General Dynamics Corporation (GD) CEO Phebe Novakovic Q3 2021 Results - Earnings Call
General Dynamics Corporation (NYSE:GD) Q3 2021 Earnings Conference Call October 27, 2021 9:00 AM ET
Company Participants
Phebe Novakovic – Chairman and Chief Executive Officer
Jason Aiken – Senior VP/CFO
Howard Rubel – Vice President of General Dynamics and Investor Relations
Conference Call Participants
Analyst – UBS
David Strauss – Analyst
Robert Stallard – Vertical Research
Cai Von Rumohr – Cowen
Ron Epstein – Bank of America
Richard Safran – Seaport Research Partners
Seth Seifman – JP Morgan
Kristine Liwag – Morgan Stanley
Peter Arment – Baird
Matt Akers – Wells Fargo
Pete Skibitski – Alembic Global
Noah Poponak – Goldman Sachs
Operator
Good morning and welcome to the General Dynamics Third Quarter 2020 Earnings Conference Call. All participants will be in listen-only mode. If you would like to ask [Operator Instructions]
Howard Rubel
Thank you Operator, and good morning everyone. Welcome to the General Dynamics Third Quarter 2021 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; our earnings press release and our filings with the SEC, all of these which are available on the Investor Relations page of our website, investorrelations.gd.com. With that completed, it's my pleasure to turn the call over to our Chairman and Chief Executive Officer, Phebe Novakovic.
Phebe Novakovic
Thank you, Howard. Good morning, everyone, and thanks for being with us. Earlier this morning, we reported earnings of $3.07 per diluted share on revenue of 9.6 billion, operating earnings of 1.08 billion, and net earnings of 860 million. We beat Consensus by $0.09 per share on somewhat lower revenue than anticipated by the sell-side. However, operating margin is up about 40 basis points more than anticipated.
This led to the earnings beat. Revenue is up 1.5% against the third quarter last year. Operating earnings are up less than 1%. Net earnings are up 3.1% and earnings per share are up 5.9%. This is all reasonably good, but the real story for us is the sequential results. Here, we beat last quarter revenue by 3.8%, operating earnings by 12.6%, net earnings by 16.7%, and EPS by 17.6%.
On a year-to-date basis, revenue is up 733 million or 2.7%. Operating earnings are up a 137 million or 4.8%. Net earnings are up 140 million, and earnings per share are up $0.64, a strong 8.5%. We had a powerful quarter from a cash perspective; cash flow from operating activities was 1.47 billion, that is a 171% in net earnings. Free cash flow was 1.275 billion, a 148% of Net Income. This follows a very strong cash quarter performance in the second quarter.
In summary, we enjoyed a good quarter in almost all important respects. So let me move right into some color around the performance of the business segments. Have Jason give you additional color around cash, backlog, taxes and deployment of cash, and then answer your questions. First aerospace. At the outset, let me remind you that in April of last year, we announced that we were cutting production as a result of certain supply chain issues.
Shortly thereafter became clear that there was a reduction in demand related to COVID that resulted in additional cuts to production. Both production cuts were pre -planned and implemented slowly over the ensuing months, and reached their low point in the second quarter of this year.
We had anticipated renewed post-COVID demand in the second half of this year, and planned increased production for the second half with 32 planned deliveries in the third quarter and 39 in the fourth quarter. In fact, demand accelerated in mid-February, a full four months earlier than we had anticipated.
This created opportunities, but also operations and supply chain challenges for us, particularly for 2022. On balance, it is a rich problem to have. With that, let me turn to the Aerospace results in the quarter. Aerospace had revenue of 2.07 billion and operating earnings of 262 million with a 12.7% operating margin. We managed delivery of 31 aircraft as opposed to the 32 planned, one slipped into the fourth quarter on customer preference.
Revenue is 91 million more than the year-ago quarter, up 4.6% on one fewer aircraft delivered. On the other hand, operating earnings are down 21 million on 160 basis points degradation in margins. This was the result of an additional 28 million in G&A expenses driven by higher R&D expense, and around $20 million settlement of a supplier claim related to the allocation of warranties after the end of G550 production.
This was offset, but only in part by improved gross margins on delivered aircraft and better margins in the [Indiscernible] Service Centers. The real story here is the quarter-over-quarter sequential improvement, sales, earnings and margins are ramping up as planned. I will not dwell on these numbers they're available in the charts attached to the press release. From an order perspective, the quarter boarded on the spectacular. In dollar terms, Aerospace had a book-to-bill of 1.6 to 1. Gulfstream alone, had a book-to-bill of 1.7 to 1.
The second quarter was the strongest order quarter and the number of units that we have seen in quite some time. This quarter was slightly better. As previously discussed, sales activity truly accelerated in the middle of February and continued on through the remainder of the first quarter. The pipeline that developed in that quarter rolled over into the second quarter and increased demand continued through the third quarter. We continue to experience a high level of interest activity and a solid pipeline.
As a result of the order activity, Gulfstream backlog this quarter is the highest in the last 6 years. From a new product perspective, the G500 and G600 continued to perform well. Margins are improving on a consistent basis and quality is excellent. We have delivered a 131 of these aircraft to customers through the end of the quarter, with 20 scheduled for delivery in the fourth quarter. These are the metrics of a successful program building further momentum. The G700 has approximately 1800 test hours on the five test aircraft. A new Rolls-Royce engine is performing well, but much remains to be accomplished. We remain on track for entry into service in the fourth quarter of 2022 with the G800 to follow in 6 to 9 months.
As I mentioned earlier, we had planned 32 deliveries in the third quarter and came up one short. The slip was attributable to customer preference. We have planned for 39 and the fourth, and [Indiscernible] one that slipped into the quarter. If everything goes as planned, we will deliver 40 aircraft in the fourth quarter. The Story and combat systems quarter-over-quarter, sequential and year-to-date as all about operating excellence and continued strong margin performance.
Combat systems had revenue of 1.745 billion down 3.1% from the year-ago quarter, however earnings are up 2.2% over the year-ago quarter on the strength of an 80 basis point improvement in operating margin. Yet another example of strong operating leverage with combat systems. Further that theme on a year-to-date basis, combat system revenue is up 201 million or 3.8% while operating earnings are up a significant 7.4% on a 50 basis points improvement in operating margins.
Demand for our combat vehicles remained stable in the U.S. with the brigade of Abrams Main Battle tanks per year, and a half of the [Indiscernible] Strykers per year. Domestic upside is possible from the MPF program, where our vehicle is performing well. In the near term, we are stable internationally, but opportunity rich in the intermediate period with order potential in Poland, the Czech Republic, Romania, Denmark, and Switzerland.
You may have read in the press about some noise and vibration issues in Ajax that have emerged during the program test phase. We are working very closely with rows of British Army and the Ministry of Defense, and are confident that both technical issues can be resolved.
In summary, this quarter was an impressive operating performance once again, by the Combat Systems Group. Turning to Marine Systems, revenue of 2.64 billion is up 232 million above 9.6% over the year-ago quarter. The current quarter revenue growth was distributed fairly evenly across the three shipyards. It is also up sequentially and year-to-date. Year-to-date revenue is up 7.5%. This is very impressive continued growth, in fact, revenue in this group has been up for the last 16 quarters on a quarter over year-ago quarter basis. Operating earnings are 229 million in the quarter, up 6 million or 2.7% on an operating margin of 8.7%.
On a sequential basis, operating earnings are up 19 million on a 40 basis point improvement in margins. Electric boats performance remains strong, and while still early in the Columbia first ship construction contract, the program remains on cost and schedule. We had a particularly strong quarter in our ship repair business, continuing to support our Navy customer.
Throughout the group, we have a solid backlog of new construction and repair work, and our programs are well supported in the FY22 budget. In summary, revenue growth is clearly visible. The real opportunity given this steady revenue visibility is margin improvement over time. Moving to technologies.
This segment had revenue of 3.12 billion in the quarter down a 130 million from the year-ago quarter of 4%, the revenue decrease was attributable to mission systems from timing on several programs in part driven by chip shortages. On the other hand, information technology grew revenue against the year-ago quarter at a rate of 1.4%.
Operating earnings of 327 million are up 13 million or 4.1% on a 10.5% operating margin. EBITDA margin is a truly impressive 14.4%, including state and local taxes, which are our 50 basis point drag on that result. Most of our competitors carry state and local taxes below the line. This quarter revenues decrease will impact the year and we now expect revenue to be around 12.6 billion. or 400 million less than our second quarter update.
Earnings will however, remain the same on better margins. Total backlog remains relatively consistent over all comparative periods. Good order activity in the quarter with a book-to-bill of 1:1 and good order prospects on the horizon. The book-to-bill at DDIT was a little better than 1:1 and somewhat less admission systems.
The pipeline remains active at both businesses. From an opportunity perspective, cyber security is a top priority throughout the government and the budget costs are tens of billions of dollars unclassified spending in both the defense and civil spaces. This is a significant opportunity for which we are well-positioned to support our customers needs, particularly as more and more customers move toward a zero trust model. So that concludes my remarks with respect to a very good quarter and first nine months.
As we look towards the end of the year, we expect performance to be in line with the update to guidance that we gave you on the last call, except as I referenced in my remarks about Mission Systems. However, EPS guidance remains unchanged. I will now turn the call over to our CFO, Jason Aiken for further remarks.
Jason Aiken
Thank you, Phoebe, and good morning. I'll start with our cash performance in the quarter. Operating cash flow was $1.5 billion in the quarter. Once again, on the strength of Gulfstream orders and from continued strong cash performance from our technology segment; including capital expenditures, our free cash flow was $1.3 billion or 148% net earnings conversion. Through the first 9 months, our conversion rate is 91%, approaching our full-year outlook for free cash flow conversion in the 95% to 100% range.
For those of you who followed us for some time, this performance through the first 9 months of the year is better than we've seen in the past several years and gives us good line of sight to achieving the upper end of our target cash range for the year. Looking at capital deployment, capital expenditures were $196 million in the quarter, or 2% of sales. That puts us a little under the 2% of sales for the first 9 months.
So trending somewhat below our forecast for the year. We're still projecting full-year capex in the range of 2.5% of sales, so that obviously implies an uptick in spending in the fourth quarter. We also paid $332 million in dividends and spent a 117 million on the repurchase of 600,000 shares in the quarter. That brings a year to-date repurchases to 8.5 million shares at an average price of just under a $174 per share.
We repaid $500 million of notes that matured in July, and although there were no new issuances, we ended the quarter was $2 billion of commercial paper outstanding. We expect to fully retire that balance before the end of the year. We ended the third quarter with a cash balance of just over $3.1 billion and a net debt position of 10.5 billion, down more than 800 million from last quarter, and down 1.4 billion from this time last year.
With the scheduled CP repayment in the fourth quarter, we expect to end the year with a net debt balance below $10 billion for the first time since 2018. As a result, net interest expense in the quarter was $99 million, down from a 118 million in the third quarter of 2020. That brings the net interest expense for the first nine months for the year to 331 million, down from 357 million for the same period in 2020.
The tax rate in the quarter was 15.3%, bringing our rate to 15.9% for the first nine months, consistent with our full-year outlook, which remains around 16%. Order activity and backlog were once again a strong story in the third quarter with a 0.9 times book-to-bill for the Company as a whole, bringing us to a one-to-one ratio for the first nine months and a 1.2 times ratio for the trailing 12 months.
As Phebe mentioned, the order activity in the Aerospace Group led the way with the 1.6 times book-to-bill in the quarter, while technologies recorded a book-to-bill of 1:1. Foreign exchange rate fluctuation resulted in a $300 million reduction in backlog in the quarter, with the majority of that impact in combat systems. We finished the quarter with a total backlog of $88.1 billion, that's up 8% over this time last year. And total potential contract value, Including options and IDIQ contracts, was a 129.6 billion. That concludes my remarks and I'll turn it back over to Howard to start the Q&A.
Howard Rubel
Thank you, Jason. As a reminder, we ask 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?
Question-and-Answer Session
Operator
Thank you. [Operator Instructions]. And if you do change your minds, [Operator Instructions]. Our first question today comes from Mark Walton (ph) from UBS.
Analyst
Great, thanks. Phebe, I wonder, could you talk a bit about the transition potential margin impact of the new-generation of the 400 and 800 coming online that it seems like the 800s are pretty haven't do you just move for the 650 to reengineer the 700 engines, and we'd usually would expect some level of reset of margins but I'm curious if that reset will be materially lighter than we'd normally expect with the new entry into service. Thanks.
Phebe Novakovic
We get a fair number of questions on this so I think it's worthwhile walking through each element here. First, let's take a look at margins. I will make some comments that I'd like Jason to maybe elicited a couple of points and then we'll get it until a little bit of earnings. When you think about margins, and the New Product Development, at present, we have about 3 models in production soon to be joined by the 700, the 800 replaces the 650, and the 400 comes later.
Importantly, we have all the modern plant, property, and equipment to do everything we need to do. We need to add more capex to undergird the increase in wing production, remember we're doing all of our wings, but here's the important part, and it goes to the design for producibility that we built into these airplanes and the implied productivity that's embedded in that design for improving producibility.
And remember, too we are seeing margin improvement in every single one of our airplanes and services. This now tells you, and again I think it turns a spotlight on the operating leverage of Gulfstream. But, to amplify all of that, and really give it additional uplift -- remember all these aircrafts are related, they all have the Symmetry Flight Deck. The G700 and 800 have the same engine and wings, and the same basic fuselage; the G400 and 500, 600 have the same engines, or similar engines from the same family, from one supplier and the same basic fuselage.
This commonality allowed us to design for producibility, which is going to be an uplift to our margins. Now, if we unpack that a little bit, we get an awful lot of questions about R&D, and I'd like Jason to talk a little bit more -- and perhaps, not for all but for some a bit of a tutorial on R&D accounting.
Jason Aiken
So Phebe 's point -- we get a lot of questions around will this new product investment have any impact on the overall R&D spend, what does that do to margins over time? As a reminder, we have a long-term steady commitment and demonstrated performance of investing in Gulfstream product development and new technologies over time. I think if you look over a multiyear period, we've averaged Company-sponsored R&D, and called it roughly 1% of sales range.
And we don't expect that to change largely the 800, I wouldn't say is behind us but it's been part and parcel to that spend over time, R&D is spent as a period expense over time. As Phebe mentioned, the G400 while a clean sheet airplane as part of the 500 and 600 development. and so the commonality among those helps keep that spend down. And so both of those airplanes are right within that profile of R&D spend. I think to the extent you see any lumpiness in R&D as we did this quarter, and we'll expect to see a little bit next quarter.
That has more to do with supplier offsets that we received you're probably familiar with those were suppliers contribute to the program development efforts and those come in lumps in chunks that tends to create the quarterly perturbations and R&D spend but overall, the period expense for these programs, including the two that were announced this month, are right inside that line of Company-sponsored R&D. So we don't expect that or the -- frankly the introduction, once they come, to have an overall impact in the margin improvement trajectory that we see for Gulfstream overtime.
Phebe Novakovic
So what does all that mean if you step back? Margins this year are at their low point in aerospace, next year margins will improve and '23 margins will improve. Earnings were better in '21 than they were last year. They're going to be better in '22 and '23, and by the way, when we give you guidance, on the next call we're going to give you some color and some insight into both of those years to help explain and amplify again, what we're looking at at Gulfstream. I hope that helps answer your question, Mile.
Analyst
That's great. Thanks Phoebe, I'll stick to one.
Operator
Thank you, Miles (ph). We now move on to our next question which will be coming from David Strauss. David, please go ahead.
David Strauss
Thanks, good morning. Phebe, wanted to ask you, you highlighted that the Gulfstream backlog is the highest it's been in about 6 years. I think if I just take kind of the aircraft revenue, you've got something like 2.5 years in backlog based on today. And at the same time you also comment on supply chain challenges, so how do you balance all that as you think about where production rates go at Gulfstream?
Phebe Novakovic
The increased demand supports increased production, we'll get into all that specificity on the next call, but as I noted, after we reduced production last year in response to COVID, supply chain challenges that were in large part driven by COVID and COVID demand, the supply chain needs to gear back up. So there's a little bit of a headwind, but that's why I wanted to give you the color around the margin and earnings performance.
David Strauss
Okay. But all that being said, we should see higher production in '22 and '23?
Phebe Novakovic
We're anticipating that to drive a higher revenue.
David Strauss
Alright, thank you very much.
Phebe Novakovic
I said in my remarks, this is a rich problem to have. I wanted to be as transparent with you as possible to tell you, "Hey look, we've got this nice, strong backlog. We've got a very good demand, a continuing demand. " But as we ramp up and we will be ramping up, there are some challenges. We can manage those challenges and manage through them. But I thought was important that you guys understand that.
David Strauss
Very helpful. Thank you.
Operator
Thank you, David. We're now going to move to Robert Stallard of Vertical Research. Robert, your line is now open.
Robert Stallard
Thanks so much. Good morning.
Phebe Novakovic
Morning.
Robert Stallard
Phebe, I was wondering if you could elaborate on these challenges. You will see face some Chip issues in Mission Systems seems you're also conscious of some potential headwinds in the Aerospace division that ramps up. One of your peers also talked about broader supply chain challenges in its defense businesses. I was wondering if you could comment on this topic generally and what you could be seeing in the future. Thank you.
Phebe Novakovic
I tried to give you some measured look at the Aerospace issues, but on supply chain the chip shortage impact, impacted Mission Systems. I would note how -- and we do expect that to go into next year somewhat. I would note, however, even since the close of the quarter, they had begun to significantly mitigate some of those chip impacts.
But across the portfolio of our Defense businesses, we are not seeing significant or even material supply chain challenges. We've been able to manage through that pretty well. For us and I can only speak for us, that hasn't been a significant issue, other than it's impact at technologies and driven by Mission Systems.
Robert Stallard
Yup. And in Aerospace, the challenges there, is that just a lead time issue with suppliers or is it specific parts you're finding particularly tight?
Phebe Novakovic
It's primarily a lead time. The fact that we spooled down last year adds a little bit of headwind to the increase in production that we see on a going forward basis. But, I don't see any particular problems at the moment impacting that. This is really just a timing issue and getting folks back up to speed.
Robert Stallard
That makes sense. Thank you very much.
Operator
Thank you, Robert. We're now going to move over to Cai Von Rumohr of Cowen. Cai, over to you.
Cai Von Rumohr
Thank you so much. Phebe, could you give us some color on demand at Gulfstream, specifically high net worth versus corporate, versus fractional. And most importantly, are you seeing any opportunity for improved pricing in the sector?
Phebe Novakovic
Let me answer those in the inverse order. We have seen some upward pressure on pricing; and then, let me unpack your demand. So look, our view of our increased demand is a combination of factors. One, the very attractive product mix, a strong economy, the return of the Fortune 1000, increase high net worth individuals and in fact, COVID did create and [Indiscernible] some wealth creation; and the pent-up demand that buildup during the pandemic. The demand is, and I think importantly is spread evenly, pretty much across our product lines. And there's nothing unusual to report on customer mix or geographic distribution, other than the North America was quite, quite strong.
Cai Von Rumohr
Excellent. That's all I have. Thanks so much.
Operator
Thank you Cai. And we're going to move to Ron Epstein of Bank of America. Ron, the line's yours.
Phebe Novakovic
Hey, Ron.
Ron Epstein
Yeah, hey. Good morning, Phebe. Just changing gears a little bit. I think everybody is going to focus on [Indiscernible] so I'm going to maybe not do that. A while back, there was a some discussion of --
Phebe Novakovic
Oh my, how innovative.
Ron Epstein
I imagine that. There was some discussion in the press around the Polish Defense Ministry purchasing some Abrams tanks and M1 Abrams, I think maybe 250 of them, if I remember right.
Phebe Novakovic
Right.
Ron Epstein
Where do they stand and if you can give some color on that. Maybe some of the other international business going on in the Land Systems business?
Phebe Novakovic
Yeah, we're working very closely with our customer, as well as the Department of Defense to support a potential order of 250 tanks out of Poland. If we, and frankly, this is a powerful system for the Poles to have, given their geographic location and their historical experience, particularly with folks streaming west.
So, if we think through again, the FMS process and this is an FMS sale, we're looking at somewhere between maybe in the two year period. But just to give you a little bit of additional color, we see increased demand signals coming out of Czech Republic, Romania, Denmark, Switzerland, Spain and of course, the Middle East. The world haven't gotten any safer.
Ron Epstein
Great. Thank you.
Operator
Thank you. We will now move over to our next question from Richard Safran of Seaport Research Partners.
Richard Safran
Phebe, Jason, Howard, good morning. How are you?
Phebe Novakovic
Good, thank you.
Richard Safran
Well, that's good to hear. With such great cash flow performance, I wanted to get an update on how you're thinking about capital deployment, invest in the business dividends, repurchases, commercial paper. Now, Jason, I heard your remarks about retiring commercial paper, but as we look ahead, are you thinking about maintaining your current strategy or are you considering any changes? I think in the past you've stated you invest in the business depending on need and that dividend should be repeatable, but it's just curious if there's any update here on how you're thinking about it.
Phebe Novakovic
Let me give you the strategic framework and then Jason can fill in any specifics, but essentially our capital deployment strategy remains unchanged. We invest opportunistically. Acquisitions or investments, or the business where we can get a good capital return, turn on that capital dividends, and opportunity to share repurchase. This has been our strategy from the day one and the advent of this management team. Jason?
Jason Aiken
I think the only thing I'd add to your point on the commercial paper repayment and future priorities around debt, is that commercial paper will mature, here in the fourth quarter we've got more than sufficient cash on hand, so we'll just repay that in normal course as it comes due. The next debt maturity is in late next year. I think it's around a billion dollars that'll come due. So no real eminent issues there, so we can focus on the priorities Phebe mentioned. And then as those elements of the debt ladder due mature, we'll pay those down in due course up to a point until we get to a comfortable place that we think long term continues to support our target mid a credit rating for the Company.
Richard Safran
Thanks very much.
Operator
Thank you, Richard. Will now be taking our next question from Seth Seifman of JP Morgan. Seth, your line is now open.
Seth Seifman
Thanks very much and good morning everyone.
Phebe Novakovic
Hi, Seth.
Seth Seifman
Hi. Phebe, when you think about the certification timeline for the 700 and the 800, I guess, is there anything you'd point out to as a long pole in the tent, and thinking specifically about the engine certification, which you mentioned today? And then also the changes in ODA, that [Indiscernible] align last week testifying before Congress.
Phebe Novakovic
Yes. So our estimate at the moment still remains late next year for the 700, with the 800 to follow 6 to 9 months later. For those of you who have followed engine certification for years and decades, some of you, you'll know that they are always challenging. This engine is performing extremely well in terms of its capability, and either meeting or outperforming its design specification.
We've got a lot of testicles on a going forward basis to get through, so we don't see any particular issues at the moment. But we are mindful that these are always complex and challenging processes to work through. What we've adapted to changes in our regulators and the FAA's game book before and at the moment we don't see any reason to adjust our estimates, but if we do, we'll let you know.
Seth Seifman
Great. Thanks. And then maybe just as a follow-up for Jason, if you could update us on where you see and you expect to be on working capital at the end of this year and then maybe without specific guidance, just what the opportunity buckets are in working capital for '22.
Jason Aiken
Sure. I think as you can see from the exhibits this morning, working capital was a benefit call it in the couple of 2,3 or $400 million in the quarter. That is largely from the performance at Gulfstream. The significant order activity that we've seen throughout the year and the quarter, as well as the continued sell of the last of the test [Indiscernible] particles from the five hundred and six hundred programs. So that really is the big benefit in the quarter.
Working capital is still a bit of a headwind year-to-date just as the business grows, and we work through some of that, but I think as you look ahead, we would expect to see working capital to continue to be a benefit in the fourth quarter and beyond as we get back to that 100% conversion level this year. We're approaching that level this year and certainly expect to get above 100% conversion next year. So part of that is the continued demand cadence at Gulfstream.
Once we get through the 700 program, we would look to sell off those test articles, as well. And then, of course, you've got the ongoing benefits at Combat Systems. You've seen us achieve a regular order on the large international program there and in Combat Systems. And that will continue to be a tailwind, really even more of a tailwind I think into '22, as well as into '23. So those are some of the major movers.
The other side of it, of course, is where we should be peaking this year in terms of the capital expenditure investment profile in Marine Systems. So that'll start to come down next year and return more to the normal historical level we see by 2023. So those are really the big movers there and should give you a sense of where we ought to see the working capital moving over the next 2, 3 years.
Seth Seifman
Thanks very much.
Operator
Thank you, Seth. Our next question will be from Kristine Liwag from Morgan Stanley. Kristine, over to you.
Kristine Liwag
Good morning, Phebe and Howard and Jason.
Phebe Novakovic
Morning.
Kristine Liwag
Phebe, how do you anticipate the vaccine executive order will affect labor and production? And also do you have a sense of the percentage of GD employees that are currently vaccinated?
Phebe Novakovic
Yes. So before I get into the mandate, I'd like to take the opportunity to reiterate again, our acknowledgment of our workforce. I think it's important to remember that we were declared a critical national infrastructure business early in the onset of the pandemic, and as a result of that, our workers stayed on the factory floor in the shipyards and in places where they were needed, frankly, throughout the pandemic, they stood their watch and from my point of perspective, with courage and fortitude to produce the goods and services that are necessary for our national security.
I personally am fully cognizant of the sacrifices they made, and I'm proud of the courage they showed. Now let me turn to the mandate. As you well know, as a federal contractor, we are covered by the executive order on the mandate, the corporate office mandate has been fully executed. Two of our largest businesses are in the process of executing the mandate and many others are set to implement accordingly.
And because of our customer, operational and geographic diversity of many of our businesses, we are working with our customers as contract modifications are received that could trigger an implementation. So we keep a pretty running tally, we're at, we believe in some form of either full or partial vaccination, in the 75% range or so. Then, yes, we understand the mandate.
Kristine Liwag
Thanks, and then maybe if I could add one on supply chain and aerospace. We're seeing that some of the suppliers also have to comply with the mandate. How are you mitigating potential supply chain issues and aerospace if you're not able to get parts? And how do you think about that with regards to your production rate plans for Gulfstream?
Phebe Novakovic
Well, frankly, to the extent that there is an impact in the supply chain of this mandate that, it'll affect a lot of lines of business throughout the Defense Aerospace Walt I don't see a particular challenge as at Gulfstream or in the moment at any of our other large lines of business.
But we will certainly be mindful, and deal with any workflow perturbation, should they emerge. We have a history of dealing with challenges methodically, systematically, and thoroughly. So you'd expect us to approach that operating discipline and apply that operating discipline. Any emergent issues that may or may not arise.
Kristine Liwag
Thank you very much, Phebe.
Operator
Thank you, Kristine. We'll now move to our next question from Peter Arment of Baird. Peter, please proceed with your question.
Peter Arment
Thanks. Good morning, Phebe. food morning, everyone.
Phebe Novakovic
Good morning.
Peter Arment
Phebe, maybe just ask on the technologies segment, just given the strong operating performance there. Is there any -- just clarification, is there any one-timers in the 10.5% that you had this quarter and --
Phebe Novakovic
No.
Peter Arment
-- just if not, do you view this segment being able to sustain its 10% or a double-digit margin going forward, or just any color around that? Thank you.
Phebe Novakovic
Yes, double-digit margin going forward. Okay?
Peter Arment
Yeah. No, I just any -- are you seeing any changes there or your ability to kind of manage that in terms of --
Phebe Novakovic
No
Peter Arment
I know it's a very price competitive environment.
Phebe Novakovic
No, not at the moment, we've been pretty consistent in our margin performance across this entity, so I don't see any systemic change that should have impacted that.
Peter Arment
Great. I'll leave it at one thanks.
Operator
Thank you, Peter. Our next question comes from Matt Akers of Wells Fargo. Matt, over to you.
Matt Akers
Hi. Good morning. Thanks.
Phebe Novakovic
Morning.
Matt Akers
I wonder if you could talk about, for the G400 to 800, just kind of early feedback, and how much I guess of the demand you're seeing there, sort of customers that -- sort of incremental that wouldn't have bought some of your other platforms versus potentially kin of cannibalizing some of the other aircrafts?
Phebe Novakovic
We have no instances of cannibalization to-date. The 800 is ultimately a replacement for the 650 [Indiscernible] 650 demand remained pretty steady. The customer basis is pretty much, our typical customer base. There may be incremental adds here and there. But I would argue that we see that in both the 700 and the 800 and, frankly, the rest of that portfolio, to the extent that there are incremental here and there.
And this Gen to be high net worth individuals or some new Fortune 1000 or 500 companies. But I think there's nothing particularly notable here. And in terms of being exceptional outside the norm, other than there's a lot of good interest here. We've taken a good number of orders.
Matt Akers
Okay. Thanks, Phebe.
Operator
Thank you, Matt. Our next question comes from Pete Skibitski of Alembic Global. Pete, over to you.
Pete Skibitski
Good morning, everyone.
Phebe Novakovic
Morning.
Pete Skibitski
Phebe, I was wondering if you could share your thoughts on the fiscal 2021 Defense Budget. There seems to be a lot of a tailwind to the presence requests in Congress. And I'm wondering if you could share with us, if you see some of the support -- incremental support occurring to GD Programs And maybe you'd wage your odds on if that budget could be signed into law by the end of this calendar year or not?
Phebe Novakovic
I think you know as much as I do, given the fulsome an in-depth reporting on congressional budget processes, about the likelihood of signing. So I'm not going to go speculate on hypothetical timing, but I think importantly, all of our major -- and frankly all of our programs were well supported and some were beneficiaries of increased spending on the part of the Congress. So all-in-all we had no particular surprises, by the way, up or down. So we were quite comfortable on how this budget is being played out.
Pete Skibitski
I'll leave it at that. Thank you.
Howard Rubel
Operator, we'll just take one more question. Thank you, please.
Operator
Of course. Our next question will be coming from Noah Poponak of Goldman Sachs. Noah, over to you.
Noah Poponak
Thanks. Good morning, everybody.
Phebe Novakovic
Good morning.
Noah Poponak
Phebe, in the business jet market at large, the end market and investors keep debating the sustainability of this recent uptick in demand. And some people feel like it's a --
Phebe Novakovic
I have heard a lot of that.
Noah Poponak
Exactly. Well, you've made, I guess, the pragmatic decision to kind of not wait in there and I guess I just wonder if you've had enough time, or you speak to so many customers, if you've heard enough from real deal new customers to perhaps have more of a view on the sustainability of what we're seeing?
Phebe Novakovic
Well, I wouldn't be chicken little about this, I think that -- and nor should anybody, I think the demand that we're seeing, as I tried to reiterate before, is across our existing customer base, the Fortune 1000 is back, in force. There are, as I noted, new entrants into that market. As some Companies have increased their profitability over the last two years and their additional high net worth individuals who have entered into the market.
So I think that the data and I can only speak for Gulfstream. The data would suggest that given our attractive product mix, the strong -- as I noted earlier, strong economy, and the fact that our customers are back, and a broad-based demand, I'm not worried at the moment about sustainability. These are -- Gulfstream is in, and business jet market is in a [Indiscernible] market, driven in part no small measure by the economy. But we have been the most resilient in terms of demand through most economic cycles. So again, we are very [Indiscernible] and we've got a good pipeline going forward.
Noah Poponak
That's helpful. Do you have a sense, even if directionally, how many of your customers in the last 18 months are truly brand-new?
Phebe Novakovic
I would have to go Parse it, but it's pretty -- we've gotten a fair number of new folks, but also our regular -- our regular and historic customers are back, and some new costumers in market share increases. So as far as I'm concerned, we had very, very good demand and the pipeline remains robust.
Noah Poponak
Great. Okay, thanks a lot.
Operator
Thank you, Noah. As that was our final question. I would like to hand back to Howard Rubel for any closing remarks.
Howard Rubel
Thank you, Melissa. Thank you all for joining us on our call today. As a reminder, please refer to the General Dynamics website for the third quarter earnings release and highlights presentation. If you have any other questions, I can be reached at 703-8763-117. That will now end our call.
Operator
This concludes the General Dynamics Third Quarter 2021 Earnings Call. Thank you for joining and have a great rest of your day.
