Phebe Novakovic: So, I’d say in the large, in the single source, sole source suppliers who are by definition critical, and I think the Navy has focused quite intensely on those particular products and supply chain items, and I think, they’ve been pretty explicit about where some of that might be and I think it’s best to think about it that way. But we do believe that working with the Navy customer, the continued infusion into that supply chain will help stabilize. But they are the pacing item now for Electric Boat.
Operator: And we will take our next question from Doug Harned with Bernstein. Your line is open.
Doug Harned: Good morning. Thank you.
Phebe Novakovic: Good morning.
Doug Harned: On Marine — good morning. On Marine, the Navy recently described some shipbuilding delays really across programs and the one that really stood out was Columbia class with delays reported on the turbines and the bow. Can you give us a sense of changes you’ve seen in schedule that affect you kind of across the program base and particularly on Columbia?
Phebe Novakovic: So, I think, you’ve articulated what the Navy has said. I will tell you our throughput and productivity has been strong on Columbia. It is the — it enjoys the highest national security priority. So we have done pretty well on Columbia and are increasing our throughput on Columbia. So then it’s really those pacing items that are out there and we’re working with our Navy customer to see if there are additional things we can do to recover some schedule and if there are any workarounds. But this is going to be a bit of a slog for the supply chain.
Doug Harned: Well, and then also on shipbuilding, inflation has affected shipbuilding costs a lot over the last few years. We’ve seen pricing on new awards go up. And when you look forward in the budget, is there a concern that you’re basically, if you are going to — if the Navy’s budget’s really going to be able to afford the kinds of inflation increases that may come along with the continued ramp in shipbuilding?
Phebe Novakovic: Yeah. So I think you’ve known over the years, I tend not to comment on individual service budgeting. But inflation certainly has been a factor and to the extent that we can increase throughput to offset some of that, we will. But the Navy’s well aware of the inflation impact and I think is working hard with the whole shipbuilding industrial base to adjust some of that.
Operator: And we will take our next question from Kristine Liwag with Morgan Stanley. Your line is open.
Kristine Liwag: Hey. Good morning.
Phebe Novakovic: Good morning.
Kristine Liwag: Phebe, following up on the Marine question, in addition to the delay in the Columbia class, the DoD did request one less Virginia class for the fiscal year 2025 budget request. So, I mean, if we take all this into perspective, can you provide some context on what this means for Marine revenue growth over the next few years? And there’s a margin with a seven handle on it, is that more the new norm for this business?
Phebe Novakovic: So, let me address that in the inverse order. Margins will be improving at our shipyards. We have every expectation, all of our shipyards, NASCO, Bath and Electric Boat. One of the things that we’ve talked frequently about is the margin impact of quality and schedule problems coming out of the supply chain and as the supply chain stabilizes, that will help as well. And what was your first part of your question?
Kristine Liwag: The revenue cadence, including the just one Virginia class…
Phebe Novakovic: Yeah. So — okay. So, it has no impact in the short-term for Electric Boat because we’ve got plenty of work in front of us. It could have an impact in the outer years outside of our planning horizon. The second Virginia ship set, so that we’re buying it to a year, I think, is very important for the overall health of the industrial — submarine industrial base.
Kristine Liwag: Thank you, Phebe.
Operator: And we will take our next question from Ken Herbert with RBC. Your line is open.
Ken Herbert: Yeah. Hi. Good morning, Phebe and Kim.
Phebe Novakovic: Good morning.
Ken Herbert: If we look, Phebe, at your comments around timing in Gulfstream, is it still fair to assume that you should be looking at a book-to-bill at one or greater for Gulfstream in 2024?
Phebe Novakovic: So, it’s a good planning assumption. It is how we are thinking about our internal planning, but let’s see how we do as we start to significantly ramp up production and deliveries. So, but as I said, that’s a good planning assumption.
Ken Herbert: Okay. Great. And just a clarification for, Kim, the comments sound like the free cash flow ramp really sort of accelerates in the second half of the year, but with all the 700 deliveries expected this quarter, free cash flow should be positive in the second quarter, correct?
Phebe Novakovic: Yes. That’s pretty much what you should assume.
Ken Herbert: Okay. Great. Thank you very much.
Operator: And we will take our next question from Robert Spingarn with Melius Research. Your line is open.
Robert Spingarn: Hi. Good morning.
Phebe Novakovic: Good morning.
Robert Spingarn: Phebe, you said recently that even though the Aerospace supply chain is improving, your ramp this year could challenge that improvement. I was wondering if you could elaborate on that a little bit?
Phebe Novakovic: So, we still have, look, it’s definitely improving. Quality is improving and schedule reliability is improving. But make no mistake, we still have a lot of out-of-station work and that impacts the profitability and margin on airplanes that are experiencing that. So, we definitely see improvement. We are optimistic that they can keep pace, but it’s not without its margin challenges.
Robert Spingarn: Okay. And then also, I think you commented, you had good bookings in Aerospace in the quarter, reflecting strong demand. But I think you’ve said, the U.S. has been very strong. How is aircraft demand elsewhere in the world?
Phebe Novakovic: So, there’s no real change, I think, from the previous quarters. U.S. corporations, private and public. High net worth individuals, both U.S. and outside the U.S. So, no real changes, no real surprises, sort of the typical customer base that we see is, I think, the way you should think about it.
