Ladies and gentlemen, thank you for standing by, and welcome to the Third Quarter 2020 Huntington Ingalls Industries Earnings Conference Call. . I would now like to hand the call over to Dwayne Blake, Vice President of Investor Relations. Mr. Blake, you may begin.

Thanks. Good morning, and welcome to the Huntington Ingalls Industries Third Quarter 2020 Earnings Conference Call. With us today are Mike Petters, President and Chief Executive Officer; and Chris Kastner, Executive Vice President and Chief Financial Officer. As a reminder, statements made in today's call that are not historical fact 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's posted on our website. We plan to address the posted presentation along the call to supplement our comments. Please access our website 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 today's call. I hope everyone is staying healthy and safe during these trying times. Let me start by providing a COVID-19 update on Slide 3 of the presentation. The rate of new cases has stabilized in our shipyards, and we are maintaining a sustainable and manageable level of attendance. This has been driven by our ability to start rapid testing of employees and move them out of quarantine and back to work in a prudent way. While this has proven to be successful, the dynamic nature of this virus will require us to continue refining our policies to adapt to changing circumstances. And regarding COVID relief, we have highlighted 2 decision-makers that the defense industrial base is at the nexus of economic sustainment and national security, and it is uniquely positioned to drive economic recovery in every state through thousands of suppliers. We remain hopeful that directly related COVID-19 labor costs, like quarantining and other paid time off, will be reimbursed, and we will work with the administration to provide the necessary documentation to support this effort. We also continue to encourage the customer to provide funding for cross-program delay and disruption impacts. Now let me share some highlights from the quarter, starting on Slide 4 of the presentation. Sales were $2.3 billion, and diluted EPS was $5.45 for the quarter. New contract awards during the quarter were approximately $1.6 billion, resulting in backlog of approximately $45 billion at the end of the quarter, of which approximately $22 billion is funded. Turning to capital deployment for a moment. Earlier this week, we announced that our Board of Directors approved an 11% increase in our quarterly dividend from $1.03 per share to $1.14 per share. And this action demonstrates our…

Thanks, Mike, and good morning. Today, I will briefly review our third quarter results and also provide some comments on our 2020 and long-term outlook. Beginning with our consolidated results on Slide 5 of the presentation, our third quarter revenues of $2.3 billion increased 4.3% compared to the same period last year, driven by growth at Newport News and Ingalls. Operating income increased by $8 million to $222 million when compared to the third quarter of 2019, and operating margin was flat at 9.6%. The increase in operating income was driven by a more favorable FAS/CAS adjustment, partially offset by lower segment operating income compared to the prior year. Net earnings in the quarter were $222 million compared to $154 million in the third quarter of 2019. The increase in net earnings was driven by lower income taxes due to higher research and development tax credits for prior years, a more favorable, nonoperating retirement benefit compared to the prior year as well as higher operating income, partially offset by higher interest expense. From a segment standpoint, Ingalls' revenues in the quarter were $675 million, an increase of 4.3% from the same period last year. Revenue growth was due to higher volume for both the DDG and NSC programs. Ingalls' operating income was $62 million, and operating margin was 9.2%, relatively consistent with results in the prior year. Newport News revenues of $1.4 billion in the quarter increased 6.6% from the same period last year. Revenue growth was due to higher volumes in submarine and aircraft carrier construction as well as growth in fleet support services. Newport News operating income was $79 million and operating margin was 5.8% in the quarter, which compares to $121 million and 9.5%, respectively, in the prior year. These decreases were driven by lower risk retirement…

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. Operator, I'll turn it over to you to manage the Q&A.

. Our first question comes from Jon Raviv of Citi.

So we're back to the multiyear cash flow. It's negative $3 billion cumulative in 2020, 2024. PAUSE What are you seeing now that you did not see last quarter kind of lets you reinstate those targets? Yes.

Yes. So last quarter, we were in the middle of a pandemic and coming through resetting all of our program schedules and coming to our financial plan related to that. So it's just a function of being more comfortable with the plan as we move through the year and being more comfortable with our ability to manage through this pandemic.

Yes. I would just add that our weekly kind of active case rate has really stabilized at this point. But back in the summer and when this first started, it was pretty high. In fact, our highest level of active cases was right around the time of the call. And so trying to predict where we were going to go from there, we just felt like it was prudent for us to take a pause on that. We feel pretty good now that the protocols we have are in place and give us a pretty good way to deal with what's going on. We're like everybody else. We're kind of watching to see what this -- the next few months are going to be like, but we think we're well positioned for that.

And then just a sort of follow-up in terms of margin. Looking at margin performance, obviously, the 4Q that hit your full year target, it has to be some improvement, and then also the past 6% to 8% -- the 2021 target. Just sort of kind of an update now that you reset the schedules, had another quarter under your belt, how much of getting back to 6% to 8% and then eventually more normally beyond that, how much is in your control versus relying on government reimbursements for the cost and some of the updates on the big programs that are driving it, such as the definitization of the carrier contract?

Yes. Jonathan, it's all in our control. We're not relying on any reimbursement from the customer for the COVID reimbursements. We just simply have to execute. Mike, I don't know if you want to add anything there.

Yes. I mean, we're being pretty conservative relative to cost recovery for COVID, but we're focused right now. Our primary focus is on how do we effectively and efficiently execute that backlog given the -- all the external things that are going on, we control the things that are happening inside our gates. And so we're after that.

Your next question is from Carter Copeland of Melius Research.

So just to clarify that point on the COVID cost reimbursement. So you have no assumption of recoveries or reimbursements from the customers? So if that were to actually come through, that would be all upside, I presume?

Yes.

Okay. Okay. And just a follow-up on the -- on this. Center of Excellence, you guys mentioned in the quarter, is that principally going to be set up as an IRAD-focused facility or something different?

Well, I mean, it's a capital investment for an advanced manufacturing facility to support programs that we already know we have. I mean, we're doing manufacturing to support the Navy's extra-large UUV program, and we do considerable manufacturing to support not just Navy, but international UUV programs that are smaller than that. And the Navy's announced other programs, and we would see that that's a way for us to prosecute those programs as well. This kind of came out kind of what's the next step after the Hydroid acquisition to really help the Navy. It's really -- it positions us to be able to help the Navy's plan come to fruition. So we're really excited about it. We think it's a step-change in where the undersea unmanned business is going to go for the nation. And certainly, we're pretty proud of our position in that.

The next question is from Doug Harned of Bernstein.

Last quarter, when you took the charge for -- charge at Newport News related to Virginia class, and you talked about schedule changes, and is this related to the Montana, the New Jersey and the Massachusetts, you mentioned schedule on the New Jersey earlier. Can you talk about now, a quarter later, how do things stand in terms of getting to sort of new schedules on those 3 boats? And then how should we think about that trajectory in terms of when we could expect margin performance on this?

Well, I'll talk about the schedule and the operations. We took a pretty big dividend attendance in April and May. Where we've been since then is we've been pretty steady in terms of what we can predict in terms of the number of people that are going to be there and who's going to be there and how to allocate those resources. And that's working very well for us, and it's really consistent with the schedules that we reset at the end of Q2. We're still seeing the -- I mean, we still have less -- we probably have less than 200 active cases, but that's a couple of hundred active cases in the business. And it does move around in our workforce, but, by and large, we're able to predict the schedule recovery. Now once you get the schedule piece of it, let me make clear, we're tracking the schedules, the new schedules. The opportunity to really recover the divot that we took out, we haven't quite figured out how to go and accelerate back to where we were in terms of schedule. But we're working on that, and -- but we're definitely supporting the new schedules that we have laid out. Now it's about -- Doug, as you know, it's about, how efficient are you doing that? The things that we put in place from a training and development piece for our young workforce, the action teams and the engagement on critical operations, we're seeing first-time quality improvements. We're seeing some efficiencies. There's not enough there yet to become predictable, but we're seeing all the right trends.

And then just staying at Newport News because one of the things you've talked about is that you have a lot -- I mean, you have a lot going on there. You just got the award for the single-phase delivery on CVN 79. And when you look at that and how that will play out, you've got some more content, I think it pushes timing back a little bit, but how do you think of that program now in terms of what that can potentially add as content benefits versus what some of the risks might be in there going to that single-phase delivery?

Actually, let me start. I actually think it derisks it a bit, Doug, because we're resetting the test program on that ship over the next couple of years. So it's a chance to reset your risk registers, reset the sequencing. So ultimately, at the end of the day, I think it reduces the risk on that ship.

Yes. And let me add that it can be very easy to kind of look down the silo of a single program, but derisking the test program on 79 actually allows for a more efficient and effective test program on the RCOHs and the submarine repair business. Those are deployable assets. The Navy's operating tempo now is higher than it has been in many years, and getting those ships moved and out is going to be really good for the Navy and for us. So there is a cross-program collateral effect that I think will be very beneficial to what we're doing with 79.

Next question is from Myles Walton of UBS.

Chris, on the implied fourth quarter margins, obviously, 5.5% to 6.5% implies a pretty big range for 4Q, just curious, can you give us some of the big swing factors to get from an implied 4Q -- it could be 7% or implied 4Q, that could be 11% shipbuilding margins? Are there deliveries that we should think about as big risk retirements in that fourth quarter?

Yes, sure. Dilutive NSC 9, we're planning in Q4. We need to make progress on the 73 test program. We need to float off Montana. Those are the major milestones in the quarter. I think centering in on the middle of that range probably makes sense, but it is -- it can be lumpy in shipbuilding. So we want to keep it broad.

Okay. And I'll keep it to one and one follow-up. On the follow-up, Mike, the attendance levels, maybe is that how you look at returning to normal post virus. And it seems like that's one of the limiting factors or gating factors to capital deployment. So maybe give us what normal is given none of us actually know what normal is sitting in is doing some calls.

Yes. I mean, normal is, I think, in the eye of the beholder. In a pre-pandemic world, on any given day, we would have -- 5% to 10% of our workforce would be on vacation or would be out for some reason. It's a little bit higher than that now, but it's not anywhere near where it was in April and May. And the protocols that we've put in place have allowed us to be more predictable in terms of who's going to be in and who's going to be out. And the only unprediction in there or the only thing that's not predictable is if someone actually becomes an active case or gets quarantined. One of the protocols that we established in August was that we were able to finally get enough testing to go and do testing in the pool of folks that were quarantining. And because we were able to do that and effectively test folks that were quarantining, we were able to cut the number of people that were being quarantined by 2/3 because of testing. That's a big deal for us. And once we got that established, and we feel confident that we have the testing to support us when we do that, now we're at a place where we know where the workforce is. We're able to predict what we're going to be able to get done. In addition to that, we've been able to hire during this whole process. We've hired over 3,000 people since the pandemic started. And so even though we have employees, who have -- who are still dealing with school closures and things like that in their -- outside the business life, we're able to go and start building the workforce again. So that gives us some confidence now that we have a pretty predictable path from a workforce piece of this, and that's kind of what we based this plan around.

So sorry. So does that mean you could be in a position to start repo by the end of the year? Or is it really into '21?

Yes. We're watching it right now, miles. We don't have a specific date when we're going to restart it yet.

The next question is from George Shapiro of Shapiro Research.

Yes. Just to follow up to complete on fourth quarter. In TS, the implication is that margin goes back to around 3.5% from where it is this quarter. So is there something unique in this quarter that doesn't sustain itself?

Yes, there were some one-time items in this quarter, George, that improved performance in TS, along with some cost synergies they got relative to the integration of the acquisitions, which is very positive. But that's correct. There were some one-time items that are immaterial in nature that we took in the quarter.

Okay. And then my -- on cash flow, Chris, you maybe $400 million next year, which is probably a little bit less than most people were thinking. Can you go through some of the puts and takes? I mean, obviously, you've got the payroll tax deferral. You've got to pay some, but that was kind of known in the second quarter. So I was just wondering if you could go through some of the changes there.

Sure, George. Yes, we like to look at 2020 and 2021 collectively. So you've got the first one, which is a payroll tax deferral. There's also capital that moved from 2020 to 2021 because of the virus, and then the customer payment clause changes that could potentially turn around next year when they go back to the normal progress payment clause. So it's really all of those items, which are causing a lot of unpredictability between the two years. So we like to think about it collectively, and then we'll start to ramp in 2022.

The next question is from Ron Epstein of Bank of America.

Just a question about maybe a possible opportunity. I mean, there's been some news that the SSN deployments have been delayed due to maintenance backlogs in the government shipyards -- in the 4 government shipyards. Is that an opportunity for you guys to pick up some work from the Navy on helping them with their deployment delays?

Sure. I mean, we're in that now. We actually have 3 repair jobs going on at Newport News. Plus, we have a tiger team supporting the Navy in their home ports as well. We've been out of that business for a while. The classic way that that's been done, as you kind of point out, is most of that work for many years was done in the Navy shipyards. So getting that -- getting back into that business and getting started back up in the protocols that go around operating a deployable asset and doing work and maintenance and support for a deployable asset are really a little bit different than construction, maybe a lot different than construction. And so we're getting our team up to speed on that. And we're working very closely with the Navy, not just on the work that we have, but trying to lay out a sustainable, predictable plan for how the -- I mean, not just Newport News, but how does the private sector, in general, support the Navy's need to have more submarines at sea? And I think that's a big part of what we're talking about with the submarine repair business, but, frankly, Ron, I think that's also a big part of what's happening on the -- with the future force and the future of the Virginia-class and that on construction. So at the end of the day, I think no matter how many submarines the nation puts to see, we're always going to wish we had more out there. So that's a good spot for us, and we're working very hard in that space.

And then maybe as a follow-on to those comments. When you look at the industrial base, do you think the industrial base can support potential third Virginia class on top of everything that's going on right now? Because it seems like the reality of a third Virginia class is maybe getting closer. I know it's not like a short thing, but it does seem like the drumbeat for that is getting louder.

Yes. I do believe that it can do that. I think that the shipyards will have to build, maybe invest in more capacity and more workforce. I think that we're going to have to create some parallel capacity, maybe think a little bit more about buying pieces that we were doing organically before, maybe structural units or fittings or foundations or something like that. So we expand the capacity kind of in a parallel way as opposed to trying to do it all vertically inside the shipyards. And then I think where you have to -- you really have to be focused if you're going to get it there is you got to get the supply chain up to speed. Our supply chain in support of all of shipbuilding, but particularly our nuclear enterprise, it's very capable, but it's also kind of thin. And so you really need to have a persistent, consistent, sustainable set of messaging to the industry that you're going to sustain this rate for significant time to create or attract the investment in technology, capital and people that the supply chain is going to need to go do. I think the shipyards are ahead of that. I know Newport News is ahead of that. Our friends at Electric Boat have been working this with. We've been working with them. They've been working with us. We're all working it with the Navy. And so I think that there is the capacity to go do that, but it ain't a light switch, and you don't turn it on overnight. My rule of thumb, though, is that if you're persistent on these signals from the government, the capacity in the industry can be built faster than the government can appropriate the funding to go do it. And so -- because by the time it takes so long to get to the appropriations process, there's a whole set of signals and long lead times and RFPs and things like that in front of that, that would let the industry know that you're really serious about doing it. So that's the path that we're engaged in right now is trying to sort all that out. And I'm pretty optimistic about it, and I'll go back to it again. No matter how many we build, we're going to want more.

The next question is from Robert Spingarn of Crédit Suisse.

I wanted to switch on unmanned. A high-level question for you, Mike, and then a related one for Chris. But what's your view of the long-term profitability or profit structure of the UUV USV business? Does the manufacture of the body and all of these vehicles become a commodity with the value and high-margin work coming through the payload? And how do you position for that going forward? And then, Chris, I have a follow-on for you on the same topic.

Sure. Yes, I think it's a little early on this to kind of be specific about it. I know that intentions are to try to make all the different parts of this as open architecture as possible. And certainly, having an open architecture set of platforms like we do puts us in a really good spot relative to where the work is today. Going forward, there's been a lot of programs out there that started out with the intention of being open architecture, and then you end up in a proprietary situation, which is frustrating to everybody. So our sense of it is that it's going to be great to have the platform because that gives you a foundation to lead into the rest of the missions and the integrations and all of that. That's going to be very important. And I think that without the platform, you're going to need a partner. With the platform, you have a chance to partner or go organic or however it needs to be done to support whatever mission's there. So I think the structure will -- remains -- overall generic structure remains to be seen, but we're pretty excited about what it can be.

I would add just a little -- go ahead.

Well, go ahead and finish that part, Chris, and then I'll give you the follow-on.

Yes. So, it's a more traditional defense-type market that can be used internationally as well, right? So higher IRAD, higher investment within Hydroid, but also some international opportunities. So that's something that we have not done traditionally. So we see some opportunity there as well.

And Hydroid has that.

Hydroid has it, yes.

They've been doing that.

Right. And then so the other question was if the Navy goes forward with a relatively large unmanned surface vehicle, perhaps 200, 250 feet, could you leverage some of the existing depreciated PP&E that you have for the NSC program? Or would this be a start-from-scratch kind of thing?

Yes, I think it's too early for that. Ingalls is absolutely right in the middle of that with Hydroid's involvement as well. But yes, I think it's a bit too early for that.

The next question is from Joseph DeNardi of Stifel.

Chris, I'm wondering if you could just talk about the margin assumptions that are involved in the out-year free cash flow outlook, and then whether kind of line of sight to getting back to 9% to 10% has improved relative to last quarter.

Yes. So I still think the Q2 top level outlook remains for 2021. And then we're going to talk a lot more about return on sales on our year-end call. But we will improve from there, but, again, I'd like to push any comments related to improvement on return on sales to our year-end call.

Okay. Okay. And then, Mike, I think at the Investor Day, you guys focused on M&A at the TS segment. I'm wondering if that is still how you're viewing kind of a priority for capital deployment or some of the challenges with shipbuilding and COVID has changed all that.

No, we're still on that. We think we've talked already more this morning about unmanned, and I think we've talked about unmanned in all the calls together before this. We're excited about that business, and we've continued to make some investments in that space. We're also very excited about our energy business with the Department of Energy. There are significant environmental and nuclear operating opportunities in that space, and we're very excited about that business. We're well positioned. We've become -- in the last 3 or 4 years, we've become a leading prime to the Department of Energy and the work that we're doing at Savannah River and Los Alamos and the Nevada test site. And so we see great opportunity there as well. The Federal systems piece that we're working through, we've gotten that. -- we've really restructured that. And frankly, some of what you see in the results this time come from some leadership changes around cost structure and adjustment to rate structure. And in some, it has made us more competitive. And we are -- and we're able to focus down a couple of really significant lines of business like ISR, for instance. And so we're -- I think we're starting to find our stride there, which is going to inform our approach to making investments in that space. So no, we're not really backing away from where we were in -- the investors conference was in the universe before the one we're in, but we're not backing away from that at all.

The next question is from Seth Seifman of JPMorgan.

You talked about the long-term cash flow forecast. I guess, when we think about the implied step-up from 2021 to what's required for the remaining years, I guess, a, should we think about that as a step-function in '22? Or should we think about it as something that builds gradually? And what's the role, I guess, that the -- I guess, having a plan for the single-phase acceptance of the carrier plays in that cash flow trajectory?

Yes. So I don't want to get into too many specifics about that out-year cash flow guidance. It's $3 billion over 5 years. It will start to ramp in 2022. The CVN 79 absolutely plays a part in it because it pushes the delivery out a couple of years, but we're pretty confident that through sales growth, earnings growth and capital reduction that, that $3 billion will be achieved.

Okay. Great. And then maybe, Mike, as a follow-on, we saw the new shipbuilding fan recently from the Navy, but it also looks like we're likely looking at a change of administration here in January. So to what extent would you view that the specifics of that plan is pretty provisional and up for revision if there is a change in January?

Yes. I'd start out with a couple of just boilerplate facts. National security tends to be pretty bipartisan. And the Pentagon tends to operate in a world where they're looking external to the country, trying to figure out how to do security. This Pentagon has said that we need a bigger Navy to be more secure. And they're working through that process right now. If you have a change in the leadership and the administration, the new folks are going to be looking at the same outside world that the folks that are there now are. And they might -- and there might be changes on the edges of is it this many ships or that many ships or anything like that. What I take away from what has been said so far is that the future Navy needs to be bigger. It needs to be faster, cheaper and probably a bit smaller. And so -- in terms of sizes of ships. So a faster, cheaper, smaller set of platforms with a lot more of them. We believe that's going to persist. Now whether it turns into the same numbers that you see in the tables today, when you look at new tables that might come out next year, I think that's less -- I think that will be interesting to talk about, but faster, cheaper, smaller, more concept, I think, will be true of whatever we look at in the future. And we are working very hard and have been working very hard to position ourselves for that. And I'll go back to the thing I said a couple of times here. I believe that no matter how you shape all of this, the undersea world and -- in submarines and unmanned undersea are going to be critical components of whatever future national security requirements we have. They're going to be critical components for it. So...

The next question is from Gautam Khanna of Cowen.

Yes. I had two questions. First, for Chris, if you could just talk about the size of the equitable adjustment that you're pursuing with the Navy, just so if it does come in, we can size it.

Yes, we're still -- that's kind of an ongoing process right now, Gautam. We don't have a specific size of that.

Okay. Is there any way to ballpark it based on what you guys have reported over the last couple of quarters or not?

I would rather not at this point.

Okay. And then stepping back, the FSA, you guys have discussed it, but one of the questions we get a lot is new entrants are coming into the unmanned vessel market. And the concern is they may have lower cost structures and the like. And I just a.m. curious, besides Hydroid and some of the technology acquisitions you've done in the past, I mean, is this an area where you're going to need to do more acquisitions to kind of get the technology and/or the cost base in line with what's likely to emerge in terms of what's required for that market? Or if you could talk a little bit about the M&A pipeline and if you expect to deploy more capital in that category over the next couple of years.

Yes, sure. The -- I think the issue there -- first of all, let's talk about cost. The cost structure piece of it is something that we're very focused on. We're keeping that business away outside of the shipyards. Because anybody who we're going to be competing out there is going to be -- they're not going to have a dry dock to carry around with them in terms of their cost structure. So we recognize that we've got to be pretty lean and mean if we're going to be competitive there. Now our focus over the last 5 years in that space is let's go build capability. 5, 6 years ago, Huntington Ingalls was not in that space at all. Now we're in the place where we have capacity and capability to build all of the different sized platforms that any of the government customers might need. That starts with our acquisition of the Columbia Group many years ago and their Proteus model introduced us to a whole new set of customers, different than the ones, the Navy customers as well as other customers that are different than the ones we've been dealing with in shipbuilding. That acquisition led to our teaming with and partnering with Boeing on the XL UUV program to manufacture that large UUV program. And then the -- and that led to the acquisition of Hydroid, which gives us capability in every size range that the Navy is looking at today. So that's -- from that standpoint, we think we're pretty well positioned. Now it's a place where it's going to be about innovation and technology. And we -- whether it's autonomy or artificial intelligence or you name it, it's going to be -- we're going to be trying to figure out what's the best solution for the next set of problems that our customers have. And then how do we invest in the solutions for the problems after next for the customers have. That's kind of a rational marketplace, and we're pretty excited to be playing in a market space like that. So are there going to be more investments? I would bet that there's going to be more investments in that space.

The next question is from David Strauss of Barclays.

Back on the $3 billion cash flow forecast 2020 through 2024, I guess, what got better during that period, Chris, to offset what looks like a lower or worse performance out of the core kind of shipbuilding business during that period, given where you marked things down to last quarter? Is it tension that's going to be less or just CapEx is going to be less over the period? What is there to offset the kind of core shipbuilding performance?

Yes. Really nothing significant other than we rolled the plan up and the teams looked at how they're going to perform on their programs, rolled it through all the things we need to do to generate a business plan. We're still comfortable. So obviously, you're going to have less cash on the VCS program. But all in all, across all our programs, taking capital into consideration and working capital changes, we're still comfortable we're going to get there.

Okay. And then what were the -- what was the level of EACs in the quarter maybe split out between Newport News and Ingalls?

Yes. So are you asking for cumulative adjustments?

Yes, yes.

Yes, it was net favorable $4 million. Ingalls was positive $16 million. TS was positive $5 million, and Newport News was negative $17 million. Those -- Newport News negative adjustments were broadly across all their programs related to overhead issues, both COVID costs and resetting their base. So none individually significant.

Okay. And nothing on Virginia class?

Just overhead impact.

The next question is from Noah Poponak of Goldman Sachs.

Chris, you have the $300 million cumulative 2020 to 2024, and you have the $900 million '20 and '21. So the $300 million minus the $900 million actually kind of nice and orderly, it's $2.1 billion, which, divided by 3, is $700 million. And you have the statement of getting to the run rate of $700 million. And so the numbers kind of cut pretty -- I know you're expressing some reluctance to get into the detail here, but the numbers cut pretty clean where, basically, you either have to look like approximately $700 million each of '22, '23, '24 or you'd have to be ramping in that period of time, which would mean you would be doing better than the $700 million, which was your prior run rate. So should we be thinking of those 3 years as approximately even? Should we be thinking that you're now saying you do better than the $700 million, which was your prior run rate? Or should we be thinking about the approximate in the $3 billion, meaning that something a little less than $3 billion is more probable?

No, we're still comfortable with the $3 billion. I'm not hedging on that at all. Cash, as you know, can be lumpy related to working capital and delivery movements across periods. So it's not a significant ramp either between 2022, '23 and '24. It's pretty level-loaded. So I'll leave that there. Definitely not hedging on the $3 billion, and I think you're thinking about it approximately correctly relative to level loading.

So how does 2021 get from what sounds like $400 million, maybe slightly less than $400 million to swing, maybe not quite to $700 million, but pretty close to it just a year later?

Yes. There's working capital changes, capital reductions. It's all in the mix there, such that we will definitely improve in 2022 from a free cash standpoint.

Okay. And then in terms of '20 and '21 with the 5 -- greater than the $500 million and the $900 million, I know you're combining them now, but you have the greater than $500 million through the year for 2020, and it sounds like multiple things have moved out of 2020. Can you quantify what's moved out of '20 and into '21?

Sure. I can help you a little bit with that, Noah. It's $120 million of the payroll tax moving. And as you know, it moves over into the next 2 years. And then we have between $60 million and $80 million of capital moving from '20 into '21 as well. So those are the two major items, and then we have the customer clause changes that extends to the end of the year and could revert back in 2021. So those are the 2 major items.

If you started the year with the greater than $500 million guidance, and you have capital moving out, and then you had the favorable tax, I'm surprised that -- or, I guess, why isn't the year much better?

Well, you're always subject to year-end variations relative to receipts. And as you know, our Q4 is always -- is very large from a cash receipt standpoint. So there's a little conservatism in there, for sure.

Okay. And then finally, what is your guidance for 2021 shipbuilding segment margin? Because some of the questions and comments...

I'm sorry. It was -- top level was 7% to 8% return on sales. We'll give a lot more color on that on the year end call.

But the prior comment was 7% to 8%.

7% to 8%, yes.

I'm not showing any further questions at this time. I would now like to hand the call back over to Mr. Petters for closing remarks.

Well, thank you all for joining us today. We appreciate your interest and engagement with us and in our company, and we hope that all of you stay healthy, happy and safe out there. Thank you for joining us.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.