Huntington Ingalls Industries (HII) Bernstein 42nd Annual Strategic Decisions Conference summary

Strategic priorities and operational focus

• Emphasis on throughput with five major ship deliveries planned over the next 12 months, including LPD 30, DDG 129, CVN 79, SSN 800, and LHA 8.

• Throughput targets increased from 14% last year to 15% this year, driven by labor force growth and distributed shipbuilding.

• Distributed shipbuilding expanded by 100% last year and set to grow another 30% this year, leveraging both established and new partners with relevant experience.

• Focus on meeting historic U.S. Navy demand, with all major programs protected in the base budget and most under contract.

• Labor initiatives, including wage increases, have improved attrition rates and throughput, especially in the submarine enterprise.

Budget, contracts, and supply chain

• All planned revenue growth is protected in the base budget, with minimal risk from Congressional budget uncertainty.

• Block VI and Columbia contracts are priorities, with Block VI expected to be finalized before the end of Q2.

• Navy and administration have supported productivity through wage contributions and supply chain investments, especially for submarines.

• Supply chain complexity addressed by expanding casting and forging suppliers, including international sourcing.

• Timely material orders and identification of at-risk suppliers are critical to maintaining production schedules.

Margin outlook and financial guidance

• Shipyard margins expected to incrementally improve, targeting 9%-10% as higher-margin ships replace lower-margin ones.

• Both shipyards forecast to reach or exceed 9%-10% margins with successful execution of new contracts.

• Free cash flow guidance for the year is $500M-$600M, contingent on meeting ship delivery and throughput commitments.

• Revenue growth is a mix of labor increases, throughput, and material flow, with 6% CAGR guidance seen as sustainable for the next 4-6 years.

• Margin improvement depends on transitioning to mature, fixed-price production programs and efficient ship deliveries.