to expand distributed shipbuilding as well. We had a pretty good year last year. We'll have another good year this year. In expanding the industrial base.

And some of the investments could go there as well. So we welcome the opportunity to continue investment to increase throughput, and we're gonna continue to do that.

I'd piggyback on the backside of that. I'm with you about the, you know, the budgets and opportunities that's there. We're seeing it flow into the company, so it's not just on the budget line. Know, both Q3 and Q4 store Huntington Ingalls Industries, Inc. have quarters of 16% growth.

We finished out the year this year in 2025 at 8.2% growth from 25 over 24, We saw a shipbuilding at 9.7%. For the year for '25 over '24. And, you know, I'm inspired by, you know, several quarters down in a row of seeing double-digit growth. In shipbuilding, Ingalls was at 11.2, and Newport News 9% for the year. So the dollars are there.

There's a need for our products and services. The funding's in place both with our backlog and anticipated awards that we have coming in 2026, and I'm happy to see an inflection of, you know, the labor material flowing into the yards, increased outsourcing. We've established over 23 vendors last year, and there's more to follow going forward. You can see from our earnings release, we're gonna increase we've increased outsourcing by 100% last year.

We have a 30% targeted this year. So the inflection that we've discussed is happening right now. The guide right now at 6% is probably a conservative guide, but the beginning of the year. Let's get into it.

We've beaten that the last two quarters, and we'll see, you know, that we can continue hiring, retention, and outsourcing.

Very good. Thank you.

Thank you, Doug. Our next question is from Scott Mikus from Millium Research. Your line is now open. Please go ahead.

Morning, Chris and Tom. Quick question. Ingalls and Newport News both exited 25 with a lot of top-line momentum. You did note that the fourth quarter had some pull forward, but the first quarter guide, if my math is right, calls for shipbuilding sales to be up 13% year over year.

But then that implies that shipbuilding sales are down 1% for the remaining three quarters. Is that just a function of tougher comps? Because it seems like you have a healthy amount of opportunity based on the milestones laid out in the slides.

Yeah. I wouldn't get too tied up in how that plays out for the whole year. You know, there's a lot of timing in that. Both we saw a little bit material, you know, even the guide we gave you, going from eight nine to nine one to nine zero to nine one, and then we came out at nine five.

So there's some material that got pulled to the left. I would tell you it's not a one-time trick there of getting revenue up in Q4 because we as I just answered in the previous question, Q3 and Q4 saw some good growth. The backlog and the new awards are gonna facilitate that, and then the outsourcing and the hiring is all gonna continue that. I think it's more just a conservative guide that we have right now to begin the year.

We wanna make sure we continue with the momentum we're exiting last year on the top line. And I would anticipate I expect that to continue going forward here. So there's always some choppiness, you know, from quarter to quarter. On milestones and margin recognition on ship deliveries and major milestones.

So there's nothing overly to highlight that's gonna be problematic as the revenue I expect to continue to ramp into 2026.

Okay. And then on the new battleships, is there a possibility that a Japanese or Korean shipyard could fund some of the CapEx to fulfill their obligations under the recent trade deals and then you contribute the workforce and the design sort of in a joint venture type format? That way, it would be an attractive investment for Huntington Ingalls Industries, Inc. from a return on invested capital standpoint.

Yeah. Really not sure. I think the aperture is open relative to the industrial base, and how that battleship is going to get built. There's a need for additional capacity in the industrial base.

And could a foreign investor bring more capacity into the industrial base? Sure. I don't know if it'd be necessarily for the battleship. But that's always an opportunity.

So you need to keep the aperture open and depending on how that acquisition profile or the acquisition strategy develops, then I think the investments will follow.

Alright. Thank you.

Our next question is from Noah Poponak from Goldman Sachs. Your line is open. Please go ahead.

Hey. Good morning, guys. Morning. So I guess, you know, if I kind of zoom out and look at the shipbuilding margin, it's kind of flattish through 2025. I mean, it's actually down sequentially a little bit through '25. '26 guidance kind of flattish versus '25. Recognizing it's a long cycle business and manufacturing process, and these things take time.

I guess just with the incremental funding, the throughput achievements, the labor achievements, Tommy just reiterated, you know, better mix of contract by '27. How help us better understand how the shipbuilding margins are flat for that full two-year window? Do they snap in '27 when the mix flips to more post-COVID? And what and to what extent is the waiting on the next batch of nuclear subcontracts pretty binary in this discussion because you have to book so much long lead at a low margin before you that.

Let me start on that note, and then Tom can chip in. On the back end. But, I mean, you know our process I think, relative to how we evaluate risk and opportunities when we do our plan, and we're very disciplined in how we evaluate them and how we develop our guidance, for the subsequent year, and that's what we've done. I would say that we are there's investment required that we're making in outsourcing and overtime to prioritize schedules on these ships, which is impacting our profitability.

There's no doubt. We think that makes sense. We're gonna continue to do it. Because the strategy to get out of these ships into the next into the next ships just makes great sense.

Relative, to the submarine program, we think that needs to get done by the end of the end of the first half of the year. We need to make sure that we don't incur risk related to a delayed start on that program. The teams are meeting I have high hopes that after the twenty-sixth budget was done, and then the '27 budget, we get a little more clarity that that everything will fall into place. We'll and we'll get started, but we really need to get that done in the first half of the year.

Tom, I don't know if you have anything else. Have some comments for you, Scott, in the street there. So, know, to your point on the with the new contract starts that are coming with the awards and we book low, that's baked in already into the guidance that we provide. Right?

So nothing's changed just because those awards are coming and what we gave you in 2026. And then, you know, Chris and I have said that, hey. The nine to 10% is not just aspirational. We've been there before. Wanna get there.

We haven't given the street the timing of that. We've said incrementally, we would expect to improve annually. And we still feel that way right now going from '25 to '26. If you think about '24, it was 5.2%. '25 was 5.9%. That's up 13%.

And although we give you a range of five five to six five, it's kind of in line. You know, Chris said back at Q3 in '24, heading into eighteen to twenty-four months, it's gonna be choppy. We're gonna work off these old ships. So, you know, a reguide of what we gave you last year is not inconsistent.

And even in Q3, when I gave you the hey. I saw that's around the midpoint. It could be a little bit high with the awards. It could be a bit lower with afterwards.

We didn't get the awards in '25. They fall into this year. We finished at 5.9%, Ross. So, like, we're not surprised, or it's off what we've been been talking about that we're dealing with here. I tell you that, you know, the range is consistent in '26 as it is in '25. We finished the '25 at $5.05 for the quarter, and when we look at Q1 right here, there's not a plethora of milestones or sell-offs.

It's gonna change, you know, what the last thirteen weeks did for the next thirteen weeks. So again, we if you we think about it, we shouldn't be surprised that we got it fairly conservative at the beginning of the year and consistent with what the actuals were for Q4. As we look at, you know, Q4 there's timing in there. There's a higher volume of the new starts that I've talked about. Advanced procurement that kind of either no fee or limits fee.

So we'll work that off. And then the material, which is good for the top line, pulls a little less fee on a couple of our contracts as we work ourselves through that. You know, the five five to six five is still, like, a good range of outcomes. Last year, was just about at the midpoint without at the award.

So, we're, those awards to happen this year. In my remarks, I said in the first half of the year. And then with the milestones that we've given you in this you know, Q2, Q4, we provide the milestones. We met most of them last year, and we expect to go do that most all of them this year here.

So that's gonna be a lift on where we go forward here. The awards will have some incentives to them to do that. We didn't have last year, so that's gonna be an assist as we go forward. And then I mentioned the increase from the five two of '24 to five nine of 2025. And the midpoint at 6%, although moderate, is still kind of better than the actuals of last year and we have a whole year to go work the contracts here.

And then kind of lastly, as Chris said, it was baked in already, but, you know, we have had a you know, as we put focus on milestones and delivering a shift of staff as possible for our navy customer, we have put a premium additional overtime. We have both sites working high overtime than usual, so there's a little bit of drawing on cost efficiency on that. And then the first time you know, outsourcing and first-time bills, just a little bit of extra cost in that. Not unanticipated.

Again, it's all in our guide and our progression as we turn the portfolio heading towards 2027. I hope that was helpful.

That was very helpful. It's a lot of detail, and I appreciate it. When you provided the shipbuilding medium-term revenue growth target, the 6%, you have the sub-bullet point there that says additional upside from recently announced programs. Can you talk a little bit more about that? I mean, how much upside and specifically, on the SSC win, when does that start ramping up for you?

Yeah. So yeah, Noah. The be a frigate win. That pretty confident, very confident we're gonna build the first two boats.

Or first two ships in that class. We're unsure what the acquisition strategy is. Beyond that. I think we'll learn, more when the '27 budget comes out.

But we're fortunate on that program that we still have a lot of material from 11 which is really a lot of the upfront cost. On a ship. So I don't expect material, impact to sales this year. It should start to ramp in '27. Battle the battleship is a little different.

We're still engaged with the Navy on understanding how that design's gonna unfold. With us, the Navy, and BIW. So there'll be modest revenue this year, and then it'll ramp from there. We don't have specific numbers for you right now.

But as we as we understand them, we will we will provide them.

Okay. Thank you.

Thank you, Noah. Our next question is from Pete Skibitski from Alembic Global. Your line is now open. Please go ahead.

Hey, good morning, guys. Hey, Chris. Could you talk more about the supply chain Chris, can you talk more about supply chain at Newport News I think you touched on it in your remarks. I didn't quite hear all of it.

Did you receive all the equipment from the supply chain that you expected in the fourth quarter on CVN 80? Or was it later than expected? Is that what drove the negative EAC and kind of where are you right now in that program? And get a better sense of that.

Yeah. So we have received all of the engine room material done deck over. As I said in my prepared remarks, we're 50% erected, and we'll continue to make progress this year. Have a little bit of momentum on that program.

Throughput has actually accelerated and the key there is to getting back in sequence, which they're working very hard to do. So it did, there was investment in overtime, on 80 to get back on schedule or try to get back on schedule. And they're as I said, they're working hard to do that.

Okay. Sounds good. And then just Chris, on you know, between reconciliation and the 26 appropriations bill that's that's law now, did you get all of your priorities through in the budget this past year that you wanted? You know, just wondering if there's anything that didn't get into those bills that is gonna be a priority for you in, in fiscal twenty-seven.

No. It's universal support for shipbuilding and reconciliation, the '26 budget. The potential '27 budget, it's all on us to execute now. But all of our programs are supported.

Okay. Great. Thank you.

Thank you, Pete. Our next question is from Seth Seifman from JPMorgan. Your line is now open. Please go ahead.

Hey. Thanks very much, and good morning. Wanted to follow quickly on the frigate. I think you talked about that being a driver potentially of growth in 2027. Mean, given the target of having a boat in the water in 2028, should we think about that ramping up rather quickly?

And is there anything you could say about the magnitude of the lift there at Ingalls and what it will do to the mix as well, given that I think the NSC was a very profitable, ship for that yard.

I think it's a little bit, too early for that. I think if you were to project the cost related to ship getting in the water in two years less the long lead material, there's probably enough data out there for you to figure out what that could mean from a sales standpoint. So that is upside but beyond that, I don't I think it's a little bit too early to talk about potential top-line upside related to that until we get a little bit further along.

Okay. And should we think about that being, you know, mix-wise being you know, NSC like?

I wouldn't necessarily think that. Right? We're gonna work with our customer to get a fair deal on that contract. So I wouldn't necessarily think about that. I think on a blended rate, getting to nine to 10% margin is still our objective, and I think we'll eventually get there.

Okay. Thanks. And then just to follow-up given where you ended the year on with the cash balance, and what you're forecasting for '26, they have a decent amount of excess cash on the balance sheet by year-end. I know there's understandably a certain amount of reticence about repurchases at this point, but good performance, does that become more of an option?

Or are there other things you would think about doing with it? Or, you know, do we just kind of you know, maybe sit with some excess cash for a little while?

Yeah. Remember, in the words of one of my predecessors, cash can be pretty lumpy. So it will continue to be lumpy, and in shipbuilding, but we think the overwhelming opportunity from a value standpoint is to continue to invest in the shipyards. So we're gonna do that. It's gonna improve both the top and bottom line. So that's our focus right now, and it's been our focus for a while.

Great. Thanks very much.

Sure. Thank you, Seth. Our next question from Judd Goddin from Citigroup. Your line is now open. Please go ahead.

I wanted to just revisit shipbuilding margins one more time. There is a lot of good detail. I think you made clear that there's some conservatism. In the outlook.

What I'm interested in is in the first quarter, you have shipbuilding margins kind of at the low end of the full-year guidance. It suggests that the conservatism is more of a back half event as it plays out. Is that right or is that not? Can you help us just think about the shape of margins throughout the year?

And is that conservatism something in the back half? Or might we just see a stronger start to the year than expected, as you suggested?

Yeah. So, you know, obviously, we gave you the annual guidance five five to six five. We've been giving for the last couple of years the next quarter, so it's five five. That kind of leaves you guessing for Q2, Q3, Q4. I'd say stay consistent with just what you've seen from us over the years.

It's about the milestones. It's about performance. It's about the deliveries. There's nothing that's gonna alter it one way or the other other than timing.

How we perform over the next, you know, eleven months. And then the awards themselves will bring about, you know, a good balance of, you know, affordability to profitability, the contract terms and conditions, there'll be some incentives in there, so we'll have to work ourselves through that. Not gonna give any more comment on that as it you know, we're in negotiations through negotiations as that effort's trying to get through approval cycle right now. But yeah, I mean, I think it's the beginning of the year.

We don't wanna get ahead of ourselves. And, really, it makes sense that we exit Q4, you know, at five five kind of run rate over there. So we're gonna hold Pat at this number. We'll update you in May, and you'll get a look-see, you know, both for what's gonna happen as a forecast in Q2. We have hinted that, you know, we'd like to see the awards expect the awards the first half of the year.

So that's gonna facilitate a good pace and a trajectory of at least midpoint Nevada going forward here for the year.

Right. I guess my question is, is it even possible that we start the year at the higher end, at 6.5%, that we fast forward a quarter or two when we realize that we deliver numbers like that or in terms of the art of the possible, that's not even on the table.

The range is for the entire year, I'd stay focused on what we gave you for the quarter.

Okay. Fair enough. And then if we just double click on the, on the milestones and the timeline, as you guys know, know, with deliveries, with the milestones, there's an intense focus on different milestones as we get closer to the dates. Are there any milestones or delivery dates that you would just flag for us right now to kind of bracket and sensitize a little that one that might be pushed a little bit more than others just so that we can have that conversation now, you know, instead of on the eve of expecting some sort of delivery or milestone event, any risk around anything that you would just kind of you know, take the opportunity to bound for us?

Sure. Delivery of 30 and the delivery of 800 towards the end of the year. Very focused on getting both of those boats done. So those that that's how it calls from a risk standpoint and an opportunity standpoint. Those two that boat and that ship are very critical to us.

Got it. Thank you, guys.

Sure. Thank you, Judd. Our next question is from Scott Deuschle from Deutsche Bank. Your line is now open. Please go ahead.

Hey, good morning. Tom, do you expect the company to make money Morning. On CVN 80 and 81? Given this trend of negative EACs?

Yes. Well, yes. We do. Right?

We think we booked accordingly right now. We've described what, you know, transpired on those ships up front. We've impacted by some material that goes deep into the ship. That risk is behind us.

Obviously, that's caused an impact on the schedule. So the schedule's a little bit longer, and it's created some cost efficiency. We're working 80 specifically out of sequence. But with the deck over right now, the team's feverishly working with the experience they have building carriers getting that back on sequence, getting it out of the dry dock, and then doing the ship show work kind of going forward here.

But we have not forecasted or do not expect it. It not to be profitable.

Okay. And then, Chris, there are a lot of data centers under construction in the state of Virginia. It looks like within an hour or two's drive from Newport News. Are you seeing that have any kind of impact on the labor situation at Newport News particularly for trades like electricians or pipe fitters?

That's interesting. We haven't seen the impact, the applicants and the hiring in Newport News was very, very strong over the back half of the year. So we haven't seen it yet, we'll watch out for it. We're fortunate in the regional workforce development centers have been coordinating with the federal government, state governments, to produce good shipbuilders, and we're gonna continue to work on that pipeline.

But we have not seen that.

Good to hear. Thank you.

Thank you, Scott. Our next question is from Myles Walton from Wolfe Research. Your line is now open. Please go ahead.

Thanks. Good morning. Tom, I was wondering Fine. Okay.

I'm wondering if you can give us a little bit more color on the improvement in attrition because I'm trying to put the math together. You hired 6,600 shipbuilders. I think you got another 500 employees from W International's acquisition. I also think that you finished headcount flat versus the start of the year.

So walk me through what your definition of improvement of attrition is. Did you end up with the headcount you expected? And then do you expect headcount to grow in '26?

So let me start, Tom has anything additional, he can add it. So attrition did improve. Year over year. It's about a 15 to 18% improvement across both shipyards.

Both shipyards improved, in that data, the 44,000 employees' miles, we have support labor in that as well. And, obviously, Mission Technologies labor in that as well. So we did increase staff in both shipyards, we ended pretty much where we wanted to be, and we're in a pretty good place from an applicant flow. And a hiring standpoint for next year.

So from a labor standpoint, we're in a pretty good place. We do need to continue to improve attrition and efficiency of the workforce, which we're working very hard at. But with that, we also need to continue to focus on distributed shipbuilding because in order to get through all of these ships, it's not just the shipyards that are that are gonna be required to be more efficient. We need to work on distributed shipbuilding, continue to qualify suppliers, and make sure they're efficient in producing what they need to produce as well.

That's a comment on that. And, Chris, this is an excellent what's the direct let? It's Tom here. I'll comment just on that.

It's the mix of the labor. Right? This direct labor that's support, shop shop is that we have that's not in the number, and then there's outsourced work that we have. So all that goes into our ability to kind of ramp and both get more earned progress and get more work accomplished towards the milestones going forward.

Okay. And then one quick one on mission technologies. Think you're benefiting by another $20 million runoff in amortization. Which would imply, you know, an 80 basis point step down in EBITDA margins basically very little growth in EBIT despite the $20 million runoff. Is that right? And if so, what's driving the year-on-year profile for Mission Technologies profit?

Yeah. So you're talking about, I guess, guide, or are you talking about from how we perform this '25 to '24 or the guide to '26?

2026 is guidance. Right? 5%.

5% EBIT? Yeah. But it should be benefiting, I believe, by about 80 basis points.

Of amortization runoff.

Yeah. I think the amortization runoff is about $10 million improvement, so it's not as much as of that. I would tell you that so that's a piece of it. It's about half of it.

And then just the other half is what we're seeing in our contract performance. The maturity of how we're executing, had some fee write-ups in 2025 going that we took, and there's a potential of opportunity sets in 2026. Our nuclear business with equity income, always has upside, and we have to see how the year plays out and how our scores are. We get, evaluated by the customer set, so that's included in there. Although your question was specifically on the return on sales side, the EBIT side, I tell you on the EBITDA side, you saw we raised the guidance from eight o to from eight to eight five last year.

To eight six eight six finish. So up almost 50 bps on that now to eight four to eight six. Again, just the maturation of the portfolio. I'm trying to although it's predominantly cost-type contracts, trying to see where we can get the additional value of bidding more products than services.

A little bit more how we did these jobs, and a focus on profitability there. So an incremental improvement, I like how we finished out from 25 versus 24. It's good to see an incremental improvement on both metrics going forward in '26.

Thank you. Thanks. Thanks for the question. Thank you, Myles. Our next question is from Gautam Khanna from TD Cowen. Your line is now open. Please go ahead.

Morning. Morning, Adam. Wanted No. Not at Ingalls. No. No. And what's sort of the timing on that? We expect to get through that in the first quarter. I don't wanna comment directly on a union negotiation but we're engaged heavily with the union to get that done almost daily. So but we expect that to get done in the first quarter.

Gotcha. And just on the VCS Block six, and the Columbia class contract, what is your best sense on timing of when that might get awarded? Formally?

Really? So Donna, it's really hard to say. We needed before the end of the first half of the year. In order to maintain our production schedules but it's just hard to say we're engaged heavily with electric boat and the navy to get it behind us.

And I think we will get it done. And as I said previously, the twenty-sixth budget getting done and then clarity around what's gonna happen in '27 in the fit-up, I think, really helps. And after that falls into place, we can get those contracts behind us. One thing I know for sure, the Navy's gonna buy submarines.

So we need to get it done before the first half of the year so we can maintain the production schedules make sure that is not a risk that we have to deal with.

And I would just love to get your perspective if you're willing to share them on how like, know, this thing was expected at one point to be done north over a year ago. Than we were thinking year-end. 2025. Is there any long bulls in the 10, or is this just sort of t's and c's, you know, minor stuff that needs to get hashed out. Or is there a big if you can give us any sort of update just because we've been talking about it for north of a year.

Got it. I just think it's a big complicated contract. And you have three parties involved that need to all be comfortable with what the solution is. Fortunately, those teams work very well together. But it's just a big complicated contract, and we need to get to the finish line here.

Okay. Thank you, guys.

Sure. Thank you, Gautam. Our last question is from Mariana Perez Mora from the Bank of America. Your line is now open. Please go ahead.

Thank you very much for taking my question. Good morning, everyone. Morning. So my question is gonna be about Mission Technologies.

And how should we think about the share or the mix towards, like, unmanned solutions, autonomy, and those things in that portfolio. Because I could imagine those are growing double digits. And I'm wondering when we should start to see that reflected in the growth for that segment.

So interesting. Let me start here. Thank you for bringing up that question. We don't break out growth rates within Mission Technologies by market segment.

I will say that unmanned is doing very well. Unmanned undersea and unmanned surface, as you can see by the launch of our new Romulus vehicles, think it's interesting when you think about the new or the evolving navy strategy around the hybrid fleet or the hedge fleet, that we're right in the middle of that. With obviously, a very keen understanding of large capital ships, but then also being the largest provider of unmanned undersea vehicles, and then having unmanned surface vehicles, all predicated upon autonomy software that's really world-class. So from an unmanned standpoint, I do believe there's potential tailwinds there.

Think there's also tailwinds with the intersection between manned and unmanned. When you think about the Minotaur suite that we provide for the Navy, we're the chief developer of that. So I think it's gonna continue to evolve. I think it's gonna continue to play right into our sweet spot.

And I thank you for the question because I think it's something that's gonna be very positive going forward.

And then when you think about those opportunities, right, and administration that is leaning into what we're gonna call, like, commercial terms. How do you think about, like, investing your own dollars, owning that IP, and actually getting, I don't know, out of this, like, mid-single-digit, like, cost-plus type of, like, margins for that segment. I don't know, five, ten years from now. Is that a possibility?

How you think about, like, investments from that end?

I definitely think there's more profitability potential within that segment. I think the IP situation or that argument gets to be a little bit more complex. Because we actually design our autonomy software to Navy standards, and it's open source. We allow you to plug and play and bring really good providers in.

Into the space. So that is a different argument. That's a different discussion on profitability. I do think that there's upside related to the unmanned space.

I do think there's upside related to integrating the software into the product sets. And so that's why we've invested against it, and we will continue to invest it. Against it, and it's probably our highest source of IRAD internally within the organization.

Thank you so much.

Thank you. Thank you, Mariana. I am not showing any further questions at this time. I would now like to hand back the call over to Mr. Kastner for any closing remarks.

Sure. Thank you, and thanks for joining the call today. Hey. I wanna give a shout-out to the CVN 79 team, both the sailors and the shipbuilders.

They had a really great trial this week. It was an excellent week to be a shipbuilder. I'm proud of the team, and I think the ship performed very, very well. And we'll keep that momentum towards delivery on 79. So thanks, everybody, for joining, and we'll see you out there.

That concludes today's conference call. You may now disconnect.