Ladies and gentlemen, thank you for standing by and welcome to the Second Quarter 2023 HII Earnings Conference Call. [Operator Instructions] Please be advised that today's conference call is being recorded. [Operator Instructions]. I would now like to turn the call over to Christie Thomas, Vice President of Investor Relations. Ms. Thomas, you may begin.

Thank you, operator, and good morning, everyone. Welcome to the HII second quarter 2023 earnings conference call. Joining me today on the call are Chris Kastner, our President and CEO; and Tom Stiehle, Executive Vice President and CFO. As a reminder, any forward-looking statements made today that are not historical facts are considered our company's estimates or expectations and are forward-looking statements made pursuant to the Safe Harbor provisions of Federal Securities Laws. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially. For additional information regarding factors that could cause actual results to differ materially from expected results, refer to our SEC filings. Also, in their remarks today, Chris and Tom will refer to certain non-GAAP measures. For reconciliations of these metrics to the comparable GAAP measures, please see the slides that accompany this webcast, which are available on the Investor Relations website at ir.hii.com. With that, I would like to turn the call over to our President and CEO, Chris Kastner. Chris?

Thanks, Christie. Good morning, everyone. Thank you for joining us. The HII team delivered another solid quarter. Our results demonstrate continued top line growth and steady operational performance. We continue to make progress on our strategy, executing on our significant shipbuilding backlog and growing mission technologies. Not only are we executing on our shipbuilding backlog, we are also delivering all domain solutions to our unique capabilities to connect the different platforms that our customers use to perform their missions. Now let's turn to our results on Page 3 of the presentation. Top line growth was 4.7% from the second quarter of 2022, resulting in second quarter revenue of $2.8 billion. Diluted earnings per share was $3.27 for the quarter, down from $4.44 in the second quarter of 2022. New contract awards during the quarter were approximately $2.6 billion, which resulted in backlog of approximately $47 billion at the end of the quarter, of which $24 billion is currently funded. In the second quarter Ingalls, we laid the keel for LPD 31, Pittsburgh, and successfully completed builder's trials for NSC 10 Calhoun. We also successfully completed acceptance trials and delivered the first Flight III Arleigh Burke destroyer DDG 125, Jack H. Lucas. We expect to launch DDG 128 Ted Stevens, and LHA 8 Bougainville and deliver NSC 10 and LPD 29. Richard M. McCool, Jr., later this year. At Newport News, we christened Virginia class attack submarine SSN 798 Massachusetts, and redelivered the Nimitz class aircraft carrier CVN 73 USS George Washington. Later this year, Newport News expects to float off SSN 798 and deliver SSN 796 New Jersey. As I previewed last quarter CVN 79 Kennedy received the contract modification intended to optimize its construction schedule and deliver a more capable ship to the fleet earlier, which update the expected…

Thanks, Chris, and good morning. Today I'll briefly review our second 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 5 of the presentation, our second quarter revenues of $2.8 billion increased approximately 4.7% compared to the same period last year and represents a record second quarter results for HII. This increased revenue was largely attributable to growth at Newport News Shipbuilding and Mission Technologies. Operating income for the quarter of $156 million decreased by $35 million or 18% from the second quarter of 2020 and operating margin of 5.6% compared to operating margin of 7.2i in the same period last year. The decrease in operating income was primarily due to lower segment operating income, partially offset by more favorable operating FAS/CAS adjustments and more favorable non-current state income taxes compared to the prior year period. Net earnings in the quarter were $130 million compared to $178 million in the second quarter of 2022. Diluted earnings per share in the quarter was $3.27 compared to $4.44 in the second quarter of the previous year. Shipbuilding results in the quarter were in line with our expectations and slightly stronger than the outlook we provided on a first quarter call. Segment operating income in the second quarter of 2022 benefited significantly from favorable adjustments from facilities, capital and economic price adjustment clauses at both Ingalls and Newport News, making for difficult comparison year-over-year as expected. Moving on to Slide 6 Ingalls revenues of $664 million in the quarter increased $6 million or about 1% from the same period last year, driven primarily by higher revenues on the DTG program partially offset by lower NSC program revenues. Ingalls operating income of $65…

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 will turn it over to you to manage the Q&A.

Thank you. [Operator Instructions]. And our first question today is from the line of Doug Harned from Bernstein. Doug, your line is live.

Thank you. Good morning.

Good morning, Doug.

Thanks. On Virginia class, it looks the program right now is it's well behind the two per year delivery objective in Block V. I mean, do you see a path to get there? What are the obstacles here that need to be overcome to get to that rate?

Yeah, the largest obstacle, the largest risk on the VCS program right now is labor and meeting our labor targets. We've worked hard here in Newport News to hire. You saw in my prepared remarks we're ahead plan of over 3,200 heads for the year. So that's some positive indicators. But it's -- this is a labor driven issue. And as I said, we've made good progress. We just need to continue to do that over the next couple of years.

And when you look at Newport News, you're a partner with Electric Boat on Virginia class, but you're a subcontractor on Columbia class. I mean, how do those different relationships affect the way in which you work with Electric Boat on the programs?

Yeah, so it's not a material difference. Obviously, you have contractual differences. But when you get down to the deck plate, those teams work very closely together. There's a relationship that's been developed over a number of years between the two teams. And when you think about the efficiency of getting the work done and potentially transferring some work back and forth, there's obviously contractual mechanisms that need to be put in place under Columbia that you don't need under the Virginia class, but they work very closely together.

So there's no, in your mind there's no real effective difference in the way -- there's no sort of preferred relationship here that one works better than the other?

Not really, the objective there is to get these critical assets to the fleet as soon as we can. So the team works very closely to ensure we're working on that.

Okay, great, thank you.

Sure.

Our next question is from the line of Robert Spingarn of Melius Research. Robert, your line is now open. Please go ahead.

Hey, good morning, Tom. Just a clarification on…

Good morning.

Thank you. And Chris then a high level one for you. But Tom, on the margins, at Mission Technologies, you talked about the 1.4%, but a $6 million impact from the sale of the JV. So was that impact built into the guidance?

No, it wasn't built into it. It wasn't until right now. So…

All right, so this is why you're tracking to the low end. Is that how I should interpret that?

Right, yeah.

Okay, then Chris, a high level question, but between shipbuilding and MT, I thought it might be interesting to hear you talk about how these two businesses can contribute to two priority areas for DoD, and that's CAC C2 and Contested Logistics?

That's a really good question. You kind of teed me up there, interesting, the line acquisition, they have really great AI/ML products and big data products that fit right into CAC C2 and potential CAC C2 missions. And when you think about data and big data and the speed in which data can be understood, it fits right into the contested logistics model as well. We're a LVC enterprise that is not just training. It can fit right into a war gaming concept. Think about war gaming, you think about Op plans. You think about op plans, you have to think about contested logistics. So we have products that that can quickly be adapted to deal with those two issues. We've had high level conversations with the Navy, and other customers about potential applications there. So we think we can add to those products set. We think they're important product sets. And we'll continue to talk to the customer about it.

Thanks so much.

Sure.

Our next question today is from the line of Pete Skibitski of Alembic Global. Pete, your line is now open.

Hey, good morning, guys.

Good morning.

Chris, on the hiring, can you give us the actual net hiring, your net retention numbers kind of after attrition? And maybe can you gauge a level of revenue that could be at risk if you don't meet your net goals for the balance of the year?

Yeah, so we don't provide the right net. There's a lot of things going into that equation. We have over time, we have attendance, we have attrition, we have Job Shop labor that can contribute to that. I will say there's potentially some upside if we're able to continue to meet our hiring growth goals and deal with attrition over the balance of the year. But we just need to see how the year develops.

Got it, okay. And then I want to ask about the Kennedy contract mod, it was a little under $4 million on the mod. Does it raise your -- now that that's in place, does it raise your confidence level in terms of how your performance on that project could trend through next year and, and the potential milestone opportunities for you on the project?

Yeah, I know the team did a really good job incorporating the PSA work into the baseline contract and assessing the schedule and. And we're putting the work or integrating that work into the baseline schedule. We're confident the way that Kennedy is developing, they're meeting their compartment completion goals. They're -- their test rates proceeding and the plants proceeding. So we got a lot of confidence in where the Kennedy is at right now.

Okay, maybe another way of saying it, are the milestone opportunities on the Kennedy meaningful relative to other programs, or should we not, focus so much on the Kennedy?

We're just going to have to see. We're going to have to let things play out over the next 18 months, 18 to 24 months. It's a lot of critical work in front of us. But potentially, if we continue to perform well, there'll be milestone opportunities for sure.

Okay, okay. Thank you.

Sure.

The next question today is from the line of Seth Seifman of JP Morgan. Seth, please go ahead. Your line is open.

Hey, thanks very much. Good morning.

Good morning.

I wanted to ask in Mission Tech, looking at the margin there, and then looking at the contract mix is -- fixed price is a relatively small portion of the mix. I think it's like 12%. And so when you think over time about the profitability that you want to see in that business, and it seems to be an environment where there are more opportunities in the Fed IT services market right now. Is that something that the business is going to try to move higher? Or is that not really consistent with the risk profile that you want to take on?

Yeah, so we believe it will move higher. We're going to -- you indicated that the majority of those contracts are cost plus. That's true, I think over 80%, which drives the margin rate a bit lower. The team at our Mission Technologies is -- we're focused on technology there. So there's going to be a lot of cost plus work, but they're competing very well also and in their pipeline, there is fixed price opportunities, and we're going to pursue those where those make sense. And if we're successful, the mix should improve a bit and margin will improve. Tom, do you have anything on that?

Yeah. So you are right, Seth, CD 7% is cost of [ph] contracts. I would say that there is a move afoot. I mean, we kind of realized the customer sets that we have in the portfolio, there is a move to try it. And as we introduce more technology, that will bring about potential premium on pricing on that front. And then as we get away from services and more into products, that's not an area too where we could see an expansion of the margin on those jobs.

Great, thanks. And then just a real quick follow up, Tom, the Q3 cash flow target that you gave, what does that contemplate with regard to the advance repayment.

So right now, a little color on that right. So we got an extension on that. It was supposed to be repaid by the end of June. It was a two month extension. So in negotiations, the Navy's now going out and understanding how we'll transition the contract back from the advanced prog pay that was in place since 2020. I don't have a negotiated settlement on that yet. So I don't know what that's going to entail. The guide assumes that there's not a payback right now on that. And we'll have to work ourselves through that as we go through here. So that's a normal run rate that we expect for the quarter. It doesn't impact the guide of 400 to 450 that I've said for the entire year. And I would tell you that the best way to model it and take a look at it is stick to that guidance right now. I think another 60 days, we're going to look see and what that negotiations entails, the timing of it, and the impact, although then we have some significant milestones in the back half of the year. So I have three deliveries, two launches, and one float off. Every time I have a delivery, we liquidate the contract. I get the contract price, the Navy gets the ship. There's some retentions for work that was incomplete there. So there's opportunities that's there to work those retentions off. And that's an opportunity for both margin and cash. And then as I work myself to the back half of the year with LTE 29 is not going to hit this year or next year. We're still holding that milestone as a 2023 event. But I would take a look at cash just from now through 2024, the milestone chart that we gave you, the five year look. It's 1.2 billion over the next 17 months. And I'm still comfortable that we're on target to kind of make to make those goals.

Great. Cool, thank you very much.

The next question today is from the line of Myles Walton of Wolfe Research. Please go ahead. Your line is now open

Thanks. Was hoping you could comment on two items. One, the 801 module move. And I guess does that put any pressure on the margin guidance range for this year? And then also on LHA-8, were there any costs that you had to absorb in the quarter or was it minor and sort of non material?

Yes, I'll handle that and Tom can chip in if he needs to. So 801 had some late breaking rework that pushed up module to the beginning next year. It was late in the year delivery. So just modest, really not a material impact that, as I said to Doug previously, teams pretty good at moving work back and forth to ensure they do that as efficiently as possible. So not a material impact on 801. On LHA-8 I think, first things first, I don't want to just kind of gloss over a pretty significant thing that we like. We really pay attention to in the shipyards is the fire on LHA-8, first thing you have to do is make sure everybody's safe. The team did a really good job. The first responders made sure no one was hurt. Just minor smoke inhalation. But the shipbuilders, and the Navy personnel were safe. Second thing is to limit the damage. They did that, really minor damage to one compartment, some waterways [ph]. We put a corrective action plan, did a root cause analysis. We're working through that corrective action plan now. So the important thing is that we learned from this issue. So no real cost, or cost to schedule impact that's material on LHA-8, and the milestones for that that ship remain intact.

Okay, thanks for that. And then just on the buying out of Honeywell's portion of the Savannah River JV, what's the expected outflow for your incremental portion being acquired?

Yes, so it's already in, right.

So we paid that. Right now it's in the -- you can see that in the cash flow investing is $24 million on the out and we expect to get additional margin and cash in the out years. We haven't defined that.

Thank you.

Thanks Myles.

Our next question is from the line of David Strauss of Barclays. Please go ahead. Your line is open.

Great, thank you. Good morning.

Good morning.

Tom, can you just give us an update kind of working capital progress year-to-date, it's tracking? I think you're about 8% of revenues now net working capital if you're tracking where you would expect it year-to-date, remind us again of what you're expecting at the end of the year. And what you're baking into the '24 free cash flow forecast.

Yeah, so I am on plan. And consistent with the forecast and discussions we've had past earnings releases 8% about right of where I find myself right now, popping out of this quarter. I work myself through the back half of the year with the shipyards to get around the 6% target that we've talked about. And then there is some tailwinds as we go from '23 to '24, consistent with what we've had, in past discussions. We used to think of for Mission Technologies the 6% to 8%, was the norm of where we think working capital would be in the yard as Mission Technologies has grown. And we've gotten to more of a cadence between the two yards and our shipyard production programs. I look at it more as 4% to 6%. And we'll finish this year out on the higher end of that range. And then as we work ourselves into 2024, we'll be on the low end of that range here. Just the cadence making milestones or schedule deliveries, we settled down both in material and the labor that we give me some status about. And that's going to bring about some consistency and keep us in the norm range, as I see in the coming years going forward.

Okay, great. And then follow-up in terms of the shipbuilding margin, that's implied for Q4, are you or are we potentially looking at a margin at Ingalls in a similar range to kind of what we saw in the first half of 2022, when it was strongly in the double digit range? And if LPD-29, that delivery does slip, how much risk is there to the Q4 margin guide? Thanks.

Sure. So we don't give specific forecasts by each yard. But obviously, we can do the math here. It's 6%, 7%, [ph] at the first quarter and 7% for this quarter for Q2 for shipbuilding. And we're guiding 7% for Q3. It's in the low to upper ranges for Q4 and the 9% for shipbuilding across both yards. I'm very comfortable with that. I think I gave an answer earlier, but I'll hit it again. Yeah, we still have three deliveries, two launches, one float off all in Q3 and Q4, heavily loaded in Q4 timeframe. Both of the deliveries themselves that are upcoming, and the two that we've had this year, have retentions and releases associated with that, that bring both margin and cash. And then on the back half we have some smaller incentives and some change adjudication to that will play out. So I think '23 is opposite of '22. We saw a very strong first half, specifically, as you mentioned Ingalls is in the 13% to 16%, Q1 and Q2. I won't get into the breakdown in the yards as a forecast for the back half of 2023. But I'm comfortable that back half is going to be meaningfully higher than the front half, with the pacing here for the first half of this year.

And the risk around if LPD 29 slips, the delivery.

So it's at the very back half of the year here. As we come through we've talked in the past, whether the deliveries are clean, or the timely or do they go around what we want with a lot of retentions or not. Right now LP 29 is progressing well. We don't see any avenue that is our way right now. We'll have five months of things to do, taking the ship to see and burning down risk there. But we'll have to see how that plays out. I don't want to overly play my hand on that. It's one ship and one milestone in the context of the shipbuilding here. So I don't think it will either overly hurt or overly help us. And I think I think the guide's appropriate right now. We still maintain the 7% to 8% shipbuilding margin by yearend.

Thank you.

Thanks.

Our next question is from the line of Gautam Khanna of TD Cowen. Gautam, please go ahead. Your line is open.

Hey, good morning, guys.

Good morning, Gautam.

Hey, I was wondering, remember when the fit up came out, and there were different schedules for various ships, in terms of delivery dates and the like. And I'm just curious, relative to the prior update, I was curious if you had any better color on how to reconcile that with your own expectations for delivery dates over the next couple of years.

Yeah, I can start then then then Tom can chime in. I think it's context and timing on those delivery dates, and really assessment of risk. They might move a couple of months or have a different representation of deliveries a couple months, one way or the other. But we assess our, our EACs and our schedules on a very consistent basis. You're looking at a one time adjustment potentially or notification to Congress. So I really think it's a context issue more than a more than a disconnect. Because we work very closely with our customers so that they understand where we are from a schedule standpoint, how we're assessing the schedule. They have their own point of view on the schedules, and it's very reconcilable.

I don't really have much more to add on that. On an annual basis as the NDAA and the budgets pop out, and then obviously we take a -- look at the [indiscernible], which gives you a five year look at the forecast on funding perspective, we reconcile where we stand. It's a cross reference of what we do anyway, every 13 weeks doing EACs and we make sure that we align actuals to date and estimates to complete where we are with our labor and material performance and burn and expectations of future performance. And all that gets baked into revised EAC that marries home, to an updated long range strategic plan that we have, a labor resource plan and then the master construction schedules that we have at each site. So we're locked tight with ourselves. And then we have monthly reviews with our program offices into our customer. So I don't think there was any disconnect there.

Okay, and just if you wouldn't mind providing the EACs the net EACs by segment and also there was some language in the release about VCS favorable variance. Could you just give us a quick update on how that that program is performing? And if there was a favorable EAC on that program in particular? Thanks.

So the net -- I'll start with the VCS performance then Tom will talk about the net EACs in the quarter. So yeah, VCS is definitely showing some stability and some positive momentum. So as Tom said, we assess our EACs every quarter and there's nothing material to note, but there is some -- the team's working very hard, the program team, on VCS, to meet their milestones and meet their cost targets, in really kind of a difficult macroeconomic environment. So there is some progress there. There's definitely some progress on stability on VCS. I continue to think the best thing we can do on the VCs program is meet our commitments on the block for contract, get those ships and modules out and then transition into Block V where we have more where we have more opportunity. So with that Tom the EACs.

Yeah, and the favorable, the gross favourable was $72 million, unfavorable was $52 million. That net was $20 million. And that was that was made up of $17 million Ingalls or 85% and $3.9 million or 15% in NMT. There was no specific favorable or unfavorable. That was material. Thanks.

Great.

Our next question today is from the line of George Shapiro from Shapiro Research. George, please go ahead. Your line is open.

Yes, Tom. If you just look at the free cash flow implied in the fourth quarter, the midpoint's around $360 million. Of the milestones that you have listed for Ingalls in Newport for the fourth quarter, what are the key ones that would contribute to that?

So I think it's a host of it. You can run down if you go to the slide on the milestones, the launches and the deliveries that we've talked about, the retention releases on delivered ships. We've talked about adjudication to change. There's some minor incentives that we pick up too. So usually because of the seasonality, you do see Q4 to be very strong for us. We saw that last year with over $0.5 billion in Q4. So I think the plan and the milestones are situated for us to generate that same type of result this year. I would want to clarify, it's early. I think I want to make sure everyone understands what I said the guide specific -- the guide specific for Q3 assumes that there is a repayment for COVID right now. My comment was since I don't know of any change with the Navy, and what that could do, we are sticking to how we guided at the beginning of the year 4 to 450 with the COVID repay is going to occur this year. If and when that changes and we know how much we will give you some more color. I would expect that come the November call for Q3 we'll have a real good look at the milestone performance, how the rest of the year is wrapping up and we anticipate when the negotiations with the Navy is behind us, and give you more color on that.

Okay, thanks very much.

Thanks, George.

Our next question is from the line of Ron Epstein from Bank of America. Ron, your line is now open. Please go ahead.

Hey, good morning, guys. Just a couple of quick ones.

Good morning.

Could you speak a little bit about the DDG-51 award that was pretty gigantic? How that's going to play out? Was it a competitive bid? I'm guessing it was right? And now you're thinking about that? But let's start with that.

Yeah, so DDG-51, excellent job by the Ingalls team competing for that. It was competitive. There's a standard competitive environment between the two shipyards, both of which are very, very capable shipyards. Getting awarded six is very positive, just shows the demonstrated proficiency of that Ingalls team on executing. Obvious we've delivered DDG-125 already. And we're proceeding on the next three destroyers. So really, really a positive indicator. What it does is provide a lot of stability for Ingalls moving forward. That should fix ship by combined with LPDs and support for LPD 33 and potential bundle arrangements for LPDs and LHA moving forward provides a lot of stability for Ingalls. And it's very positive.

Got it? Got it. And then on the Savannah River stuff, my understanding of how the accounting would work, that you guys would potentially take a gain, right. I think that's how it works. Are you deferring it? Or did you take a gain in the quarter?

No, we didn't take a gain in the quarter right now. So we become a higher owner of the joint venture, still a minority owner, but a higher owner of it. So as proceeds are released, it's consolidated. How that's recorded as gains happen in the future, they'll be higher than what we've had in the past. So I expect that to play out over the next couple of years.

Got it. So it wasn't like an event where you could mark to market and your carrying value would be greater or whatever.

No.

Got it. Got it. And then can you just speak a little bit to how it's going in terms of retention of employees and how the workforce has evolved here as we recover from kind of all the COVID disruptions?

Yeah, workforce is definitely evolving. Ron, thanks for that question. As I said previously, hiring is better, right. The applicant rate is better, but retention is still a challenge. And what we're finding is the days of hiring someone, training them and sending them down to the deck plate are really over. We need to ensure that the new hires that don't come through our established programs, because the apprentice school, community colleges, the high school programs are still very successful, when it comes to retention. But the walk-ins, we need to make sure that we shepherd them through the process of the next, 12 to 18 months of their employment, to make them understand that this is a good career, and there's opportunity for growth and stability. So that's really the fundamental change is the walk in applicants are just not the same as they used to be. So that's what both Ingalls and Newport, Newport News are working on.

Got it? All right. Thank you very much.

Sure.

And the next question is from the line of Noah Poponak of Goldman Sachs. Noah, your line is open.

Hey, good morning, everyone.

Good morning, Noah. If I take the MT revenue guide to be flat sequentially in the third quarter, I think we'd have to be, maybe down a little or flat year-over-year in the fourth quarter to be at the 5% for the year, after being kind of six to eight through the first nine months of the year. So how much of that is just kind of leaving some conservatism there? How do you see the MT organic revenue growth profile from here?

So, at 645, that's a record quarter that they've had followed, 624, which was the previous record quarter. Feel comfortable with right now. I think 645 is a balance between -- there's new awards that happened -- occur and then get delivery orders funded and awarded for that, get heads in here. I do think there could be some upside here. So we'll see how that plays out. We look at a Mission Technologies, they grew 4%. Last year each of the six business units grew. We see quarter-over-quarter, it's 7.5% sequentially, grew over 5% right now. So I think north of 5% is the right way to kind of take a look at that. We'll see how that plays out. They on a good string right now of awards. And they're working hard to kind of fill the seats, funded seats that they have. So it's going to be a function of awards and labor as we go forward. But I'm feeling good about the pipeline I have there. Although the book to bill is low right now. I think that's going to come on in the back half of the year. We'll see that pop up on. There's still a plethora of awards for Q3 and Q4 that we're keeping a close eye on here right now. I think that business is starting to really play out and justify the acquisition of alliances, as we see a sales ramp that's happening.

Yeah, so Noah, I could I could add that, not to jump into the early wins in Q3, but on a total contract value, not just awarded, we're almost $4 billion of awards for this year, which is really a record for [indiscernible] and Mission Technologies together. It's kind of unprecedented. That team is really doing very well and will create a lot of stability into the future and potential growth, for Mission Technologies.

Okay, appreciate that. And Tom, the 7.7% to 8% for the full year shipbuilding margin, it's a relatively tight range. But if I keep it flat sequentially in the third quarter, to get to the low end of the full year, the fourth quarter would need to be close to 9% and to get to the high end, it would need to be close to 10.5%. Can you speak to where in that range, do you see I know the milestones need to occur and every milestone is different. But where in that range, do you more likely see the 4Q shipbuilding margin falling?

Yeah, I think we're splitting hairs right now. I mean, you can see that there are a lot of milestones out there. Things and then there's incentives and adjudication to change to that occur, LPD 29 a piece of it, although we said early it's not a big swinger, but it does contribute to the margin and the end results. I wouldn't want to get too precise. I mean, 7.7% 8.0% is pretty precise right there. But I do expect it when you run the math we said 6.7% 7.4% through Q2, another 7.4% about for Q3. We will be in the 9%s for Q4 is the math of it. And I feel comfortable with what's on our plate, the performance I see today. The avenue, I speak daily and weekly with the CFOs out in the yard. So I know what's in front of them and what has to get done both from a performance end of it and then what has to get done on the contract side. And we're very much in place to finish up in that range.

Got it? And then just one other item, back to that attrition question, Chris, has the rate of attrition slowed through the year? I know that's another kind of specific question, but it seems like a pretty important element into your total labor equation.

So it's definitely lower than it was coming up COVID. It's been pretty consistent this year. I don't I haven't seen a lot of slowing in attrition this year. It's still the walk in early career people that really aren't prepared for the rigors of shipbuilding. It's a challenging job. And we're just working very hard to get them prepared to understand the real benefits of being a ship builder.

Okay, thanks, guys. Appreciate it.

Sure. See you Noah.

Our next question is from the line of Pete Skibitski of Alembic Global. Pete, your line is now open.

Yeah, Chris, although we've talked about this, but the Navy, I think is working up the strategy for the Nimitz retirement. Then there's an RFI out there. Can you talk about -- if you think HII will have a roll on that? Maybe the timing and sizing of that. Just your thoughts on that overall?

Yeah, so we will absolutely have a role in it. There's a lot of planning going on within the Navy and Newport News on integration of RCA, OHS, and retirements. We obviously did the enterprise, uniquely qualified to do it. And so it's really kind of an advance planning, actually, because it's kind of a dance between the RCA OHS and then finishing the ships and doing the DND. So absolutely. It doesn't change my perspective about the long term growth rate of the business. It's integrated into the forecasting. And Newport News will probably do that work.

Okay, but maybe it's like a mid decade to slightly after mid-decade before it starts?

I hate to give you a specific time, but it's integrated over the next, 10 to 15 years, to 20 years, actually.

I see. Okay, thank you.

It's all in the mix. It's all in the mix, Pete, when you think about their plan, and how we forecast the long term growth rate of the business.

Got it.

Thank you. I'm not showing any further questions at this time. So I'd now like to hand the call back over to Mr. Kastner for any closing remarks.

Yeah. Thank you for joining us today. We appreciate your interest in HII and look forward to continuing to engage with you all going forward.

That concludes today's conference call. You may now disconnect your line.