Gautam Khanna: Got you. Thank you so much. Appreciate it.
Christopher Kastner: Sure.
Operator: Thank you. Our next question is from Seth Seifman from JPMorgan. Seth, please go ahead. Your line is open.
Seth Seifman: Okay. Thanks very much. Good morning.
Christopher Kastner: Good morning, Seth.
Seth Seifman: Good morning. I guess in other your earnings calls this quarter, we’ve heard about various supply chain challenges on Virginia. I guess, can you speak to kind of how you feel your estimates are looking on Virginia and the amount of risk in those estimates? And then to the extent that, is there much in there that’s contemplated for inflation reimbursement, because it seems that contractor expectations for inflation reimbursement have been coming down. Has that been the case for HII, or were they not there in the first place? Or is the sub-industrial base different, because it’s such a priority?
Christopher Kastner: Yes, so we don’t have inflation protection on the VCS program at this time. The supply chain is a challenge across all of our programs, actually. We do have EPA protection of the most part at Ingalls, and we’re managing supply chain risk across the portfolio. The Navy is fully aware of this. We’re very transparent about it. That’s why the SIB funding is so important. That’s why getting three-year AP is so important. So, we could just eliminate that risk. But we evaluate our EACs every quarter and if there’s risk we deal with it in that quarter. But it’s not going away anytime soon. I think everyone understands that. That’s why we have SIB funding being appropriated and authorized. And as soon as we can get that down into the supply chain, the better.
Seth Seifman: Okay. Okay. Thanks. And maybe just a quick follow-up on the capital deployment. If I look at the $3.6 billion over the period, think about the dividends and the 2024 debt paydown. That maybe leaves like $2.25 billion. I know the repo authorization, I think the slide says there’s about $1.5 billion left. I mean, would you think that there’s before, that it’s possible to exceed that $1.5 billion by 2028?
Thomas Stiehle: Yes. And what that means is regarding like – we extended to term and time, but we can always go back and change that again. So we wouldn’t read too much into the math of it. But as we said, there’s $1.5 billion available, $1.5 billion by 2028. And as we move forward, we’ll adjust that accordingly. So that was just more of a housekeeping issue that we cleaned up.
Seth Seifman: Okay. Thank you very much.
Thomas Stiehle: Sure.
Operator: Thank you. Our next question is from Scott Deuschle from Deutsche Bank. Scott, please go ahead. Your line is open.
Scott Deuschle: Hi, good morning.
Thomas Stiehle: Hi.
Christopher Kastner: Good morning.
Scott Deuschle: Hi Chris, just to clarify, did the LPD 29 delivery delays have much extra cost associated with them? Or is it more just the function of some extra time and a deferral of the AC, rather than a diminishment of the AC opportunity?
Christopher Kastner: Well, there’s time and shipbuilding is cost, right? So, we’ve probably lost a little opportunity there. It’s not material in nature. And we’ll do that. We’ll take a step up if appropriate when we make final delivery. But it obviously would have been worth more if we did it at the end of the year.
Scott Deuschle: Okay. Got it. And then, Tom, just from a reporting perspective, why are Venezuela insurance recoveries included in operating loans rather than below the line? A lot of people are thinking you started reporting this quarter? Thanks.
Thomas Stiehle: Yes, the way that accounting works on that, it’s got an angle, it’s in the operating income and other income. Because we’ve had that contract. We incurred cost on it. So it’s a recovery from cost that, we’ve had both in the past and we had written off. So, it comes back still as an operating income. It doesn’t go into the revenue. So, there’s not a rev-rank to it. But we do account for the margin and income statement. And obviously, we picked up the cash on both of those, on both the frigate and the reps and warranty in Q4
Scott Deuschle: Okay. And then, Tom, last question. Is there any kind of ramp to the – or slope to the free cash flow target, the cumulative target over the next five years? Or is it fairly leveled at ’24? Thank you.
Thomas Stiehle: No, there is a ramp to it and the shape to it. I knew when we gave that that people would want to see that, because we’ve been giving you the shape of the current one from 2020 to ’24. But really only the back end of it. When we first announced that, we didn’t provide it either. And the only reason why we’re not trying to be kind of too nebulous – five years, a lot of moving parts, how it can move around. I can tell you it’s not a reach number. We wouldn’t put it out there. We don’t feel that we can hit it. But I’m most comfortable right now. I try and manage by year. And we gave that number to show with the evidence ramp and the revenue that we talked about for 4% plus to HII across the enterprise, we see that mission technology is definitely accretive and pulling cash for us right now.
Your modeling should easily be able to get to that number. But I really want to get through 2024 and then we can give you a guide on what like 2025 kind of, looks like in each year thereafter. Okay.
Scott Deuschle: Thank you. That’s resolved.
Thomas Stiehle: Thank you.
Operator: Thank you. Our next question is from David Strauss from Barclays. David, please go ahead. Your line is open.
David Strauss: Great. Thanks. Good morning.
Christopher Kastner: Good morning, David.
David Strauss: Chris or Tom, I wanted to ask about the shipbuilding margin target. So, I think, you have been targeting 7% to 8% for ’23 and you talked about ’24 being above that. And then you had milestones slip out that, I would assume with those potential EAC adjustments that would help. So, I guess what changed in terms of the progression on the shipbuilding margin side as it relates to ’24, versus what you talked about, or were thinking about before?
Thomas Stiehle: Yes. So, we don’t want to get ahead of ourselves, right? Yes. We did talk about 7.7% to 8.0%. There’s a couple of milestones that we missed at the end of the year, which causes a little bit of a drag, as you saw how we finished off. Still shipbuilding healthy with the recovery of the sale of the claim, 8.3% still kind of beat the guidance with the claim on a recurring run rate. I’m with you that it’s a little bit short on that right now. And we’ll pick it up kind of going forward, right? So, I’m not just going to have function up, but we’ll pick up where we have on our run rate as we finish our milestones as we get credit for that. There’ll be some stuff up so long the way. I think 7.6% to 7.8% is appropriate.
I’m a comfortable and conservative on that right now. And I’ve gotten to the last couple of years and we’ve missed a couple of attempts right at the end of the quarter. So, I don’t want us to get ahead of ourselves a little bit. Let’s kind of earn each of these quarters. I think 7.6% to 7.8% is the appropriate way to kind of look at it. If we – that get the hiring and the retention and we have clean shifts through the whole year, and we make up our milestones, we could be on the upper end of that range. It’s not higher, but I think for now finishing the year off at 8.3% with the claim, the bottom end of the guide right now without the claim. I think that’s the right starting point with a year’s worth of shipbuilding to go through 2024.
