Jonathan Ho: Congratulations on the new opportunities. I guess my first question or the only question I’ll ask is, with the program execution challenges, why has it taken maybe this long to resolve some of these issues? Is there some additional detail that you can provide? And what sort of gives you the confidence that you’ll be able to resolve those remaining challenges that were referenced and just given — it seems like it’s a fairly large number of them.
Bill Ballhaus: Yes, Jonathan. And just to put things into context, when we talk about the challenged programs that are really masking the underlying performance of the business. In actuality, it’s a fairly small number of programs. And we’re talking on the order of about 20 programs where we have well over 300 programs across our portfolio, the majority of which are performing very predictably, very profitably and represent a very healthy business that’s being obscured by these onetime effects on these challenged programs. Now I’ll give you a little insight into what we’ve done over the last 45 days. We’ve brought the senior team across all relevant functions from engineering, manufacturing, our program managers, our program management leadership, and we literally have reviewed every development program.
And so we started with the first 11 that the company spoke about in our Q3 call. We extended that to any development program that was deemed to have some risk profile associated with it that the teams were looking to mitigate. And then we ended by looking at the programs that were low risk. So by the time we finished that process, we had gone through every program in — every development program in the portfolio. And we took a very stringent eye on the activities to complete those programs and our estimates to complete. And the result of that analysis is reflected in the EAC growth and the cost growth that was reflected in the quarter. How we got there, I think it’s pretty clear to me at this point that as the company grew through acquisitions that we acquired some very strategic footprint and development programs that as we said in the script, are going to have a fantastic return for the company.
They’re going to result in new production runs on franchise programs that will be predictable and profitable and have a long run associated with them. But at the same time, our engineering, our program management and some of those other critical process areas and functions didn’t mature at a rate that we grew as we acquired these programs. And that’s what we’re working our way through right now. So some of the things that we’ve instituted right away is not only those cross-functional detailed reviews of our programs and their cost to complete, but also doing it on a monthly basis so that we can unroot or root problems and challenges as they emerge and tackle them very quickly. So that’s just a piece of what we put in place right now. So while we can’t sit here today and say that we won’t have any issues on development programs as we go forward.
I feel very good about the rigor that we put into establishing our cost to complete, getting all of the experts in the company to stare at those programs and contribute to the assessment of our cost to complete and give us a robust view of what it’s going to take to execute on the remainder of these challenged programs.
Dave Farnsworth: And if I could add, Jonathan, this is the comprehensive nature of these reviews it puts us in a position where we get — we’ll get an earlier warning of risks. And as they start to materialize, it gives us a longer runway to be able to go mitigate those risks. So seeing those things earlier and being able to react to them is a critical part of how we’re going forward.
Operator: Your next question comes from the line of Michael Ciarmoli with Truist.
Michael Ciarmoli: I guess just one quick one. And then I guess, for the past 12 to 24 months, we’ve heard an extremely large amount of detail about supply chain impacting this business. And I think here we are on this call, no one’s brought up supply chain. So has that been a factor at all in some of the negative performance. And then the second one I wanted to ask, you’ve got $760 million of backlog that’s shippable, can you give us any color on the margin profile there? Are some of these challenged 20 development programs critical to getting that product out the door?
Bill Ballhaus: Yes. Michael, thanks for the question. I guess I’ll start with the second part of that. And the answer is yes. When we look at — and we have. We’ve gone through a detailed review of our inventory and our unbilled, which is the bulk of order we’ve seen the increase in working capital over the last couple of years, the ability for us to root free up cash is largely tied to executing on these development programs. And so as we execute on the development programs, get hardware out the door, then begin the production programs associated with those. We’ll not only be able to burn down the unbilled receivables, but also be able to burn down the inventory. And that’s our focus right now is really releasing cash that’s been trapped in the company.
Michael Ciarmoli: Okay. Okay. What about that backlog that’s shippable. I mean any color on the margin profile there?
Bill Ballhaus: Well, I mean, that’s really in the unbilled receivables that you’re referring to. I mean the — when — the working capital that’s tied up in the business right now, it’s primarily in unbilled receivables and in inventory. And what we’re focused on literally program by program, is shipping hardware so that we can invoice and collect cash to burn down the unbilled receivable. And then the inventory that has ticked up over time. And that also will burn down as we transition the development programs into production because of many times, the company bought inventory ahead, thinking that the development would come to an end at a certain point in time. And as that’s dragged to the right, that inventory has been in place and is awaiting production programs to get kicked off so that we can consume that inventory.
Dave Farnsworth: And Jonathan, this is — or Michael, sorry, this is Dave. If I could just add a couple of thoughts. From a supply chain standpoint, the reason we’re not focused on talking about that so much here is because we’ve actually seen it start to normalize in terms of lead times. And so where we had significant risk in the past we talked about and so had extended our purchasing to an earlier time. We’re starting to go back and revisit all of those lead times, working with our suppliers to ensure we’re not bringing in material too early to help us with our inventories as we go forward.
Operator: Your next question comes from the line of Sheila Kahyaoglu with Jefferies.
