General Dynamics Q1 2025 Earnings Report

General Dynamics EPS Results

• Actual EPS: $3.66
• Consensus EPS: $3.43
• Beat/Miss: Beat by +$0.23
• One Year Ago EPS: $2.88

General Dynamics Revenue Results

• Actual Revenue: $12.22 billion
• Expected Revenue: $11.92 billion
• Beat/Miss: Beat by +$302.93 million
• YoY Revenue Growth: +13.90%

General Dynamics Announcement Details

• Quarter: Q1 2025
• Date: 4/23/2025
• Time: Before Market Opens
• Conference Call Date: Wednesday, April 23, 2025
• Conference Call Time: 9:00AM ET

General Dynamics (NYSE:GD) (NYSE:GD) is an aerospace and defense company that develops and delivers products and services for government and commercial customers. Its operations are organized across four principal business areas: Aerospace, Marine Systems, Combat Systems and Technologies.

Through its Aerospace business, General Dynamics manufactures Gulfstream business jets and provides aircraft maintenance, repair and refurbishment services. Its Marine Systems businesses design and build nuclear-powered submarines and surface ships, while Combat Systems produces military vehicles, weapons systems and munitions. The Technologies segment provides information technology, cybersecurity, intelligence, communications and mission-support services.

General Dynamics traces its history to 1952, when Electric Boat and other defense-related operations were combined under the General Dynamics name. The company is headquartered in Reston, Virginia, and serves customers primarily in the United States, with business activities and customers in international markets. Its work is conducted for the U.S. Department of Defense, other government agencies, allied governments and commercial aviation customers.

General Dynamics Q1 2025 Earnings Call Transcript

Key Takeaways

• Strong Q1 results: EPS of $3.66 beat consensus by $0.16 with revenue up 13.9% to $12.2 bn, operating earnings up 22.4% and net earnings up 24.4%, lifting operating margin 70 bps to 10.4%.
• Aerospace segment led growth with 45.2% revenue increase and 69.4% jump in operating earnings, driven by a 50% rise in G700 deliveries and FAA/EASA certification of the G800.
• Technologies group achieved 6.8% revenue growth and 11.2% operating earnings growth with a 1.1× book-to-bill ratio, backlog up 7% and a $120 bn pipeline, offset by uncertainty in IT services spending under the new administration.
• Marine Systems revenue grew 7.7% and operating earnings rose 7.8% but execution remains pressured by supply-chain delays, quality issues and an authorized draftsman union strike.
• Free cash flow was –$290 m in Q1 due to inventory and working-capital build-up but is expected to turn modestly positive in Q2 with stronger cash generation in Q3/Q4.

Presentation

[Operator]

Good morning and welcome to the General Dynamics first quarter 2025 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Please note this event is being recorded at this time. I'd like to turn the conference over to Nicole Shelton, Vice President of Investor Relations.

[Nicole Shelton, VP of Investor Relations at General Dynamics]

Thank you Operator and good morning everyone. Welcome to the General Dynamics first quarter 2025 conference call. 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, 10-Q and 8-K filings. We will also refer to certain non-GAAP financial measures. For additional disclosures about these non-GAAP measures, including reconciliations to comparable GAAP measures, please see the slides that accompany this webcast, which are available on the Investor Relations page of our website, investorrelations.gd.com. On the call today are Phebe Novakovic, Chairman and Chief Executive Officer, Kim Kuryea, Chief Financial Officer, and Jason Aiken, Executive Vice President, Technologies. I will now turn the call over to Phebe.

[Phebe Novakovic, Chairman and CEO at General Dynamics]

Thank you, Nicole. Good morning everyone and thanks for being with us. As you can discern from our press release, we reported earnings of $3.66 per diluted share on revenue of $12.2 billion, operating earnings of $1.268 billion and net earnings of $994 million. These results compare quite favorably to the year ago quarter. Revenue is up 13.9%, operating earnings are up 22.4%, and net earnings are up 24.4%. As a result, earnings per diluted share are up $0.78 or 27.1% more than the year ago quarter. The operating margin for the entire company was 10.4%, a 70 basis point improvement over the year ago quarter, while Aerospace led the way with a 45.2% revenue increase. Each of the defense segments also enjoyed revenue increases. A similar pattern is true with respect to operating earnings.

[Phebe Novakovic, Chairman and CEO at General Dynamics]

Aerospace led the way with a stunning 69.4% increase, and each of the defense segments contributed nice improvements to operating earnings as well. We have obviously opened the year with a very strong quarter. It is important to note that the comparative quarter in 2024 also showed very good growth in all respects over first quarter 2023. We also beat consensus by $0.16 in the quarter. At this point, let me ask Kim Kuryea, our CFO, to provide detail on our order activity, solid backlog and cash activity before I come back with segment observations.

[Kimberly Kuryea, Chairman and CFO at General Dynamics]

Thank you Phebe and good morning. I'll start with orders and backlog. We had a solid quarter with over $10 billion of orders. Order activity was particularly strong in the Technologies group with a book-to-bill ratio of 1.1 to 1. Our overall book-to-bill ratio for the company was less than 1x, due in part to the 14% increase in revenue from last year. This resulted in total backlog being slightly down from year end to $89 billion at quarter end. Our total estimated contract value, which includes options and IDIQ contracts, ended the quarter at a little over $141 billion. Turning to our cash performance for the quarter, we expected a slow start to the year.

[Kimberly Kuryea, Chairman and CFO at General Dynamics]

In terms of timing, this year will look a lot like last year with cash building throughout. The buildup of inventory as we approach certification and entry into service of the G800 impacted aerospace and although Technologies had a solid quarter, the defense businesses as a whole were impacted by a working capital buildup due to growth in timing. As a result, our free cash flow for the quarter was a negative $290 million. This was better than expected as our business units worked to drive cash to the left. For the rest of the year, we expect modestly positive cash flow in the second quarter, followed by substantially improving free cash flow in each of the third and fourth quarters. Now, to discuss capital deployment activities. Capital expenditures were $142 million, or 1.2% of sales in the quarter.

[Kimberly Kuryea, Chairman and CFO at General Dynamics]

Similar to last year, you should expect capital expenditures to increase in subsequent quarters throughout the year as we anticipate spending around 2% of revenue on CapEx investments in our businesses this year. Also in the quarter, we returned in excess of $980 million to shareholders in the form of dividends and share repurchases. This included $383 million paid in dividends and repurchases of approximately 2.4 million shares of stock for $600 million at an average price of just over $252 per share. In addition, in late March, we repaid $750 million of notes that matured on April 1. As a reminder, we have an additional $750 million of notes maturing in May. Although we ultimately intend to refinance those notes, the timing of when we do that may be influenced by market conditions.

[Kimberly Kuryea, Chairman and CFO at General Dynamics]

When you add it all up, we ended the quarter with a cash balance of around $1.2 billion and a net debt position of billion. Our net interest expense in the quarter was $89 million compared to $82 million last year. The increase was due to utilization of commercial paper during the quarter. Finally, turning to income taxes, we had a 17.2% effective tax rate in the quarter, generally consistent with our full year guidance. Phebe, that concludes my remarks. I'll turn it back over to you.

[Phebe Novakovic, Chairman and CEO at General Dynamics]

Thanks, Kim. Now let me review the quarter in the context of the business segments and provide detailed color as appropriate. First, Aerospace. Aerospace did particularly well in the quarter. It had revenue of $3.03 billion and operating earnings of $432 million with a 14.3% operating margin. Revenue is $942 million more than last year's first quarter, a 45.2% increase. To give you a little color here, the increase was driven by a 50% increase in aircraft deliveries, including 13 new G700s and higher services revenue at both Gulfstream and Jet Aviation. The 36 deliveries in the quarter are about as planned. Recall, however, that there were no G700 deliveries in the first quarter of 2024. This quarter really shows the robust revenue increase driven by the introduction of the G700. In addition, we saw improved margins on our G700 deliveries.

[Phebe Novakovic, Chairman and CEO at General Dynamics]

In short, we expect revenue growth throughout the year, but at a slowing rate of growth because G700 deliveries began in the second quarter of last year. As I indicated last quarter, the supply chain continues to improve and is performing better to both schedule and quality. We are finding fewer faults and those we are finding are becoming easier to fix. In short, I am increasingly confident that we can meet this year's delivery plan. We are also pleased that the G800 was certified by both the FAA and EASA on April 16th. This is expected to be a smooth entry into service and we have some reason to believe that we can exceed our planned deliveries of G800. I would be remiss if I failed to mention that Jet Aviation made a significant contribution to the quarter's results.

[Phebe Novakovic, Chairman and CEO at General Dynamics]

Its revenue was up 8% and earnings up 22% over the year ago. Quarter on 160 basis point improvement in operating margin. This business has become a real jewel. In summary, the Aerospace team has had a good quarter. G800 FAA and EASA certification is behind us and we are improving our G700 delivery cadence and operating margin. Turning to market demand, we had a 0.8 book-to-bill in the quarter even as aircraft deliveries increased by 50%. Orders are consistent with our internal plan at about the same number of units as the first quarter in 2023 and 2024. We expect that the certification of the G800, its better than planned performance characteristics and the early deliveries to customers will stimulate demand.

[Phebe Novakovic, Chairman and CEO at General Dynamics]

We continue to see improved interest across all models in the U.S. albeit with cautious concern by customers about the macroeconomic environment and the impact of tariffs on their businesses. Middle East activity remains strong, so let's move on to the defense businesses. Combat had revenue of $2.18 billion, up 3.5% over the year ago quarter. Earnings of $291 million are up 3.2%. Margins at 13.4% are consistent with the year ago quarter. It's interesting to observe that this year's revenue growth is on top of our first quarter 2024 growth of almost 20%. Nice compound growth. The increased revenue performance occurred at Ordnance and Tactical Systems and European Land Systems held steady. We also experienced good order performance. Orders in the quarter drove backlog to $16.9 billion, up $1.3 billion from this time a year ago.

[Phebe Novakovic, Chairman and CEO at General Dynamics]

Demand for combat system products continues to be robust with particular strength in Europe. Orders for wheeled and tracked vehicles are up, reflecting the heightened threat environment. In addition to several new combat vehicle starts, we are working closely with the U.S. Army to accelerate Abrams modernization. In the U.S. We are rapidly increasing munitions capacity and production with the opening of our projectile facility in Texas and our load and assembly and pack facility in Arkansas. All in all, Combat had a solid quarter and is off to a good start for the year. Turning to marine systems once again, our shipbuilding units are demonstrating impressive revenue growth. Let me repeat the recent history that I gave you at this time last year with respect to growth in this decade. The first quarter of 2020 was up 9.1% against Q1 2019. Q1 2021 was up 10.6% over Q1 2020.

[Phebe Novakovic, Chairman and CEO at General Dynamics]

Q1 2022 is up 6.8% over Q1 2021. Q1 2 2023 was up 12.9% over Q1 2022. Q1 2024 was up 11.3% over Q1 2023 and finally this quarter is up 7.7% over Q1 2024. This has been a really nice rate of growth for the shipyards and the repair yards. This growth has come at significant cost for facilities and significant increase in hiring. The good news is we've been able to hire and train the people we require to support our growth. This particular quarter's growth was driven by Columbia class and Virginia class construction as well as an increase in DDG 51 construction. Operating earnings are $250 million in the quarter, up 7.8% from the year ago quarter. Operating margin is identical to last year's quarter. We have struggled to achieve operating leverage to go with our rapid revenue growth, but operating earnings have grown on a consistent basis as well.

[Phebe Novakovic, Chairman and CEO at General Dynamics]

We continue to be impacted by delays and quality problems in the supply chain. Material and parts are late and sometimes exhibit quality escapes, and new shipbuilders continue to come down learning curves. We have more work to do, but we have made progress. In addition, one of the unions, the draftsmen, a largely white collar union that converts engineering specs to drawings, has voted to authorize the strike. We are working closely with the Navy and the new administration to continue to address the problems in the supply chain and look for opportunities to improve throughput and performance at the shipyard. The growth profile continues to look strong and demand is not abated. Our job is to continue to improve ourselves and to help the industrial base get stronger with the help of the government.

[Phebe Novakovic, Chairman and CEO at General Dynamics]

The Technologies group had a strong start to the year with revenue of $3.43 billion. This was an increase of 6.8% over the first quarter of 2024. Both businesses contributed to the growth in the quarter, with GDIT up 9%, Mission Systems up almost 2%. Operating earnings of $328 million were up 11.2% over the year-ago quarter, on a 40 basis point improvement in operating margins from 9.2% to 9.6%. The operating margin improvement is encouraging given the top line shift toward IT services, which carry a lower margin than the defense electronics side of the portfolio. This reflects strong performance in Mission Systems as the transition from legacy programs to new franchises continues. The group's order activity was also encouraging with a book-to-bill of 1.1x for the quarter and trailing 12 months even against the strong revenue growth.

[Phebe Novakovic, Chairman and CEO at General Dynamics]

As a result, the group's backlog is up almost 7% from a year ago and their total estimated contract value is up more than 10% over the same period. Their focus on advanced technology enabling autonomous platforms, smart munitions, subsea warfare and strategic deterrence, as well as advanced AI, cloud, cyber, 5G and quantum solutions is driving demand for the group. Their pipeline of qualified opportunities remains strong at $120 billion and their win and capture rates in the 80% range reflect the compelling value they're providing their customers.

[Phebe Novakovic, Chairman and CEO at General Dynamics]

While this year is off to a strong start, a significant amount of uncertainty hangs over the market, particularly on the IT services side of the business as the administration establishes its own spending priorities. That said, our team has a great understanding of the government's emerging technology needs and is committed to innovating to solve the toughest technical challenges across the government at the best return for their customers. As you know, we never update guidance at this time of year. Apart from what I've already said about aerospace, I will continue with that practice. There is, however, no hiding from this quarter's performance and its implication for the year. Let me speak to tariffs for a moment. We cannot yet discern to what extent the defense businesses will be impacted over time. The more potentially impactful problem is in aerospace, where we are a significant net provider of export revenue to the U.S.

[Phebe Novakovic, Chairman and CEO at General Dynamics]

We do not know the scope and breadth of the tariff issue at the moment and will not for a while. Accordingly, anything I might say on that subject would be sheer speculation. I do not intend to answer questions on the subject of tariffs because anything I say on that subject, given our lack of firm knowledge, will almost certainly be wrong. Rest assured that we are working the related issues diligently. This concludes my remarks about a good quarter and let me turn the call back to Nicole to take questions.

[Nicole Shelton, VP of Investor Relations at General Dynamics]

Thank you, Phebe. As a reminder, we asked participants to ask one question and one follow up so that everyone has a chance to participate. Operator, could you please remind participants how to enter the queue?

[Operator]

Thank you. We will now begin the question-and-answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. We ask that you please limit yourself to one question and one follow up to allow everyone an opportunity to ask a question. We will take our first question from Peter Arment at Baird.

[Peter Arment, Managing Director at Baird]

Yeah, thanks. Good morning Phebe, Kim, Jason, Nicole, nice results. Phebe, maybe just given in the spirit of everything that's going on, GD technology segment had a really good bookings quarter, kind of bucking the trend of the industry maybe, could you talk a little bit about, I guess any visibility or any discussions that GD is supporting kind of the GSA and their efforts and just, you know, how are things looking from a bookings in a cost savings environment with the current administration?

[Phebe Novakovic, Chairman and CEO at General Dynamics]

Yeah, Peter, that's a good question. I asked Jason to join us on the call to provide us more color for those of you who wanted some. I will turn that over to Jason.

[Jason Aiken, EVP at General Dynamics]

Thanks, Phebe. Good morning, Peter. I think as you'd expect, along with a number of GDIT's peers that I'm sure you've heard from, we've been in active conversation and actively working with the customer to identify opportunities for savings, for increased value, and so on from the services and the solutions that we provide. I think it's important as a reminder that we are not strictly in the consulting business per se. We deliver mission-driven solutions, we deliver solutions to the customer's most challenging technology issues. The fact is we are in the conversation, and as part of that conversation, we are going to partner with our customer and we are going to find the savings that they're looking for.

[Jason Aiken, EVP at General Dynamics]

At this point, the only thing I could comment in terms of what we're seeing in our results is you saw, you heard about the strong results in the quarter. First quarter was very strong, not only from a revenue and earnings standpoint, but also the order book was healthy. On the one hand, we're seeing a little bit of sluggishness in the solicitation and the proposal and award process. No different than the rest of our peers. We'll have to see how that plays out, how long that is sustained and how much of that is just an impact of a new administration setting their priorities and no different than any transition we see with a new administration. A lot still to be determined, nothing to change yet. The outlook for the year remains the same and I think we'll know a lot more by the midpoint of the year.

[Peter Arment, Managing Director at Baird]

Thanks, Jason. Thanks, Phebe.

[Operator]

We'll move next to Jason Gursky at Citi.

[Jason Gursky, Equity Research Analyst at Citi]

Hey, good morning. First question, could you maybe just get some comments from you and your take on the administration's desire to stand up, I don't know, Office of Shipbuilding inside the White House and all the efforts that we're seeing from them on supporting the industrial base here in the United States. We'd just love to get your take on what you're hearing.

[Phebe Novakovic, Chairman and CEO at General Dynamics]

Yeah. We've been in touch with the office. We're very happy to have the focus on shipbuilding across the enterprise. Consider that all goodness. We've had productive conversations with multiple elements of the administration and we're working with them to see in some cases how we can accelerate throughput productivity and shore up how we can shore up the industrial base, particularly on the defense side, and opportunities for more commercial shipbuilding where they may arise. I think attention on a subject of national import is always beneficial.

[Jason Gursky, Equity Research Analyst at Citi]

Okay, great. Quick follow up question would just be on the executive orders that hit last week about the potential for seems like a rewrite of federal acquisition regulation. I just would love to get your take on, you know, this administration's approach to procurement reform. Seems like every administration comes in and wants to reform how acquisition is done. Just curious if you think this one's going to be any different kind of potential opportunities and risks as we go through this process for the industrial base writ large. Thanks.

[Phebe Novakovic, Chairman and CEO at General Dynamics]

I think that acquisition reform is always laudatory, and I think the extent to which it succeeds is understanding what works in the acquisition process and what does not. I think that part of the dialogue we are all having is here are the good things, because there are an awful lot of good things within the process, but here are all the impediments, the cost drivers, the elements that tend to slow down or build bureaucracy. I think those are good conversations. We have always been supportive of acquisition reform.

[Operator]

We'll move next to David Strauss at Barclays.

[David Strauss, Managing Director at Barclays]

Thanks. Good morning.

[Phebe Novakovic, Chairman and CEO at General Dynamics]

Hi, David.

[David Strauss, Managing Director at Barclays]

Phebe, has there been any change in kind of the order activity or customer interest? Any noticeable change that you've seen at Gulfstream, you know, post all the tariff announcements in early April? Any slowing or anything?

[Phebe Novakovic, Chairman and CEO at General Dynamics]

The pipeline remains good. I'd say everyone's a little bit cautious figuring out to the extent to which the tariffs will impact any one of their businesses, but the pipeline remains strong across the portfolio of products. So far, so good.

[David Strauss, Managing Director at Barclays]

Okay. A follow up on the marine side, could you give an update on getting the money, you know, the significant funding that was in the CR under contract and maybe progression on, you know the larger Block 6, Virginia class contract?

[Phebe Novakovic, Chairman and CEO at General Dynamics]

We're working with the administration on getting the supplemental funding in the CR under contract. We've had very productive conversations and we'll continue those. I don't think it's appropriate to talk anymore about that. To the extent to which we get those funds into the shipyards, into wages and additional throughput capacity, that's all beneficial in the big conversations that have to happen around Block 6 and the second build of Columbia. The Navy intends for those to happen this year, but I think we need a lot of building blocks before we get there, including getting the supplemental under contract and starting to execute there.

[Operator]

Next we'll move to Robert Stallard at Vertical Research.

[Robert Stallard, Partner at Vertical Research Partners]

Thanks so much. Good morning.

[Phebe Novakovic, Chairman and CEO at General Dynamics]

Good morning.

[Robert Stallard, Partner at Vertical Research Partners]

Phebe, you said some positive things about the aerospace supply chain that you've experienced in the last couple of months. I was wondering if in recent weeks, this whole tariff thing has shifted the landscape here, particularly with regard to engines.

[Phebe Novakovic, Chairman and CEO at General Dynamics]

Let's just be clear about the supply chain. They've made very good progress, but the problems are not all behind us. We continue to work out of station work and continue to find some issues. I think it's a little soon to tell within the supply chain the extent to which we've got real concerns, their suppliers have real concerns. I would say that a lot of what we consume, internal consumption material, has a significant amount of U.S. content. How all of this plays out remains to be seen here.

[Robert Stallard, Partner at Vertical Research Partners]

Okay, thanks very much.

[Operator]

We'll go next to Kristine Liwag at Morgan Stanley.

[Kristine Liwag, Executive Director and Head of Aerospace and Defense Equity Research at Morgan Stanley]

Hi, good morning, everyone.

[Phebe Novakovic, Chairman and CEO at General Dynamics]

Good morning.

[Kristine Liwag, Executive Director and Head of Aerospace and Defense Equity Research at Morgan Stanley]

Jason. You know, I want to focus on technologies a little bit. You mentioned that you're working on savings that you can provide the customer. It seems like the GSA was disappointed with the initial proposals from the industry about cost savings. Can you talk about what's the potential size of savings you could provide with the new approach and if we could size the potential effect on your revenue stream and as this materializes, that'd be great. Thanks.

[Jason Aiken, EVP at General Dynamics]

Yeah, I'm afraid I'm going to give you an answer you're not going to be happy with, Christine. I think the point is, you know, as I said, we are in a good, healthy, active discussion with that customer. We are identifying savings. Some of that, as you might imagine, is from a conversation that's been discussed quite a bit around shifting to fixed price and outcome based type contracts, which we very much welcome. We have a good healthy portion of that in our backlog and portfolio already. The fact is it's an ongoing dialogue with customer and I think it'd be inappropriate to get out ahead of that in a public conversation and get ahead of them on that.

[Kristine Liwag, Executive Director and Head of Aerospace and Defense Equity Research at Morgan Stanley]

Great, thank you. Phebe, if I could have a follow on, on Gulfstream. I mean you now have the G800 certified and you had previously had the G700 as well. At this point, with the new products for Gulfstream coming out, it looks like there's a little uptick on the older G600s coming to market. I know you mentioned that there hasn't been significant change in demand. I was wondering if you could provide color regarding customer behavior and how the deliveries of these newer jets are affecting the older pieces and how you expect that to play out regarding pricing.

[Phebe Novakovic, Chairman and CEO at General Dynamics]

It's interesting. Old is relative. I take your point, but a little bit of humor here. The interest in the G500 and G600 continued to be very strong. Each one has its market segment, fulfills different missions. Just so you know, an older airplane again though from a relative point of view is the G650. I think we delivered the last G650s this quarter. That's kind of a seminal end to really an extraordinary airplane and I would say a real market changer for the last 15 years. Demand remains good. The deliveries are on cadence, largely on cadence. Again, we still have some perturbations from the supply chain, but we'll hopefully get some of those behind us as supply chain more fully recovers. I hope that answers your question.

[Operator]

Next we'll move to Ken Herbert at RBC Capital Markets.

[Ken Herbert, Managing Director at RBC Capital Markets]

Hi Phebe and everybody, good morning.

[Phebe Novakovic, Chairman and CEO at General Dynamics]

Morning.

[Ken Herbert, Managing Director at RBC Capital Markets]

Nice Gulfstream deliveries in the first quarter. Phebe, sounds like supply chain is getting better. Sounds like maybe there's some incremental upside to full year expectations. Can you provide any commentary on cadence of deliveries as we think about second quarter and second half of the year from Gulfstream?

[Phebe Novakovic, Chairman and CEO at General Dynamics]

Pretty consistent. We'll have some mixed changes quarter-over-quarter like we typically do, but pretty consistent. We're sticking with the estimate that we gave you on the last call. As you all know, we never, I think once in the last 12, 13 years, have we once or twice ever updated in the second quarter or in the first quarter. We always wait till the second quarter. We'll give you more clarity to the extent that there are any changes in that second quarter update.

[Ken Herbert, Managing Director at RBC Capital Markets]

Okay, great. Just as a follow up, you called out Middle East good order activity there. Are you seeing anything else geographically, maybe any areas of softness or anything else that sticks out in terms of customer activity on Gulfstream?

[Phebe Novakovic, Chairman and CEO at General Dynamics]

Pretty much consistent with what we've seen recently. The U.S. is strong and Middle East is strong. So far I haven't seen any systemic changes here.

[Operator]

We'll move next to Scott Mikus at Melius Research.

[Scott Mikus, Managing Director and Senior Analyst at Melius Research]

Morning.

[Phebe Novakovic, Chairman and CEO at General Dynamics]

Morning.

[Scott Mikus, Managing Director and Senior Analyst at Melius Research]

Phebe. Quick question on Marine. General Cotton of U.S. Strategic Command recently stated that the Columbia program of record may need to be increased given today's elevated threat environment. Considering the Navy's fleet of 14 Ohio class submarines carry 280 SLBMs, but each Columbia is only designed to carry 16 SLBMs. Is there interest from the DoD that you've heard about increasing the Columbia program to maintain a one to one replacement of SLBM launch capability?

[Phebe Novakovic, Chairman and CEO at General Dynamics]

You know, that's an interesting question that has been a national security question on and off, I'd say for the last 15 years or so. I haven't heard anything new, particularly on that subject. It is frequently a question that comes up or a subject that comes up in extended conversations. I'm sure it is on people' minds.

[Scott Mikus, Managing Director and Senior Analyst at Melius Research]

Okay. Turning to Gulfstream, deliveries we're very good at this quarter. Were there any customers that tried to accelerate the deliveries to get ahead of the tariffs?

[Phebe Novakovic, Chairman and CEO at General Dynamics]

Not that I'm aware.

[Scott Mikus, Managing Director and Senior Analyst at Melius Research]

Okay, thanks very much.

[Operator]

We'll go next to Gavin Parsons at UBS.

[Gavin Parsons, Director of Aerospace and Defense Equity Research at UBS]

Thanks. Morning.

[Phebe Novakovic, Chairman and CEO at General Dynamics]

Morning.

[Gavin Parsons, Director of Aerospace and Defense Equity Research at UBS]

Phebe, you mentioned the improvement in the G700 margin was 1Q better than your plan. Do you still expect a step down in the 2Q and 3Q margin?

[Phebe Novakovic, Chairman and CEO at General Dynamics]

Yeah, we're holding consistent for a whole series of reasons that include MIPs, among others, in the second quarter. Pretty much the progression that we gave you last call in January. Again, if that changes, we'll update you at the end of Q2. So far that's still our plan.

[Gavin Parsons, Director of Aerospace and Defense Equity Research at UBS]

Okay, appreciate it. You mentioned you expect G800 certification to drive a step up in orders there. Did you book any G800 in the first quarter?

[Phebe Novakovic, Chairman and CEO at General Dynamics]

We've had. Yeah, I'm almost certain we did. And we've had certainly additional interest since the, since the certification. It's a popular airplane. Let's recall that airplane is the replacement for the G650. G650s, as I noted, leave, you know, it's out of production at the end of this quarter. It's already out of production actually, largely. And we're in the delivery mode. The last delivery will be this quarter. That'll be an additional, I think, stimulant to demand.

[Operator]

We will move to our next question from Seth Seifman with JPMorgan.

[Seth Seifman, Executive Director at JPMorgan]

Hey, thanks very much and good morning, everyone.

[Phebe Novakovic, Chairman and CEO at General Dynamics]

Good morning Seth.

[Seth Seifman, Executive Director at JPMorgan]

I wanted to ask in Marine, just, you know, starting off with the 7% margin kind of slightly higher than what was initially expected for the year and potentially, you know, bringing those last two Block 5 boats under contract. Well, hopefully bringing those boats under contract this year, you know, we'll see about the rest. Does that create maybe a little bit less risk when we think about the margin outlook for Marine versus the past two years?

[Phebe Novakovic, Chairman and CEO at General Dynamics]

I think to the extent that we can continue to stimulate throughput and productivity in the supply chain as well as at the shipyard, that is always a risk reduction. I think every time that we can facilitate that, that is a good thing. I will recall. I'll just note on the 7% margin. We had a charge in the fourth quarter last year that did not revisit. That was some mix driven, but we're staying by. You did not ask this question, but I'll answer it anyway. We'll stick with, as we stand today, with our. We're going to hover in the upper sixes in margin. Yes, as I said, any action on the part of the government to stimulate productivity always takes risk out of the profile.

[Seth Seifman, Executive Director at JPMorgan]

Okay. Okay, thanks. Just as a follow up on the capital deployment and balance sheet with the share repurchases in the first quarter, I guess will affect the share count for the year, I think, Kim, you mentioned maybe waiting potentially to refinance some of the debt that's due in the second quarter. Should we think about some incremental interest expense at all this year that maybe offsets some of the goodness from share repo or I guess, how do those two things kind of net out? Phebe, I think you've said over time that you're typically opportunistic on share repo. This was a bigger quarter than we're used to seeing. What was kind of the thought process around that?

[Phebe Novakovic, Chairman and CEO at General Dynamics]

Sure. I'll start. Just to clarify, I didn't necessarily say we were waiting. We're just watching what's happening in the market in terms of the rates related to the refinancing of the debt. Just wanted to clarify on that. As you stated, we did, you know, have significant share repurchase in the first quarter, and we continue to look at share repurchase, you know, throughout the rest of the year, depending on the facts and circumstances as they present themselves. I would say that we will likely have, you know, slightly more interest expense predicted for the rest of the rest of the year. I would say too, our general attitude about capital deployment is unchanged and our share repurchases are opportunistic, but the stock was a good buy in a lot of instances this quarter.

[Operator]

We'll take our next question from Andre Madrid at BTIG.

[Operator]

Good morning everyone.

[Phebe Novakovic, Chairman and CEO at General Dynamics]

Morning.

[Andre Madrid, Equity Research Analyst at BTIG]

You know, given all the recent tension around trade, do you think there's a reluctance moving forward for allies to work with U.S. contractors? I mean, you saw several northern European nations kind of coming together and saying that they were intending to collectively buy a competing infantry combat vehicle. Like, do we expect stuff of this magnitude kind of moving forward? Yeah, like I said, do we expect trade to kind of linger and weigh on, you know, allies dealing with contractors like GD?

[Phebe Novakovic, Chairman and CEO at General Dynamics]

I think that we have to see how all that plays out. I think, you know, that we are a little bit different. This is largely talking about Combat Systems because that's our preeminent business in Europe. This is a European business run by Europeans with manufacturing facilities in Europe sourced in Europe almost exclusively. These are long standing, 30 year in some instances, companies in their home countries. I think we're a little bit different. I would say that the demand in the first quarter for European made sourced GD products was certainly there. European Land Systems has a superb portfolio of products to offer. We have seen increased demand and increased spending. That bodes well from our perspective for these businesses.

[Andre Madrid, Equity Research Analyst at BTIG]

Got it. That's helpful. If I could just squeeze in one more. I think some of your peers pointed out a slower pace of contract awards in the first quarter. Did you see anything of this nature? Could you provide more color there?

[Phebe Novakovic, Chairman and CEO at General Dynamics]

Yeah, all I said, not in majority of the portfolio, but Jason, go ahead.

[Jason Gursky, Equity Research Analyst at Citi]

Yeah, I think as it relates to the technologies group, as you saw in the results, it was actually a very encouraging quarter from an orders perspective, you know, on a pretty meaningful uptick in revenue. We had a book-to-bill greater than one to one. So far we're not seeing impact through the end of the first quarter. As Phebe said, the pipeline for the business remains very strong. The issue that I think most people are talking about and we're seeing, frankly the same thing, is what I would refer to as perhaps a sluggishness, if you will, in the cadence of solicitations and award activity. As a reminder, that's not necessarily something new for this business.

[Jason Gursky, Equity Research Analyst at Citi]

You know, in the GDIT side in particular, we've talked for some time about dealing with these types of issues of protracted and drawn out adjudications and award activities, protests and other things that sort of extend that order cadence beyond what would be a regular order. While this is something we're tracking and it's something everybody's talking about, I don't necessarily think it's something aberrationally different than what we've been used to dealing with in the past. We'll just have to see how it plays out as we go forward.

[Operator]

We'll take our next question from Sheila Kahyaoglu at Jefferies.

[Sheila Kahyaoglu, Managing Director at Jefferies]

Good morning. Phebe. Kim. Phebe or Kim, maybe two follow ups if I can, both on margins, one on aerospace and one on Marine. On aerospace, can you just update us on how we think about the last G650 being delivered in this quarter as the G800 ramps and how we think about the different blocks with G700 progressing throughout the year?

[Phebe Novakovic, Chairman and CEO at General Dynamics]

We are continuing to improve G700 margins. We are not, however, at what I would call a normal cadence yet. Once we hit that, we will begin to progress margins even further. The G650 will deliver at high margins and the G800 will come in at higher margins than the G700 because it is not carrying as much burden of R&D as the G700 did for a slot of G700s. These are all, I think, beneficial to us. You had a question on the Marine margins?

[Sheila Kahyaoglu, Managing Director at Jefferies]

Yes, please. I just thought your prepared remarks mentioned the government and working with them a lot more. I was wondering over the last quarter or two, you know, what's really changed, whether it was the hiring cadence, the investment required from GD, or is the government customer working closer with you to support the Marine build.

[Phebe Novakovic, Chairman and CEO at General Dynamics]

I'd say there's a step up in engagement on the civilian side of the government with us on building that cadence, getting the throughput up, getting productivity increases, ensuring that we can continue to hire the workers that we have been hiring, that the wage structure is appropriate, and that the investments take us to the next level. I suspect that the next series of investments, you'll see some investment in resiliency, a lot in, and again, additional productivity and throughput with increased automation, even more increased automation.

[Phebe Novakovic, Chairman and CEO at General Dynamics]

We have quite a bit that we've spent, you know, the last decade and recently putting in the shipyards and then additional fixtures for additional throughput so that we can really get our pace to where it needs to be to deliver what the nation needs. Continued efforts on the part of the government to support the supply chain and get the supply chain stabilized. It's better in places, but we've got a ways to go.

[Operator]

We'll move next to Ron Epstein at Bank of America.

[Mariana Perez-Mora, Director at Bank of America]

Good morning, everyone. This is Mariana Pérez Mora on for Ron today. Good morning. I wanted to do a follow-up on Combat Systems. Could you mind discussing what is the pipeline of opportunities in Europe? Especially because we continue to see headlines on increased commitment to build up their defenses.

[Phebe Novakovic, Chairman and CEO at General Dynamics]

We have seen increased discussions really throughout Europe, Eastern Europe as well as Central Europe now. Those conversations have accelerated. They started in earnest with the invasion of Ukraine. They have picked up even more as each one of those governments has allocated an increasing amount of its resources to defense spending. I would say it is across the board.

[Mariana Perez-Mora, Director at Bank of America]

Thank you. My follow-up is going to be on Aero. What are your expectations for, especially in this macro environment or evolving uncertainty? What are your expectations for book-to-bill on Gulfstream for the full year?

[Phebe Novakovic, Chairman and CEO at General Dynamics]

We are close to one-to-one for the year. I think we're actually at 0.9. That is pretty close to one. We continue to see that as achievable in the moment. Should that change, we'll let you know Q2.

[Operator]

Next, we'll move to Myles Walton at Wolfe Research.

[Myles Walton, Managing Director at Wolfe Research]

Thanks. Phebe, I realize you can't put precision on the tariffs. I'm going to step in the landmine here.

[Phebe Novakovic, Chairman and CEO at General Dynamics]

Oh, you're right about.

[Myles Walton, Managing Director at Wolfe Research]

I know, I know. Your confidence that he alluded to in the full year outlook, is that encompassing your assessment of what you're going to see?

[Phebe Novakovic, Chairman and CEO at General Dynamics]

We do not think the defense guys get hit much. There will be some Gulfstream impacts, and nothing we see so far is extraordinary. We have a long way to go. I think a lot of the supply chains have to assimilate these changes and see the impacts to the extent that they have them on them. That is all I can give you. If I were any more specific, the one thing I could assure you is it would be wrong and you all would be highly irritated that I gave you a wrong number. I am giving you really how we see it from our foxhole.

[Myles Walton, Managing Director at Wolfe Research]

All right. To follow up, we talked through the call about the administration's fingerprints on the marine business with the Shipbuilding Act and technologies with some of their initiatives on government services. Is there anything you're seeing as it relates to your combat business and their view on the role of the Army and maybe the XM30 and M10 as being prioritized or deprioritized in the framework?

[Phebe Novakovic, Chairman and CEO at General Dynamics]

You know, one of the things that is a truism about Washington that is now a truism on steroids is that rumor is rampant. I want to see what the budgets actually show. The CR did fund Stryker and Abrams at a lesser rate. I think the Army's plan had been one full brigade of Abrams, third brigade of Strykers, and they cut that request by about 1/3. We need to find a little bit more stable, a funding profile, particularly for the supply chain, that really perturbates the supply chain badly. There is great interest on the part of the Army, and we are working daily with them to accelerate the next generation Abrams. We consider that a very positive step in Army recapitalization modernization.

[Operator]

Next we'll go to Noah Poponak at Goldman Sachs.

[Noah Poponak, Managing Director at Goldman Sachs]

Hey, good morning everyone.

[Phebe Novakovic, Chairman and CEO at General Dynamics]

Good morning.

[Noah Poponak, Managing Director at Goldman Sachs]

I just wanted to go back to technologies, Jason and or Phebe, and it's interesting you mentioned engagement with the customer and that this dialogue, back and forth dialogue, is going on and I wondered how much are they just asking for reductions versus how much are you showing them capability that can help them gain efficiencies while adding revenue to your business? Additionally, I'm curious how much discussion is there around contract structure and how that could impact margins, whether positively or negatively?

[Jason Aiken, EVP at General Dynamics]

Yeah, look, in short, I'd say it's all of the above, not to mince words, they are looking for reductions across the board and we are actively participating in that and making recommendations to help them solve the problem they're trying to solve. To your point, there are opportunities down the road because the fact is when you look at the types of efficiencies they're trying to drive, the type of headcount reductions they're looking for, it is absolutely the very types of things that we provide in terms of these technology solutions and digitization and so on that enable those types of reductions. There's going to be a period where it's a shorter-term conversation and then it's going to turn to a longer-term conversation.

[Jason Aiken, EVP at General Dynamics]

To your point about opportunity in that, I think, you know, look, we talked about fixed price slash outcome based type contracts and again I mentioned we're comfortable with that. We have a good bit of that in our portfolio and that should bring an opportunity for us. The fact is it's no different than any other contract geometry. Fixed price versus cost plus when you take on more risk, there should be an opportunity for a little better margin, but all of it comes at a better price and a better outcome for the customer.

[Jason Aiken, EVP at General Dynamics]

I guess if I were to add one other thing to watch out from a risk standpoint, we need to be careful from a mission perspective that if there's dueling priorities of significantly reducing workforce within the government and at the same time on a meaningful level insourcing this type of work to the customer, that can come at great peril. We need to be mindful of that in these conversations and make sure we don't compromise any mission capability.

[Noah Poponak, Managing Director at Goldman Sachs]

I appreciate all that detail, Jason. Just one quick one, Kim. What's your updated thinking for full year free cash flow to net income conversion?

[Kimberly Kuryea, Chairman and CFO at General Dynamics]

I think, you know, we're sticking with the forecast that we gave you in January at this point in time. We're obviously always trying to improve upon that, but at this point in the year, we're going to stick to that forecast.

[Nicole Shelton, VP of Investor Relations at General Dynamics]

Okay, I think now we have time for just one last question.

[Operator]

We'll take that question from Gautam Khanna at TD Cowen.

[Gautam Khanna, Analyst at TD Cowen]

Yeah, thank you, guys. Jason, I wanted to just follow up on the prior question. Have you actually seen DoD or whatever we want to call this DOGE terminate contracts with GDIT? Has that happened and if so, can you quantify what that aggregates to?

[Jason Aiken, EVP at General Dynamics]

Yeah, I'm sure if you look at the public information around DoD, they list all the contract actions that they've taken action on and we have been a part of that. There have been some stop-work orders, some partial stop-work orders and so on. In terms of impact of that, I'm not going to quantify that for the year. As I said, the outlook for the year for the business remains the same. If anything, I think I would remind you that historically, the way General Dynamics puts contract value into backlog is materially different and more conservative than most of GDIT's peers. We're very rigorous about that. From a color standpoint, I think I'll put it that way. Those things are going on and it's going to be part of the conversation.

[Gautam Khanna, Analyst at TD Cowen]

Got you. And it's factored in. Okay. Just to follow up on Gulfstream, Phebe, could you remind us what percentage of the pipeline of opportunities on the large cabin side are with non-U.S. customers? Like a rough percentage? Is it half? Is it a quarter?

[Phebe Novakovic, Chairman and CEO at General Dynamics]

Yeah, no, it's less than half. I think it typically runs 60/40, something like that. 60% U.S.

[Nicole Shelton, VP of Investor Relations at General Dynamics]

Great. Thank you everyone for joining our call today. As a reminder, please refer to the General Dynamics website for the first quarter earnings release and highlights presentation. If you have any additional questions, I can be reached at 703-876-3152.

[Operator]

This concludes today's conference call. Thank you for your participation. You may now disconnect.

Participants

Executives

• Nicole Shelton, VP of Investor Relations
• Phebe Novakovic, Chairman and CEO
• Jason Aiken, EVP

Analysts

• Jason Gursky, Equity Research Analyst at Citi
• Ken Herbert, Managing Director at RBC Capital Markets
• Mariana Perez-Mora, Director at Bank of America
• Peter Arment, Managing Director at Baird
• Sheila Kahyaoglu, Managing Director at Jefferies
• Noah Poponak, Managing Director at Goldman Sachs
• Andre Madrid, Equity Research Analyst at BTIG
• Myles Walton, Managing Director at Wolfe Research
• Gautam Khanna, Analyst at TD Cowen
• Scott Mikus, Managing Director and Senior Analyst at Melius Research
• Gavin Parsons, Director of Aerospace and Defense Equity Research at UBS
• Kimberly Kuryea, Chairman and CFO at General Dynamics
• Seth Seifman, Executive Director at JPMorgan
• Kristine Liwag, Executive Director and Head of Aerospace and Defense Equity Research at Morgan Stanley
• David Strauss, Managing Director at Barclays
• Robert Stallard, Partner at Vertical Research Partners