Operator: Ladies and gentlemen, thank you for standing by and welcome to the Fourth Quarter 2020 Huntington Ingalls Industries Earnings Conference Call. I would now like to hand the call over to Dwayne Blake, Vice President of Investor Relations. Mr. Blake, you may begin.

Dwayne Blake: Thanks. Good morning, and welcome to the Huntington Ingalls Industries fourth quarter 2020 earnings conference call. With us today are Mike Petters, President and Chief Executive Officer; and Chris Kastner, Executive Vice President and Chief Financial Officer.

Michael Petters: Thanks, Dwayne. Good morning, everyone, and thanks for joining us on today's call. I trust that everyone is staying healthy and safe. So before getting into the results for the quarter and the full-year, let me take a few moments to reflect on last year. 2020 will be remembered as one of the most challenging business environments that we've ever had to navigate. Throughout the COVID-19 pandemic, we have made decisions that are focused on the safety and well-being of our employees and I could not be more proud of the way our team responded to the challenges. While enduring the difficulties and uncertainties of the pandemic, we demonstrated an uncompromising commitment to safety, quality, cost and schedule that allowed us to achieve significant milestones on our programs and continue making meaningful contributions to national security. Specifically during 2020, we delivered three ships, the amphibious assault ship USS Tripoli, the guided missile destroyer USS Delbert Black and the National Security Cutter Stone. We also christened Virginia-class attack submarine Montana and we laid the keel for Massachusetts. Now consistent with the strategy outlined during our Investor Day meeting last February, we continue to invest in unmanned and autonomy capabilities. We acquire hydroid and established a strategic alliance with Kongsberg Maritime. We broke ground on the Unmanned Systems Center of Excellence in Hampton and closed the year by acquiring the autonomy business of Special Integrated Systems, an industry leader in unmanned surface vessels solutions.

Chris Kastner: Thanks Mike and good morning. Today, I will briefly review our fourth quarter and full-year results and also provide some additional information on how we view 2021 and our longer-term outlook. Beginning with our consolidated fourth-quarter results on Slide four of the presentation, our fourth quarter revenues of $2.8 billion increased 14.3% compared to the same period last year, primarily due to growth at Newport News driven by increased material volume for CVN 80 and CVN 81 and higher volumes for the planning effort for the RCOH of CVN 74, as well as higher volumes for the Columbia and Virginia class submarine program. Operating income for the quarter of $305 million increased by $119 million from the fourth quarter of 2019 and operating margin of 11.1% increased 335 basis points. These increases were primarily driven by higher risk retirement across numerous Ingalls programs and improved performance and technical solutions, primarily due to fourth quarter 2019 results that included an asset impairment related to our oil and gas business as well the loss on the fleet support contract. Fourth quarter 2020 results also included a more favorable operating FatCats adjustment. Moving on to consolidated results for the full year on Slide five, revenues were $9.4 billion for the year an increase of 5.2% from 2019. The increase was driven by growth across all segments including higher aircraft carrier submarine and fleet support revenues at Newport News, higher surface combatant and amphibious assault ship revenues at Ingalls and the inclusion of hydroid in technical solutions results.

Dwayne Blake: Thanks, Chris. 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'll turn it over to you to manage the Q&A.

Operator: We’ll now begin our question-and-answer session. Our first question today will come from Jon Raviv with Citi.

Jonathan Raviv: Thanks, and good morning.

Michael Petters: Good morning.

Jonathan Raviv: And also congrats to Chris and Tom, looking forward to it. Can you clarify Chris, just on the 7% to 8% in 2021, how much net negative is in there from COVID type impacts, I mean you mentioned I think in the slides that you're not expecting much in terms of reimbursement. And then also just thinking about kind of like the improvement thereafter, the low rates, is that assuming no reimbursements? So yes, just the first question on that net COVID impact?

Christopher Kastner: Yes, so we don't expect any reimbursement within our guidance related to the COVID impact. Again, I split that kind of into two buckets. One is material, which is the cleaning sort of expense that will eventually get through and there'll be some upside to that, but I don't think it's material, and then delay and disruption. So there's really no negative performance impact assumed in the 7% to 8%.

Jonathan Raviv: Okay, and then just turning to capital deployment, you’re resuming repo on 1Q, you've done a couple of things in TS over the years, mostly smaller, mostly smaller items. I mean, but also a year ago you talked about expanding TS and the real focus being there, lots of activity in that TS type market. What kind of things you're looking for in terms of capability or size? And to what extent has the pandemic or what your Navy customers saying or quite frankly your stock price changed the math around what option you find more attractive than another when it comes to capital deployment?

Michael Petters: Yes, so first of all, starting with where we think the opportunities are, we continue to see opportunity in the unmanned space whether that's a technology capture or portfolio expansion, we’re just kind of keeping our eyes open on how do we make sure that we've got the right footprint of capabilities and the right portfolio to go support where we think the Navy might be going. We believe that our energy business, our Department of Energy business, and our nuclear operations business is finding its stride very well. And we think that there's great opportunity there especially in environmental management moving forward, so we're kind of watching that very, very closely right now. And the support for the federal government across all the rest of our solutions with Cyber and IT, we've demonstrated now, we know how to run that business. And so we're watching that. That's a pretty dynamic space right now and valuations are kind of challenging. And so we're still going to continue to think about what are the capability sets that we need, as opposed to how big do we need to be? And that's kind of the way we're thinking about it going forward.

Christopher Kastner: Yes, Jonathan, I could add, I consider it really kind of a back to normalcy from a capital deployment standpoint, we're finishing our capital program that we think has been very successful over the last few years. The dividend will be increased but more modestly going forward, and then we're going to be very opportunistic in share buyback, and then evaluate the markets and opportunities as Mike indicated.

Jonathan Raviv: Thank you.

Operator: Our next question comes from Carter Copeland with Melius Research.

Carter Copeland: Hey, good morning gentlemen and congrats on the moves. The promotion, Chris and welcome, Tom.

Christopher Kastner: Thanks, Carter. Good morning.

Carter Copeland: Just a couple, could you tell us the anticipated timing on the delivery of New Jersey? Is that a second half ‘22 event and then just with respect to the various programs outside of Montana and New Jersey, are there any other boats that you would consider significantly below the company average margin at this point?

Christopher Kastner: Yes, so Carter, I really don't want to comment on individual ship margins but New Jersey is mid to late in 2022.

Carter Copeland: Okay. And then Chris, just as a clarification as always, can you give us the EAC’s favorable and unfavorable for the quarter?

Christopher Kastner: Sure, positive was 88, negative 42 for net, 46, over 90% of that net was Ingalls, Ingalls had a very good Q4 with delivery of NSC-9 and then LPD 28 and 29 are performing very well down there at Ingalls.

Carter Copeland: Okay, great. Thank you for the color. I'll let somebody else ask.

Christopher Kastner: Sure, thanks.

Operator: Our next question will come from Myles Walton with UBS.

Myles Walton: Thanks. Good morning, two quick ones. One is on the volume side. Obviously, we baseline them higher since the summer for both ‘20, which achieved in ‘21. And just curious where the upside, you're seeing most pronounced and then secondly, Chris, I know that your challenge you were anticipating was being able to walk people out in ‘21 cash flow and then back up the hill in ‘22. Can you give us a sense, we can add all the other items, but give us a sense of the swing in working capital that's embedded sort of in your expectation over those couple of years? Thanks.

Christopher Kastner: Yes, so let's start with volume, 80 and 81 had some material volume that showed up in 2020, that we’re planning around the end of the year, so we had some upside there. And then ‘21 is just simply a function of our plans getting complete, our labor showing up and being confident in our labor forecast for 2021 and working through the backlog. From a cash standpoint, you're right, we gave you pretty much all the information going from ‘20 to ‘21, and then ‘20 to ‘22 actually. So I'll start with ‘20 to ’21, its pension and the CARES Act working capital. Capital is about the same. And then when you go ‘21 to ‘22, it just simply reverses the pension actually is a bit of a tailwind. And then you get some working capital help, I don't want to cite a specific number. But we've done very well in working capital, we'll continue to do that. Remember, we do have significant deliveries in 2022. We have four ships that are going to deliver, so it'll be helped there. So we think it's a natural lift from ‘21 to ‘22, based on the information that we provided our ship deliveries, which will drive working capital, and then our natural lift in our top and bottom line. So I think that'll get you there from a free cash standpoint, we think it's pretty logical and pretty obvious when you go through the modeling.

Myles Walton: One clarification the footnote on Slide 6 talks about the advances you got from the progress payments, but it talks about the suppliers being accelerated as well. Was that a net push or a net positive to 2020?

Christopher Kastner: It's a net positive.

Myles Walton: Okay, thanks.

Operator: And our next question comes from Seth Seifman with JPMorgan.

Seth Seifman: Thanks very much and good morning.

Christopher Kastner: Good morning.

Seth Seifman: I'm wondering about if you look out it and the growth, and you talk about the sort of 3% annually over the course of the plan and in shipbuilding. And with the higher 2020 and the midpoint of the 2021 guidance, that's a lower number for 2021. I guess is the implication that it's 3-ish percent in the remaining years of the plan. Is it the implication that the carrier would be sort of 3%, including the sub-3% year in ‘21? How do you think about that kind of growth forecast?

Christopher Kastner: Yes, so remember we did have that material acceleration from ‘21 to ‘20. So, net-net, it doesn't really impact our total outlook. We think long-term next five to seven to 10 years actually were 3% growth business in shipbuilding, it's going to be lumpy from year-to-year, but long-term, it's 3%.

Seth Seifman: Okay, even up to 10 years or so?

Christopher Kastner: Sure. Yes, I mean think about the backlog we have, there were discussions that potentially because of the budget increases, that the Navy had that we would be growing in excess of what we’re now, we've consistently said that 3% is probably the right way to think about the business.

Seth Seifman: Okay. And then following-up on that, I think the headcount for the year seemed like it was about flattish, if we think about that 3% growth rate over kind of the long-term, how do you think about headcount growth over that period?

Michael Petters: Well, I think the first thing to, you almost have to go back to the previous universe, we hired almost 25,000 people before the pandemic in an environment where there was as low as 3% unemployment. So we know how to create workforce it’s frankly, probably the most significant core competency of our shipbuilding enterprises as getting workforce created since the pandemic started, I guess in March, we still hired about 3,000 people. And so we believe and have a lot of confidence in our ability to expand our workforce where we need to, we're pretty good at throttling the pace of that. And we're actually exceptional, I believe at training that workforce. So, I think that there will be workforce expansion that that coincides with the growth in the business. But we think that's well within our capacity to do that. And frankly, we're probably ahead of many folks in the industry right now in terms of having already hired a lot of those folks. So we're on our way.

Seth Seifman: Great, thank you very much.

Michael Petters: You bet.

Operator: And our next question comes from George Shapiro with Shapiro Research.

George Shapiro: Yes. Good morning, Chris, you’ve guided to $7.9 billion for shipbuilding revenues in Q3. And obviously, it wound up to a lot higher than that. And the business, that's pretty predictable. Can you tell us what happened to give you that much stronger growth than what you expected?

Christopher Kastner: Yes, thanks, George. As I mentioned previously, CVN 80 and 81 has some material that was due right around the end of the year, and it accelerated into 2020. So unfortunately, we can be a bit lumpy at times, we're pretty good at forecasting our labor and our labor demand, and how we're going to end-up from a labor standpoint, the material can catch you a bit, you got large items that can deliver towards the end of the year. And it just showed up in December, which had higher than our expectations.

George Shapiro: Okay, and then one for you, Mike. The Senate just approved tax for the Deputy Secretary. I mean, she's been kind of outspoken and not being a big fan of carriers. Could you just give us your color. Is it how you think this will shake out and with the new administration?

Michael Petters: Well, I think leading George it’s a great question, and we could probably talk about this all day. But I think, we're starting from a place where the previous administration was looking at what's going on in the world, and had come to the conclusion that the Navy needed some priority in terms of budget allocation, and resources. If anything, I think what's going on in the world probably, since the Election probably just reinforces that view. New players will look at that differently. And they may have a different set of priorities. But at the end of the day, our principal role here is to support the Navy and whatever it is that they need to go to deal and support our National Security. So that's what we'll do, particularly around aircraft carriers, I think the value of the carrier and the capability of the carrier is well understood by everybody in the industry. And we'll see how that all plays out. But we like the work that we're doing. We're very proud of the ships that we're producing. Ford is a tremendous ship right now, where it's been providing training, support and demonstrating all the new technologies. I believe the Navy could tell you that it's been at sea as much as any other ship in the Navy last year. And so I think, I think the carrier is in a good place right now relative to how the Navy is thinking about what they need for our National Security needs going forward. But that doesn't mean anything about the rest of our portfolio. I mean, we really have strong offerings and strong parts of our portfolio that supports the broad range of Navy requirements, whether it's submarines or amphibs, or destroyers. If the Navy is going to be a priority in our National Security posture going forward, then we're going to be right in there with them.

George Shapiro: Okay, thanks very much.

Michael Petters: You bet.

Operator: Our next question comes from Doug Harned with Bernstein.

Douglas Harned: Thank you. Good morning.

Michael Petters: Good morning, Doug.

Douglas Harned: At Ingalls, you're right in the transition to Flight III on the DDGs and Flight IIs on the LPDs. Can you describe the differences with DDG 125, LPD 30. I mean should we expect any pressure on performance as you move to these new ships?

Michael Petters: Yes, I think it's a good question, Doug. But the whole point of the way, the Navy worked with us to make those transitions has been to try to do that as gracefully as possible. Yes, DDG 125 is the first Flight III ship, but they've been actually incrementally inserting Flight III technologies into the ships ahead of that. And so trying to make that as graceful as possible I think will pay big dividends. And as far as the LPDs go and go into Flight II, there's I mean just the fact that we're doing LPD Flight II is that is a punctuation on that statement that they made it graceful, instead of going off and doing a whole new class design and starting all over, you just basically took the LPD Flight I and then you rescoped it, to do Flight II and that's definitely in our wheelhouse. And so we feel pretty good about both of those, we actually think it was very thoughtful on the Navy's part to do it that way, with the LPDs, it was the Navy and the Marine Corps that did that. And we think that's the advantage of that, that's the Navy's understanding of taking advantage of production, as opposed to going back to the blackboard and starting all over and trying to redesign it from the ground up. In both of those cases, you're going to get significantly improved capability at significantly reduced or significantly better affordability in a lot faster timeframe. I think that's the wave of the future. And it's in some ways, it's a throwback to the past, because that's how we used to do it. So I think we're going to be fine there.

Douglas Harned: Well, and then just staying in operations. If you look at Newport News, if we go back early in the year, when you face challenges on the Montana and New Jersey, Massachusetts, you talked a lot about the complexity of the operations at Newport News, you've got a lot going on there. Over the course of the year, can you talk about how you address those issues? And where do things stand right now, as you look forward?

Michael Petters: Well, man, I'm not sure I know where to start, I would just start, maybe I'll start with the pandemic itself really put us in a place in both of our shipyards to rethink the way that we do. Not just crisis management, but management overall. And we started thinking through how do leadership teams rally the team to support priorities, how do we allocate resources to the things that need to be done. And I mean a lot of us have messed around with Soccer. And when the kids are young, everybody, all the kids chase the ball, what the shipyards have really gotten very good at is making sure that folks play their position, stay in their lanes, focus on what's in front of them, meet their milestones, and drive through the gates that we've set up in front of them. And I have to say that the pandemic has brought that to a much clearer focus for us, because we had to do that with people. And so I'm actually, very excited about the way ahead, because of the fact that this team is now well tested over the last year of doing exactly the kinds of things that that we need to get done to support all this, this broad array of programs that we have.

Douglas Harned: So you see, the Virginia-class is pretty on track now after the challenges from last year. I mean just want to make sure how we should think about that?

Michael Petters: Yes, I mean I think we had to reset the risk register in Q2, but now that it's been reset, the milestones that we've set for ourselves, the pace that we have not just on the first ship or the second ship, but all the way through the class, I think we're meeting all those milestones and we're meeting them with some gusto and I'm pretty happy about that.

Douglas Harned: Okay, great, thank you.

Michael Petters: You bet.

Operator: Our next question comes from Pete Skibitski with Alembic Global.

Pete Skibitski: Hey, good morning, guys. Nice quarter.

Michael Petters: Hi, Pete.

Pete Skibitski: Hey, Mike, on the creation of the CEO role, was there any particular existing programs or future programs that kind of drove the need to create that role. If so, I'd love to understand which ones, you talked about it kind of at the beginning in terms of integration, and I just thought about pie in the sky, if they go towards this kind of light aircraft carrier model for distributed firepower that maybe that would be a key integration project in terms of Newport News with a new and the big deck set at Mississippi. So just want to get your thoughts.

Michael Petters: Yes, it's an interesting question. I'm not sure I could say that it was one particular item, what we were seeing, and what we're hearing from our customers is this capability and this part of your business is something that we could use in this part of your business, whether it was the way we were applying material, or technology that we were looking at additive manufacturing, maybe some artificial intelligence, our information management systems, those kinds of things, it's sort of, it's more like the, there were several of those that when they add it together. It made more sense for us to start thinking about it in terms of an integration and not as a straight-up customer directly facing the particular customers. And I actually kind of been leaning towards this for the past couple of years as we've kind of evolved. So this was not a, I woke up one morning, and we just need to go do this, this has been something that we've been kicking around, because we've had great success with the governance that said push, push and delegate as much authority and accountability as far away from the center of the organization as you can. And that creates business units that are very focused on their particular customers. What we're seeing, though, is that our customers are starting to, they're starting to become a little bit more integrated, and the problems they're facing are becoming more complex. And so as a result, we need to bring a more integrated approach to solving that. And I look forward to having Chris in that role, because I think it's going to be, we were doing some of it, but we were probably missing some of it. And so I think that, I'm looking forward to seeing us capture more of that opportunity.

Pete Skibitski: Great. Thanks, guys.

Michael Petters: You bet.

Operator: Our next question comes from Noah Poponak with Goldman Sachs.

Noah Poponak: Hi, good morning, everybody.

Michael Petters: Good morning, Noah.

Noah Poponak: Hey, Chris, could you just itemize and quantify everything on the cash flow statement that was non-recurring in nature or a pull-forward in 2020 and then also the reversal of them in ‘21? Just to get level set on that?

Christopher Kastner: Yes, so in my script, I called out the two main things, which was the progress payments, which I think was about 160. And then 130 for the CARES Act payroll tax, those are the two main things on the balance sheet.

Noah Poponak: And do those completely reverse in ’21 or is it partially ‘21 and partially ‘22?

Christopher Kastner: Well, we're estimating that progress payments reverse in ‘21. But obviously, only half reverses for the payroll tax.

Noah Poponak: Half ’21, half ’22?

Christopher Kastner: Yes, yes.

Noah Poponak: Okay. And then in the slides, you itemized continued strong working capital management. Can you give us a sense or quantify how much positive change in working capital, you're looking to extract over the next few years?

Christopher Kastner: Yes, I don't want to give a specific number for that, Noah. But I’ll point you to the deliveries that start to show up in ‘22. And that'll get us around the low-end of our range or potentially even better in some years from a working capital standpoint.

Noah Poponak: And are there deliveries in 2022 front-loaded, back loaded or fairly evenly spread through the year?

Christopher Kastner: Pretty balanced 21 and 28 should happen right at the beginning of ‘22 actually and then 73 is more Q2-ish and 96 is later in the year.

Noah Poponak: Okay. And Mike, just kind of bigger picture in longer-term, what is a realistic percentage of the United States Navy that is unmanned and Autonomous down the road? And how are you thinking through the different competitive landscape in that versus Manned?

Michael Petters: Yes, the first question I don't know how to answer that because we can answer that in terms of numbers of platforms. You could answer that in terms of capability and regions that you can handle from an unmanned. So there's sort of a mission kind of thing. So I'm not exactly sure how to answer that directly. The way we think about it is really about the capability set where the technology is, what are the kinds of things that we think are going to be useful and applicable to the mission of the Navy. And at this point, if you kind of look at the timeline, I think if you go back to, before we acquired The Columbia Group down in Panama City, our presence in the unmanned space, the Huntington Ingalls presence in the unmanned space was zero, we were cold, we were cold ironed in that space. We started with acquiring a little bit of capability, and a little bit of technology, we got to know the customers, we got to understand who they were and what they were trying to get done. And fast forward to where we’re today. We have strong offerings in every size and capacity and capability in the unmanned undersea space today, that includes the work that Hydroid does. That includes the work that we're doing in support of Boeing on the Orca program. And we've done that in say, five or six years, that shows that the business itself is accelerating. And that shows our commitment to it. So we're going to remain committed to it. We think that the unmanned undersea space is conceptually ahead, it's a challenging space. But from a ConOps perspective, I think it's conceptually ahead of the surface, the unmanned surface space, we do have a contract to work with the Navy in that area, as do several other companies. But we're going to continue to invest in the autonomy and build the capability. And frankly, I think this is going to be one of those where it's a bit of a self fulfilling prophecy. As we demonstrate more capability, and capacity in this space, it's going to become as we Huntington Ingalls and as we the industry demonstrate that it’s going to become a bigger and bigger part of the Navy's plan. What's the limit of that? I don't know, where does it go, I don't know. But that's the mission in front of us right now is to mature that.

Christopher Kastner: I'd like also to add that unlike our manned platforms, in unmanned, especially unmanned undersea, it opens up international markets for us. And there's significant international customers that are interested in those products. So that's also very interesting for us.

Noah Poponak: Great, okay. Thanks so much. I appreciate it. Thank you.

Christopher Kastner: Thanks, Noah.

Operator: Our next question comes from Richard Safran with Seaport Global.

Richard Safran: Hey, good morning, everybody. Thank you.

Christopher Kastner: Good morning.

Richard Safran: Mike, this may be a bit of a question for you, considering you were just, you’re just referencing it, on the chatter about the Navy looking for a smaller, unconventional carrier. I seem to remember reading about this same idea back in the early days of the Nimitz. What I wanted to know from you is, if you could comment, if you think this is a serious proposal by the Navy, or maybe an idea that's possibly been floated in reaction to some early issues that you had with the Ford class?

Michael Petters: Well, I think first of all, I think that let's give the Navy some credit, they're always looking for ways to accomplish their mission. In turn, they're always looking at trying to figure out ways to do that in a more affordable way. And so the question of once we decided 50 years ago, almost 60 years ago now to create a nuclear powered aircraft carrier, you always had to kind of compete that always with in a competition, with the conventional carrier in terms of affordability and on the one hand, the budget folks can look at it and say, well, it's cheaper to build a ship without reactors in it. But on the other hand you look at the set of capabilities that that brings to the carrier. And over the last several decades this analysis has been done. You're right. It was done back when Nimitz happened, it was done frankly, when Enterprise was done. And it's done all the time. But what it comes down to essentially, it kind of began and this is a conversation go on for a week. But what it usually comes down to is that, can you get 80% of the capability for 80% of the cost? And the answer is almost always no because it turns out that we, the cheapest thing that we do in the carrier business is build volume. And so if you want to take, if you want to take a carrier, that's 100,000 tons and you want to drop it to pick a number 60,000 or 70,000 tons and you want to take the reactors off of it, you just completely changed the capability set. And you're still going to spend a lot of money building that 60,000 ton ships. So, I think that it's a serious look, I think every look is serious, we stand ready to support the Navy, and whatever their mission is, and wherever they need to go. We're very proud of the Ford. And I would tell you that as a lead ship for the Ford cost, the Ford cost was too high. We made significant capital investments to drive that cost down inside the shipyard. And we’ve taken 15% of the man hours out of the Kennedy between Ford and Kennedy, and we streamline the supply chain, and so we're taking cost out of that ship. The next two ships were bought on a single contract, and the Navy advertised that not just including our savings, but all of their savings when they bought it Smarter, they save $4 billion. So as the Ford becomes more affordable, that makes that comparison even tougher. Having said that, if the Navy chooses to go down that path. And they think that's the way that they can meet their mission requirements most affordably we’re their partner, and we're going to support them all the way.

Richard Safran: Thanks for that. And just one other strategic question for you. The focus at Huntington is always very large, low production rate, high value added content ships. Unmanned systems, however generally have much lower valuated content, but I'm thinking higher production rates. So just kind of curious if you could comment about what that says about long-term margins at TS versus traditional shipbuilding?

Christopher Kastner: Well, let me start Mike. If you want to add, the long-term margins in TS will float upward. We're 3% to 5% return on sales. Now we'd like to think about it as EBITDA as a percent of sales because we have intangibles floating through the income statement there. But we do think there's opportunity in unmanned from a margin standpoint, especially with international content traditionally, you earn more on international products. So yes, we do think there's opportunity there. But remember, TS is a blended margin story. So we think that 3% to 5% return on sales right now is the right way to think about it, but it could grow from here.

Michael Petters: And I would just make two points. First that you touched on a key issue is that, we’re keeping the unmanned business separate from shipbuilding for exactly almost exactly the reason that you said, that unmanned customers are very different than the shipbuilding customers. And so we want to have customer facing organizations that respond appropriately and so that's been very successful for every business inside of TS, including unmanned. When we created TS, we've seen significant improvement in terms of being able to respond to customers and understand what their capabilities are, by getting that either acquiring that business or getting it out of shipbuilding. The second thing is that I would argue that the TS story is, it is about margin, but it's also about growth, I think the unmanned area for growth is going to be pretty significant. Pick your multiple, but over the next five years, I think that what we're spending in unmanned today as a nation is going to be small compared to what we're spending five years from now. And so that's at least as much relative on to unmanned, that's as much as an important part of the story as it is about the margin.

Richard Safran: Thanks very much for that. That was terrific.

Michael Petters: You bet.

Operator: Our next question comes from Robert Spingarn with Credit Suisse.

Robert Spingarn: Hey, good morning. I want to follow-up on what you just talked about. Just going to Slide 9, a couple of comments here. I don't know Mike, if this is you or Chris but on the unmanned side, if this is going to grow and the spending is going to rise, might we not see CapEx not dropped to 2.5% of sales? I mean, maybe magnitude doesn't compare to the core shipbuilding business, but wanted to ask about that as unmanned grows. And then also your comment about the shipbuilding margin in the low 8% range with steady improvements subsequently. I just wanted to marry that to, what you just talked about with the carrier deal, with these double contracted carriers, should we not see the kind of volatility? I think you were just suggesting this, that we've seen on 79?

Christopher Kastner: Let me try the first one, Mike. Yes, that was, we've already from a capital standpoint, on unmanned we've made a significant investment, we think with the Center of Excellence. So we don't see any additional capital investment at this time in the unmanned space. So if you want to talk about it.

Michael Petters: Yes, I’d just add, and that does depend on the rate of growth in the unmanned space. I mean, we stand ready to make investment if we need to, but there's nothing there that we see right now. Relative to the carrier business, absolutely. The two carrier ship contract was by far the most effective way and most affordable way to buy the ships. And it does bring a chance for it to be much more predictable going forward. It is a pretty heavy contract to have on the beginning side of your business, which is you know well, how we’re very conservative at the beginning of our programs. And these ships, these two ships, the second one doesn't deliver until 2032. But I think it's going to play out very well for us and could definitely go a lot better, even better, it will certainly be better than what happened on Ford and will be even better, I believe than what we've seen so far on 79.

Robert Spingarn: Thank you, Mike. Thanks, Chris.

Michael Petters: You bet.

Operator: Our next question comes from Joseph DeNardi with Stifel.

Joseph DeNardi: Thanks. Good morning, Chris now that you've got the 79 contract modification done. Can you just talk a little bit about what that means? Is it lower risk? Or does the risk just get pushed to the right or is it neither? And then does the low 8% margins at Newport assume improvement on carriers that’s just primarily Virginia-class?

Christopher Kastner: Yes, so it absolutely pushes the delivery, excuse me the test program to the right. And when you do that, you're moving your risk registers to the right. And it delays the margin expectations for CVN 79. I don't want to make any specific comments on programs contribution to the low 8%. But you'll see a general lift in Newport News, across all their programs, actually, as they have stabilized this year and into next year.

Joseph DeNardi: Okay. That’s helpful and then Mike, in response to Richard's question, you mentioned that the Navy gets $4 billion in savings from the Block V. Can you talk a little bit about kind of what your shareholders get from that? Why isn't what they get, the potential for higher margins in the future, if you all can execute effectively? And then can you talk about the degree to which that Block V ensures more serial production and less, maybe technology or requirements change ship to ship if at all? Thank you.

Michael Petters: Yes, so I'd say, first of all, the $4 billion is a Navy number. And while it's sometimes hard to remember, we're only a part of the total carrier cost. There's also, there's a significant government furnished equipment set that goes on, on the ships including the reactors, and the radars and all that sort of stuff. And so when the Navy added it all up, it was the savings associated with our contract, which we took from the efficiencies of learning curve in labor, and the efficiencies of economic order quantities in the supply chain. And we believe that those are pretty well understood. And that's what drove our piece of that contract. So and now, what are the shareholders get from that, they get a workforce that's not building the last carrier, they're moving from one to the next and so you're not having to go retrain them and get all of that sort of stuff. So it allows for, over time, better performance on the program and that's where we're headed. It's not better performance in ’19 or in 2020 or 2021 because that's the very beginning of the program. But we see these as they mature, they're going to become very important to us.

Joseph DeNardi: Okay, thank you.

Michael Petters: You bet.

Operator: Our next question comes from Gautam Khanna with Cowen.

Unidentified Analyst: Hi, this is Scott on for Gautam.

Michael Petters: Hi, Scott.

Unidentified Analyst: In a similar vein to Robert’s question, just looking at the CapEx, is the 2.5% number, the right way to look at the long-term CapEx number for the business, or is that more of just FY ’22 to ‘24 type number, and is the longer-term CapEx more of a 3% to 4%?

Christopher Kastner: I think we've made significant capital investment over the last few years. That's about $2 billion. We've invested in both shipyards that's about complete. So I think that that 2.5% last for quite a while actually. Now, as Mike indicated, if we see opportunities to invest for future programs, we could potentially do that. But for our current backlog, we're pretty comfortable where we're at for a pretty long time.

Unidentified Analyst: Okay, that's the only question I had. Thank you.

Christopher Kastner: All right, thanks.

Operator: At this time, I'm not showing any further questions. And I’d like to turn the call back over to Mr. Petters for any closing remarks.

Michael Petters: Well, thank you all for joining us today. We really appreciate your interest in what we're doing and appreciate the work that you all do. We hope that everyone out there will continue to stay safe in this dynamic environment. And we look forward to that time when we can all get back together again. Hope everybody has a great day. Thank you.

Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.