Ladies and gentlemen, thank you for standing by and welcome to the First Quarter 2021 Huntington Ingalls Industries Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to turn the call over to Dwayne Blake, Vice President of Investor Relations. Mr. Blake, you may now begin.

Thanks. Good morning, and welcome to the Huntington Ingalls Industries first quarter 2021 earnings conference call. With us today are Mike Petters, President and Chief Executive Officer; Chris Kastner, Executive Vice President and Chief Operating Officer; and Tom Stiehle, 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, Chris and Tom 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 website. We plan to address the posted presentation slides during 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 trust that everyone is staying healthy and safe. Now, let me share some highlights from the quarter starting on Slide 3 of the presentation. Sales of $2.3 billion for the quarter were slightly higher than 2020. Diluted EPS was $3.68 for the quarter and pension adjusted EPS was $3.56, up from $2.43 in 2020. New contract awards during the quarter were approximately $5.3 billion resulting in a record backlog of approximately $49 billion of which approximately $25 billion is funded. Chris will provide some color on a few of the key awards for the quarter during his remarks. Shifting to activities in Washington, we were pleased that the recently released summary of the fiscal year 2022 President's budget request affirm that maintaining U.S. Naval Power is critical to reassuring allies and signaling U.S. resolved to potential adversaries. Of note, the budget summary cited continued recapitalization of the nation's strategic ballistic-missile submarine fleet, investment in remotely operated in autonomous systems, and funding for the next generation of tax submarine program, and we look forward to understanding budget details for these and other national security priorities when that information becomes available, as well as funding levels requested for the Department of Energy and the Department of Homeland Security. We also look forward to working closely with the Congress as the FY '22 President's budget request is considered during the current legislative cycle. Regarding portfolio shaping actions during the quarter, we completed the previously announced sale of our oil and gas business and also completed the contribution of the San Diego shipyard to tighten acquisition Holdings in exchange for a non-controlling interest in this leading provider of ship repair and fleet sustainment services. Completion of these transactions sharpens the…

Thanks, Mike, and good morning everyone. Operationally we had a solid quarter making consistent progress across our shipbuilding and Technical Solutions programs. With that, let me share a few key contract awards and programmatic highlights from the business segments for the quarter. At Ingalls, the team was awarded a lifecycle engineering and support services contract for the LPD program with a cumulative value of approximately $214 million. The scope of work includes engineering change management, supply chain management, training for new shipboard systems, and the execution of post-delivery availabilities. Regarding program status, LHA 8 Bougainville achieved the 25% complete milestone during the quarter. And the team remains focused on maintaining strong cost and schedule performance in support of their planned production milestones. On the DDG program, the team remains focused on preparations for launch of DDG 125 Jack H. Lucas, and sea trials for DDG-121 Frank E. Petersen Junior both planned for the second half of this year. And on the LPD program, LPD 28 Fort Lauderdale remains on track to complete sea trials later this year, and LPD 29, Richard M. McCool Junior remains on schedule for launch early next year. The Ingalls is also working closely with the Navy to put LPD 32 and 33 along with LHA 9 under contract. This bundled acquisition approach is the most affordable method by the ship and when complete affords predictable savings for the Navy. At Newport News, the team was awarded a $3 billion contract for the refueling and complex overhaul of CVN 74 USS John C. Stennis, and also received a contract modification for construction of the 10th Virginia-class Block 5 submarine. These key awards are additional building blocks for our record backlog, which now stands at nearly $49 billion. Shifting the program's data, CVN 79 Kennedy is approximately…

Thanks, Chris and good morning. Today, I will briefly review our first quarter results. For more detail on the segment results, please refer to the earnings release issued this morning and posted to our website. Beginning with our consolidated results on Slide 4 of the presentation, our first quarter revenues of $2.3 billion increase of less than 1% compared to the same period last year. This was primarily due to growth in Newport News and Ingalls that was largely offset by a decline in Technical Solutions due to divestitures associated with our portfolio shaping actions we have taken. Segment operating income for the quarter of $191 million increased $35 million from the first quarter of 2020 and segment operating margin .8.4% increased to 149 basis points. The improvement was driven by higher risk retirement at Ingalls and improved performance at Technical Solutions. Operating income for the quarter of $147 million decreased by $68 million from the first quarter of 2020 and operating margin of 6.5% percent decreased 305 basis points. These decreases were primarily driven by less favorable operating FAS/CAS adjustment, partially offset by the strongest segment operating results compared to the prior year. The tax rate in the quarter was approximately 15% compared to approximately 20% in the first quarter of 2020. The decline in tax rate was primarily due to the divestiture of our oil and gas business, as well as the recognition of R&D tax credit for the current year and prior periods. Net earnings in the quarter were $148 million compared to $172 million in the first quarter of 2020. Diluted earnings per share in the quarter were $3.68 compared to $4.23 in the first quarter of 2020. Excluding the impacts of pension, diluted earnings per share in the quarter were $3.56 compared to $2.43 in…

Thanks, Tom. 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.

The first question comes from Carter Copeland from Melius Research. Please go ahead.

Mike, I wondered if you could expand. I mean it's been quite a string of challenges thrown out over the last several quarters. But the comment you made around the operating rhythm and finding I guess more of a better cadence there. I wondered if you could expand on that, and specifically what sort of operating metrics you're looking at that give you conviction that that's a trend you're going to stay on.

Okay, I think first of all, Carter you're right. We've had a lot of we got a lot of stuff thrown at us in the last 12 months. And we took a pretty good body blow back a year ago with attendance and relative to the pandemic and the impact that had on our ability to retire risk. We recognized that in Q2, but what came out of that was. We've stabilized our employment levels. We've stabilized our scheduling. We've actually created the mechanisms in our risk register so that we know where we are and where we're going and where we need to get. It helps a lot that we have this backlog that we're working off of and where we are now is that - when you come through a crisis like this as a leadership team the connectivity, the tools that you've put in place, the innovation that has happened. You're taking advantage of all of that and as you move forward you start to look at what we actually accomplished. While we started at the beginning of the pandemic thinking that we needed to preserve 25,000 people. We have just hired over the last five years in our workforce. We've done that. We actually have hired between 5,000 and 6,000 people since the pandemic started that's pretty creative and innovative, if you will. And that's, and we still have pretty robust hiring plans going forward. Our case rates today are lower than they have been since last summer that's inside of our yard and the quarantine volume today is lower than it's been, really since this began. We have actually administered vaccines to we've administered vaccines to about a third of our workforce on top of where - they're widely available to the rest of the employees who are getting them not to us. And so, we're seeing a pretty steady rhythm now our folks are at work there engaged. We understand what needs to be done and we're actually getting stuff done. I think the change, where we moved Chris over to be the Chief Operating Officer and really create more management bandwidth on how do we manage that risk going forward and how do we make sure that we're doing what we said we were going to do has really helped. And so I don't know, I guess I've been around for a long time, but I feel really good about where we are right now in terms of doing what we said we're going to do.

Okay. And then just as a quick follow-up is - obviously a lot of talk macro wise about inflation and inflationary impacts, when you look at, at least in terms of your fixed-price work. Is there any cost exposure that you watch there to be aware of or is it not significant at this point? How should we think about that?

Yes, I may let Tom take that one. And let him talk to you about what we're seeing there.

Good morning, Carter. Yes, so relative to inflation, our contracts they are much longer term. We have the benefit here with long lead contracts and from a planning horizon and the backlog that we have to plan our work out. So, we have a site as far as the materials that we need additionally, where we put together our proposals and the contracts that we bring home. We generally want to see those POs in place. They’re backstopped by proposals and commitments shortly - they are after the award. So what we're seeing, I've talked about yards just this week as matter fact at that point. We're not seeing tremendous amount of inflation across the purchases that we have. And we’re not having a problem feeding yards from a material perspective. We do see going forward as we're getting new quotes that the span of the validity of the quote is short. I think the contractors are staying light on their feet as far as what they are committing to, but relative to our contracts and our performance, we don't see an impact right now.

We take the next question from the line of Myles Walton from UBS. Please go ahead.

I was hoping, Chris you could clarify that LPD bundled contracts you mentioned the size, timing and if that is more to just generate efficiencies or could there actually be increased levels of work versus your medium-term plan as well?

Yes, so that's all kind of contained in the 3% guidance that we talked about from a growth standpoint. The benefits of the bundle are pretty clear, when you can order those three ships together and sequence the work in an efficient manner. You're going to absolutely get savings. So it's something we support, it's something we're working very closely with the Navy. If we are not able to get that, we'll get those ships under contract incrementally it just will not be as efficient.

What would be the size - of a bundle of those three?

5.5 billion potentially.

Okay. And there is a clarification for Tom. The sequential margin in 2Q given the 1H is expected to be at the midpoint of the range. Can you point to maybe why the step down is so significant to six mid-sixes or so?

Sure, as I related in my comments, opening comments there, there's not a tremendous amount of milestones that we have in Q2, Q3, it's just a pacing year right now. So we're watching the volume come through at the present booking rates that we have right now. We think the first half of the year will come in around the midpoint of the guidance. And then we have milestones in the back half of the year, that - if retired have some potential there, but obviously we have to burn that off as the year kick by.

The next question is from the line of Doug Harned from Bernstein.

We've seen a whole lot of Navy shipbuilding plans at the 500 plus versions and the C&L appears to have gone back to kind of 355 ship goal, but even that goal has been not easy to get to and the mix appears very uncertain. So Mike when you think about planning in this environment. How do you think about long-term investments and where you want to sit given all of the flux around these shipbuilding plans?

Thanks, Doug. That's a great question when we actually kind of kick around a lot is, are we thinking about this the right way. I think at a macro kind of at the higher level what we see is that the shipbuilding execution plan is on a much longer rhythm then the shipbuilding theoretical plans like a 30-year plan comes out, I don't know every couple of years. But the contracts we have ships right now that are under contract to deliver. I mean Doris Miller deliveries in 2032. So what is that like four 30-year plans between now and then. So we look at those plans, not so much as the precision of the plan, but more about what's the intent of the plan. And what we're seeing in the intent of the plan you've acknowledged that they move around a little bit, but what we see in those movements is maybe wants to move to a Navy that has many ships, faster ships, maybe smaller ships, cheaper ships. So our investments are aimed in that direction. Now that doesn't mean they are not going to build aircraft carriers or submarines, because I think they are, but they're going to want to build aircraft carriers more efficiently. They're going to want to build submarines more efficiently. They want to build more submarines more efficiently. When it comes to the non-nuclear ships amphibs, destroyers, frigates those kinds of platforms go. They either go through class change or block changes and our challenge is to be agile enough to respond to the customers' requirements, and do that as effectively and efficiently as we can. So the investments we make in our facilities are designed to be able to do that. There are multipurpose, multi-product kinds of investments. We'll do a capital investment at Ingalls that will apply to four classes of ships. We’ll do capital investments at Newport News that you can use for carriers or submarines, and so that's kind of the way we think about that as opposed to, we need to go make a big investment for pick your program that three years from now may evaporate. We don't do that. So that's kind of the way we sized and thought about this generational investment we made over the past five years or so, a couple of billion dollars in our shipyards. We think that positions us very, very well for the direction that we think the Navy is going to end up going. And we'll probably have lots of discussion about whether it's one more submarine or one less destroyer all that sort of thing, but it means our investments were still the right thing to do.

And do you think, when you look forward as you're saying more you know faster ships, slower ships, in a sense, it can open it up to other competitors rather first you and general dynamics and we saw this with the frigate LCS. I mean, do you foresee a time obviously it's a ways away when the - competitive structure of this industry could change because of the smaller faster different ships?

I don't know, Doug, I guess maybe, but I would say that I would caution anybody from thinking about that question is a binary question that it's either one or the other. It's going to be - kind of a transformation, that's going to be product line specific. Most of the shipyards in this country build a product. Our shipyards build - several classes. We build four classes of ships at Ingalls. We build carriers and submarines at Newport News and refueling and all that sort of thing. So we do multiple classes of ships in our shipyards. We think that serves us pretty well for whatever direction the future is going to be, and if the environment is going to be more competitive. So be it. We're happy to compete.

The next question comes from Ron Epstein from Bank of America. Please go ahead.

Can we talk a little bit or maybe about the services business, the margins in the quarter were maybe about 2.7% and the target margins were 3% to 5%. What drives the upside there? How are you thinking about that?

Yes, I'll take that hey Ron. It's Tom here. So a couple of things, we have got it from 3%, 5%. You're right, it is 2.7% quarter. Right now, we saw a little bit of volume shortfall there as we're waiting for awards and the sales to come along with those awards for the year. Just with COVID and the announcements of where we are and some recompetes, it’s just a little bit - behind relative to guidance of 3% to 5%, but the year still in front of us, we haven't changed our guidance, we think TS will be at year's end.

Ron, I can add to that. There is - in our equity accounting relative to the nuclear space, the timing of some of those are slated towards second and fourth quarter. So you see - you don’t generally see that happening in the first quarter. So it's a bit lumpy, and we usually start light.

And then a question for Mike. When you're looking out medium term, let's call it, what are the biggest opportunities that you're trying to plan for now. I mean this is a follow-on to Doug's question as you're positioning the business, what's the big fish out there that you want to catch say call it three, four or five years out?

So in shipbuilding, I think that we'll start with that. I think that if there is an expansion of a product line say and there has been some discussion about what's the industry's ability to support expansion of say, the submarine product line. We certainly want to be able to take full advantage of that. In the same way, if the Navy wants to expand in the frigate space we want to be able to assist that if we need to be able to go and do that. And then I think it's - engagement on the planning and design piece for. So what happens to the future of amphibs probably that's mid to long-term, probably not near to mid-term. And what happens with the carrier is, are there going to be CVN 82 going to have some design for affordability put to it and are we going to engage in that. I mean frankly CVN 82 is a ship that starts to show up here, I mean it's - you got a contract in 27 or 28. So making sure that that stays on track that's come of the way we think about it in shipbuilding. In the Technical Solutions space, we've made a big investment in unmanned and expansion of the unmanned business I think is something that. Now that we made that investment and we have a portfolio, it's up to us to make sure that we capture that expansion. Of all the budget items that I see out there, the unmanned budget item is probably going to have the largest percentage growth over the next five in my view. We've established - as Chris kind of alluded to a minute ago, we've established our position as a department of energy prime and there is a lot of work over there that needs to be done and we are pursuing all of that very aggressively. We think that's a really great spot for us to be in takes advantage of capability that we have in our shipbuilding business, but it gives access to another customer, and we've done very well with that and we look to continue to expand that. And then ISR space, where we've really actually done well and we expect to do well going forward. So we kind of look at that it's kind of capability dependent based on what our customers’ needs for capability are, but that's kind of how we think about it. Where do we think our customers are going to want to be in three to five years and how do we make sure we get there and help them get there.

Thank you. The next question comes from George Shapiro from Shapiro Research. Please go ahead.

Yes - Tom if you could provide the EAC’s and is it fair that the pickup on the LHA 8 was probably $35 million or so?

So a little bit, good morning, George a little bit color on that is, 86 was the up - was the favorable 36 is down net 50 across the yards about 9010 at Ingalls. Only significant drivers on the upside there were the LHA 8, we usually don't give guidance or information on the specific ship so 35 kind of heavy there. Ingalls’ had a good quarter on top of the LHA 8 hitting the 25% vessel complete milestone where they reevaluate the risk and they re-strike the EAC. We did have a change proposal that definitize they have been focused our cost management there so overall it was a good quarter for Ingalls. There was no - the significant upsides or downsides that I probably highlight here.

Tom if 35 is a little bit heavy I mean just on the rough numbers you gave it would imply about $45 million of favorable at Ingalls. So was there anything else you can specify or its all spread across the board for say another $20 million if 30 was the LHA 8?

Yes, the Q has the information on LHA 8. So we're not you'll see that you're about $10 million heavy. But as I say, the other aspects of it change management. We've definitize the change down there not only significant. And then just a good performance in LPD 28 is coming along and paying attention on cost. 14% high so I wouldn't expect that going forward, but they cleaned up well, and they didn’t get bit for the quarter so that's where he landed.

And one quick one for Mike, can you update us on the Block V submarines I mean that was the one that you've had some problems with this to where we stand right now?

Actually, the challenge we had in Q2 was on Block IV, George. And we've got a rhythm in Block we're establishing a rhythm in Block IV, that's going to carry through and help us do really well on Block V. So I don't know Chris if you want to add to that.

I can add on Block IV we hit some important milestones in the first quarter with Montana floating off and New Jersey getting pressure hull complete through important milestones on the balance of the year there for VCS Block IV getting Montana deliver and getting New Jersey floated off. So we're watching those milestones very closely. Good progress online channel I am getting ready for delivery. So we're optimistic on kind of the rhythm and the momentum on the Block IV contract right now.

The next question comes from Richard Safran from Seaport Global. Please go ahead.

So I’ve just been doing reading about the work. I wanted to ask you about the forward. I've been reading about the work being done there based on that. Newport still doing work on things like the weapons elevators and there are other maintenance items, et cetera? I just want to know if you could discuss how the work on the Ford is progressing relative to your expectations, when you expect completion and if there's been any commentary from the Navy about the level of satisfaction with you efforts so far?

Yes, this is Chris. And I'll let our ex-aircraft carrier program manager Mike talked about it after me. But yes, really positive interaction with the Navy on the Ford weekly interaction on the Ford, especially on the weapons elevators got seven of those turned over Ford will be done this summer so really positive interaction that work will go on for a while, but nothing not really material going forward, but yes it's been positive. The Newport News team is performing very well and I think the Navy is very pleased with the performance of that ship right now.

And I'll just add the Ford at sea as much as probably more than any other ship in the fleet last year. It's the training carrier for the East Coast and the Navy would will say and they have said they can quote you the number of Traps the number of launches. The number - the tons of ordnance that they've moved on the weapons elevators how easy it is to operate, how much power density changes from the Nimitz’s class. I mean it is a centerpiece of the design is a centerpiece of the Navy strategy going forward and the ship is coming together really well. I mean getting ready to go towards their shock trial so all systems at our green and full speed ahead.

Okay, and now I'd like to go - revisit this comment you talked about your comments you were making about the future, the Navy fleet. It was one program I think that was omitted and maybe it was deliberate and there was talk of a replacement for the Ticonderoga was kind of wondering if you could just comment on the status of that program? I mean if you think that will ever materialize to a real opportunity. Or for example do you think that Flight III was is what you think is going to replace the Tyco's?

I'm not sure I know how to handicap that one of the first things I learned at the Academy 40 years ago was that there is countermeasures and then there's counter, countermeasures and there's counter, counter, countermeasures. And what happens is the technology races ahead at a speed that's lot different than the build cycle of a ship. And so the question is what kind of platform. You're going to need to work technology. If you look at the Flight III destroyer and you look at what they're trying to do with it that ship is pretty full. And so is there a - if the technology is going to require that kind of space and weight than it probably need something different to carry it forward. How we get there as an industry to design that and create a platform that has the margin, if you will for future technological upgrades. I think the Navy is - and the industry are having a pretty robust discussion about that right now. And I'm not sure I'm ready to handicap how it's going to turn out.

The next question comes from Noah Poponak from Goldman Sachs. Please go ahead.

Just going back to the pace of margin through the year topic and the risk retirement and how they flow through. The shipbuilding margin if I take out the net positive EAC in a lot of your history is in the zone of 6.5% and the different guidance comments you've provided for first half and full-year sort of implies second half 2Q, 3Q and then stepping up in 4Q? So I guess, it implies essentially no risk retirement events 2Q, 3Q actually maybe even embedding something slightly negative. Just want to make sure that's what you're looking for. And I have that correct?

Yes, I'd tell you, we are in the zone Noah so between 6% and 7% will be the norm, a 6.5% is a good estimate on your part. I tell you that the mix moves around at both yards as far as where the ships are so as ships get either sold off or mature when they take a step up and/or you have new ships that's spotted lower booking rate that mix changes. I wouldn't read too much into that where we need to be from a plan perspective and against our guidance that we gave you there. So yes, I think you got that right.

Makes sense, and Tom when you look to next year in 2022, do you have more risk retirement events or less or a similar amount?

So we told you 7%, 8% this year low 8% next year. We had mentioned that I can go forward and then Chris gave the guidance for Q4 in February, had mentioned that hey this is a pacing year and then as we get into 2022 and 2023 we'll see more ship deliveries. So there is the potential there and the plan has this moving upward. And obviously, as the quarters kind of click off or burn down that risk and we'll realize those margin expansion that we discussed.

And then just a clarification on the ARPA into pension, cash flow inputs do the contribution and CAS recovery numbers you provided previously literally not change at all or it's just that those had come down enough that the change is going to be small relative to your total cash flows?

Yes, it seems significant as far the change if you do the math - there is something there, but - we really don't want to chase it on a quarter-by-quarter basis. Since we strong over to Safe Harbor we really kind of mitigated the CAS variability and already we're at a limited contributions over the projection that Chris gave in February again. The mac contribution was $80 million half of that post retirement benefits. So and then also obviously the projections on pension it's going to be equally a function the discount rate is that changes and the plant performance, between those three variables. We're not going to update as recorded here. We'll give you a look see at Q3, that's the normal cadence for the remainder of the year in 2022. And then as 2021 closes out we will give you a fresh look at a 5-year projection next February.

The next question comes from David Strauss from Barclays. Please go ahead.

Mike, you touched on the unmanned portfolio and the potential growth there and a couple of your comments. Could you size the revenue in revenue now that sits within TS what a reasonable kind of target for that business could be over the next couple of years. And when you would think about actually breaking it out, so we can see what's going on there?

Yes, we have a broken that out yet. And so we'll just, we'll let you know when we're ready to break it out.

Okay. I guess in the first quarter. You did, you had 5% growth at Newport, 3% at Ingalls you're forecasting shipbuilding relatively flat top a little bit this year and 3% from here. How should we think about the relative growth rate of new perb versus Ingalls both this year and into the future?

Yes, this is Chris. We don't break out the growth rate by the two shipyards. We have historically said that Ingalls is more flattish moving forward and a lot of the growth is coming from Newport News, but we don't give specific growth rates.

Okay, see if I can hit on one here the R&D amortization Tom what potential impact. Could you guys be looking at there, if that holds?

Yes, so the opinion that we have on that is not constructive to - from an investment standpoint and R&D if I have to amortize over five years. So we'll have to see how that legislation flows out. We have run some models on that. It's not a tremendous impact it does obviously affect the cash on it. I mean our model say, it could be in the 50-ish range $50 million to $100 million range, and we'll have to see how that legislation unfolds.

Okay $50 million to $100 million on annualized cash flow in 2020?

Right, you got to amortize it over five years. Those credits and that's an evaluation we do annually against the portfolio that we have so.

Our next question comes from Gautam Khanna from Cowen. Please go ahead.

I have a question on, good morning, guys. Question on the National Security Cutter program any change in the Biden administration the desire to keep bind these, what should we be looking for 2022 request what's on your contract if you could just refresh us on that?

Yes, we're pushing hard to get NSC 12 appropriated. I think it's kind of like the Navy side where we're kind of living off of the works done on the FY 2022 budget, before this administration got here. And I think the administration now is doing a kind of a top to bottom review of all of that stuff. That's why frankly for DoD you've just seen the top line number come out with not any details behind it. Our view is there is a lot of strong support for the National Security Cutter. The Coast Guard - is gainfully using that platform around the world and we're proud to be able to partner with them to get it done and we're going to continue to pursue it.

Yes, Gautam I could add we've delivered through nine, as you're probably aware 11 kind of 11 on the production there at Ingalls 11 delivers on the 2024 timeframe. As Mike indicated very capable ship and we're working with the Coast Guard for potentially and the Congress to get 12 on the contract.

Okay, understood any discussion of additional Block V resource, this 12 sort of the end of the line on that program?

I think we'll see. I think we're just a lot of new players are coming to the table to have a discussion around it. We're happy to provide whatever requirement the nation needs in that platform.

Okay. And I may have missed it in your opening remarks, but where are we in terms of staffing at the shipyards people showing up like level of absenteeism and/or from COVID where is that?

Yes, we're at normal levels. Yes, we are at normal levels now. I mean, we have our lowest case rates since last summer. We have the fewest number of people in quarantine since last summer. Our third of our workforce, we've actually vaccinated one-third of the workforce. And the workforce is getting vaccinations in other places as well. And so what that's doing is that's just driving our case rates down pretty dramatically. We hired 6,000 people during the pandemic, our hiring plans continue and. And so, we're moving ahead, we expect that by 1st of June, the people in our shipyards that have - that want to get the vaccine will have had access to get it. And so, we're moving ahead.

And last one from me, just curious, is there any precedent for the bundled purchase that you were talking about which maybe LHA and LPD been put together was a bundle across different ship classes, contracting?

We had a competition a few years ago where the competition was around and LHA and a TAO. And we won the LHA, and our friends at NASCO won the TAOs. So we've been building ships in this country for over 200 years. I would say that there is probably precedent for just about everything that's out there.

The next question comes from Robert Spingarn from Credit Suisse. Please go ahead.

Chris, this one's for you. I wanted to ask in your new role. I think one of the things that you're tackling is just moving up the best practices from one yard to the other, maybe across all three businesses. And I was hoping you could expand on that a little bit talk about where the opportunities are within that?

Yes, no that's a really good question. I do, I have had the opportunity to work at Ingalls as a CFO there. And then my corporate CFO job reviewing all the processes at Newport News. And there are significant things that happen within each of the yards and even internal solutions that can be shared. One example I can give is supply chain, the supply chain teams work very closely with each other. They bundle procurements, they look at capacity across the spectrum and they do a very good job at that, their operating systems are a bit different, but they learn from each other, and we bring best practices in the operating systems as well. So I can talk for days on the things we're working on across shipbuilding and within Technical Solutions to learn from each other. But those are just a few of them.

I think on one of our visits, one of the things we saw at Newport News was the implementation of VR - sort of to replace physical blueprints as an example of where technology can come in. Is there an update on how well that's implemented and if you're actually using that yet or if there are other technologies we're talking about?

Yes, so another good question. Digital is absolutely being utilized within Newport News and building a CVN 80 - it's preparing for utilization on the Columbia class. So it's absolutely an investment we're making. It's paying off the craft and the traits like the new product and we're hoping for really great things to come from that.

As anyone quantified the benefit, have you seen at least in testing percentage of man-hours reduced or anything like that?

We have definitely seen a percent increase in savings. We haven't published anything to that regard. It's just at the beginning stages on 80. So we don't want to get ahead of ourselves, but we are achieving savings yes.

The next question comes from Joseph DeNardi from Stifel. Please go ahead.

Just to clarify Carter's question maybe more specifically when you think about an inflationary environment what protections do you have and then where are the risk - and understand you're not seeing anything right now. But to the extent, we do see that where are you protected and where the risks?

Thanks, Joseph. So I just said early on that. Our contracts are a little bit more long-term and say across other industries. We do have the planning cycle long lead on our contracts. We usually our process here as we want to make sure that we have as much material understood on the quote. So when we go on award, the risk of inflation hitting, our handshake values is low on that. Additionally as contracts run out, there are some contracts here with the carriers’ six to seven or eight years, and we bought the material much further where it's tough to get that quote. We still have EPA, indices and pricing bands with the customer that we share in both the potential on the run or the overrun in that. And then obviously these contracts FBI’s so there is some sharing there. But like more immediate as we post right now for the execution of the contracts that we're working today. We don't see that right. I mean there is pockets here and there a piece of material that may be late. But on the whole material is being flown into the yard at the expected times and expectation of costs that the contracts that send it around. So hope that hit the answer to your question.

Okay yes, that's helpful. And then Mike, when you look at 80, 81 and 82, can you talk about the degree of commonality you're expecting from those ships, does the Block Buy ensure greater commonality, so that maybe you can benefit more from serial production. When you think about the opportunity to improve margins on carrier construction, how important is maybe more commonality or - is it something very different than that? Thank you.

Yes, so 80 and 81 are the two ships under contract. 82 is the ship that's out there, Chris alluded to my ancient history as being a program manager. I was actually a program manager for the Stennis and Truman, which was the last time we've built two ships at the same time. I can tell you that the second ship absolutely benefits from the first ship in the way that the teams move from one platform to the next. The learning curves are there. It's kind of hard to think about learning curves on ships that deliver four or five years apart, but they actually it's real. And as you get to the second ship you have well trained crews, who have been through this who are working through it, who are capturing lessons and they are carrying lessons learned with them into that platform. Then the trick will be how do you take what we've learned at 81 and make sure that you do that with 82 and what that means is 82 is got to be on time. If you delay 82, and I've seen this over my whole career, you start spreading these things back out, you start breaking those learning curves. So what 80, 81 means is that you're going to get great efficiency there. I think the Navy advertised $4 billion of efficiency across the enterprise, which that's pretty significant. If you spread that out and you delay 82 and you push it out, you're going to start to cut into that efficiency pretty dramatically. That's what happened after Stennis and Truman of 74 and 75, really came together very nicely. Then we kind of push 76 out to the right a little bit. And then we push 77 out to the right a little bit. And then we push 78 out to the right a little bit. And so all of that we're trying to capture that back. And I would, no surprise, I would argue that the next carrier contract should also be a two-ship by 82 and 83. So but that's just me.

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

Well, thanks for that and thanks for joining us today, and we certainly hope that you and your families are all staying safe and our healthy in this environment as we kind of come through the pandemic. But one final thought for you all, as I'd like to direct your attention to our Investor Relations page on our website, and take a look at our corporate sustainability report. We've been doing a lot of work over many years around these kinds of issues related to sustainability. But we've collected all of that and created a virtual report for you to take a look at, and it's only been up there. I don't know over couple of months, and it's a pretty dynamic presentation, but I'm very proud of what this company does relative to our communities, relative for our employees, for their families, for our customers. I'm very proud of what we do and how we do it, and this is a chance for us to kind of brag about a little bit. So if you get a chance take a look at that. And as always, I appreciate your and we appreciate your interest in our company. Your engagement with us and any feedback that you have, and we look forward to seeing you again soon. Thanks.

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