Ronald Epstein: Got it. Got it. Thank you very much.
Christopher Kastner: Thanks Ron.
Operator: Thank you. Our next question is from Noah Poponak from Goldman Sachs. Noah, please go ahead. Your line is open.
Noah Poponak: Good morning, everyone.
Christopher Kastner: Good morning, Noah.
Noah Poponak: Tom, can you give us the pieces that bridge your actual full year ’23 free cash versus what you had last guided it to?
Thomas Stiehle: So, we started the year with $450 million. We guided up to $500 million. You can – at $692 million, at completion, if you take out the two claims net tax, obviously, that’s $95 million comes off the $692 million gets you to $597 million. And then the difference between the increased guide in Q3 of $500 million to $597 million, with strong collections in Q4. The team really stayed on it. We make sure that we’ve got a building on time and we had a clean Q4 receivables. So, it’s just across the enterprise. There wasn’t anything of significance to really note in that.
Noah Poponak: Okay. So if I take that final and take out the claims, I guess, call that closer to $600 million. Can you bridge me from that to staying there in ’24 while CapEx is going up as much as it is? If you’re – because you got revenue guidance that’s up kind of 2% or 3% in a flat segment operating margin?
Thomas Stiehle: Yes. So I had mentioned in my comments upfront that this active and significant Navy participation in that. So I don’t want to get too much into the details, but we’re both contributing to it. But that’s helping offset that increase there. So the guide of $600 million to $700 million, we took that down a little bit from where I left you last quarter as we exceeded this year, a little bit of timing, too, was in there on the collections. So a little overachievement in 2023, a little back off from where I left you last time at $700 million, now it’s $600 million but I would not be alarmed, because of the higher CapEx in ’24, ’25 over ’26. That it’s going to be a major draw on the free cash flow from the discussions we’ve had in the past.
That’s been a little bit of guiding light. We definitely want to support our customer perform in existing contracts. Much of the work we’re talking about for the new CapEx is on the new requirements that are coming. And as we broke with that relationship and how we make that happen, we’re going to ensure that we kind of keep everything in lockstep. We got to be ships out to get cleaner and sooner, high-quality value. And on our side, we still have to be able to kind of run the business here and have good working capital. So all that’s in the mix. And I would not be concerned on the 5.3% against the cash flow projections that we’ve given you. Again, that’s why we gave you – again you probably won’t see that too often a five-year projection going forward.
But we wanted to settle everyone out there that, all that’s been factored in, as we run the business and we manage our cash.
Noah Poponak: So how will we actually…
Thomas Stiehle: I’m sorry, go ahead. Go ahead.
Noah Poponak: Well, I’m just wondering like if there’s a Navy participation will we see – will not all of that actually be recorded in CapEx? Or will it flow to your CapEx and come back in your rates in your operating margin? Or how will we actually see that in your financials?
Thomas Stiehle: So when we do our CapEx, obviously, our costs, we get incentivized to go do that. So it comes on the contract in the form of capital incentives, additional margin and cash that flows through there. That helps offset by additional cost of okay. I would comment just earlier to your question, as you try to kind of normalize the $692 million out to like $597 million as I said, when you pull up the two claims. It’s the ramp that we’ve been talking about. If you go back to ’21 it’s $449 million and ’22 at $494 million And now we’ve got the claims. Now it’s ramped to $597 million and then we’re at $600 million to $700 million. We’ve talked about a $700 million number in 2024 and just a little bit, its range bound now, because we exceeded in 2023.
And now the $3.6 billion, the average of that is $720 million, and that’s got to shape to it, obviously. It’s going to be smaller upfront as the revenue incremental margin grows in the out uses going to be large in the back. I think that’s appropriate right now. It’s not a stretch number. It’s a – it’s conservative. It’s a reasonable number. We have risk to kind of go work off. And I think that has both risks and opportunities associated with them. So I’d leave you with that.
Noah Poponak: So the piece that goes through CapEx that’s supported by the Navy that we’ll just see that in future margins as it flows through your rates? Is that right?
Thomas Stiehle: Yes. Margins and cash, yes.
Noah Poponak: Okay. And then I guess, I just — so for ’24, with the margin guidance flattish year-over-year, I still struggle to see where that $300 million is coming from?
Thomas Stiehle: So on the margin side, first, is the timing of when that happens, right? So you get that on contract and you’ve got to do the work, and there’s a percentage of completion you take. So there’s a lag on the margin side. And on the cash side, we try to make sure that we try and stay neutral so that we’re not impacted as an incurring costs that high of 5.3% of CapEx, but that gets offset on the payment schedule of the CapEx, right? So the margin is not running exactly with the cash. But on our side, we’re trying to keep it neutral here. So it’s not going to impact our projections that we’ve given.
Christopher Kastner: Yes. It’s part of the total ship P&L, Noah.
Noah Poponak: Okay. Okay. All right. I appreciate that. Thanks so much.
Thomas Stiehle: Sure Noah
Christopher Kastner: Thanks for the question.
Operator: Thank you. Our next question is from George Shapiro from Shapiro Research. George, please go ahead. Your line is open.
George Shapiro: Yes. I wanted to ask your actual ship revenues were like almost $300 million higher than what you — the high end of the guide that you provided on the November call. So just wondering why, given that, to me, this is a fairly predictable business? And I have a different question, too.
Thomas Stiehle: Yes, sure, sure. So from the MT side, we saw a nice rush at the end of the year of some receivables. I mentioned in my notes, it’s about $80 million. So that was a big pickup. On the shipbuilding side, just the timing of material on how that floating here, the majority of the overage and where we felt we would land was on the material side. We have some outsourcing going on as well. So those costs flow through opportunistic that they landed in 2023 here. But we guided $86 million to $88 million, we came about $100 million over that and you kind of normalize that. It was good growth there. You saw it in shipbuilding better than 5%, 5.5% in shipbuilding. Ingall’s up in the 7s and Newport News at 4.8%. But it was a sharing between all three divisions that just exceeded. It was a nice run at the end of the year on the revenue side.
Christopher Kastner: George, you’re familiar with material timing, you can miss by a month to 2 months from time to time. It just came in at the end of the year. Now unfortunately, it impacts the guide for the next year, right? So you had to — we had to include that. But it was just timing.
George Shapiro: Okay. And then the other one probably for Tom, if you had a $49 million benefit in Mission Systems from Hydroid I mean, it implies the rest of the business made $2 million. Now you alluded to some charges at some of the other businesses there. But if you could just provide some more information on that?
Thomas Stiehle: Yes, that’s right. A piece of that’s timing on how the program is just playing out in the mix and execution on that. We did have one job over there that we just took a slight step back. It wasn’t material. You won’t find it in the K. I guess it’s not at the threshold, there’s a couple of million dollars on that. But not a lot of dollars when you break down that kind of business to begin with. And then when you take a small charge and then the timing of performance on how we book things, it came out to be a light quarter there. But overall, with the claim, 8.6% EBITDA, the RCOH 3.7%, you can normalize that out. It’ll be a little bit on the bottom end of the guide that we gave you, 8 to 8.5 at the beginning of the year the EBITDA.
But as we had mentioned throughout the year, there was the joint venture that we sold off, we picked up cash, but we lost some equity. And we’ve been kind of mentioning about a charge on a manufacturing effort that we have over this I think that’s behind us right now kind of going forward. And I’m still very satisfied with the numbers that MC kind of put up across the board for revenue, margin and cash.
