Good day, ladies and gentlemen. And welcome to the First Quarter 2018 Huntington Ingalls Industries Inc Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time [Operator instructions]. As a reminder, this conference is being recorded. I would now like to introduce Vice President of Investor Relations, Mr. Dwayne Blake. Please go ahead, sir.

Thanks Andrew. Good morning. And welcome to the Huntington Ingalls Industries’ first quarter 2018 earnings conference call. With us today are Mike Petters, President and Chief Executive Officer and Chris Kastner, Executive Vice President of Business Management and Chief Financial Officer. As a reminder, statements made in today’s call that not historical facts, are considered forward-looking statements and are made pursuant to the Safe Harbor provisions of federal securities law. Actual results may differ. Please refer to our SEC filings for a description of some of the factors that may cause actual results to vary materially from anticipated results. Also, in the remarks today, Mike and Chris will refer to certain non-GAAP measures. Reconciliations of these metrics to the comparable GAAP measures are included in the appendix of our earnings presentation that is posted on our Web site. We plan to address the posted presentation slides during the call to supplement our comments. Please access our Web site at huntingtoningalls.com and click on the Investor Relations link to view the presentation, as well as our earnings release. With that, I'll turn the call over to our President and CEO, Mike Petters. Mike?

Thanks, Dwayne. Good morning, everyone and thanks for joining us on the all. Today, we released first quarter 2018 financial results that included revenue growth in all three of our business segments. So let me share some highlights starting on Slide 3 of the presentation. Sales of $1.87 billion for the quarter were 8.7% higher than 2017. Diluted EPS was $3.48 and operating cash was $120 million for the quarter. We received approximately $2.6 billion in new contract awards during the quarter, resulting in backlog of approximately $22 billion at the end of the quarter, of which $15 billion is funded. So before getting into the discussion of our business segments, I want to talk about the current and near term shipbuilding environment. At the end of Q1 2018, we had approximately 25 ships under contract to be constructed in our facilities. By the end of 2020, if all goes as planned, we will see a significant amount of contracting activity that is expected to result in the award of base contracts or options to be exercised for 20 to 30 ships. This includes the DDG 51 multiyear procurement, VCS Block V, CVN 80 and 81, NSC 10 and 11 and LPD Flight II. At the same time as you already know, we are investing approximately $1.8 billion of capital in our facilities to improve efficiency, capacity and affordability. I have to tell you that this is the most exciting time I have seen in my 30-plus years in shipbuilding. This new work supports our sales outlook for the next five years, and forms the foundation that will support the business for the next 10 to 15 years. As the shipbuilding portfolio transitions, we are resetting the expected return on sales range. During the Q4 call, I commented that while…

Thanks, Mike and good morning. Before I discuss our first quarter results, I would like to comment on some new accounting standards that we’ve implemented. During the quarter, we adopted the new revenue recognition and pension cost presentation standards. We also implemented the recent FASB guidance resulting from tax reform on the reclassification of certain tax effects in equity. These changes are clearly identified and explained in our quarterly report. Moving on the consolidated results on Slide 4 of the presentation. Revenues in the quarter of $1.7 billion increased 8.7%, primarily due to higher volumes in aircraft carriers and navy nuclear support services at Newport News, and higher volumes in amphibious ships at Ingalls, partially offset by lower NSE program volume. Operating income in the quarter of $191 million increased $23 million or 13.7% from first quarter 2017, and operating margin of 10.2% increased 45 basis points. These increases were primarily driven by a favorable operating FAS/CAS adjustment. Turning to Slide 5 of the presentation. Cash from operations was $120 million in the quarter and free cash flow was $47 million. Net capital expenditures in the quarter were $73 million or 3.9% of revenues compared to $58 million in the first quarter of 2017. Additionally, we contributed $43 million to our pension and post retirement benefit plans in the quarter, of which $34 million were discretionary contributions to our qualified plans. We also repurchased approximately 674,000 shares at a cost of $166 million, and paid dividends of $0.72 per share or $32 million, bringing our quarter end cash balance to $528 million. Before I address segment results, please note that segment operating income in the quarter included a one-time $20 million expense for bonuses paid to our employees related to tax reform. Moving on to Slide 6 of the presentation.…

Thanks, Chris. As a reminder to everyone on the call, please limit yourself to one initial question and one follow-up, so we can get as many people through the queue as possible. Andrew, I’ll turn it over to you to manage the Q&A.

Thank you [Operator Instructions]. And our first question comes from the line of Doug Harned with Bernstein. Your line is now open.

I wanted to understand a little bit more about how you’re looking at the CapEx profile going forward. Since you announced that you’re going to reactivate the east side of the Pascagoula River, looks like that would be a big project. And so I am interested in how you’re thinking about -- how you’re going to use that. Is that tied to higher volumes or more toward how you do new models like LSR. Could you talk a little bit about that CapEx profile and how that fits in?

We started this overall capital expansion well ahead of this contracting expansion that we just talked about, and so we’re actually pretty well positioned to drive the -- to reset and drive the efficiencies that we need to get these ships under contract. The specifics around the east bank are really driven by, as we look at the extra workload that the Navy has put-in in some of their competitive programs, especially on the non-nuclear ships, it becomes a capacity issue for us. And I’ll let to Chris talk about it.

The numbers -- the activation of the east bank is all included in the $1.8 billion that we previously talked about. So think about the 5% to 6% of sales that we identified this year, next year is relatively flat and it tapers down from there.

So this assumes -- this is basically tied to the existing outlook for new ships more than it tied to the expectation that the volume of ships might go up in the future. I mean this would give you flexibility for that, but you would do this under any circumstances?

Well, that’s interesting. I mean, I think we probably would not have done the east bank if we were in a steady state position that we ran back when we kicked off the capital program back in 2014. But what we’re seeing right now is the expansion of shipbuilding contract that we talked about between the LPD programs, the Destroyer programs, the Frigate programs, that expansion drives us to a place where to do all of that efficiently, we need extra capacity. And so that's where we’ve made the decision to add on that expansion.

Doug, the Ingalls team is pretty relentless about improving efficiency and activation the east bank will help in that regard as well.

Thank you. And our next question comes from the line of John Raviv with Citi. Your line is now open.

This is Colin Canfield on for the line of John Raviv. Just a little bit on margins, if you could you just talk a little bit about the bonus payments impacting Newport News and TS, and then with respect to the shipbuilding margins in terms of falling out of that 9% to 10% range. What are the drivers there and how long are we out of that range for?

First on the numbers, $20 million Newport News was 12 of that Ingalls was five and TS was three.

And regarding the shipbuilding margins, we’ve been on a program here for a few years where we’ve talked about the healthy balance of a shipbuilding enterprise where the amount of stock that you're completing is about the same as the amount of work that you’re contracting for. That if you’re in that healthy blend and you’re executing well, you should be in the 9% to 10% range. What we’re seeing right now is -- and we've been talking about this over the last couple years, ever since the carrier got sequestered and delayed at Newport News, we’ve been a little bit out of balance. And when you get out of balance and you have a lot of work on the front end of the pipeline, we don't recognize the income from that until we retire the risk. So we’re a little bit out of balance as we go into the phase. And now we look out over the next couple years and we see the major amount of shipbuilding coming down the pipeline, so that's going to put us even more out of balance. And we think it's just important for everyone to understand that we’re executing really well. We’re executing really well in every part of our business. The opportunity right now to retire risk to drive margins up and capture that income are not as many as we have seen before. And certainly, at Newport News, there is not as many opportunities. And in the mean time, we’re going to be putting more and more work on the front end of the pipeline. And so we just want to make sure everybody understands that we’re in a really good place right now. I wouldn't trade this position for anything. We’re not having execution problems. We need to go get these ships under contract. They need to be good contracts and they’re going to serve us well for the next five to 10 years. And so that’s why I find this to be the most exciting -- frankly, this is the most exciting shipbuilding environment in over 30 years. And so where the margins go, I guess my thinking on that is that there's two major mistakes you can make in shipbuilding; the first one is you can recognize income before you retire the risk; and when you have to back that out, because you didn’t retire the risk, that’s not a small matter that’s a huge matter. And I’ve lived through a couple of those. We will not do that here at HII. The second mistake you can make is you can go and you can start trying to sign contracts to fill up the volume and the revenue, and you end up signing bad contracts. We’re in a phase right now where the biggest driver we have is, for the future success of this company, is to make sure we get good contracts going forward. So to me, this is exactly where we want to be.

Thank you. And our next question comes from the line of George Shapiro with Shapiro Research. Your line is now open.

Mike, some color on the sales growth. I mean you were saying 3% this quarter was extraordinarily strong. Is this something unique in this quarter that subsequently -- subsequent quarters, we’re going to see a lot of slower growth? And then on the -- for Chris if you just give us what the EAC adjustments were in the quarter? Thanks.

Well, I’ll start with the EAC adjustments. Our positive $52 million negative $24 million for a net 28 -- 80% was Ingalls, I’ll start off on sales, Mike, if you like. I mean it was a strong sales quarter. We’re still pretty comfortable with our five year CAGR of 3% growth. Obviously, if things were perfectly in the budget process and sequestration and getting all the ships awarded that we have planned under contract, it could be better than that. But we’re pretty comfortable with the 3% CAGR.

There was something unique this quarter that caused the particular strength that won’t repeat in subsequent quarters?

Not really, you’re just seeing increased volume. Really the majority of that’s coming out of Newport News with the RCOH program, and 79 hitting really full throttle.

Thank you. And our next question comes from the line of Gautam Khanna with Cowen. Your line is now open.

Chris, I was hoping you could give us some directional color on where CAX pension reimbursement may trend in 2020. I know you gave us 2019 last quarter. But can you give us a ballpark on what the range of outcomes are for calendar ’20?

Gautam, I apologize for my answer before I give it. But it was -- the reason I gave ’19 was because we have that pension acceleration. I thought it was appropriate to give you guys some additional information, so you could think through ’18 and ’19. There’s just going to be factors that go into that calculation for ’20. So I think I’d be reminiscent providing that information directionally.

Could you at least give us some sense of it -- it’s going to be down presumably, right?

Like I said, there’s -- year-to-date asset returns are 1.7% versus our assumption of 7.25%, and discount rates have gone up to 4.13%, is what our calculation was at the end of the quarter. So those are opposing directionally going in the opposite directions. And all of that will go into the calculation on what happens to ’19 and ’20. So really I’d rather not get into the directional numbers at this point.

And stepping back at Newport in the quarter, if we add -- not that we can. But if we were to add back the $12 million of one-time bonus payments, the underlying margins 5.8%. Were there any -- on a net basis, were there negative EACs in the quarter?

None individually significant enough to mention, it’s really about what Mike said, is conservatism relative to some big programs that are taking up a significant amount of the run rate at Newport News.

And to your guidance comment earlier about the 7% to 8% shipbuilding margin, so we should just assume there’s no major risk retirement events this year or next at MMS that allow you to take a big positive catch up? Is that -- we’re just not going to see much in the way of major milestones that would afford the opportunity positive or negative. Is that fair?

Well, Gautam, we evaluate our EACs on a quarterly basis. And we do have the submarine program that’s being executed but that’s just starting out for Block IV. But I think you’re correct, is the major millstones relative to aircraft carrier don’t show up here until 2020.

Thank you. And our next question comes from the line of Sam Pearlstein with Wells Fargo. Your line is now open. Mr. Pearlstein, please check your mute button [Operator Instructions]. Our next question comes from the line of Ron Epstein with Bank of America. Your line is now open.

So just jump back to the CVN 80, 81. On that block deal, if that all goes through. Does that imply that the construction centers go from roughly five years to 3.5 years?

Well, that’s certainly a way to drive some more costs out of the program. We just submitted our proposal this week to the Navy. The discussion that we’ll have over the next few months is exactly how we plan to execute that, and how they plan to -- how does the contract take shape. Our view is that if you can get away from the five or six year centers that we’ve seen and you can get to something more like three or four, you certainly will get to a place where it will be more efficient. Having said that, I would say I’m getting go back to my overall theme of -- we talked about multi-year procurement of aircraft carriers, that’s the first time in over 30 years that we’ve submitted a two-carrier proposal. That’s pretty cool, multi-ship procurement and carriers. We have submitted a multi-ship procurement in submarines proposal, we’ve submitted a multi-ship multi-year proposal for Destroyers. We’ve been selected to be the sole source provider of what was LXR, which is now LPD Flight II. That’s a pretty strong place for us to be. And it’s really important that we get these contracts right, because five years from now, folks will remember whether you’ll be able to see firsthand, whether we got the contracting of it right or not and that’s the ambition for the next couple of years.

And do have the labor to handle that? My understanding is to train a master pipefitter for military shipbuilding. It takes a number of years. I mean, do you have the labor to handle it?

We’re having to labor up now. But the core of our company is that we’re a workforce development company. We know how to create workforce. We have been ramping the workforce at Newport News for a period of time now. And we have training schools, we have cracked training programs, we are using digital technology to get our workforce up to speed faster. It's really exciting to watch our young new craftsmen come in and actually take some of our digital tools, and show them to some of our more senior folks and have our senior folks engage in that. So there's a lot of excitement on the waterfront right now in terms of how we’re going to get work done, and how we’re creating this new workforce. And that's true at Newport News and it’s true at Ingalls as well. And so we’re confident that we’re on track to do what we needed to support the business from a workforce standpoint. I have more concern about supply chain. We have 5,000 suppliers there across costs virtually every state in the union. And we spend a lot of time in supply chain right now, especially with those critical suppliers to make sure that they get the signals that they need to invest, the support that they need to create, the workforce that they need -- and I will go back now to the two carrier solicitation. The fact that the government that they Pentagon sent us a proposal, a request for proposal on two carriers, is the biggest signal that the Navy could have sent to the entire supply chain that we are serious about this ramp-up in the size of the Navy. And so let's take that signal and let’s run with it, let’s go invest in our facilities and invest in our workforce and get this done. So we’re excited about that and we are seeing that excitement now in our supply chain.

And then one question quick little detail for Chris. When you look at the investment in the east bank, is all of that is going to be recoverable on the volume that will go through the east bank overtime?

Absolutely.

Thank you. And our next question comes from line of Joseph DeNardi with Stifel. Your line is now open.

Mike, just on the 79% margin. Does the bottom end of that range assume that maybe you guys experience some challenges on carrier construction, or maybe just talk about what's driving the assumptions around that range of margins. Thank you.

Joe, really it’s what Mike already mentioned relative to the contract mix and the transition that’s taking place in Newport News. It’s no individual issue on a program, it’s just where we are on the programs that are under contract within Newport News.

And I would just add to that we go into every contract, as we talked about many times. We put the entire risk register in front of us and we don't take credit for any evidence till its retired. And so if we have major setbacks in a program, it will be because of a risk that we not only did not retire, but it's that we didn't foresee, because we -- if we just take a step back on a program, it’s because we didn’t see that one coming. If we saw it coming, we’re not taking credit for it yet. So that’s the way --that’s what informs us when we think about where the business ought to be. And so like I said, the biggest sin you can make in this business is recognizing income before its time. And we’re just not going to fall into that trap.

I guess, what I was trying to ask is, maybe what gets you to the bottom end of the 7% range and what gets you to the high. Is there any way to clarify that a little bit?

It’s just the volume of work, the time of contracts, the volume of work that’s coming in, the opportunities that we might have to recognize income along the way. I mean it’s the composite of all that that puts us in -- we just create a band around and say this is what you can expect for the next couple of years. And actually this is really good. This is a great problem for us to have right now.

I would also add, there were no major risk retirement milestones in the quarter, and we had three ship deliveries over the balance in the second half of the year.

Mike, maybe just at a higher level, you’re one of only two shipbuilders on certain programs you’re the sole source on others. Why can’t that degree of consolidation, if you want to call it that translates into more sustainable margins and maybe less risk for the business?

Well, I mean I think in most of our situations as we’ve talked about when we go to contract, we’re not really talking much about -- and we might negotiate a little bit about price of a contract, the target of the contract. But what we’re really negotiating in our negotiations is the risk on the contract. And we’re usually in a place where the government needs the contract and we need the contract. So when we go in the room, we have differing views of how much risk there is on the program. And both of us have to walk out of the room with a contract that we are both happy with. And so you get -- and that happens -- that happen on every ship in the multiyear procurements but it happens on every block. In the case of a larger procurement, it happens on every ship. And so whatever risk retirement that you've accomplished on a previous ship affects the way that that risk discussion goes in the next contract. And so that keeps it in the band of relative performance in my view. And I think that's the pretty healthy for us and it’s healthy for the government, and it’s worked well over the years. And I think that's the way it’s going to go going forward. If you remember the discussion we’ve had here, a lot of what put the pressure on Newport News that we’ve talked about for the last year or two was really goes back to four or five years ago when there was -- we were talking about sequestration and refueling overhaul got the rate by a year. And when that happen, the start of that overhaul was delayed by a year, it put Newport News in a place where they actually had to go through a process of laying people off, getting themselves a little bit out of whack in terms of skill set in the business and then bringing those people back as we started to ramp up. That was absolutely the most inefficient way from a program management standpoint to execute. And it’s to me, it’s Exhibit A and why sequestration has been such a bad idea. Where we are today is we have a two-year budget deal. We are a company that actually benefits from this two-year budget deal in a different way than most others. A lot companies are having a discussion about what happens after the two-year budget deal is done. For us, our objective is to get as much of this under contract during this two-year window as we possibly can. And it insulates us from what happens on the back end of that. Not completely not entirely, but it certainly is a place that I’d like to be. And this shipbuilding ramp up is larger than any ramp up we’ve seen since the Reagan build up. So that’s where we’re going.

Thank you. And our next question comes from the line of Sam Pearlstein with Wells Fargo. Your line is now open.

You talked about execution, and I guess there was some stuff in the press and I apologize if this is asked already, about the Indiana being a little bit late. Can you just talk about that construction, any issues in terms of timing on delivery?

We’re just working through. This is the normal -- the romance of the business, just working through the process of delivery. The delivery of a submarine requires a whole lot of second checks and certifications and retests, and those kinds of things. And I don’t see it as to be anything exceptionally abnormal. We would certainly like it to be delivered sooner but nothing that’s causing us anything other than programmatic concern.

But when it comes to risk retirement upon delivery or however it might, would you see that as impacting it?

We’re going to -- we’ll evaluate the EAC as it moves through the quarter and if we have an opportunity we’ll take it.

Thank you. And our next question comes from the line of George Shapiro with Shapiro Research. Your line is now open.

Mike, I wanted to follow-up with the Kennedy. I mean, are we still in the same situation as we were last quarter as things are attracting to the accelerated learning curve you have been projecting and we really won’t know anything until 2020. Or are there some data points along the way that we might have a better clue?

Well, we’re still tracking, George. The challenge on the Kennedy that we took at the beginning, we invested to take man hours out. We took a pretty significant man hour challenge on the ship, and we’re tracking to that. And so the things that we invested in are paying off for us. The leadership team is working to try to launch the ship a little bit early. We’re supportive of that. But we, as Chris said, we will be evaluating EACs on that program each quarter as we go forward.

Well, I mean is there any specific time lines or data points that you could point to that we ought to be out look for?

I think launches are really good milestone that we should be tracking.

And then the other quick one that I got is, even if you adjust it out for the charge last year and took out the bonus for TS this year. The profits are still down. I mean, what it takes to actually get improvements in that business?

Well, I think Mike talked a bit about it already. We’re in a transition a bit right now and we’re going to be in that transition for a while. We’re adding new programs. It’s a place that’s -- George, is your question about TS?

Yes.

So we’re doing all the right things. I think we’re doing all the right things in TS. We won two programs within the DOE space for a LANL and the Nevada test site, transitioning into both of those now. Our pipelines are fairly rich within oil and gas and in government services. So I think as you see a recovery in oil and gas and we start to get it under contract within TS, you'll see the recovery.

I’ll go a step further. I think we’re getting real traction in TS right now. As Chris mentioned, the awards the Nevada test site and the Los Alamos laboratory, both of those awards in the second half of last year, basically ratified our view that we can create a channel of capability to a new customer. And DOE is a very important customer with a pretty significant amount of work to do over the next -- basically the next same time next 50 years that shipbuilding is looking out to. And so getting our foot in there and improving our work and working on the hard stuff that they do and getting that right now is a way for us to expand our position in the Department of Energy space. You know we have a teaming agreement with Boeing on the UUV business. We think we’re getting traction there and this is a business that we were not anywhere near being seven years ago. And so my estimation is that the UUV businesses is going to be one of those places where a lot of people are going to want to be. But we think we’re in a good position in that business right now. The Navy's decision and discussion about increasing its readiness and trying to get complete support activity out there, that plays right to what AMSEC does is part of a technical solutions. So we've been planning, over the last couple years we’ve been planning a lot of seeds in the Technical Solutions business, some of them are starting to ripen now. And I feel comfortable that we're getting good traction there. And that's the part of our business that’s really on the move, and I'm glad that they’re part of us and I am excited about what they’re going to do for us.

And Chris just one, little one. 20% tax rate in the quarter is likely the go forward rate for the year?

So I wouldn’t change the projection for the tax rate at this point, 21% I think is -- I’m comfortable with that.

Thank you. And our next question comes from the line of Gautam Khanna with Cowen and Company. Your line is now open.

Chris, I was wondering if you could help bridge us on cash flow next year. This year we have some non-recurring items like you mentioned the Avondale recovery. I think if you could clarify how much of the 251 you ultimately recover and in what years. And then what type of headwind that poses for next year -- the moving items?

Thanks for the question, Gautam. I’ll see if I can answer the right question at this time. I’ve talked about 2018 cash already. We have about $100 million of pressure from our finished ’17, which was $452 million. Really the only -- and included in that number is the restructuring cash recovery. So the only significant difference between ’18 and ’19 is going to be the difference in that pension. So you have about $400 million difference there. And if you just focus on that assuming capital is about the same then I think you got a reasonable set of assumptions for ’19 that is assuming all things remain the same relative to pension.

So just to follow-up on that. Last quarter, you guys provided that table where you showed the 549 of tax pension this year dropping to 90 something next year. Obviously, there is a cash tax benefit associated with contributing to the plan. So should we be thinking about the 549 this year -- it’s not the year-to-year change of 549 minus 92, it’s 549 times one minus last year's marginal tax rate, so whatever that is, 370. And then next year, 92 at next year's marginal tax rate of 70. The delta is actually $300 million year-to-year in terms of cash…

A better way to think about, Gautam -- so we don’t do calculations on the phone here, it’s just cash taxes are about the same in ’18 and ’19.

Cash taxes are the same, okay. So your point is on the net basis, the difference in pension after tax net is $400 million year-to-year?

Its $400 million for net pension and cash taxes are about the same in ’18 and ’19.

But the follow-up on the Avondale question, of the 251 that was on the books, how much you ultimately recover? And I just want to know how much is in this year versus next year?

So remember, the $251 million is overhead expense, it has to go through your contracts through the profitability on the contract, and then through your billing rates. So it’s all the specifics number that will be recovered relative to restructuring, because you have to do it on a contract-by-contract basis. I would say that the vast majority will be recovered in ’18. We also recovered some in ’17 in Q4.

But just to be clear, of the $251 million. Do you actually recover all $251 million, or is there a cost share on it where the government gets call it half, and you guys get half?

That’s right.

So half of the $251 million is ultimately recovered, some of it in Q4 last year, most of it this year?

Gautam, I know you are trying to get to a precise number here, but it’s really difficult to, because you’re dealing with share lines. Some actually have contract protection where you’re doing contact adjustments for them. Some you don't where you’re just writing share line and have 50-50 share. So it's all in the $100 million pressure that I mentioned and it will -- the vast majority would be recovered in ’18.

So on a net basis, and I am sorry to be annoying about the questions, but people are trying to anchor to something here with the guidance revision on earnings, or the margin guidance on earnings. The free cash flow next year net should rise assuming everything is equal by about $400 million before considering executions…

Assuming everything is equal from a pension assumption standpoint -- and remember as my predecessor used to say, cash can be lumpy because we do have large contracts where large invoices can move across the period. So yes, your fundamental assumption is correct.

Thank you. And our next question comes from the line of Carter Copeland with Melius Research. Your line is now open.

Mike, I wondered just one final one here on the commentary on the Navy this quarter. And the 355 ships by the end of next decade instead of the following decade, and the incremental language around service life extension in Los Angeles class submarines. How much of that, if any, is incremental to the type of growth outlook that you talked about last quarter and you’re talking about this quarter beyond the setup? Any color you can give us on that evolution that maybe different than what you talked about last quarter?

The short answer is, not much different than what we’ve been saying. There is a fixation on number, because that’s how the Navy communicates to the Congress and to the country what its requirements are. As you know, when they come up with a number, they put it into a plan that was going to be many, many years couple of decades before they get close to that. And so there is a lot of question back saying if you really going -- if we really need 355 ships then we need to get there as fast as we can. So getting there as fast as you can means that not only do you ramp up construction, which is what we’ve been talking about for most of the last hour, you also need to go and make sure that you bring along the other ships that you’ve got. And kind of hard to go and ask the citizens to pay for a bigger Navy if you’re not doing everything you can to take care of the assets that you have. So whether it’s refueling a few 688s that are assessed to be worthwhile, or maybe you bring cruisers back or maybe there is extensions on Destroyers, all of that is part of, I think the reality of -- our Navy is trapped. We talked about this a year and half ago that our own internal assessment was that the Navy was probably 20% short of ships. The Navy assessment came out with some precision in that number, but that’s all consistent saying that we’re asking our Navy to do stuff and their operating tempos are too high, they don’t have enough ships to be in all the places that they need to be and they need to get as many…

That’s great. It’s not about the -- it’s about the journey, not the destination, got it.

That’s exactly right.

Thank you. And I am showing no further questions at this time. So with that, I’ll turn the conference back over to CEO, Mr. Mike Petters for any further remarks.

Well, I want to thank everybody for joining us on the call. As you can tell, I am very excited about where we are and where our shipbuilding business is headed. But I am equally excited about the traction we’re getting in our Technical Solutions division today. This big piece of contracting that we’re going to be doing is going to actually move us out of the balance that we've been talking about for seven years in the 9% to 10% range. It’s going to put pressure on the low end of the scale. If I have to choose between having pressure on the low end of the scale, because I have too many new contracts to work, or having out of the margin high, because I am executing a lot of material work and not getting new contracts, I’d absolutely choose to be where we are today. I am excitedly to be partnered with the Pentagon to go get all this work done. And we have a team that’s executing well, and is well positioned to get this done over the next couple of years. So as we do that, we will continue to focus on execution, because that's been the hallmark of what we do and I’m excited about that. So thanks for joining us this morning, and I look forward to seeing you.

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program and you may all disconnect. Everyone have a wonderful day.