General Dynamics Corporation (GD) Q1 2015 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Quarter One, 2015 General Dynamics Earnings Conference Call. My name is Emma, and I will be your operator for today. At this time, all participants are in listen - only mode. We will conduct a question - and - answer session towards the end of the conference. [Operator Instructions]. As a reminder this call is being recorded for replay purposes. And now I’d like to turn the conference over to Erin Linnihan, Staff Vice President of Investor Relations. Please proceed, ma’am.

Thank you, Emma and good morning everyone. Welcome to the General Dynamics’ first quarter conference call. As always, any forward - looking statements made today represent our estimates regarding the company’s outlook. These estimates are subject to some risks and uncertainties. Additional information regarding these factors is contained in the company’s 10-K and 10-Q filings. With that, I would like to turn the call over to our Chairman and Chief Executive Officer, Phebe Novakovic.

Thanks, Erin. Earlier today we reported first quarter earnings from continuing operations of $2.14 per fully diluted share on revenue of $7.8 billion, operating earnings of slightly over a billion and net earnings of $716 million. We beat analyst consensus by $0.20 and were well ahead of analyst expectations on revenue as well. We were also better than our previous guidance and our own expectations. I should point out that we enjoyed an effective tax rate of 29% as opposed to consensus of around 30.5%. This accounted for approximately $0.05 of the outperformance. Jason Aiken will more fully discuss the tax rate a little later. I should further note that the diluted weighted average share count was 334 million for the quarter compared to consensus of approximately 332 million, so none of the outperformance comes from a lower than expected share count. I have asked Jason to give you a little more insight into our share repurchase activity when I conclude my remarks. All in all, this is a truly strong quarter from an operating perspective as evidenced by the operating margin of 13.2% and a return on revenue of 9.2%. It was a good quarter from a cash perspective as well. We had 745 million net cash provided by operating activity. After capital expenditures of 98 million, we had 647 million of free cash flow from operations, about 90% of net income. The general comparisons quarter - over - quarter are pretty compelling compared to the first quarter 2014, revenue was up 519 million or 7.1%. Total defense revenue was up 10.1%, pretty remarkable. Our operating earnings were slightly more than $1 billion, up 17.5% over the prior year’s quarter leading to a 120 basis points improvement in margins. A very strong operating leverage is an important part of the story. Net earnings were up more than operating earnings, primarily due to the previously mentioned lower tax rate. Finally, EPS was up 25.1% over the year ago quarter as a result of better operating earnings , lower tax rate and lower share count. Let me provide some commentary and a little perspective around the results of our operating segment. First Aerospace, sales are down by 17 million compared to Q1 2014, less than 1% and down 132 million sequentially against the strong fourth quarter. On the other hand, earnings outpaced the year ago quarter by 27 million, about 6.7% on a 140 basis points expansion in operating margins. Operating earnings were also up 19 million sequentially. The 20.4 operating margin for the group represents the high with both companies contributing. A word of caution here, we are out of the gate fast but this pace is not sustainable from a margin perspective. Orders were not overly strong in the quarter but need to be viewed in the context of a very robust fourth quarter 2024. It was a quarter where the sales pipeline was replenished and strengthened, part of the normal cycle after a strong quarter. This is consistent with what we saw on the first quarter 2014 following the strong fourth quarter at 2013. We’re off to a very good start in the Aerospace group. Marine Systems, revenue of 1.94 billion was up 342 million or 21.4% compared to the year ago quarter and down 97 million sequentially as one would expect against the fourth quarter 2014. Operating earnings were up 22 million or 13.3% against the year ago quarter and down 5 million sequentially. We have particularly good performance at Electric Boat in NASSCO. Some of the more striking comparisons are found at Combat Systems. Compared to the first quarter of 2014, sales were up 105 million or 8.3% and earnings were up 65 million or 46.8% on a 400 basis points improvement in operating margins. Recall that the results in the first quarter of 2014 were impacted by a 29 million restructuring charge at European Land Systems as a result of reductions in the Austrian operations which were consolidated in Spain and Switzerland. If we disregard that charge, margins would have been 13.4% on a pro forma basis. Even on that basis, the improvement in this year’s operating margins is a significant 160 basis points. Sequentially, revenue was down 251 million and operating earnings are down 67 million as anticipated in the business to always have a very strong fourth quarter largely related to contract delivery. All up, continued strong performance at Combat Systems. It’s been a long times since we’ve been able to report an increase in revenue in this group. IS&T, the big upside surprise incurred this group. You might recall that our guidance was to expect a revenue decline of 5.5% year - over - year, well that certainly did not happen in the first quarter. Revenue in the quarter was up 89 million or 3.9% against the year ago quarter and off only 98 million against the powerful fourth quarter 2014. Operating earnings of 217 million were 34 million more than a year ago quarter, up 18.6% on a 120 basis points improvements in margins. On a sequential basis, operating earnings were up 5 million on a 60 basis points improvement in margins once again nice operating leverage. The 9.2% operating margins was the best that this group has achieved in a while and is very encouraging. The trend is in the right direction. So we’re off to a very good start to the year, nicely ahead of our expectations. We do not as a practice change guidance at the end of the first quarter. It is our practice and has been for three years to give you a full review of our expectation at the midpoint of the year. Sufficed to say that we are ahead of the operating plan upon which our guidance is based. We will work to consolidate our improvement and continue to outperform. I’d like to now turn the call over to our CFO, Jason Aiken.

Thank you, Phebe and good morning. I want to start with the subject that we haven’t talked about a lot in the past and that’s foreign exchange rates. With our increasing international revenue base and the continued strengthening of the dollar we’re seeing an impact in our reported results. Now to be clear this doesn’t involve any economic gain or loss in any of our contracts, what I’m referring to is the translation of our international operating results from their local currencies to US dollars for reporting purposes. Absent the movement of foreign currency translation rates, the growth in our revenues and earnings over the first quarter of 2014 would have been even more robust than the numbers you see. Specifically, our US dollar reported revenues and operating earnings in the quarter were reduced by approximately 120 million and $20 million respectively compared with the exchange rate that prevailed in the first quarter of last year. In addition, our backlog was reduced by 450 million from year end due to the same translation issue. Setting the FX impact aside, our Combat Systems backlog would have been essentially unchanged from year end and our IS&T backlog would have been up slightly more than reported. Moving on to a couple of items on our income statement, net interest expense in the quarter was $21 million versus $22 million in the first quarter of 2014. During the quarter, we repaid $500 million of maturing fixed rates notes with proceeds from marketable securities on hand. At the end of the first quarter, our balance sheet reflects a net cash position that’s cash in excess of debt of $1 billion essentially unchanged from year end. As Phebe mentioned earlier, our effective tax rate was a bit lower than we had forecast and a bit lower than analyst consensus of around 30.5%. The effective rate was 29% for the quarter versus 30.1% a year ago and the primary driver was some R&D tax credit claims that were settled during the quarter. For the year, we are now anticipating an effective tax rate in the ballpark of 29.5%. On the capital deployment front you may recall that in the first quarter of last year we repurchased to a little over 14 million shares including about 11 million shares under an accelerated share repurchase program. Since the end of the first quarter of 2014, our diluted share count is down another 12.5 million shares the result of almost 20 million additional shares repurchased in the past four quarters and that includes approximately 4.7 million shares repurchased in the first quarter of this year. Altogether, we spent $826 million on share repurchases we spent 826 million on share repurchases during the first quarter or 1.3 times of free cash flow from operations. Erin that concludes my remarks, I’ll turn the time back over to you for the Q&A.

Thanks, Jason. As a reminder, we ask participants to ask only one question so that everyone has a chance to participate. If you have additional questions, please get back into the queue. Emma, could you please remind participants how to enter the queue.

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Good morning.

Good morning.

Could you talk a little bit more about Aerospace and the margin? I mean you said that is was not sustainable but there were a couple of headwinds that you had identified before what might hold the margins back this year and so I guess what of that did we not see in the quarter?

So as we’ve talked about before Aerospace margins tend to be lumpy and estimating that with precision is kind of like putting the tail on a moving donkey. But that said in the quarter, we had a very favorable service mix high service levels with a good mix. We recognized some tax credits, suppliers’ settlement. So it was really more on the upside than really any headwinds but the risk of getting ahead of our second quarter guidance I’ve already noted to you that our quarter one margins were above our expectations and we’re going to beat the guidance I gave you in January I’m just not sure by what amount. So I want to reserve those commentary to the second quarter.

Okay. Thank you.

Thank you. Your next question comes from the line of Jason Gursky from Citi. Please go ahead.

Hi, good morning. It’s actually Jon Raviv in for Jason. Thanks for taking my question.

Hi, Jon.

Phebe, just an notional question or high level question about your net cash position, what are you seeing in terms of deployment opportunities here given your very attractive balance sheet?

Well we’re in a net cash position at the moment which Jason referred to and we tend to no debt position not trying to say net cash. I think we gave you guidance and our intention in January call we will deploy in the absence of any alternatives if there aren’t any we will deploy all of our free cash flow and then to some to share repurchases and that strategy hasn’t changed.

Okay, thank you. Your next question comes from Carter Copeland from Barclays. Please proceed.

Hey, good morning Phebe, Jason.

Hi, Carter.

Phebe, I wondered if you could elaborate a little bit on the big surprise on the top line and IS&T obviously it’s your shorter cycle business quite a big revenue delta from what you had talked about in the prior quarter. Wondered if you could just give us some color on what it was that shifted or came in into the quarter? How should we think about thinking of the impacts on the remainder of the year in terms of performance and just any color you could give would be great.

So, we had an increased sales activity across both Mission Systems and our GD IT business. our Mission Systems it was driven part by lower cost structure that we anticipated as a result of combined AIS and C4 which made us more competitive and that tends to be a pretty quick turnaround so some of the orders quickly turn into sales. We had good book to bill by the way in that program or in that whole group so that also us well for greater growth. But as we combined those two businesses we’re seeing some additional sales volumes that comes in by the strength of going to market. On the IT business they’ve won most of what they’ve been bidding on. They are a power in the market space. And so look I don’t have a sense of where we’re going to end up in that business in particular given all the puts and takes by the end of the year but we’ll have a real good sense by the end of next quarter. But a solid beat on revenues and we’re very pleased.

Thanks, Phebe.

Okay, thank you. And your next question comes from the line of Robert Stallard from Royal Bank of Canada.

Thanks so much. Good morning.

Morning.

Phebe, I was wondering if you could comment on the Aerospace side in terms of the large cabin markets and may be give us a feel of what some of the different regions particularly you’re looking overseas outside the U.S?

Sure. The activity levels I would call as careful, in other words, we’ve got plenty of pipeline but slow to contract not unlike what we’ve seen in prior quarters. In short, North American and the Mid - East are okay. Russia, Latin America and China are slow at the moment, 650 ER demand is robust so we’re holding our own and then some. I think however, it’s important to understand the of the case behind how we’ve won this business how we have historically and how we will continue to do so. The only decline we worry about is a decline in earnings. So accordingly, we always throw production down in the face of weak orders. We have no intention of doing so this year. Given our large 650 backlog we can, to some degree, feather in more 650s to cover potential downfalls and of course we always take cost out of that business. So I think the way to think about both streams for the next two years is not necessarily as a strong revenue growth story. Gross over turn for the new airports enter into service and this is pretty much in line with what we had anticipated and predictable in a business that continues to refresh its product line with clean sheets design airplanes. So, I thought it would be helpful to give you a little sense of when we see changes in demand how we act but I’d say that the first quarter was cautious coming after a robust fourth quarter and this is pretty much of what we have seen in the first quarter for the last couple of years.

That’s great. Thank you.

Okay, thank you. And your next question comes from the line of Myles Walton from Deutsche Bank. Please go ahead.

Thanks. Good morning. Phebe just may be pick up on the last question I think you said the next couple of years, and just on the G500 entering the service it does seem like you’re certainly ahead of where you could be? But without pulling for the schedule in this conference call, green deliveries will there be a source of good revenue growth in 2017 like the 650 was in 2011?

So, we’ll start to recognize activity in 2017 in anticipation of entry into service in the first quarter of 2018. It’s really in the next two years and it’s a transition period, I think that’s how you should think about it and we anticipate it that as well. And you could expect that given that we’ve got new airplanes coming on.

And just which was on the inventory of used aircraft, you sold one in the quarter, did the level of used inventory that you’re holding rise, fall or stayed the same?

No, it was the same.

Same. Okay, great. Thanks.

Okay, thank you. Your next question comes from the line of Doug Harned from Sanford Bernstein. Please go ahead.

Yes, good morning.

Hi, Doug.

Just continuing on with Gulfstream, when you look at the transition period and think about what trajectory might be for 450 and 550 deliveries, could you give us a sense on how you envision that going or sort of what their backlogs are right now for those airplanes? And then when you think about it, as you said before, you have the ability to take 650 up, given a lot of strong demand for that airplane, do you see the potential to increase rates some on 650 within that next two year period?

So, we haven’t given you the backlog and broken it up by aircraft model, but again let’s just talk about the theory of the case. When you’re bringing in new aircraft, the trick is to feather in that production with the existing plane. So that you have a nice, smooth transition and that’s what we’re striving for and that’s what we will achieve. There’s no reason to think that that isn’t going to happen. The 650 has a quite a significant order book and in fact, the deliveries the next to billable airplanes has actually slipped to the fourth quarter to ‘17. So that healthy and long backlog gives us some flexibility, nice flexibility to feather in some more 650s to offset that transition period the feathering in as we move to the new airplanes. So wouldn’t be all together a bad thing either that would reduce the wait time on those 650s and the 650 ER demand.

So you are seeing the potential to - the demand out there to do some earlier 650 deliveries if you want to?

Sure. We’re going to be prudent about it. It’s not wise to eat through your backlog, but to the extent that we can and want to we will feather in some additional 650s if that makes sense.

Okay, very good. Thank you.

Thank you. Your next question comes from the line of Robert Spingarn from Credit Suisse. Please go ahead.

Good morning.

Hi.

Jason, I’ve got one for you if I could, it’s on the free cash flow which was really quite strong in the quarter. I think Phebe said last quarter that international advanced timing would put some pressure on free cash flow this year and it did in the quarter, but their collections looked very strong. Could you talk about working capital and how we should think about the cadence of free cash flows and go forward through the year?

Sure. We were, as you said, off to a strong start in the first quarter and to be quite frank, stronger than even we had expected. As we signaled coming into the year, we’re expecting a bit of a softer cash flow outlook and as you think would expect in response to that our business has turned toward sort of war on operating working capital and went after it hard first quarter. And really that is the story. You could see even despite a pretty big draw down in the customer advances related to some of those international programs otherwise excluding that OWC was down in the quarter. So, really strong performance out of the gate, I would caution you that we don’t necessarily expect the first quarter to be reflective of the full year. We’re still expecting a tough road ahead with some of the headwinds that we’ve talked about. But really our focus is all about that management at OWC and going after the collections as well as the supply side.

Is there any particular timing we should think about where some of this strength reverses? I mean I guess for the year you’ll do about a 100% as you normally do or little better, but is there a weak quarter in here?

I would suggest the second half is where most of the pressure is there on that front. So we’ll be managing that through the balance of the year.

Okay. Thank you.

Okay. Thank you. And your next question comes from the line of Cai von Rumohr from Cowen & Co. Please go ahead.

Yes, thank you and terrific performance, Phebe. Well done.

Thanks, Cai.

So, Aerospace, may be if you could kind of give us the numbers you give us on the lead times on each of those programs and little color. You mentioned the suppliers settlement may be if you could quantify any one - timers that bolstered the numbers in the first quarter at Aerospace? Thanks.

Yeah, so as I noted the 650 and 650 ER are out to the fourth quarter ‘17 G550 G450 out in 12 month where they have been, G280 and G150 G280 at the end of this year 150 first quarter next year. So pretty much consistent with what we’ve been reporting all along. As I tried to explain earlier we had a number of moving targets in the Gulfstream margin provided considerable margin improvement service mix we took in some tax credits. We did have that supplier settlement I’m not going to give you any particular numbers on any of these and jet performed well. So couple of those are one timers but I’m not going to quantify them for you I don’t think that’s productive. We’re very particularly with respect to our suppliers we are very proprietary about talking about our relationships with our suppliers.

Can you quantify the total of all of those without giving any of the granularity?

Yeah, I mean we’ve led you to about 18% for the year I didn’t give you by quarter - by - quarter as I explained to you before we get real lumpiness in Aerospace margins which we’ve talked about. So I’m not prepared to change the year guidance but you can back in to some of that. As I said, this is - both streams has an awful lot of moving parts and so does Jet Aviation so, we have seen in the last couple of years lot of lumpiness. We’re not going to see that 20% repeated going forward as explained to you we’re going to outperform I just don’t know I have much yet and I can’t discuss that half way through the year.

Thank you very much.

Okay, thank you. And your next question comes from the line of Peter Arment from Sterne Agee. Please go ahead.

Yes. Good morning, Phebe, Jason.

Hi.

Phebe, may be just to stay on Aerospace, you mentioned Jet Aviation continues to be a positive contributor. Can you give us little more color on what you’re seeing there and also related to that are you seeing any kind of slowdown in utilization rates in the large cabin tight kind of the energy market just given these sell off the way we see it last six months?

We continue to build that business. They’ve been a positive contributor on both cash and earnings for the last 2.5, 3 years. We’ve seen no change in demand as a result of - no decrease in demand as a result of the change in oil prices, in fact, we’re seeing higher demand. Backlog, the pipeline is good and we’re adding to the backlog. So, that business is increasingly well positioned.

Thank you.

Okay, thank you. And your next question comes from the line of Howard Rubel from Jefferies. Please proceed.

Thank you very much.

Hi, Howard.

How are you?

Good.

I don’t want to leave Marine alone here.

Good.

I mean you did spend a little time there, so I figure it’s probably a worn off a little on you. So there’s couple things that stand out. One was the backlog growth second was you kind of LHA post shakedown availability which sort of sets you up to do some interesting things. And it looks like NAASCO did pretty well in a world where commercial is hard to do. So, may be you could talk a little bit about some of the variances and is this sustainable rate you’re seeing in Marine or was there some deliveries or some other material items that sort of tweak the numbers?

I think what you can expect is Marine will replicate its behavior in the past such as steady Eddy. There was no one particular element that drove margin performance. With respect to sales growth, that’s coming from a couple of places. We have increased sales at NAASCO on commercial work, and remember we’re moving into the Block IV which brings with it higher revenue and also we’re seeing increased revenue on the engineering and design for Ohio replacement. So, all of those are long - term programs that will continue to carry revenue and predictable earnings with them.

And just to follow up for a moment, how is it that - what have you done there to make sure, for example at NAASCO, that there’s some opportunity to continue the business because I know that’s always challenging from time to time? And then also, making sure that Ohio replacement stays on schedule.

Yes, so with respect to NAASCO, they’ve got a nice backlog commercial and government may be new construction and recall, repair continues to grow for NAASCO. We have a bi - coastal presence back when I was AVP of the Marine Group, we’ve got a couple of East Coast repair yards that have done beautifully. So we’ve really increased our hiring power in repair and we’re performing very nicely. The repair business is moving to and the Navy is moving to from cost plus contracts to fixed pricing repair in selected instances. And that’s a real upside potential for us, we’re really pleased with that. So, the repair business is robust. NAASCO is performing well, they keep their cost bases low for continuous improvement and that is a highly functioning shipyard. So, I like where they stand. They’re competitive in the commercial market space and of course, [indiscernible] as well continues to drive down its cost structure. And we’ll see over time increased margin improvement as we get further into Block IV in a continuous improvement. Every time you start a new Block, we have some questions in margins we’ve given back some of the goodness of the prior Block to the Navy, but we, over the last decade plus, reduced cost structure and continue to improve margin. So, they’re very, very well positioned.

Thank you.

Okay, thank you. And your next question comes from the line of David Strauss from UBS.

Phebe could you dig in a little bit more into the growth that we saw at Combat, it sounds like it came through ahead of what your expectations were? Was this [indiscernible] you in case starting to ramp up and does it accelerate from here?

I lost part of your question, it broke up. Could you repeat it for us?

Can you hear me now?

Yeah. I can hear you now.

I was asking if you could dig a little bit more into the growth at Combat, it sounded like it did come through ahead of your expectations, is that in the UK program starting to ramp and does that actually accelerate from here? And then a separate question, press has report that you pulled out of a couple of programs in the quarter, competitions TX and Manpack if you could just touch on those as well? Thanks.

Sure. So look you would expect with the prodigious increase in backlog that we experienced last year that we begin to see that backlog turn into sales and revenue increases and that’s what you’re seeing in that group. But across the portfolio, on our Canadian Middle East contract, we are finishing up our design efforts and the initial variance and we are going to begin production later this year. The delivery is in ‘16 on the UK program, we’re working some small quantities of pre - productions but again, that will begin to ramp up and there is - the army is increasing its capitalization in their wheel and track vehicles, so all of that is upside and that we’ve recognized some of that. So look, that backlog is still flowing into sales and the key there is to perform on that backlog. So let me talk to you, you asked the second question that is kind of interesting that we have pulled out some competitions, let me give you a sort of theory of the case here. We are not going to compete for programs to respond RFPs where we do not believe that we can get a fair and sufficient returns. Chasing revenues that don’t have good earnings doesn’t help us or our shareholders. So this really has more to do with the discipline with how we run our company rather than the response in any particular program. We’re just not going to compete in programs what we think that we can’t make up their return and a good return.

Thank you.

Okay, thank you. Your next question comes from the line of Ron Epstein from Bank of America. Please proceed.

Good morning, Phebe. I just wanted to touch base quickly if you could remind us what you’re thinking about capital allocation, particularly there’s some new properties on the market right? I mean that might be an opportunity for you guys to do some vertical integration? Just what are you thinking about, M&A, vis - à - vis cash return to shareholders?

Yeah, so Ron I’m not thinking about M&A because I’m not seeing anything. So it’s again not on my radar screen. And our intent with respect to capital deployment remains the same for this year. We’re going to return capital to our shareholders and share repurchases and dividend. So I think that’s pretty much consistent with what we’ve been doing and what we’ve been saying. Okay?

Yeah, that’s great. Can I ask one quick follow on if I may?

Sure.

Could you give us a quick update on how things are proceeding with the G600 program the development there and the developments on the G500 program?

So we’re proceeding well on both the near term G500, we had our first flight this quarter and we’re on track with no particular surprises. And the G600 we’re starting to build the first prototype so all’s well. We’re on track and in line with our expectations were.

Okay. Just curious if there’s any chance that the 500 could happen sooner, if certified sooner?

You mean first flight or entry into service?

Entry into service, yeah.

That will depend on the FAA’s test program so that’s really - we work really closely with the FAA. They have an important job to do and we’re really working together there of pacing items here.

Okay, great. Thank you.

Okay, thank you. And your next question comes from Hunter Keay from Wolfe Research. Please go ahead.

Good morning. Thanks for the time.

Hi.

Hey Phebe, I want to follow up on the question in your response to David’s question, the comment on TX specifically or just broadly about how you’re not going to invest on. We’re not going to be it on programs that don’t provide fair or decent returns to your shareholders. Was there something about the comment about TX specifically but there was something about the way that particular program was structured that appealed to you or was it more a comment was broadly about investments it would require from you guys given that’s not sort of in your core wheel house to participate in that program with the sort of ambiguous return? The latter?

To fit in the nutshell. It’s not in our core. We had been thinking about participating on the air front was interested in the off the shelf trainer. Once the climate started to change there isn’t just no way that becomes an attractive program for us. So I think the appropriate response and good discipline what’s the prior that we just politely bow out.

Okay, thank you, Phebe. And then quick follow up, can you update the pre - owned delivery expectations this year or you’re still thinking it’s going to be up year over year how should we think about that? Thanks for the time. In Aerospace.

Yeah, I think as we look at the year we’re still expecting the numbers to be up a little bit from what we see in the past couple of years so little bit lighter in the first quarter than what we were expecting but balance of the year we’re still seeing that coming.

Okay. Thanks everybody.

Okay, thank you. And your next question comes from the line of Peter Skibitski from Drexel Hamilton. Please proceed.

Hey great quarter guys.

Thank you.

Phebe, I just wanted to go further on capital deployment. I like when I’m hearing about stay away from M&A frankly it kind of begs the question on repurchases because I think you got a new 10 million authority in February. And I’m guessing coming out of the quarter probably only left about 7 million shares, you’re probably going to do 2 billion plus in cash for the rest of the year so I’m wondering do you plan to go back to the board some time may be this summer to increase the authority?

So look, we came at out of the Gate strong on cash as I told what I told the Street on January is the way you think about 2015 cash is that we’re going to have a lighter cash year than we typically do have. And I’m not prepared to change that. So do not think about the cash generation in terms that we have historical terms. But that said, let Jason give you a little more color on where we are on the share repurchases.

Yeah, I think you were pretty close on your estimates there. We had about 2 to 2.5 billion shares remaining by our buyer authorization when we got the additional 10 million in February. And I think we’re sitting with right around 7.7 or so remaining at this point so. So I think that I’ll look at Phebe but anything beyond that at the discretion of our board.

And hey Jason I didn’t hear you object when Rob suggested a onetime free cash conversion for the year?

No, I think as Phebe signaled and I apologize if I missed that question or his predicate, as Phebe mentioned we’re not expecting to be quite as strong as their traditional performance this year. So expect something little bit lighter than that little bit lighter than the first quarter.

Okay, thank a lot.

Emma I think we have time for one more question.

Okay, so your last question comes from the line of Joe DeNardi from Stifel. Please proceed.

Phebe with IS&T and some of the outperformance you’ve seen there really over the past, 12 months at this point is it more a reflection of the budget environment and the procurement behavior being better than expected or is that the win rate has been better?

We’re seeing a little bit more activity on the budget side but it’s really our win rate has improved as we continue to take cost out of our business we become more competitive. And by the way that’s true in the United States, Canada and the UK which is where Mission Systems placed heavily.

Okay, thank you.

Okay. Well thank you for joining our call today. If you have any additional questions, I can be reached at 703 - 876 - 3583. Have a great day.