Operator: And we will take our next question from David Strauss with Barclays. Your line is open.
David Strauss: Thanks. Good morning.
Phebe Novakovic: Good morning.
David Strauss: Phebe, so Rob’s question on the supplemental and the submarine industrial-based money. So there’s money there. There’s a lot of money in the base budget, it appears. You’re spending additional CapEx today that you’ll eventually recover through working capital, profit. How does — I mean, it’s a lot of money. I mean, how does that manifest itself in your numbers as we think about over the next couple years?
Phebe Novakovic: So for the supply chain support, it has minimal impact on us. It’s, however, extremely important because the stabilization of the supply chain is critical to the resumption of full cadence on Virginia and the increased cadence on Columbia. So funding is also robust for submarines. We’ve got one projected in 2025 and then it would be extremely helpful to get a full ship set of Virginias also appropriated because that, again, helps stabilize the industrial base with repeatable revenue that they can plan around.
David Strauss: Okay. Thanks for that. Last quarter, you made some more kind of positive comments regarding the potential for share repurchase to step up. Obviously, you did a little bit this quarter, but not that much. How are you thinking about that now? Did that have to do with the fact that you ended up burning cash in Q1? Just how you’re thinking about share repo and the balance sheet from here? Thanks.
Phebe Novakovic: So the way we think about share repurchases and this will be true going forward, is really in the regular order. Recall what we were facing in Q1 and that was we’re looking down the throat of a potential and at some point looked very likely, government shutdown. And so I think that credence and conservatism in the face of that kind of uncertainty is really key. But the cash performance for the remainder of the year is going to be very strong and we will act accordingly.
Operator: And we will take our next question from Noah Poponak with Goldman Sachs. Your line is open.
Noah Poponak: Hi. Good morning, everyone.
Phebe Novakovic: Good morning.
Kim Kuryea: Good morning.
Noah Poponak: Phebe, what’s the framework for the pace of G700 deliveries beyond this year compared to this year? Not asking for quarterly numbers or anything like that, but just given this year has some abnormalities compared to a recurring airplane? And then, Kim, just what’s the updated view on free cash flow and income conversion for the year?
Phebe Novakovic: Well, so let me talk about 700. We never, except I think on one or two occasions about five years, six years ago, give the future year expectations. But 700 is a very, very successful program, and it will continue to execute well. I’ll turn it over to Kim on cash.
Kim Kuryea: On cash. Thank you, Phebe. So, with respect to cash and the expectation, we still anticipate achieving about 100% of free cash flow conversion in 2024. We had expected the first quarter to be negative even before considering the fact that we didn’t deliver any G700. So we had planned for a negative free cash flow in the first quarter and that was mostly driven by some contract timing in the Combat System segment and some in the Marine System segment. But we expect that most of that negative cash will reverse in the second quarter with a stronger third quarter and then a steeper ramp in the fourth quarter.
Operator: We will take our next question from Myles Walton with Wolfe Research. Your line is open.
Myles Walton: Thanks. Good morning.
Phebe Novakovic: Good morning.
Myles Walton: Phebe, could you comment on or Kim, could you comment on the margin expansion implied at Combat Systems as you move through the rest of the year? I think it has to be 80 basis points to 100 basis points on average up year-on-year for the rest of the year. And maybe underlying dynamics of, given the volume, why we didn’t see more of a drop-through margin in the first quarter.
Phebe Novakovic: So, what drove margin in the first quarter were two things. Mixed as we came off of older legacy programs, particularly in the vehicle world and in the U.S. and then began ramping up newer programs, vehicle programs in the U.S. And then a significant amount of the revenue growth came from facilities investment, which by definition carries a lower margin than production. So both of those things will reverse throughout the course of the year and Combat margins will increase. Our expectation is quarter-over-quarter. And remember, this is a high operating leverage group, so they ought to do quite well here.
Myles Walton: Okay. And one clarification on Gulfstream’s backlog, if I could. I think that there was some adjustment downward in the backlog. Were those cancellations or 4X, maybe six large jet cancellations or thereabouts?
Phebe Novakovic: I don’t think that’s the way to look at it. Why don’t Nicole get back to you on that? But there wasn’t — we didn’t have any particular notable cancellations. So let us unpack that one with you a little later.
Myles Walton: Okay. Thanks.
Operator: We will take our next question from Ron Epstein with Bank of America. Your line is open.
Ron Epstein: Hey. Yeah. Good morning.
Phebe Novakovic: Good morning.
Ron Epstein: So, Phebe, with the increased demand on munitions and so on and so forth, what are you doing to mitigate any of the issues that could arise from growth in those markets? Just like we’ve seen in the Navy markets, given all the demand and growth, there’s been supply chain issues? Are you expecting any…
Phebe Novakovic: Yeah. So in the combat world, it’s a little bit more of a robust supply chain in general that we typically have not had difficulty with, typically. We know a priori the suppliers who could conceivably cause issues and we’ve been working with them to ensure that they can manage this growth. But we’re pretty comfortable that we can execute the growth. Our focus is really on operations and execution, and those will be the two key drivers of the profitability in that group.
Ron Epstein: Got it. Got it. And then maybe back to kind of the naval side of the house and the supply chain, can you give us any color on where there are actual weaknesses in the supply chain where investment has to be made?
