Huntington Ingalls Industries Stock

Huntington Ingalls Industries, Inc. (HII) operates as a global, all-domain defense partner, building and delivering survivable naval ships and technologies that safeguard America’s seas, sky, land, space, and cyber.

The company conducts most of its business with the U.S. Government, primarily the Department of Defense (DoD). As prime contractor, principal subcontractor, team member, or partner, the company participates in many high-priority U.S. defense programs.

Ingalls Shipbuilding segment (Ingalls) includes the company’s non-nuclear ship design, construction, repair, and maintenance businesses. Newport News includes all of its nuclear ship design, construction, overhaul, refueling, and repair and maintenance businesses. The company’s Mission Technologies segment provides a wide range of services and products, including command, control, computers, communications, cyber, intelligence, surveillance, and reconnaissance (C5ISR) systems and operations; the application of artificial intelligence and machine learning to battlefield decisions; defense and offensive cyberspace strategies and electronic warfare; unmanned autonomous systems; live, virtual, and constructive training solutions; fleet sustainment; and critical nuclear operations.

Segments

The company operates through three segments: Ingalls, Newport News, and Mission Technologies.

Ingalls segment

Through its Ingalls segment, the company designs and constructs non-nuclear ships for the U.S. Navy and the U.S. Coast Guard, including amphibious assault ships, expeditionary warfare ships, surface combatants, and national security cutters (NSC). The company is the sole builder of amphibious assault ships and one of two builders of surface combatants for the U.S. Navy. The company is the sole builder of large multi-mission NSCs for the U.S. Coast Guard. The company’s Ingalls segment is located in Pascagoula, Mississippi on 800 acres along the Pascagoula River.

Amphibious Assault Ships

The company constructs amphibious assault ships and expeditionary warfare ships for the U.S. Navy, which include the U.S. Navy large deck amphibious assault ships (LHA) and amphibious transport dock ships (LPD), respectively. The LHA is a key component of the Department of the Navy's requirement for Expeditionary Strike Groups/Amphibious Readiness Groups, and design, construction, and modernization of LHAs are core to the company’s Ingalls operations. The company is constructing Bougainville (LHA 8) and Fallujah (LHA 9).

The LPD program is a long-running production program of expeditionary warfare ships in which the company has generated efficiencies through ship-over-ship learning. The company delivered USS Fort Lauderdale (LPD 28) in 2022, and it is constructing Richard M. McCool Jr. (LPD 29), Harrisburg (LPD 30), and Pittsburgh (LPD 31). In 2023, the company was awarded a contract to construct Philadelphia (LPD 32).

Surface Combatants

The company is a design agent for, and one of only two companies that constructs, Arleigh Burke class (DDG 51) guided missile destroyers, a class of surface combatant. The company has delivered 35 Arleigh Burke class (DDG 51) destroyers to the U.S. Navy, including USS Jack H. Lucas (DDG 125) in 2023, USS Lenah H. Sutcliffe Higbee (DDG 123) in 2022, and USS Frank E. Petersen Jr. (DDG 121) in 2021. In 2023, the company was awarded a multi-year contract for construction of six more Arleigh Burke class (DDG 51) destroyers, as well as the first option ship, for a total of seven ships. The company is constructing Ted Stevens (DDG128), Jeremiah Denton (DDG 129), George M. Neal (DDG 131), Sam Nunn (DDG 133), and Thad Cochran (DDG 135).

National Security Cutters

The U.S. Coast Guard's recapitalization program is replacing aging and operationally expansive ships and aircraft used to conduct missions in excess of 50 miles from the shoreline. The flagship of this program is the Legend class NSC, a multi-mission platform the company designed and continue to build. In 2018, the company was awarded long-lead-time material and construction contracts for Calhoun (NSC 10), which was delivered to the U.S. Coast Guard in 2023, and Friedman (NSC 11), which is under construction.

Newport News segment

This segment engages in designing and constructing nuclear-powered aircraft carriers and submarines, and the refueling and overhaul and the inactivation of nuclear-powered aircraft carriers. The company’s Newport News shipyard is located on approximately 550 acres near the mouth of the James River, which adjoins the Chesapeake Bay.

Design, Construction, Refueling and Complex Overhaul, and Inactivation of Aircraft Carriers

Engineering, design, and construction of the U.S. Navy nuclear aircraft carriers (CVN) are core to Newport News operations. Aircraft carriers are the largest ships in the U.S. Navy's fleet, with a displacement of over 90,000 tons. Newport News has designed and built more than 31 aircraft carriers for the U.S. Navy since 1933, including all ten Nimitz class (CVN 68) aircraft carriers in active service, as well as the first ship of the next generation Gerald R. Ford class (CVN 78) aircraft carriers.

The company delivered USS Gerald R. Ford (CVN 78), the first aircraft carrier of the Gerald R. Ford class to the U.S. Navy in 2017. In addition, the company has received contract awards for detail design and construction of the Gerald R. Ford class (CVN 78) aircraft carriers Enterprise (CVN 80) and Doris Miller (CVN 81).

The company continues to be the exclusive prime contractor for nuclear aircraft carrier refueling and complex overhaul (RCOH). Each RCOH takes nearly four years to complete, with the work accounting for approximately 35% of all maintenance and modernization during an aircraft carrier's 50 year service life. RCOH services include propulsion work (refueling of reactors; propulsion plant modernization; and propulsion plant repairs), restoration of service life (dry docking, tank, and void maintenance; hull, shafting, propellers, and rudders; launch and recovery system; piping repairs; and component refurbishment), and modernization (electrical systems; aviation support systems; warfare; interoperability; and environmental compliance). The company provides ongoing maintenance services for the U.S. Navy aircraft carrier fleet through both RCOH and fleet support services worldwide.

USS George Washington (CVN 73) was redelivered to the U.S. Navy in 2023 after completion of its RCOH, and the company is performing the RCOH of USS John C. Stennis (CVN 74). The company’s position as the exclusive designer and builder of nuclear-powered aircraft carriers, its RCOH performance on the first seven Nimitz class (CVN 68) carriers, its highly trained workforce, the capital-intensive nature of RCOH work, and high barriers to entry due to required nuclear expertise position the company well for RCOH contract awards on the remaining Nimitz class (CVN 68) carriers, as well as future RCOH work on Gerald R. Ford class (CVN 78) aircraft carriers.

Design and Construction of Nuclear-Powered Submarines

The company is one of only two companies in the United States capable of designing and building nuclear-powered submarines for the U.S. Navy. Newport News has delivered 63 submarines to the U.S. Navy since 1960 includes 49 fast attack and 14 ballistic missile submarines. Of the 49 nuclear-powered fast attack submarines in active service, 23 were delivered by Newport News. The company’s nuclear submarine program, located at its Newport News shipyard, includes construction, engineering, design, research, and integrated planning.

Virginia Class (SSN 774) Submarines

The company has a teaming agreement with Electric Boat Corporation (Electric Boat), a division of General Dynamics Corporation (General Dynamics), to build Virginia class (SSN 774) fast attack nuclear submarines. Under the teaming arrangement, the company builds the stern, habitability and machinery spaces, torpedo room, sail, and bow, while Electric Boat builds the engine room, control room, and pressure hull structure. Work on the reactor plant and the final assembly, test, outfit, and delivery of the submarines to the U.S. Navy alternates between Electric Boat and the company.

The four submarines of the first block, six submarines of the second block, and eight submarines of the third block of Virginia class (SSN 774) submarines have been delivered. In 2014, the team was awarded a construction contract for the fourth block of ten Virginia class (SSN 774) submarines, which contemplated production of two submarines per year. The first submarine of the Block IV contract was delivered in 2020, and three more submarines have been delivered through 2023. The remaining six boats of the Block IV contract are in the final assembly and test phases of construction.

Columbia Class (SSBN 826) Submarines

Newport News is participating in the design and construction of the Columbia class (SSBN 826) submarines as a replacement for the current aging Ohio class nuclear ballistic missile submarines (SSBN), which were first introduced into service in 1981. The Columbia class (SSBN 826) program anticipates 12 new ballistic missile submarines. The company performs design work as a subcontractor to Electric Boat, and it has entered into a teaming agreement with Electric Boat to build modules for the entire Columbia class (SSBN 826) submarine program that leverages its Virginia class (SSN 774) experience. In 2023, the company was awarded a contract modification for long-lead-time material and advance construction in the support of five additional Columbia class (SSBN 826) boats, also referred to as Build II of the class.

Naval Nuclear Support Services

Newport News provides additional services to and in the support of the U.S. Navy, ranging from services supporting the Navy's carrier and submarine fleets to maintenance services at U.S. Navy training facilities. Fleet support services include design, construction, maintenance, and disposal activities for in-service U.S. Navy nuclear ships worldwide through mobile and in-house capabilities. The company also provides maintenance services on nuclear reactor prototypes, such as those at the Kenneth A. Kesselring Site, a research and development facility in New York that supports the U.S. Navy.

Mission Technologies segment

This segment develops integrated solutions that enable today’s connected, all-domain force. The company’s capabilities include C5ISR systems and operations; the application of Artificial Intelligence (AI) and machine learning to battlefield decisions; defensive and offensive cyberspace strategies and electronic warfare (CEW&S); live, virtual, constructive solutions (LVC); unmanned, autonomous systems; fleet sustainment; and critical nuclear operations.

C5ISR

C5ISR designs, develops, integrates, and manages the sensors, systems, and other assets necessary to support integrated ISR operations and accelerated decision-making. These business activities provide data fusion and mission management capabilities for the DoD, the combatant commands, and the intelligence community.

CEW&S

CEW&S works within the company’s nation’s intelligence and cyber operations communities to defend U.S. interests in cyberspace and anticipate emerging threats. The company’s capabilities in cybersecurity, network architecture, reverse engineering, software, and hardware development uniquely enable its ability to support sensitive missions for the U.S. military and federal agency partners. The company also develops, tests, and integrates leading-edge AI and machine learning algorithms to optimize and accelerate the nation’s mission-critical systems and platforms.

LVC

LVC training connects live environments with virtual platforms and simulated (constructive) threats to prepare trainees through integrated, real world scenarios before they are in harm’s way. LVC is a modern and distributed approach to the U.S. military training.

Fleet Sustainment

Fleet sustainment provides comprehensive life-cycle sustainment to the U.S. Navy fleet and other DoD and commercial maritime customers. Services include maintenance, modernization, and repair on all ship classes; naval architecture, marine engineering, and design; integrated logistics support; technical documentation development; warehousing, asset management, and material readiness; operational and maintenance training development and delivery; software design and development; IT infrastructure support and data delivery and management; and cyber security and information assurance. The company also provides undersea vehicle and specialized craft development and prototyping services.

Unmanned Systems

Unmanned Systems develops advanced unmanned systems for defense, marine research, and commercial applications. Serving customers in more than 30 countries, the company provides design, autonomy, manufacturing, testing, operations, and sustainment of unmanned systems, including unmanned underwater vehicles and unmanned surface vessels.

Nuclear and Environmental Services

Nuclear and Environmental Services support the Department of Energy’s (DoE) national security mission through the management and operation of DoE sites, as well as the safe cleanup of legacy waste across the country. Through participation in joint ventures, including Newport News Nuclear BWXT Los Alamos, LLC (N3B), Mission Support and Test Services, LLC (MSTS), and Savannah River Nuclear Solutions, LLC (SRNS), the company meets customers’ toughest nuclear and environmental challenges.

Customers

The company’s revenues are primarily derived from the U.S. Government, including the U.S. Navy, the U.S. Coast Guard, the DoD, the DoE, and other federal agencies. In 2023, approximately 81% of the company’s revenues were generated from the U.S. Navy.

Research and Development

The company-sponsored independent research and development (IR&D) expenses totaled $35 million for the year ended December 31, 2023.

Competition

In its business of designing, building, overhauling, and repairing military ships, the company primarily competes with General Dynamics.

The company’s Mission Technologies segment competes domestically and internationally against large aerospace and defense (A&D) companies, primarily L3 Harris, Amentum, ManTech, and Leidos. To a lesser extent, the company’s lines of business compete on certain contracts with major prime A&D contractors, including Lockheed Martin, General Dynamics, Northrop Grumman, Raytheon, and Boeing.

Regulatory Matters

The company is overseen and audited by the U.S. Government and its agencies, including the U.S. Navy's Supervisor of Shipbuilding, the Defense Contract Audit Agency (DCAA), and the Defense Contract Management Agency (DCMA).

The U.S. Government agencies also evaluate the adequacy of the company’s business systems and processes relative to U.S. Government requirements. The company’s business systems subject to audit or review include its accounting systems, purchasing systems, government property management systems, estimating systems, earned value management systems, and material management accounting systems. The U.S. Government has the ability to decrease or withhold contract payments if it determines significant deficiencies exist in one or more of the company’s business systems.

The company’s contracts with the U.S. Government sometimes result in Requests for Equitable Adjustments (REAs), which represent requests for the U.S. Government to make appropriate adjustments to contract terms, including pricing, delivery schedule, technical requirements, or other affected terms, due to changes to the original contract requirements and resulting delays and disruption for which the U.S. Government is responsible. The company submits and negotiates REAs in the ordinary course of business, and large REAs are not uncommon at the conclusion of both new construction and RCOH activities.

The company’s business, including contracts with the U.S. Government agencies and subcontracts with other prime contractors, is subject to a variety of laws and regulations, including the FAR, the Defense Federal Acquisition Regulation Supplement (DFARS), the Truth in Negotiations Act, the Procurement Integrity Act, the False Claims Act, CAS, the International Traffic in Arms Regulations promulgated under the Arms Export Control Act, the Close the Contractor Fraud Loophole Act, and the Foreign Corrupt Practices Act.

The company is also subject to evolving cyber security and data privacy and protection laws and regulations, which increase its costs and compliance risks and may affect its competitiveness, cause reputational harm, and expose it to damage claims, substantial fines, and other penalties.

The company’s nuclear operations are subject to various safety related requirements imposed by the U.S. Navy, the DoE, and the U.S. Nuclear Regulatory Commission.

History

Huntington Ingalls Industries, Inc. was founded in 1886. The company was incorporated in Delaware in 2010.