General Dynamics(GD) - 2024 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION This section presents the unaudited consolidated financial statements and management's discussion and analysis for the first quarter of 2024 Unaudited Consolidated Financial Statements For the three months ended March 31, 2024, General Dynamics reported total revenues of $10.73 billion, an 8.6% increase year-over-year, and net earnings of $799 million, resulting in diluted EPS of $2.88. The balance sheet shows total assets of $55.2 billion. The company experienced negative operating cash flow of $278 million, primarily due to an increase in inventories and unbilled receivables related to production ramp-ups Consolidated Statement of Earnings This statement details the company's revenues, operating earnings, and net earnings for the three months ended March 31, 2024 | Indicator | Three Months Ended March 31, 2024 | Three Months Ended April 2, 2023 | | :--- | :--- | :--- | | Total Revenue | $10,731 million | $9,881 million | | Operating Earnings | $1,036 million | $938 million | | Net Earnings | $799 million | $730 million | | Diluted EPS | $2.88 | $2.64 | - Total revenue increased by 8.6% year-over-year, from $9.88 billion to $10.73 billion. Net earnings grew by 9.5% to $799 million, and diluted EPS increased by 9.1% to $2.88[9] Consolidated Balance Sheet This statement provides a snapshot of the company's assets, liabilities, and shareholders' equity as of March 31, 2024 | Asset/Liability | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Cash and equivalents | $1,036 million | $1,913 million | | Total current assets | $24,196 million | $23,615 million | | Total assets | $55,246 million | $54,810 million | | Long-term debt | $8,752 million | $8,754 million | | Total liabilities | $33,836 million | $33,511 million | | Total shareholders' equity | $21,410 million | $21,299 million | - Cash and equivalents decreased significantly to $1.04 billion from $1.91 billion at year-end 2023, while inventories increased by over $1 billion to $9.59 billion, reflecting production ramp-ups[12] Consolidated Statement of Cash Flows This statement outlines the cash inflows and outflows from operating, investing, and financing activities for the first quarter of 2024 | Cash Flow Activity | Three Months Ended March 31, 2024 | Three Months Ended April 2, 2023 | | :--- | :--- | :--- | | Net cash (used) provided by operating activities | ($278 million) | $1,462 million | | Net cash used by investing activities | ($182 million) | ($190 million) | | Net cash used by financing activities | ($416 million) | ($475 million) | | Net (decrease) increase in cash and equivalents | ($877 million) | $796 million | - The company experienced a significant shift in operating cash flow, from a $1.46 billion inflow in Q1 2023 to a $278 million outflow in Q1 2024. This was primarily driven by increases in inventories and unbilled receivables[13] Notes to Unaudited Consolidated Financial Statements This section provides detailed disclosures on revenue recognition, segment information, and backlog supporting the financial statements - Total backlog (remaining performance obligations) stood at $93.7 billion as of March 31, 2024. The company expects to recognize approximately 65% of this backlog as revenue by the end of 2025[28] - Revenue recognized over time accounted for 80% of total revenue in Q1 2024, with substantially all defense segment revenue recognized this way. Revenue recognized at a point in time, primarily from business jet deliveries, accounted for the remaining 20%[26][27] - The U.S. government is the primary customer, accounting for $7.85 billion (73%) of total revenue in Q1 2024, up from $7.29 billion (74%) in Q1 2023[38] | Segment | Q1 2024 Revenue | Q1 2023 Revenue | | :--- | :--- | :--- | | Aerospace | $2,084 million | $1,892 million | | Marine Systems | $3,331 million | $2,992 million | | Combat Systems | $2,102 million | $1,756 million | | Technologies | $3,214 million | $3,241 million | | Total | $10,731 million | $9,881 million | Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 8.6% consolidated revenue growth in Q1 2024 to double-digit increases in the Aerospace, Marine Systems, and Combat Systems segments. Operating margin improved by 20 basis points to 9.7%. The company highlights the FAA certification of the G700 aircraft as a key event, paving the way for deliveries starting in Q2 2024. Total backlog remained strong at $93.7 billion. The company experienced negative free cash flow of $437 million due to working capital growth, particularly in inventories for new Gulfstream models Consolidated Overview This section provides a high-level analysis of the company's overall financial performance, including revenue and operating margin trends | Metric | Q1 2024 | Q1 2023 | Variance (%) | | :--- | :--- | :--- | :--- | | Revenue | $10,731 million | $9,881 million | 8.6% | | Operating Earnings | $1,036 million | $938 million | 10.4% | | Operating Margin | 9.7% | 9.5% | +20 bps | - Consolidated revenue growth was driven by double-digit increases in the Aerospace, Marine Systems, and Combat Systems segments. The operating margin expanded by 20 basis points due to revenue growing faster than operating costs[101] Review of Operating Segments This section analyzes the financial performance and key drivers for each of the company's operating segments - Aerospace: Revenue grew 10.1% to $2.1 billion, driven by more G650 deliveries and higher aircraft services demand. Operating margin slightly increased to 12.2%[103][104] - Marine Systems: Revenue increased 11.3% to $3.3 billion, primarily from higher volume on the Columbia-class submarine program. Operating margin was stable at 7.0%[106][107] - Combat Systems: Revenue surged 19.7% to $2.1 billion, fueled by heightened demand for artillery and increased volume in military vehicle programs. Operating margin decreased to 13.4% due to lower-margin artillery facility expansion work[108][109][110] - Technologies: Revenue saw a slight decrease of 0.8% to $3.2 billion due to program timing and ramp-down of legacy programs. Operating margin remained consistent at 9.2%[111][112] Backlog and Estimated Potential Contract Value This section details the company's total backlog and estimated potential contract value, indicating future revenue visibility - Total backlog was $93.7 billion at the end of Q1 2024, stable compared to $93.6 billion at year-end 2023. Total estimated contract value, including potential options, was $134 billion[120] | Segment | Total Backlog (Mar 31, 2024) | Total Backlog (Dec 31, 2023) | | :--- | :--- | :--- | | Aerospace | $20.5 billion | $20.5 billion | | Marine Systems | $44.1 billion | $45.9 billion | | Combat Systems | $15.6 billion | $14.5 billion | | Technologies | $13.5 billion | $12.7 billion | | Total | $93.7 billion | $93.6 billion | - The Combat Systems segment had a strong book-to-bill ratio of 1.6-to-1, while the overall defense segments had a ratio of 1-to-1. The Aerospace segment's book-to-bill was 1.2-to-1[123][126] Liquidity and Capital Resources This section discusses the company's cash position, free cash flow, and capital deployment strategies for the quarter - The company ended Q1 2024 with $1 billion in cash, down from $1.9 billion at the end of 2023[134] - Free cash flow was negative $437 million in Q1 2024, a significant decrease from a positive $1.3 billion in Q1 2023. The decline was driven by growth in operating working capital, particularly inventories for new Gulfstream aircraft[135][144] - Capital deployment in Q1 2024 included $361 million in dividends and $105 million in share repurchases. The quarterly dividend was increased by 7.6% to $1.42 per share, marking the 27th consecutive annual increase[138][139][140] Quantitative and Qualitative Disclosures About Market Risk The company reports no material changes to its market risk disclosures from those included in its Annual Report on Form 10-K for the year ended December 31, 2023 - There have been no material changes with respect to quantitative and qualitative disclosures about market risk since the 2023 year-end 10-K filing[155] Controls and Procedures Based on an evaluation as of March 31, 2024, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective. No material changes to internal control over financial reporting occurred during the quarter - Management, including the CEO and CFO, concluded that as of March 31, 2024, the company's disclosure controls and procedures were effective[156] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[157] PART II - OTHER INFORMATION This section covers legal proceedings, risk factors, equity security sales, and other relevant disclosures Legal Proceedings This section refers to Note J of the financial statements for information on legal proceedings, including a recently dismissed class action lawsuit - For information on legal proceedings, the report refers to Note J of the financial statements[162] - A putative class action lawsuit alleging conspiracy not to solicit naval architects and marine engineers was dismissed by the District Court on April 19, 2024[59] Risk Factors This section states that there have been no material changes to the risk factors disclosed in the prior annual report - There have been no material changes to the risk factors previously disclosed in the 2023 Annual Report on Form 10-K[163] Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's share repurchase activities and remaining authorization for buybacks during the quarter | Period | Shares Purchased (Buyback Program) | Average Price per Share | | :--- | :--- | :--- | | 1/1/24-1/28/24 | — | $— | | 1/29/24-2/25/24 | 353,964 | $268.36 | | 2/26/24-3/31/24 | 36,627 | $272.94 | | Total Q1 2024 | 390,591 | ~ $268.69 | - In Q1 2024, the company repurchased 0.4 million shares for $105 million. As of March 31, 2024, 4.3 million shares remained authorized for repurchase[69] Other Information This section reports that no directors or officers adopted or terminated Rule 10b5-1 trading arrangements during the quarter - No directors or officers adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the first quarter of 2024[166] Exhibits This section lists the exhibits filed with the Form 10-Q, including executive compensation agreements and required certifications - This section lists all exhibits filed with the quarterly report, including management compensation plans and required CEO/CFO certifications[167][168]