通用動力 (GD) 2015 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the quarter-one 2015 General Dynamics earnings conference call.

My name is Emma, and I will be your operator for today.

(Operator Instructions)

As a reminder, this call is being recorded for replay purposes.

And now I'd like to turn the call over to Erin Linnihan, Staff Vice President of Investor Relations.

Please proceed, ma'am.

Thank you, Emma, and good morning, everyone.

Welcome to the General Dynamics first-quarter conference call.

As always, any forward-looking statements made today represent our estimates regarding the Company's outlook.

These estimates are subject to some risks and uncertainties.

Additional information regarding these factors is contained in the Company's 10-K and 10-Q filings.

With that, I would like to turn the call over to our Chairman and Chief Executive Officer, Phebe Novakovic.

Thanks, Erin.

Earlier today we reported first-quarter earnings from continuing operations of $2.14 per fully diluted share on revenue of $7.8 billion, operating earnings of slightly over $1 billion, and net earnings of $716 million.

We beat analyst consensus by $0.20 and we're well ahead of analyst expectations on revenue as well.

We were also better than our previous guidance and our own expectations.

I should point out that we enjoyed an effective tax rate of 29% as opposed to consensus of around 30.5%.

This accounted for approximately $0.05 of the outperformance.

Jason Aiken will more fully discuss the tax rate a little later.

I should further note that the diluted weighted average share count was 334.7 million for the quarter, compared to consensus of approximately 332 million, so none of the outperformance comes from a lower than expected share count.

I have asked Jason to give you a little more insight into our share repurchase activity when I conclude my remarks.

All in all, this was a truly strong quarter from an operating perspective as evidenced by the operating margin of 13.2% and a return on revenue of 9.2%.

It was a good quarter from a cash perspective as well.

We had $745 million net cash provided by operating activities.

After capital expenditures of $98 million, we had $647 million of free cash flow from operations, about 90% of net income.

The general comparisons quarter over quarter are pretty compelling.

Compared to the first quarter 2014, revenue was up $519 million or 7.1%.

Total defense revenue was up 10.1%; pretty remarkable.

Our operating earnings were slightly more than $1 billion, up 17.5% over the prior year's quarter, leading to a 120 basis point improvement in margins.

This very strong operating leverage is an important part of the story.

Net earnings were up more than operating earnings, primarily due to the previously mentioned lower tax rate.

Finally, EPS was up 25.1% over the year-ago quarter as a result of better operating earnings, lower tax rate, and lower share count.

Let me provide some commentary and a little perspective around the results of our operating segments.

First, aerospace.

Sales are down by $17 million compared to Q1 2014, less than 1%, and down $132 million sequentially against a strong fourth quarter.

On the other hand, earnings outpaced the year-ago quarter by $27 million, about 6.7% on a 140 basis point expansion in operating margin.

Operating earnings were also up $19 million sequentially.

The 20.4% operating margin for the group represents a high with both companies contributing.

A word of caution here.

We are out of the gate fast, but this pace is not sustainable from a margin perspective.

Orders were not overly strong in the quarter, but need to be viewed in the context of a very robust fourth quarter 2014.

It was a quarter where the sales pipeline was replenished and strengthened, part of a normal cycle after a strong order quarter.

This is consistent with what we saw in the first quarter of 2014 following a strong fourth quarter 2013.

We're off to a very good start in the aerospace group.

Marine Systems.

Revenue of $1.94 billion was up $342 million, or 21.4% compared to the year-ago quarter, and down $97 million sequentially, as one would expect against the fourth quarter 2014.

Operating earnings were up $22 million, or 13.3%, against the year-ago quarter and down $5 million sequentially.

We had particularly good performance at Electric Boat and NASSCO.

Some of the more striking comparisons are found at Combat Systems.

Compared to the first quarter of 2014, sales were up $105 million, or 8.3%, and earnings were up $65 million, or 46.8%, on a 400 basis point improvement in operating margins.

Recall that the results in the first quarter of 2014 were impacted by a $29 million restructuring charge at European Land Systems as a result of reductions in the Austrian operations, which were consolidated into Spain and Switzerland.

If we disregard that charge, margins would have been 13.4% on a pro forma basis.

Even on that basis, the improvement in this year's operating margins is a significant 160 basis points.

Sequentially, revenue was down $251 million, and operating earnings were down $67 million, as anticipated in a business that always has a very strong fourth quarter largely related to contract deliveries.

All up, continued strong performance at Combat Systems.

It's been a long time since we've been able to report an increase in revenue in this group.

IS&T.

The big upside surprise occurred in this group.

You might recall that our guidance was to expect a revenue decline of 5.5% year-over-year.

Well, that certainly did not happen in the first quarter.

Revenue in the quarter was up $89 million, or 3.9%, against the year-ago quarter, and off only $98 million against a powerful fourth-quarter 2014.

Operating earnings of $217 million in the quarter were $34 million more than a year-ago quarter, up 18.6% on a 120 basis point improvement in margin.

On a sequential basis, operating earnings were up $5 million on a 60 basis point improvement in margins.

Once again, nice operating leverage.

The 9.2% operating margins were the best that this group has achieved in a while and is very encouraging.

The trend is in the right direction.

So we're off to a very good start to the year; nicely ahead of our expectations.

We do not, as a practice, change guidance at the end of the first quarter.

It is our practice, and has been for three years, to give you a full review of our expectation at the midpoint of the year.

Suffice it to say that we're ahead of the operating plan upon which our guidance was based.

We will work to consolidate our improvements and to continue to outperform.

I'd like to now turn the call over to our CFO, Jason Aiken.

Thank you, Phebe, and good morning.

I want to start with a subject that we haven't talked about a lot in the past and that's foreign exchange rates.

With our increasing international revenue base and the continued strengthening of the dollar, we're seeing an impact in our reported results.

Now to be clear, this doesn't involve any economic gain or loss in any of our contracts.

What I'm referring to is the translation of our international operating results from their local currencies to US dollars for reporting purposes.

Absent the movement of foreign currency translation rates, the growth in our revenues and earnings over the first quarter of 2014 would've been even more robust than the numbers you see.

Specifically, our US dollar reported revenues and operating earnings in the quarter were reduced by approximately $120 million and $20 million, respectively, compared with the exchange rate that prevailed in the first quarter last year.

In addition, our backlog was reduced by approximately $450 million from year-end due to this same translation issue.

Setting the FX impact aside, our Combat Systems backlog would have been essentially unchanged from year-end, and our IS&T backlog would've been up slightly more than reported.

Moving on to a couple of items on our income statement.

Net interest expense in the quarter was $21 million versus $22 million in the first quarter of 2014.

During the quarter, we repaid $500 million of maturing fixed-rate notes with proceeds from marketable securities on hand.

At the end of the first quarter, our balance sheet reflects a net cash position, that's cash in excess of debt, of $1 billion, essentially unchanged from year end.

As Phebe mentioned earlier, our effective tax rate was a bit lower than we had forecast and a bit lower than analyst consensus of around 30.5%.

The effective rate was 29% for the quarter versus 30.1% a year ago, and the primary driver was some R&D tax credit claims that were settled during the quarter.

For the year, we're now anticipating an effective tax rate more in the ballpark of 29.5%.

On the capital deployment front, you may recall that in the first quarter of last year we repurchased a little over 14 million shares, including about 11 million shares under an accelerated share repurchase program.

Since the end of the first quarter of 2014, our diluted share count is down another 12.5 million shares, the result of almost 20 million additional shares repurchased in the past four quarters.

And that includes approximately 4.7 million shares repurchased in the first quarter of this year.

Altogether, we spent $826 million on share repurchases and dividends during the first quarter, or 1.3 times our free cash flow from operations.

Erin, that concludes my remarks.

And I'll turn the time back over to you for the Q&A.

Thanks, Jason.

As a quick reminder, we ask participants to ask only one question so that everyone has a chance to participate.

If you have additional questions, please get back into the queue.

Emma, could you please remind participants how to enter the queue.

Thank you, Erin.

(Operator Instructions)

Sam Pearlstein, Wells Fargo.

Could you talk a little bit more about aerospace and the margin?

You said that it was not sustainable, but there were a couple of headwinds that you had identified before about what might hold the margins back this year.

What of that did we not see in the quarter?

As we've talked about before, aerospace margins tend to be lumpy.

And estimating them with precision is kind of like putting a tail on a moving donkey.

But that said, in the quarter we had a very favorable service mix, high service levels with a good mix.

We recognized some tax credits, a supplier settlement in jet.

So it was really more on the upside than really any headwinds.

But at the risk of getting out ahead of second quarter guidance, I've already noted to you that our quarter-one margins were above our expectations.

And we're going to beat the guidance I gave you in January.

I'm just not sure by what amount.

So I want to reserve that commentary to the second quarter.

Jason Gursky, Citi.

It's actually Jon Raviv on for Jason.

Thanks for taking the question.

Phebe, just a notional question or a high-level question about your net-cash position.

What are you seeing in terms of deployment opportunities here, given your very attractive balance sheet?

Well, we're in a net cash position at the moment, which Jason referred to.

And we tend to [solve] for a no net-debt position, not trying to say net cash.

I think we gave you guidance and our intentions in the January call.

We will deploy -- in the absence of any alternatives, and there aren't any -- we will deploy all of our free cash flow and then some to share repurchases and dividend, and that strategy hasn't changed.

Carter Copeland, Barclays.

Phebe, I wondered if you might elaborate a little bit on the big surprise in the top line in IS&T.

Obviously, it's your shortest cycle business.

Quite a big revenue delta from what you had talked about in the prior quarter.

I wondered if you could just give us some color on what it was that shifted or came in into the quarter.

How should we think about the impacts on the remainder of the year in terms of performance, and just any color you could give would be great.

We had an increased sales activity across both mission systems and our GDIT business.

On missions systems, it was driven in part by the lower cost structure that we anticipated as the result of combining AIS and C4, which made us more competitive.

And that tends to be a pretty quick turnaround business, so some of the orders quickly turned into sales.

We had a good book to bill, by the way, in that whole group.

So that also positions us well for greater growth.

And as we combine those two businesses, we're seeing some additional sales volume that comes in by the strength of going to market.

On the IT business, they've won most of what they have been bidding on.

They are a power in their market space.

So look, I don't have a sense of where we're going to end up in that business in particular, given all the puts and takes, by the end of the year.

But we'll have a real good sense of that by the end of next quarter.

But a solid bead on revenues, and we're very pleased.

Robert Stallard, Royal Bank of Canada.

Phebe, I was wondering if you could comment on the aerospace side in terms of the large cabin market, and maybe give us a feel of what some of the different regions are doing, particularly looking overseas outside the US?

Sure.

The activity level I would call as careful.

In other words, we've got plenty of pipeline, but slow to contract.

Not unlike what we've seen in prior quarters.

In short, North America and the Mideast are okay.

Russia, Latin America, and China are slower at the moment.

650 and 650/ER demand is robust.

So we're holding our own and then some.

I think, however, it's important to understand the theory of the case behind how we run this business, how we have historically, and how we will continue to do so.

The only decline we worry about is a decline in earnings.

So accordingly, we always pull production down in the face of weak orders.

We have no intention of doing so this year.

Given our large 650 backlog, we can, to some degree, feather in more 650s to cover potential downfalls.

And of course, we always take costs out of that business.

So I think the way to think about Gulfstream for the next two years is not necessarily as a strong revenue growth story.

Growth will return when the new airplanes enter into service.

And this is pretty much in line with what we had anticipated, and predictable in a business that continues to refresh its product line with clean-sheet design airplanes.

I thought it would be helpful to just give you a little sense of when we see changes in demand, how we act.

But as I say, the first quarter was cautious coming after a robust fourth quarter.

And this is pretty much what we have seen in the first quarters for the last couple of years.

Myles Walton, Deutsche Bank.

Phebe, just to maybe pick up on the last question.

I think you said the next couple of years.

Just on the G500 entering into service, it does seem like you're certainly ahead of where you could be.

But without pulling forward the schedule on this conference call, green deliveries, will they be a source of good revenue growth for you in 2017 like the 650 was in 2011?

Yes.

So we'll start to recognize activity in 2017 in anticipation of entry into service in the first quarter of 2018.

It's really the next two years, and it is a transition period.

I think that's how you should think about it, and we anticipated that as well.

And you would expect that given that we've got and own new airplanes coming on.

And then, just to slide one in, which was on the inventory of used aircraft?

You sold one in the quarter.

Did the level of used inventory that you're holding rise, fall, or stay the same?

No.

It was the same.

Same.

Okay, great.

Thanks.

Doug Harned, Sanford Bernstein.

Just continuing on with Gulfstream.

When you look at the transition period and think about what the trajectory might be for 450 and 550 deliveries, could you give us a sense on how you envision that going or what the backlogs are right now for those airplanes?

And then, when you think about it, as you said before, you have the ability to take 650 up, given a lot of strong demand for that airplane.

Do you see the potential to increase rates some on 650 within that next two-year period?

So we tend -- we haven't given you the backlog and broken it up by aircraft model.

But again, let's just talk about the theory of the case.

When you are bringing in new aircraft, the trick is to feather in that production with the existing planes, and so that you have a nice, smooth transition.

And that's what we're striving for, and that's what we will achieve.

There's no reason to think that that isn't going to happen.

The 650 has quite a significant order book, and in fact, the deliveries now, the next available airplane has actually slipped to the fourth quarter of 2017.

So that healthy and long backlog gives us some flexibility, nice flexibility to feather in some more 650s to offset that transition period, the feathering in as we move to the new airplanes.

It wouldn't be altogether a bad thing either to reduce the wait time on the 650s and the 650/ER, given demand.

So you are seeing the potential to -- the demand out there to do some earlier 650 deliveries if you want to?

Sure.

But we're going to be prudent about it.

It's not wise to eat through your backlog, but to the extent that we can and want to, we will feather in some additional 650s.

I think that makes sense.

Robert Spingarn, Credit Suisse.

Jason, I've got one for you if I could.

It's on the free cash flow, which was really quite strong in the quarter.

I think Phebe said last quarter that international advanced timing would put some pressure on free cash flow this year.

And it did in the quarter, but collections looked very strong.

Could you talk about working capital and how we should think about the cadence of free cash flow as we go forward through the year?

Sure, we were, as you said, off to a strong start in the first quarter, and to be quite frank, stronger than even we had expected.

As we signaled coming into the year, we were expecting a bit of a softer cash flow outlook.

And as you, I think, would expect in response to that, our businesses turned toward sort of a war on operating working capital and went after it hard in the first quarter.

And really that is the story.

You can see even despite a pretty big draw-down in the customer advances related with some of those international programs -- otherwise excluding that, OWC was down in the quarter.

So really strong performance out of the gate.

I would caution that we don't necessarily expect the first quarter to be reflective of the full year.

We're still expecting a tough road ahead with some of the headwinds that we talked about.

But really, our focus is all about that management at OWC and going after the collections as well as the supply side.

Is there any particular timing we should think about where some of this strength reverses?

I guess for the year you'll do about 100% as you normally do, or a little better.

But is there a weak quarter in here?

I would suggest the second half is where most pressure is on that front.

So we'll be managing that through the balance of the year.

Cai von Rumohr, Cowen and Company.

Yes, thank you, and terrific performance, Phebe.

Well done.

Thanks, Cai.

Aerospace, maybe if you could give us the numbers you give us on the lead times for each of the programs and a little color.

You'd mentioned the supplier settlement.

Maybe if you could quantify any one-timers that bolstered the numbers in the first quarter at aerospace?

Thanks.

Yes, so as I noted, the 650 and 650/ER are out to the fourth-quarter 2017.

G550, 450 about 12 months where they have been.

G280 and 150, G280 at the end of this year; 150, first quarter next year.

So pretty much consistent with what we've been reporting all along.

As I tried to explain earlier, we had a number of moving targets in the Gulfstream margin provided considerable margin improvement.

Service mix, we took in some tax credits.

We did have that supplier settlement.

I'm not going to give you any particular numbers on any of these, and jet performed well.

So a couple of those are one-timers, but I'm not going to quantify them for you.

I don't think that's productive.

We're very, particularly with respect to our suppliers, we're very proprietary about talking about our relationship with our suppliers.

Can you quantify the total of all of those without giving any of the granularity?

We've led you to about 18% for the year.

I didn't give you any quarter by quarter.

As I explained to you before, we get real lumpiness in aerospace margins, which we've talked about.

So I'm not prepared to change the year guidance, but you can back in to some of that.

As I said, Gulfstream has an awful lot of moving parts, and so does Jet Aviation.

We have seen for the last couple of years a lot of lumpiness.

We're not going to see that 20% repeated going forward.

As I explained to you, we're going to outperform my guidance to you, I just don't know by how much yet.

And I'll have a pretty good sense of that halfway through the year.

Peter Arment, Sterne Agee CRT.

Phebe, maybe just to stay on aerospace.

You mentioned Jet Aviation continues to be a positive contributor.

Can you give us a little more color on what you're seeing there?

And then also related to that, are you seeing any slowdown in utilization rates in the large cabin tied to the energy market just given the sell-off in oil we've seen the last six months?

Thanks.

We continue to build that business.

They've been a positive contributor on both cash and earnings for about the last 2.5, 3 years.

We've seen no change in demand as a result of -- or no decrease in demand as a result of the change in oil prices.

In fact, we are seeing higher demand.

Backlog, the pipeline is good, and we're adding to the backlog.

So that business is increasingly well-positioned.

Howard Rubel, Jefferies.

I don't want to leave Marine alone here.

Good.

You did spend a little time there, so I figure it's probably worn off a little on you.

And there is a couple of things that stand out.

One was the backlog growth.

Second was you got an LHA post shakedown availability, which sort of sets you up to do some interesting things.

And it looks like NASSCO did pretty well in a world where commercial is hard to do.

So maybe you could talk a little bit about some of the variances?

And is this a sustainable rate you're seeing in Marine?

Or was there some deliveries or some other material items that tweak the numbers?

I think what you can expect is Marine is what it -- will replicate its behavior in the past, which is pretty steady-eddie.

There was no one particular element that drove margin performance.

With respect to the sales growth, that's coming from a couple of places.

We have increased sales at NASSCO on commercial work.

And remember, we're moving into the block four, which brings with it higher revenue.

And also, we are seeing increased revenue on the engineering and design for the Ohio replacement.

So all of those are long-term programs that will continue to carry revenue and predictable earnings with them.

Just to follow-up for a moment.

How is it that -- what have you done there to make sure, for example at NASSCO, that there's some opportunity to continue the business, because I know that's always challenging from time to time.

And then also making sure that Ohio replacement stays on schedule.

With respect to NASSCO, they've got a nice backlog of commercial and government Navy new construction.

And recall, repair continues to grow in that for NASSCO.

We have a bi-coastal presence.

Back in when I was EVP of the Marine group, we bought a couple of East Coast repair yards that have done beautifully.

And so we've really increased our firing power in repair.

And we're performing very nicely.

The repair business is moving to, and the Navy is moving to, from cost-plus contracts to fixed price in repair in selected instances.

And that's a real upside potential for us.

We're very pleased with that.

So the repair business is robust.

NASSCO is performing very well, and they keep their cost basis low to continuous improvement.

And that is a highly functioning shipyard.

I like where they stand; they're competitive in the commercial market space.

And of course, Electric Boat, as well, continues to drive down its cost structure.

And we'll see, over time, increased margin improvement as we get further into block four and continue our continuous improvement.

Every time we start a new block, we have some compression in margins.

We've given back some of the goodness of the prior block to the Navy, but we've, over the last decade plus, reduced our cost structure and continue to improve margins.

So they're very well positioned.

David Strauss, UBS.

Phebe, could you dig in a little bit more into the growth that we saw at Combat.

It sounds like that it came through ahead of what your expectations were.

Was this Saudi and UK starting to ramp up, and does it accelerate from here?

I lost part of your question.

It broke up.

Can you rephrase?

I was asking if you could dig a little bit more into the growth at combat.

It sounded like it did come through ahead of your expectations.

Is that Saudi and the UK program starting to ramp and does that actually accelerate from here?

And then a separate question, press has reported that you pulled out of a couple of programs in the quarter, competitions, T-X and Manpack.

If you could just touch on those as well.

Thanks.

You would expect with the prodigious increase in backlog that we experienced last year, that we would begin to see that backlog turn into sales and revenue increase, and that's what you're seeing in that group across the portfolio.

On our Canadian, Middle East contract, we are finishing up our design efforts and the initial variance.

And we're going to begin production later this year with deliveries in 2016.

On the UK program, we're working some small quantities of pre-production.

But again, that will begin to ramp up.

And the Army is increasing its capitalization in their wheeled and tracked vehicles.

So all of that is upside.

And that we recognize some of that.

So that backlog is flowing into sales, and the key there is to perform on that backlog.

So let me talk to you.

You asked a second question that is kind of interesting; that we had pulled out of some competitions.

Let me give you the theory of the case here.

We are not going to compete for programs that respond to RFPs where we do not believe that we can get a fair and sufficient return.

Chasing revenues that don't have good earnings doesn't help us or our shareholders one lick.

So this really has more to do with the discipline on how we run our Company rather than the response in any particular program.

We're just not going to compete in programs where we think that we can't make a fair return and a good return.

Ron Epstein, Bank of America.

I just wanted to touch base quickly on a -- if you could remind us what you're thinking about capital allocation, particularly if there's some new properties floating on the market.

There might be an opportunity for you guys do some vertical integration?

Just what are you thinking about M&A and vis-a-vis cash return to shareholders?

Ron, I'm not thinking about M&A because I'm not seeing anything.

So it's just, again, not on my radar screen.

And our intent with respect to capital deployment, remains the same for this year.

We are going to return some capital to our shareholders in share repurchases and dividends.

So I think that's pretty much consistent with what we've been doing and what we've been saying.

Okay?

Yes, that's great.

And can I ask one quick follow-on if I may?

Sure.

Can you give us a quick update on how things are proceeding with the G600 program, the developments there?

And the developments on the G500 program?

We are proceeding well on both.

The near-term G500, we ought to have first flight this quarter.

And we're on track with no particular surprises.

And the G600, we are starting to build the first prototypes.

So all is well.

We're on track, and in line with what our expectations were.

Okay, that's great.

I was just curious if there is any chance that the 500 could happen sooner?

And get certified sooner?

You mean first flight or entry into service?

Entry into service, or is it too soon to tell?

Well, that will depend on the FAA's test program.

We work very closely with the FAA.

They have an important job to do, and they're really working together.

They're a pacing item here.

Hunter Keay, Wolfe Research.

Phebe, I want to follow up on your response to David's question earlier.

I don't know if that was a comment on T-X specifically, or just more broadly about how you're not going to invest or you're not going to bid on programs that don't provide fair or decent returns for your shareholders.

Was there something about -- I don't if it was a comment about T-X specifically -- but was there something about the way that particular program was structured that didn't appeal to you?

Or was it more a comment more broadly about the level of investment it would require from you guys, given that it's not in your core wheelhouse to participate in the program with this sort of a more ambiguous return?

You got it.

The latter?

(multiple speakers) It was the latter one?

That's it in a nutshell.

It's not in our core.

We had been thinking about participating when the Air Force was interested in an off-the-shelf trainer.

But once those requirements started to change, there's just no way that becomes an attractive program for us.

And so I think the appropriate response and good discipline would require that we just politely bow out.

A quick follow-up.

Can you update the pre-owned delivery expectations for this year?

Or are you still saying just kind of up year-over-year?

Or how should we think about that?

Thanks for the time.

In aerospace.

Yes, I think as we look at the year, we're still expecting the numbers to be up a little bit from what we've seen in the past couple of years.

So a little bit lighter in the first quarter than we were expecting, but the balance of the year we are still seeing that coming.

Pete Skibitski, Drexel Hamilton.

Hey, great quarter, guys.

Phebe, I just wanted to go further on capital deployment.

I like what I'm hearing about staying away from M&A, frankly.

It kind of begs a question on repurchases because I think you got a new 10 million repurchase authority in February?

And I'm guessing coming out of the quarter you're probably only left with about 7 million shares.

You're probably going to do $2 billion plus in free cash the rest of the year.

So I'm wondering, do you plan to go back to the Board sometime maybe this summer to increase the authority?

We came out of the gate strong on cash, but as I told -- what I told the Street in January, as the way to think about 2015 cash is that we are going to have a lighter cash year than we typically do have.

And I'm not prepared to change that, so do not think about the cash generation in terms that we have -- historical terms.

That said, let Jason give you a little bit more color on where we are on the share repurchases.

Yes, I think you were pretty close on your estimates there.

We had about 2 million shares to 2.5 million shares remaining from the prior authorization when we got the additional 10 million in February.

And I think we're sitting with right around, call it, 7.7 million or so remaining at this point, so I think I'll look at Phebe.

But anything beyond that is at the discretion of our Board.

Jason, I didn't hear you object when Rob suggested a 1 times free cash conversion for the year.

No.

I think as Phebe signaled -- and I apologize if I missed that in his question or his predicate -- as Phebe mentioned, we're not expecting to be quite as strong as our traditional performance this year.

So expect something a little bit lighter than that and a little bit lighter than the first quarter.

And, Emma, I think we have time for one more question.

Joe DeNardi, Stifel.

Phebe, with IS&T and some of the outperformance you've seen there, really, over the past 12 months at this point, is it more a reflection of the budget environment and the procurement behavior being better than expected?

Or is it that the win rate has been better?

We're seeing a little bit more activity on the budget side, but it really is our win rate has improved.

As we've continued to take costs out of our business, we become more competitive.

And by the way, that's true in the United States, Canada, and the UK, which is where Mission systems plays heavily.

Great, well, thank you for joining our call today.

If you have additional questions I can be reached at 703-876-3583.

Have a great day.

Okay, thank you for your participation in today's conference.

This concludes the presentation.

You may now disconnect, and have a good day.