Operator: We will take our next question from Doug Harned with Bernstein. Your line is open.
Doug Harned: Good morning, thank you.
Jason Aiken: Morning Doug.
Doug Harned: I wanted to go back to marine because when you look at Electric Boat, and your backlogs have been–have built way up, as you mentioned, the Navy wants to be at two VCS deliveries per year, can you describe, like, what scenarios you can even look at here? I mean, my understand it’s about 1.2 now, it’s way off what clearly Congress wants, what the Navy wants. Are there scenarios that you think about in terms of how soon in a good situation we might get to that two per year, or what would be a negative scenario? What’s the range of outcomes here?
Jason Aiken: No, you point out the landscape appropriately, Doug. I think the way I think about that is prior to COVID, if you look at the couple quarters leading up to 2020, we were–as a team, we were right on the threshold of getting to two per year on the Virginia-class program, so it is imminently doable in terms of the industrial base and the team that’s working that program. Obviously COVID set us on our heels, as well as the generational changeover in shipbuilders in terms of retirements and new hires. I think the way to think about that now is there’s a number of factors that are going to help us get back to that point. One is, again, the maturing and tenuring of that new workforce to get the efficiency in the workforce, to get us back to where we were.
The investments that the Navy is making in the industrial base, which are extremely helpful to stabilize that, and then other initiatives like what we call strategic sourcing, where we’re trying to take bottlenecks out of the shipyards and move subsystem construction and capacity into other facilities and other yards around the country, so that we can take some of the pressure off of the two main production and assembly yards. Those are the types of things that are going to drive us back toward two per year. I’d be remiss to try and give you a timeline on when it’s going to be to get there – this is long term, challenging stuff, but I think with us and our partner and the Navy all working in the same direction and in a very strong partnership, I feel optimistic about our path to get there.
Doug Harned: Then as a follow-up, if you add one more factor into this, which is Columbia class, obviously in a very different stage in the program, but also you’ve got an overlapping supply chain. How does progress on the Columbia class right now look, and how does that affect your ability to push forward on this VCS ramp?
Jason Aiken: Yes, Columbia, as you know, is the Navy’s and the DoD’s number one priority, so that’s going to continue to be the case. I don’t see that being a trade-off necessarily to get to two per year for Virginia. Right now, we’re a little over 40% complete on the first boat, and we’re right on schedule for the targeted completion of that first boat. We’ve still got obviously about four years to go before delivery, so a lot of the way to go and a lot can happen between now and then, but all the resources that can be brought to bear are on that priority. I think the way to think about it is because of its priority position, it is essentially a headwind to those other factors that I gave you about what we’re trying to do on Virginia class, and we’ve got to be able to manage both of those within the yard and within the team arrangement and with our customer, but those are some of the puts and takes.
Columbia will be the priority, and it’s our job to make Virginia happen notwithstanding that priority.
Operator: We will take our next question from Cai von Rumohr with TD Cowen. Your line is open.
Cai von Rumohr: Yes, thank you very much, and good quarter. Jason, you said you’re still looking for 12.7 in technologies, but when I look at all of your defense numbers, you really beat in revenues across the board, so maybe if you can–you know, if I look at where the model was before, it looks like we have a softer fourth quarter to get us home, but that doesn’t seem realistic given the spectacular revenues you had here in the third quarter, so maybe update us, if you could, on where you’re looking for revenues in each of the defense sectors for the year, and should we feel a bigger step-up next year?
Jason Aiken: I think the way to think about the fourth quarter, Cai, is as I alluded to earlier, there is obviously some upward pressure on the revenue on the defense side, nothing to get too specific about and I don’t know that it’s particularly material with just a couple months to go here in the year. But one way to think about this is this year, let’s talk group by group, in technologies you may remember, last year we had a significant surge in the fourth quarter because we had had a big back-up on the supply chain side at mission systems through the third quarter, and a lot of that flowed through in the fourth quarter, so really a big hockey stick or upswing in the fourth quarter. That’s not the pattern this year.
As I mentioned before, they’ve been on a more regular order and a more regular drumbeat, and so we’ll see a more steady state revenue pattern for technologies in the fourth quarter. In combat, likewise it’s historically for some time now been the traditional seasonal pattern for combat to rise throughout the year and have its biggest quarter in the fourth quarter, and we saw that again last year. In this case in 2023, it’s a much more steady drumbeat – again, steady demand, strong volume, but not the traditional seasonal fourth quarter uptick in combat. In marine, again we’ve already seen tremendous volume well in excess of our expectations. We’re up a billion dollars almost through the first nine months, which is roughly what we expected for the year, so again I’d say more stable quarter to quarter.
To summarize, we’re seeing more stable volumes across all three of the defense segments from first quarter to fourth quarter, whereas in the past they’ve risen from first to fourth, so a little bit of an aberration in the pattern. I do expect–again, not to get ahead of the planning process we’re going through, but I expect each of the businesses to show growth going into next year. Can’t get too much more specific about that at this point, but you should see growth in the defense business across all three of the segments going into 2024.
Cai von Rumohr: Very helpful, and then maybe a quick comment on Israel – Hamas has created additional demand, we have this $106 billion request from the President. Can you give us some general color in terms of areas where you think you could see incremental acceleration in demand?
Jason Aiken: You know, the Israel situation obviously is a terrible one, frankly, and one that’s just evolving as we speak. But I think if you look at the incremental demand potential coming out of that, the biggest one to highlight and that really sticks out is probably on the artillery side. Obviously that’s been a big pressure point up to now with Ukraine, one that we’ve been doing everything we can to support our Army customer. We’ve gone from 14,000 rounds per month to 20,000 very quickly. We’re working ahead of schedule to accelerate that production capacity up to 85,000, even as high as 100,000 rounds per month, and I think the Israel situation is only going to put upward pressure on that demand, so that’s the biggest stick-out that I can see.
Nicole Shelton: Abbie, I think we have time for just one more question.
