Huntington Ingalls Industries Inc

NYSE:HII

Earnings Call Analysis

Increased Operating Income and Raised Guidance

The company's latest quarterly results showed a 7.2% increase in revenue year-over-year, achieving a record $2.8 billion, and earnings per share rising from $3.44 to $3.70. Operating income grew by 31% to $172 million. Free cash flow guidance for 2023 has been increased by $75 million to approximately $500 million, reflecting strong performance and the resolution of COVID-related payments. Furthermore, shipbuilding revenue guidance for 2023 has been lifted to the range of $8.5 billion to $8.6 billion, and Mission Technologies' guidance has been raised from $2.5 billion to approximately $2.55 billion.

Shipbuilding Margin and Milestone Focus in Q4

The company reported a Shipbuilding operating margin of 7.5% for the third quarter, which aligns with the provided outlook and expects the full-year margin to remain unchanged. Significant shipbuilding milestones are anticipated in the fourth quarter, which could potentially influence margins and overall performance by the end of the year.

Mission Technologies Drives Revenue Growth

An impressive 15% revenue growth was recorded in Mission Technologies, spurred by an increase in mission-based solutions, specifically C5ISR and cyber, electronic warfare, and space programs. This growth led to a $10 million jump in operating income compared to the previous year, indicative of the division's expanding profitability.

Strengthening Cash Flow and Upward Financial Guidance

A solid cash flow was demonstrated in the quarter, with operations generating $335 million. The takeaway here is the significant boost in free cash flow, reaching $293 million for the quarter, a stark contrast to the negative flow in the previous year. This financial robustness led the company to raise 2023's free cash flow guidance to approximately $500 million, reflecting an enhancement of $75 million from the previous midpoint guidance.

Boosted Revenue Guidance Across Divisions

Encouraged by strong performance across the board, the company has revised its revenue guidance, increasing the midpoint for shipbuilding from a range of $8.4 billion - $8.6 billion to $8.5 billion - $8.6 billion. Additionally, the Mission Technologies revenue forecast has been lifted from $2.5 billion to $2.55 billion. Importantly, margin guidance for both shipbuilding and Mission Technologies has been reaffirmed.

Market Opportunities and the Road Ahead

The company foresees prospects for market expansion in regions such as the UK and Australia, particularly focusing on medium to long-term opportunities. While current financial materiality is not significant, the influx of funds in the next year for workforce development, supply chain assessment, and infrastructure support shows promise for future growth.

Workforce Dynamics and Digital Integration

Meeting or exceeding hiring forecasts indicates the company's effective workforce management. New hires generally take three to five years to be fully productive, but the adoption of digital shipbuilding tools could streamline this process, potentially enhancing operational efficiency and accelerating talent development within the company.

No Unexpected Maintenance Surprises Projected

The company expects maintenance at Newport News to generate a steady income flow, with potential to capitalize opportunistically on any suitable projects that arise at Ingalls. Currently, the focus at Ingalls is on ship upgrades, notably on DDG 1000, rather than maintenance per se.

LPD 29 Delivery: A Race Against Time

The delivery of LPD 29 is a pivotal event scheduled for this quarter, although it will be closely contested to meet the deadline. The final stages of the ship's completion and subsequent work post-delivery carries a certain level of earnings sensitivity which is a crucial factor in the end-of-year financial risk assessment.

Earnings Call Transcript 2023-Q3

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to the Third Quarter 2023 HII Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] .

I'd like to hand the call over to Christie Thomas, Vice President of Investor Relations. Ms. Thomas, you may begin.

[Christie Thomas, executive]

Thank you, operator, and good morning. I'd like to welcome everyone to the HII Third Quarter 2023 Earnings Conference Call. Joining me today on the call are Chris Kastner, our President and CEO; and Thomas Stiehle, Executive Vice President and CFO.

As a reminder, statements made today that are not historical facts, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to future events or our future financial performance, and involve known and unknown risks, uncertainties and other factors that may cause our actual results to be materially different from future results expressed or implied by these forward-looking statements.

Please see our SEC filings for important factors that could cause our actual results to differ materially from expected results. 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 our website's Investor Relations page at ir.hii.com.

With that, I would like to turn the call over to our President and CEO, Chris Kastner. Chris?

[Christopher Kastner, executive]

Thanks, Christie, and good morning, everyone. Today, we released quarterly results that demonstrate continued top line growth across all 3 of our divisions, steady operational performance and strong free cash flow generation. Our focus on the fundamentals of the business is evidenced through our strong 5.3% year-to-date revenue growth or outstanding $2.4 billion book-to-bill in the quarter at Mission Technologies and continued shipbuilding milestone achievements.

Given our year-to-date results, we are pleased to increase our 2023 revenue and free cash flow guidance and Tom will provide more information on these increases during his remarks.

Our talented workforce remains focused on executing our strategy, supporting our customers' top national defense priorities by delivering quality platforms, technologies and solutions and in parallel, winning new business leading to growth opportunities.

Before I get into the results, I would like to thank our HII employees at all 3 divisions for their dedication, innovation and customer focus.

Let's turn to our results on Page 3 of the presentation. Top line growth increased 7.2% from the third quarter of 2022, resulting in a record third quarter revenue of $2.8 billion. Diluted earnings per share was $3.70 for the quarter, up from $3.44 in the third quarter of 2022. New contract awards during the quarter were $5.4 billion, which resulted in backlog of approximately $49 billion at the end of the quarter, of which $27 billion is currently funded.

Shifting to an update on our shipbuilding milestones in the third quarter at Ingalls we launched Amphibious Assault ship LHA 8 Bougainville and laid the keel for LHA 9 Fallujah. Also, we successfully completed acceptance trials for NSC 10 Calhoun and delivered her last month.

In addition, we successfully launched and christened the Flight III Arleigh Burke-class destroyer DDG-128 Ted Stevens. Finally, LPD 29 Richard McCool, Jr. is expected to complete acceptance trials and deliver in the fourth quarter of this year.

Ingall's contract awards this quarter included a $155 million contract for the modernization of USS Zumwalt DDG 1000 and -- and a significant award of 7 of 10 Flight III Arleigh Burke-class destroyers in the FY '23 DDG multiyear procurement competition.

At Newport News, we continue to make progress on the Virginia-class attack submarines as we laid the keel of Oklahoma, SSN 802 and we reached pressure hull complete on Arkansas SSN800. -- and -- We expect to float off SSN 798 Massachusetts and deliver SSN 796 New Jersey before the end of the year.

We also continue to make progress on nuclear powered aircraft carrier construction, CVN 79 Kennedy is focused on compartment completion and the test program, having turned over more than 70% of the ship compartments to the Navy and lighting off combat systems for integrated testing. CVN-80 Enterprise is progressing well and is approximately 25% complete. The cost for the combined buy of CVN-80 and 81 has benefited from the bundling and early procurement of the majority of the material. So much so that over 70% of the material for CVN-81 has already been placed on order generating significant savings over the traditional approach to ordering.

However, due to major component delays from the supply chain, driven primarily from COVID and the labor and supply chain effects subsequent to COVID. delivery of CVN-80 is forecasted to be approximately 12 months late. To mitigate the delay, HII has worked with the Navy to employ innovative build techniques, which minimize the impact of CVN-81.

At Mission Technologies, we saw the third straight quarter of record revenue with sales of $685 million, 15% over the third quarter of 2022. We -- In addition to strong sales growth, Mission Technologies also won several major strategic competitions in the quarter and now has posted over $5 billion in potential total contract value bookings year-to-date. These awards resulted in a third quarter backlog book-to-bill of $2.4 billion and a year-to-date backlog book-to-bill of 1.2 million.

Significant wins in the quarter included the $1.4 billion joint network engineering and emerging operations task order, the $347 million contract for the Navy's Lionfish SUUV program and $244 million task order to integrate Minotaur software products into maritime platforms for the Navy, Marine Corps and Coast Guard.

Shifting to activities in Washington, the federal government began the new fiscal year under a continuing resolution, which funds government operations through November 17. The -- While we applaud the congress for including an anomaly in the CR that will allow DoD to deviate from typical restrictions and obligate funding to begin construction of the second Columbia class nuclear submarine. We look forward to Congress proceeding as expeditiously as possible on appropriations bills.

We also look forward to Congress completing their work on the fiscal year 2024 National Defense Authorization Act with the respective bills of the House and the Senate reflecting strong support for shipbuilding and other national security priorities.

Final outcomes will depend on eventual respective conference negotiations between the appropriations and authorization committees, we are encouraged by the support of our programs thus far in the 4 committees of jurisdiction during the fiscal year 2024 budget cycle.

Now turning to labor. We have hired nearly 5,400 craft personnel year-to-date through the third quarter, which puts us 8% ahead of our full year plan of approximately 5,000. We -- We have work to do to improve our retention rate and the shipbuilding teams are laser-focused on addressing this challenge. Retention and attendance and the acceleration of workforce development will remain consistent focus areas for us going forward. In summary, this was a very strong quarter, demonstrating continued focus and progress on our strategy of executing against our backlog and driving growth in Mission Technologies.

We remain committed to continuing to create value for all of our stakeholders, our employees, customers, shareholders, suppliers and communities. And now I will turn the call over to Tom for some remarks on our financial results. Tom?

[Thomas Stiehle, executive]

Thanks, Chris, and good morning. Today, I'll be to review our third 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 6 of the presentation, our third quarter revenues of $2.8 billion increased approximately 7.2% compared to the same period last year and represents a record third quarter result for HII. This increase in revenue was largely attributable to growth at Mission Technologies and Ingalls Shipbuilding.

Operating income for the quarter of $172 million increased by $41 million or 31% from the third quarter of 2022, and operating margin of 6.1% compares to operating margin of 5% in the same period last year. The increase in operating income was primarily due to higher segment operating income, a more favorable operating FAS/CAS adjustment and more favorable noncurrent state income taxes compared to the prior year period.

Net earnings in the quarter were $148 million compared to $138 million in the third quarter of 2022. Diluted earnings per share in the quarter was $3.70 and -- compared to $3.44 in the third quarter of the previous year.

Moving on to Slide 7. Ingalls' revenues of $711 million in the quarter increased $88 million or about 14% from the same period last year. driven primarily by higher volumes on amphibious assault ships and surface combatants. Ingalls operating income of $73 million and operating margin of 10.3% in the quarter increased from last year, primarily due to higher volumes I mentioned earlier and favorable changes in contract estimates compared to the prior year.

At Newport News, revenues of $1.45 billion increased $8 million or 1% from the same period last year. Newport News operating income for Q3 was $90 million, a decrease of $12 million compared to the third quarter of last year. Operating income was lower due to contract incentives earned in the Columbia-class program in the third quarter of 2022, partially offset by improved performance on the Virginia-class submarine program.

Shipbuilding operating margin in the third quarter was 7.5%, slightly ahead of the outlook we had provided for the quarter. Our shipbuilding operating margin outlook for the full year remains unchanged. And as we have previously noted, our expected shipbuilding milestones for 2023 are concentrated largely in the fourth quarter.

At Mission Technologies, revenues of $685 million increased $90 million or about 15% compared to the third quarter of 2022, primarily due to higher volumes in mission-based solutions driven by our C5ISR in Cyber, Electronic Warfare and Space Programs. Mission Technologies operating income of $24 million compares to operating income of $14 million in the third quarter of last year. The increase in operating income was driven primarily by the higher volumes I just mentioned as well as improved performance in unmanned systems. Current results for Mission Technologies included approximately $27 million of amortization of purchased intangible assets. Mission Technologies EBITDA margin in the third quarter was 8.2%.

Turning to Slide 8. Cash from operations was $335 million in the quarter. Net capital expenditures were $42 million or 1.5% of revenues. Free cash flow in the quarter was $293 million. This compares to cash used in operations of $19 million, net capital expenditures of $77 million or 2.9% of revenues and free cash flow of negative $96 million in the third quarter of 2022.

The -- Cash contributions to our pension and other postretirement benefit plans were $11 million in the quarter. During the third quarter, we paid dividends of $1.24 per share or $50 million in aggregate. We also repurchased approximately 100,000 shares during the quarter at an aggregate cost of approximately $21 million. Year-to-date through the third quarter, we have repurchased approximately 176,000 shares at an aggregate cost of approximately $37 million.

Moving on to Slide 9. I'd like to provide an update on our pension sensitivities for 2024. We -- Our forecast in early 2023 assumed asset returns of 8% and a discount rate of approximately 5.5%. Through the end of the third quarter, discount rates have increased approximately 60 basis points and our year-to-date asset return is roughly 4.6%. Pension related numbers are subject to year-end performance and measurement criteria. We will provide a multiyear update of pension estimates on our fourth quarter earnings call in February. Also, I would like to highlight that our pension funded status remains strong and has improved year-to-date. Additionally, I will note that the cash flow impacts related to pension changes remain minimal.

Moving on to Slide 10. Given the strong third quarter free cash flow, we are increasing our 2023 free cash flow guidance to approximately $500 million, an increase of $75 million from the prior midpoint guidance. This increase is primarily driven by the conclusion of the negotiations regarding the repayment of COVID advances as well as positive cash flow contributions from Mission Technologies. We continue to expect approximately $1.2 billion of free cash flow over the 2-year period of 2023 and 2024. I'll highlight that we continue to expect to distribute substantially all free cash flow to shareholders through 2024 after planned debt repayment, which is currently on track.

Turning to Slide 11. In addition to increasing our fiscal year '23 free cash flow guidance, we are increasing our revenue guidance for both shipbuilding and Mission Technologies. Given the strong third quarter revenues across all 3 divisions, we are increasing the midpoint of shipbuilding revenue guidance by revising a range from $8.4 billion to $8.6 billion to a range of $8.5 billion to $8.6 billion. in increasing our Mission Technologies revenue guidance from approximately $2.5 billion to approximately $2.55 billion. This is an increase to the midpoint of shipbuilding revenue guidance of $50 million and an increased emission technologies revenue guidance of $50 million. Additionally, we are reaffirming our shipbuilding emission technologies margin guidance.

To summarize, we delivered strong revenue growth in the third quarter and finished slightly ahead of our margin expectations for the quarter. We also delivered strong free cash flow. Mission Technologies had an impressive third quarter backlog book-to-bill of [ $2.4 billion ] and year-to-date has the potential total contract value awards of over $5 billion in addition to a robust opportunity pipeline of $70 billion. Looking to the end of the year, we are pleased to raise 2023 revenue and free cash flow guidance. and reaffirm margin guidance as we continue to execute the milestones and commitments that we've laid out.

With that, I'll turn the call back over to Christie to manage Q&A.

[Christie Thomas, executive]

Thanks, Tom. As a reminder to everyone on the call, please limit yourself to 1 initial question and 1 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. .

[Operator]

Thank you, Christie. [Operator Instructions] Our first question today comes from Scott Deuschle from Deutsche Bank.

[Scott Deuschle, analyst]

Chris, what's the financial impact from the delay on CVN 80, I think you said it was 12 months? And then was that delay known when you closed the books and [ accrued ] the EACs for the quarter?

[Christopher Kastner, executive]

Yes, approximately 12 months. And we've been holding that risk for a while on our financials. So there's no financial impact related to it. That impact is driven by some issues in the supply chain and some major equipment in the bottom of the ship. but no financial impact related to it and the team is doing their best to mitigate the impact. The good news on that is we do have some EPA protection, which mitigates it a bit, but the team is focused on it and they're going to do their best to mitigate the impact going forward.

[Scott Deuschle, analyst]

Okay. That's great. And then I think one thing that's been maybe a bit confusing to investors is trying to understand the impacts to Huntington or the read-through when your partner books negative EACs on Block V Virginia-class boats due to supplier costs. Can you just maybe like level set us on how we should interpret that?

And I realize your booking rates are probably lower than there, so it doesn't necessarily mean you book -- need to book negative EACs, but does it have any impact to your longer-term margin trajectory on Block V.

[Christopher Kastner, executive]

Yes. So we evaluate our EACs on all our programs on a quarterly basis and take appropriate adjustments up or down as we see fit. I continue to believe that there's opportunity in Block V as we transition out of the Block IV boats and get into -- in the Block V, we should have some upside. But I wouldn't comment on our partners' accounting, but I'm very comfortable with where we're at.

[Operator]

Our next question today comes from David Strauss from Barclays.

[Unknown Analyst]

This is actually Josh Corn on for David. I wanted to ask about the outlook for shipbuilding margins in 2024, if you see any improvement and what some of the drivers might be? .

[Christopher Kastner, executive]

Yes. So I fully expect incremental improvement in shipbuilding margins as we move forward. It's all about transitioning out of the Block IV boats and Newport News into Block and continuing to improve in Newport News. So the story hasn't really changed quarter-to-quarter. Newport News continues to stabilize. Labor is good, hiring is good. We still need to work on retention. but I'm comfortable with where we're at.

[Operator]

Our next question comes from Doug Harned from Bernstein.

[Douglas Harned, analyst]

On your margins at Newport News, you talked about you met your goal of 7.4% for the quarter. But when you look at the margin improvement you're going to have to have in Q4. Can you walk through what has to happen there? Because you're going to have to get a lot of upside in margins in Q4 to meet your guidance, it looks like.

[Thomas Stiehle, executive]

It's Tom here. So we have been consistent throughout the year. You're saying that the ship building milestones for in the back half of the year, specifically for Newport News, they had 2 large milestones there on 796 delivery and then the 798 float-off. So that's going to be a driver in the back half of the program. There's a lot of focus down there.

Chris has talked about the hiring and the attrition that we're going, the extra training, the operating system that we've added down there. I think as COVID becomes further and further in the rearview mirror against the portfolio of contracts that we have right there. opportunity sets are abound as we [indiscernible] ships that were impacting the start new ships, although we start them off at a lower level. That incremental margin improvement story exists, especially at Newport News.

But specifically just on Q4, I think for the last 13 weeks of the year, its continued performance on the ships that we have here and kind of hitting the milestones I just described, ensuring that we're getting progress and watching the hedge we have on the programs and keeping the rework in check.

[Christopher Kastner, executive]

Yes. to support that, it's absolutely 796 needs to get delivered. That boat is essentially complete. we should need to get through trials. 798 needs to float off and then 29 needs to continue to complete their test program and get through their trial efforts. So it's going to be a race to the completion on 29, but we're fine with where we are now.

[Douglas Harned, analyst]

And then when you look at the submarines, and Columbia-class becoming more and more important. I mean how -- what is the -- can you describe what the mix is right now in your work between Columbia-class versus Virginia-class? And how you think of Columbia-class as it grows affecting margins over time? .

[Christopher Kastner, executive]

Welll, Columbia class, as you know, we only build 22% to 23% and -- of that boat, the bowls and the sterns. It will grow in importance at Newport News and provide a good source of growth. But how we perform on the VCS program is going to really dictate how Newport News does in the long run.

The Columbia-class is important work. It's high priority work, but it really won't dictate margin performance going forward in Newport News.

[Operator]

Our next question comes from Ron Epstein from Bank of America.

[Unknown Analyst]

This is [indiscernible] on for Ron. Would you able to give more color -- would you guys give more color on the retention rates of where they are now? And also to -- for all the new hires that you have when you expect them to reach optimal efficiency. .

[Christopher Kastner, executive]

Yes. So we don't provide our retention rates. We're meeting -- we're actually beating our hiring forecast for the year. So we feel good with where we are there. The second -- what was your second question again, I'm sorry?

[Unknown Analyst]

How long for the new hires fully working?

[Christopher Kastner, executive]

Yes. So we talk about 3 to 5 years, the interesting stuff -- some of the interesting things we have going on in Newport News is digital shipbuilding, which we think will increase the time of talent. But we generally think 3 to 5 years, and we can accelerate that with some of our digital tools.

[Unknown Analyst]

Got it. Okay. And then one other question, too. For the [ OCUS Funding ] The $3 billion and then also the other supplemental from the White House for $3 billion. Are you guys seeing that flow through? Or do you expect it? And can you size it? .

[Christopher Kastner, executive]

Yes. We absolutely expect it eventually to flow through. We -- OCUS is very important to us. We actually see that as an opening of markets, right? It's an opening of markets in the U.K. and Australia. We think in the short term here, it's really not material financially, but funds could flow next year. in important areas like workforce development, supply chain assessment, infrastructure support.

We're following the Navy's lead on this. They absolutely are being very methodical in how they think through this, but we're standing ready to support them and look forward to. But it's really from a top line standpoint, it's more of a medium to long-term opportunity. But we need to make sure that we're taking the steps now to ensure that we're prepared for it.

[Operator]

Our next question comes from George Shapiro from Shapiro Research.

[George Shapiro, analyst]

Chris, I guess you increased your free cash flow for this year, but reduced it for next year. So what was the timing that really caused that to occur? Because obviously, you left a 2-year number the same. .

[Christopher Kastner, executive]

Yes. I was just -- it's just timing, George. As you know, from time to time, we're you get received slowing in sooner than you expect. The team is working very hard on working capital. It's a focus for us. I'll let Tom go into specifics.

[Thomas Stiehle, executive]

Yes. So specifically here on 2023, what we've seen is some good performance on Mission Technologies, both top line and the cash collections and how they're performing in the MBS, so that is positive. Also just kind of hitting our milestones right now adds to the free cash flow at the end of the year as well as we've come through the COVID repay with our customer set. We've worked ourselves through a strategy and an algorithm, how that applies to the contract, and that was a couple of dollars in us. That's the confidence in the lift that we went from the midpoint of $425 million to $500 million for this year.

As I've been pretty consistent on our 5-year target, the guiding light from midyear this year through the end of next year is $1.2 billion. So we bought this year up 75%. A piece of that, as I said, is the retention with the COVID. So that was just timing anyway between '23 and '24. If you noticed between [ 5 ] and now $700 million next year now from $780 million, it's still the $1.2 billion. I think there's tailwinds against that as we finish out this year. and opportunity sets kind of going forward, but we didn't want to get ahead of ourselves. So we maintained the $1.2 billion target here.

[George Shapiro, analyst]

Okay. Okay. And just to follow up the margins in the fourth quarter that Doug had asked about. I mean, specifically, it looks like the fourth quarter has got to be about 9.2% just to get to the low end of your guide. Now given the milestones in the fourth quarter. I would assume the biggest jump in the fourth quarter from normal is going to be at Newport News.

[Thomas Stiehle, executive]

I think the 3 remaining milestones are all important for us to kind of get into the range, and we're watching them as Chris said at the pathway on each of the 3 here. 796 is ready to go. I think we're just waiting for the transfer of that ship. 798 should float off before the end of the year. And LPD-29, we've been saying since the beginning of the year that it's just a race to line up the final tasks. .

The ship to see inServ, approving the ship and then receded that. So whether that happens in December, the end of December, at the beginning of next year. Those 3 are pretty significant milestones as they play out as we go forward here.

I think opportunity sets on there, maybe a little EPA adjustments as we've seen rates high. And then just the consistent performance we've seen some settling of performance over the last couple of quarters. So I think that will play out. '23 is opposite on '22 when we started off really hot and heavy in the first couple of quarters. But this isn't a surprise for us that Q4 was going to be a big quarter for us. And I think we're in the lane right now to kind of -- we're reaffirming our guidance there on profitability for shipbuilding between [indiscernible]

[Operator]

Our next question today comes from Seth Seifman from JPMorgan.

[Seth Seifman, analyst]

So I saw that -- so you guys increased the revenue guide for shipbuilding. And I wonder if you could talk maybe a little bit more over time about the opportunity for growth at Ingalls with -- especially with the latest multiyears on the DDG, how that growth profile kind of looks now maybe versus several months ago? And to the extent to which that can maybe be helpful for the margin mix. .

[Christopher Kastner, executive]

Yes. This is Chris. I'll start, and then Tom can complete if we need to here. But the award of the DDG-51 really solidifies Ingalls' base for the next few years and creates a very stable business down at Ingalls and we don't give growth rates by division, but what we're seeing is a bit of an inflection point from a top line standpoint, both in shipbuilding and Mission Technologies.

I don't want to get in front of it. We'll wait until the end of the year before we can communicate that. But Well, I think we're in a pretty good place. The growth has shown up in shipbuilding. It's driven by the supply chain and stabilization of labor. And then Mission Technologies is just winning stuff. They're converting the recompetes, they're converting new business, all in markets that we think are very strong.

So yes, it's a bit of an inflection point. We're going to talk a lot more about that after we get to the end of the year because we want to close the year strong, but we feel pretty positive about growth going forward.

[Thomas Stiehle, executive]

Seth, I'll hop on the back of that, too. I'm pretty happy with what I'm seeing down at Ingalls there. NSC, we delivered NSC-10. So there's 1 more ship set there. We've talked about how that portfolio can sustain itself still get 3%, 3-plus percent potentially if things [indiscernible] way on just the 3 major programs down there. We've seen that with the DDGs, the 7 DDG is on contract and now most recently in the August time frame, they received a 7 more there.

So they know what they're building over the next decade, they can line that up from a planning, a labor resource and material perspective, and that's going to really help them drive consistent performance in production down there.

Also on top of that, we've seen a maturation of the 1,000 program, the DDG 1000 program. So we put the first of -- the 2 on contract, we put the first monetization on contract earlier this year. All 3 of those ships will be down there over the next 2 to 3 years going through an 11- to 12-month monetization process. And that's a good base for them to employ the workforce there, too. So I see good healthiness even with the NSC program sunsetting for Ingalls to hit the 3% guidance that we've had through 2023 and going forward. Yes. .

[Operator]

[Operator Instructions] Our next question today comes from Myles Walton from Wolfe Research.

[Unknown Analyst]

This is actually Emily on for Myles. So it -- Another shipbuilding margin question. So thanks for some additional color on 2024. But I was wondering, are you all able to do any leveling of the quarterly cadence for '24 at this point? Is there a skew towards either half of the year or quarter-to-quarter? Any color on that would be great. .

[Thomas Stiehle, executive]

Yes. So I think it's just a little premature. Obviously, we have some tentative plans right now. We work ourselves through the final planning process for '24 on at the end of this year, and we bring that to our internal management and Board here. Once we get that kind of solidified, I'd really like to take a look see at the actual at the end of the year, we've talked about those milestones, which we anticipate to hit in Q4, but they just could trickle into Q1. .

If that does, it would change the shape, I wouldn't want to get ahead of myself. But we still maintain the same thesis here of expectation of incremental margin improvement. We think, I mentioned earlier with COVID getting further behind us and us putting the energy into hiring, extra training, retention, the material seems like it's stabilized. It's not where we want it to be, but we have to get that improved.

But the maturation of the workforce anticipation of less rework, the rollover of the portfolio of the existing ships that have increased EACs and schedule extensions. There's a lot of positiveness kind of going into the follow-on years here. and I would anticipate that to grow for shipbuilding.

On the Mission Technologies side, we've talked about still scaling that business. We've seen some fantastic growth that's going on the top line. and we have some work to go do and how we get our margins higher there. A little bit more on the fixed price instead of just -- we have about 85% in cost side. additional technology, which should be able to have us employ IP technology, more -- a little bit more products and services, that should be able to put a premium on what we bid and what we achieved there.

So I would expect an improvement in the margin. And at the Q4 call in February, we'll give you the shape of next year.

[Unknown Shareholder]

Sounds good, Tom. And then one quick follow-up. So on the maintenance side, it's something that the Navy has sort of been [indiscernible] the drums about for a long time, have you all been getting any more visibility from the Navy customer about time lines for maintenance. We know pretty well about the carrier cycle, but anything on the submarine side. I know those sometimes pop up, and it's a good surprise, but it's hard to plan specifically and then also on the surface side.

[Christopher Kastner, executive]

Yes. So Emily, it's Chris. We don't expect real surprise pop-ups from a maintenance standpoint. we expect fairly consistent revenue from maintenance at Newport News.

At Ingalls, we'll be opportunistic if we see stuff that we could potentially participate in. But right now, it's not in their forecast other than the work we're doing on DDG-1000, which is really not maintenance. It's upgrades.

[Operator]

Our last question today comes from Gautam Khanna from TD Cowen.

[Gautam Khanna, analyst]

A quick question. On LPD 29, I'm just curious your confidence level on that getting delivered this quarter. Is it a very late in the quarter kind of skew? And just how -- if you could give us some framework on what the sensitivity is to that in the fourth quarter.

[Christopher Kastner, executive]

Yes. So, Gautam, it will be a race to the finish on 29. We need to get through the final trials, get -- get in [indiscernible] get it approved and delivered. There is some sensitivity, obviously, as we come through the final throes on that ship from an EAC standpoint. And then a lot will depend on how much work remains subsequent to delivery. I don't have a specific range for you. But we tend to -- as you know, we tend to risk adjust our opportunities as we flow towards the end of the year and LPD 29 is right in the middle of that risk profile.

[Gautam Khanna, analyst]

Got you. Okay. Would you argue that the implied shipbuilding range for Q4 bounds that risk? Because it is a pretty wide margin range, obviously. That's implied shipbuilding.

[Christopher Kastner, executive]

Yes, I don't want to comment on that. There's a lot of variables that go into that range, Gautam, LPD 29 is one1 of those variables.

[Gautam Khanna, analyst]

Okay. And just wanted to get your sense on, given all the labor challenges that you guys have faced head on over the last couple of years, what is kind of an appropriate margin increase rate in shipbuilding next year, like what would be a good scenario or a realistic scenario?

I mean, are we talking like 10, 20 basis points? Are we talking a more significant step-up next year in shipbuilding?

[Christopher Kastner, executive]

Yes. So we're not going to give specifics on improvement in 2024. We'll give that on our year-end call. But I do continue to expect improvement. I just think it's a bit premature. We -- Let's get through the end of the year, see how we close strong, and then we'll give you information on the year-end call.

[Operator]

There are no further questions at this time. So I would now like to hand the call back to Mr. Kastner for any closing remarks.

[Christopher Kastner, executive]

Sure. Thanks for joining us on the call. Before we wrap up, I'd like to note that we'll be hosting an Investor Day on March 20 in New York. So we'll be on the lookout for more information. Thanks again for your interest in HII and joining us on today's call.

[Operator]

That concludes today's conference call. Thank you very much for joining. You may now disconnect your lines. Have a great rest of your day.