Huntington Ingalls Industries : First Quarter 2025 Q1 2025 Presentation

Published: 2025-05-01 07:18:06 ET HII

Published on 05/01/2025 at 07:18

Q1 2025

Earnings Call

President and CEO

EVP and CFO

May 1, 2025

industry norms

Top priority to get these ships delivered to the Navy

Free cash flow1 growth enabling disciplined capital allocation and increasing total shareholder value

HII

INVESTMENT THESIS

Largest U.S. military seapower provider with leading

all-domain, integrated defense technologies

2025 Operational Initiatives Progressing

Enhancing Shipbuilding Throughput

» Targeting 20% overall throughput improvement over 2024

» Multiple workforce improvement initiatives

» Ramp up new South Carolina facility

» Increase outsourcing to trusted providers

» Utilize contract labor to address critical skill gaps

Reducing Cost

» $250M in annualized cost take out by year-end

» Overhead and support labor reduction

» Shared service and technology utilization

Acquired Production Site Near Charleston, SC

» Highly skilled workforce and well capitalized infrastructure

New Contract Awards

» Ensuring contract awards that reflect current operating environment

» Expect $50B+ in new awards across 2025 & 2026, including submarines, RCOH of CVN 75 and amphibious ship bundle

» Enhances capacity and throughput enabling improved build rates to meet generational customer demand

» Charleston shipbuilding ecosystem expanding with

U.S. Navy and other partner investments

» Quickly ramped carrier and submarine unit work after transaction close

HII Q1 2025 Revenue

Three Months Ended March 31

($M) 2024 2025 % Change

Ingalls Shipbuilding

655

637

(2.7%)

Newport News Shipbuilding

1,434

1,396

(2.6%)

Mission Technologies

750

735

(2.0%)

Eliminations

(34)

Total 2,805 2,734 (2.5%)

$2,805

$2,734

Q124 Q125

YoY variance driven by lower aircraft carrier and naval nuclear support volume at NNS, lower amphibious volume at Ingalls and lower C5ISR volume at Mission Technologies

HII Q1 2025 Segment Operating Income1

Three Months Ended March 31

($M) 2024 2025 % Change

Ingalls

Shipbuilding

(23.3%)

Newport News Shipbuilding

3.7%

Mission Technologies

42.9%

Total 170 171 0.6%

$170 $171

6.1%

6.3%

Q124 Q125

YoY variance driven by Mission Technologies performance in CEW&S and uncrewed systems, as well as

Virginia-class contract incentives and Columbia volume at NNS, offset by lower amphibious risk retirement at Ingalls

HII Q1 2025 Capital Deployment

$0 ($50)

($100)

($150)

($200)

($250)

($300)

($350)

($400)

($450)

($500)

($462)

$120

($67)

($202)

($274)

($395)

($72)

$100

$80

$60

$40

$20

TOTAL

$51

$62

$53

$113

TOTAL

$53

Q124

Q125

Q124 Q125

Cash balance of $167 million and liquidity

of $1.5 billion at quarter end

Net capital expenditures of $67 million were 2.5% of revenues in Q1 2025

$53 million distributed to shareholders in Q1 2025

Paid dividends totaling $53 million

Did not repurchase shares in the quarter

HII Outlook1

Shipbuilding mid to long term5 revenue2 growth ~4%

Mission Technologies mid to long term5 revenue growth ~5%

Shipbuilding operating margin2 of 5.5% to 6.5%

Includes throughput, cost improvement and contract award assumptions

Free cash flow2,4 of $300M to $500M

Shipbuilding revenue2 of ~$2.2B and shipbuilding operating margin2 near the low end of the annual guidance range

Mission Technologies revenues flat sequentially; segment operating margin2 of 3.0% to 3.5%

Q1 2025 EARNINGS 8

1 The financial outlook, expectations and other forward looking statements provided by the company for 2025 and beyond reflect the company's judgment based on the information available at the time of this presentation.

2 Non-GAAP measures. See appendix for definitions. In reliance upon Item 10(e)(1)(i)(B) of Regulation S-K, reconciliations of forward-looking GAAP and non-GAAP measures are not provided because of the unreasonable effort associated with providing such reconciliations due to the variability in the occurrence and the amounts of certain components of GAAP and non-GAAP measures. For the same reasons, we are unable to address the significance of the unavailable information, which could be material to future results.

3 Outlook is based on current tax law. Repeal or deferral of requirement to capitalize R&D expenditures would result in elevated non-current state income tax expense.

4 Outlook is based on current tax law and assumes the requirement to capitalize R&D expenditures for tax purposes is not deferred or repealed. 8

5 Mid to long term growth represents our expected compounded annual growth rate over five to ten years.

Free cash flow2,4 of $200M to $300M

FY25 Outlook

Shipbuilding Revenue2

$8.9B - $9.1B

Shipbuilding Operating Margin2

5.5% - 6.5%

Mission Technologies Revenue

$2.9B - $3.1B

Mission Technologies Segment Operating Margin2

4.0% - 4.5%

Mission Technologies EBITDA Margin2

8.0% - 8.5%

Operating FAS/CAS Adjustment

($43M)

Non-current State Income Tax Benefit3

~$0M

Interest Expense

($130M)

Non-operating Retirement Benefit

$191M

Effective Tax Rate

~21%

Depreciation & Amortization

~$340M

Capital Expenditures

~4% of Sales

Free Cash Flow2,4

$300M - $500M

Appendix

Non-GAAP Information

We make reference to "free cash flow," "segment operating income," "segment operating margin," "shipbuilding revenue," "shipbuilding operating margin," "Mission Technologies EBITDA"

and "Mission Technologies EBITDA margin."

We internally manage our operations by reference to segment operating income and segment operating margin, which are not recognized measures under GAAP. When analyzing our operating performance, investors should use segment operating income and segment operating margin in addition to, and not as alternatives for, operating income and operating margin or any other performance measure presented in accordance with GAAP. They are measures that we use to evaluate our core operating performance. We believe that segment operating income and segment operating margin reflect additional ways of viewing aspects of our operations that, when viewed with our GAAP results, provide a more complete understanding of factors and trends affecting our business. We believe these measures are used by investors and are a useful indicator to measure our performance. Because not all companies use identical calculations, our presentation of segment operating income and segment operating margin may not be comparable to similarly titled measures of other companies.

Shipbuilding revenue, shipbuilding operating margin, Mission Technologies EBITDA and Mission Technologies EBITDA margin are not measures recognized under GAAP. They are measures that we use to evaluate our core operating performance. We believe that shipbuilding revenue, shipbuilding operating margin, Mission Technologies EBITDA and Mission Technologies EBITDA margin reflect additional ways of viewing aspects of our operations that, when viewed with our GAAP results, provide a more complete understanding of factors and trends affecting our business. When analyzing our operating performance, investors should use shipbuilding revenue, shipbuilding operating margin, Mission Technologies EBITDA and Mission Technologies EBITDA margin in addition to, and not as alternatives for, operating income and operating margin or any other performance measure presented in accordance with GAAP. We believe these measures are used by investors and are a useful indicator to measure our performance. Because not all companies use identical calculations, our presentation of shipbuilding revenue, shipbuilding operating margin, Mission Technologies EBITDA and Mission Technologies EBITDA margin may not be comparable to similarly titled measures of other companies.

Free cash flow is not a measure recognized under GAAP. Free cash flow has limitations as an analytical tool and should not be considered in isolation from, or as a substitute for, net earnings as a measure of our performance or net cash provided or used by operating activities as a measure of our liquidity. We believe free cash flow is an important measure for our investors because it provides them insight into our current and period-to-period performance and our ability to generate cash from continuing operations. We also use free cash flow as a key operating metric in assessing the performance of our business and as a key performance measure in evaluating management performance and determining incentive compensation. Free cash flow may not be comparable to similarly titled measures of other companies.

In reliance upon Item 10(e)(1)(i)(B) of Regulation S-K, reconciliations of forward-looking GAAP and non-GAAP measures are not provided because of the unreasonable effort associated with providing such reconciliations due to the variability in the occurrence and the amounts of certain components of GAAP and non-GAAP measures. For the same reasons, we are unable to address the significance of the unavailable information, which could be material to future results.

Non-GAAP Measures Definitions

Segment operating income is defined as operating income for the relevant segment(s) before the Operating FAS/CAS Adjustment and non-current state income taxes.

Segment operating margin is defined as segment operating income as a percentage of sales and service revenues.

Shipbuilding revenue is defined as the combined sales and service revenues from our Newport News Shipbuilding segment and Ingalls Shipbuilding segment.

Shipbuilding operating margin is defined as the combined segment operating income of our Newport News Shipbuilding segment and Ingalls Shipbuilding segment as a percentage of shipbuilding revenue.

Mission Technologies EBITDA is defined as Mission Technologies segment operating income before interest expense, income taxes, depreciation and amortization.

Mission Technologies EBITDA margin is defined as Mission Technologies EBITDA as a percentage of Mission Technologies revenues.

Free cash flow is defined as net cash provided by (used in) operating activities less capital expenditures net of related grant proceeds.

Operating FAS/CAS Adjustment is defined as the difference between the service cost component of our pension and other postretirement expense determined in accordance with GAAP (FAS) and our pension and other postretirement expense under U.S. Cost Accounting Standards (CAS).

Non-current state income taxes are defined as deferred state income taxes, which reflect the change in deferred state tax assets and liabilities and the tax expense or benefit associated with changes in state uncertain tax positions in the relevant period. These amounts are recorded within operating income. Current period state income tax expense is charged to contract costs and included in cost of sales and service revenues in segment operating income.

Certain of the financial measures we present are adjusted for the Operating FAS/CAS Adjustment and non-current state income taxes to reflect the company's performance based upon the pension costs and state tax expense charged to our contracts under CAS. We use these adjusted measures as internal measures of operating performance and for performance-based compensation decisions.

Non-GAAP Reconciliations

Segment Operating Income & Segment Operating Margin

Three Months Ended

March 31

($ in millions) 2025 2024

Ingalls revenues

637

655

Newport News revenues

1,396

1,434

Mission Technologies revenues

735

750

Intersegment eliminations (34) (34)

Sales and Service Revenues

2,734

2,805

Operating Income

161

154

Operating FAS/CAS Adjustment

Non-current state income taxes - (1)

Segment Operating Income

171

170

As a percentage of sales and service revenues

6.3 %

6.1 %

Ingalls segment operating income

As a percentage of Ingalls revenues

7.2 %

9.2 %

Newport News segment operating income

As a percentage of Newport News revenues

6.1 %

5.7 %

Mission Technologies segment operating income

As a percentage of Mission Technologies revenues

5.4 %

3.7 %

Non-GAAP Reconciliations Shipbuilding Revenues & Margin

Three Months Ended

March 31

($ in millions) 2025 2024

Sales and service revenues

2,734

2,805

Mission Technologies

(735)

(750)

Intersegment eliminations 34 34

Shipbuilding Revenues 2,033 2,089

Operating Income

161

154

Operating FAS/CAS Adjustment

Non-current state income taxes

- (1)

Segment Operating Income

171 170

Mission Technologies

(40) (28)

Shipbuilding operating income

131 142

As a precentage of shipbuilding revenues 6.4 % 6.8 %

Non-GAAP Reconciliations Free Cash Flow

Three Months Ended

March 31

($ in millions)

2025

2024

Net cash used in operating activities

Less capital expenditures:

(395)

(202)

Capital expenditure additions

(67)

(75)

Grant proceeds for capital expenditures - 3

Free cash flow (462) (274)

Non-GAAP Reconciliations

Mission Technologies EBITDA & EBITDA Margin

Three Months Ended

March 31

(in millions)

2025

2024

Mission Technologies sales and service revenues

735

750

Mission Technologies segment operating income

Mission Technologies depreciation expense

Mission Technologies amortization expense

Mission Technologies state tax expense 2 2

Mission Technologies EBITDA

Mission Technologies EBITDA margin

9.1 %

7.7 %

Disclaimer

Huntington Ingalls Industries Inc. published this content on May 01, 2025, and is solely responsible for the information contained herein. Distributed via Public Technologies (PUBT), unedited and unaltered, on May 01, 2025 at 11:17 UTC.