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Orbital ATK Announces First Quarter 2018 Financial Results

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Company Posts Strong Quarterly Revenue, Earnings and Orders

  • Revenue Increases 21% in Quarter on Sales Gains in All Segments
  • GAAP EPS Increases 51% to $1.74 in Quarter on Higher Margins and Lower
    Taxes
  • New Orders and Option Exercises Totaled $3.02 Billion in Quarter

Orbital ATK, Inc. (NYSE:OA), a global leader in aerospace and defense
technologies, today reported financial results for the first quarter
ended April 1, 2018.

Orbital ATK generated revenues of $1,312 million in the first quarter of
2018, up 20.9% from $1,085 million in the first quarter of 2017. Income
from operations(1) and operating margin were $153.6 million
and 11.7%, respectively, compared to $121.1 million and 11.2%,
respectively, in the first quarter of 2017. The company reported first
quarter 2018 earnings per diluted share of $1.74 compared to $1.15 in
the comparable quarter in 2017. Free cash flow(2), which is a
non-GAAP measure defined as GAAP cash flow from operating activities of
negative $237.0 million minus capital expenditures of $71.3 million, was
negative $308.3 million in the first quarter of 2018 compared to
negative $77.7 million in the first quarter of 2017. First quarter 2018
free cash flow was negatively impacted by the timing of milestone
payments and disbursements as well as investments related to the
company's growth.

For the first quarter of 2018, non-GAAP adjusted(2) operating
income and operating margin, which exclude certain acquisition and
restatement expenses, were $154.9 million and 11.8%, respectively,
compared to $127.1 million and 11.7%, respectively, in the first quarter
of 2017. Adjusted diluted earnings per share were $1.76 and $1.23 in the
first quarters of 2018 and 2017, respectively. Adjusted free cash flow,
which excludes certain acquisition and restatement-related cash expenses
totaling $4.0 million, was negative $304.3 million in the first quarter
of 2018 (see non-GAAP reconciliation tables in the Appendix for details).

__________________________________________

(1)   Income from operations (or operating income) is income before
interest, non-service pension costs, income taxes and
non-controlling interest.
(2) Free cash flow and adjusted financial results contained in this
press release are non-GAAP financial measures. Please refer to the
reconciliation tables contained in the Appendix- "Disclosure of
Non-GAAP Financial Measures" of this press release for more details.
 

"Orbital ATK reported excellent first quarter financial results,
reflecting strong revenue and earnings growth together with robust new
business wins," said David W. Thompson, Orbital ATK's President and
Chief Executive Officer. "Operationally, the company carried out
numerous successful space and defense missions in the first quarter of
2018, while also delivering record quantities of tactical missiles,
precision weapons, aerospace structures and related systems to
government and commercial customers."

Consolidated Financial Highlights

        First Quarter
($ in millions, except per share data)       2018     2017
Revenues $1,312     $1,085
Operating Income 153.6 121.1
Net Income 101.0 66.4
Diluted Earnings Per Share $1.74 $1.15
 
Non-GAAP
Adjusted Operating Income(1) $154.9 $127.1
Adjusted Net Income(1) 102.1 70.7
Adjusted Diluted Earnings Per Share(1)       $1.76     $1.23
 

(1)

 

Non-GAAP Results. See non-GAAP reconciliation tables in the
Appendix for details.

 

Revenues increased $227 million, or 20.9%, in the first quarter of 2018
compared to the first quarter of 2017 with increased sales in Flight
Systems Group (FSG), Defense Systems Group (DSG) and Space Systems Group
(SSG). Operating income increased $32.5 million, or 26.8%, in 2018
compared to 2017, due to increases in FSG and DSG operating income
partly offset by lower SSG income.

Net income and earnings per share reflected income tax rates of 17.4%
and 29.3% in the first quarters of 2018 and 2017, respectively. Adjusted
net income and earnings per share reflect the same tax rates as the GAAP
numbers.

"Orbital ATK reported very strong financial results in the first
quarter, with substantial revenue and operating profit growth from
strong new orders over the past two years," said Garrett E. Pierce,
Orbital ATK's Chief Financial Officer.

Capital Allocation Activities

During the first quarter of 2018, Orbital ATK returned approximately $18
million to shareholders through dividends. As previously announced, the
company halted its share repurchase program in connection with the
signing of the Northrop Grumman acquisition transaction in September
2017. The company also invested about $100 million in research and
development and capital equipment in the quarter.

New Business Summary

In the first quarter of 2018, Orbital ATK received new firm and option
orders of approximately $1,950 million and existing option exercises of
$1,070 million, for a total of $3,020 million in quarterly new business
volume. These new awards increased firm contract backlog to
approximately $9.4 billion and total backlog to approximately $16.6
billion as of April 1, 2018, representing increases of 14% and 12%,
respectively, compared to backlog at April 2, 2017, as recast for the
new revenue accounting standard (ASC 606) that the company adopted in
the first quarter of 2018. The company's Flight Systems segment
accounted for $1,830 million, or 60%, of the first quarter's new
business volume, while Defense Systems added $650 million, or 22%, and
Space Systems contributed $540 million, or 18%. The first quarter's firm
book-to-bill ratio was 190%.

First Quarter Operational Highlights

Orbital ATK's strong operational execution led to the achievement of
numerous milestones in the first quarter of 2018. These included the
following important events:

  • Flight Systems conducted its fifth IRBM target launch from a C-17
    aircraft in the first quarter and delivered two additional target
    vehicles that were launched in April. The company completed major
    development milestones on its OmegA next-generation large-class launch
    vehicle and made good progress on its advanced GEM-63 solid rocket
    motors. Flight Systems also produced a record 25,000 aerostructures
    parts in the quarter, including the 5,000th F-35 military
    aircraft part.
  • Defense Systems delivered 4,000 tactical rocket motors and warheads
    and conducted more than 160 motor tests in the quarter. In addition,
    the company produced over 3,200 artillery precision guidance kits,
    boosting cumulative deliveries to 25,000 kits during the last four
    years. Defense Systems also manufactured over 350 million rounds of
    small-caliber ammunition and continued flight testing of its advanced
    proximity-fuzed medium-caliber rounds in the first three months of
    2018.
  • Space Systems deployed its first two GEOStar-3 medium-class
    communications satellites in the first quarter, while also introducing
    its second-generation in-space satellite servicing technology for
    commercial operators. The company delivered four other commercial,
    scientific and defense satellites to launch sites in preparation for
    launches that took place in April. Finally, Space Systems shipped over
    300 spacecraft and related components and conducted three scientific
    research rocket missions in the quarter.

"First quarter operational results were outstanding across all three
business groups, as program execution and product quality metrics
remained at very high levels for our customers. In addition, our major
operational and test results were 100% successful throughout the first
quarter of 2018," said Chief Operating Officer Blake E. Larson. "We are
very proud of what our teams achieved in support of national security,
civil government, commercial and international customers."

Segment Financial Results

Orbital ATK conducts its operations in three business segments: Flight
Systems Group, Defense Systems Group and Space Systems Group. Segment
operating results include pension expense recoverable under U.S.
Government contracts as determined in accordance with Government Cost
Accounting Standards. The FAS/CAS pension expense difference is recorded
at the corporate level.

Flight Systems Group:

        First Quarter
($ in millions)       2018     2017
Revenues $482     $371
Operating Income 60.8 40.6
Operating Margin       12.6%     10.9%
 

FSG revenues for the first quarter of 2018 increased $111 million or
29.9%, compared to the first quarter of 2017 due primarily to higher
activity in Aerospace Structures Division driven by major aircraft
program ramp-ups. First quarter operating income increased $20.2
million, or 49.8%, primarily due to higher volume and improved program
performance in 2018 on certain Propulsion Systems and Aerospace
Structures Divisions contracts.

Defense Systems Group:

        First Quarter
($ in millions)       2018     2017
Revenues $559     $451
Operating Income 54.2 42.0
Operating Margin       9.7%     9.3%
 

DSG revenues in the first quarter of 2018 increased $108 million, or
23.9%, and operating income increased $12.2 million, or 29.0%, compared
to the first quarter of 2017 largely due to higher activity in Defense
Electronics Systems, Armament Systems and Small Caliber Systems
Divisions.

Space Systems Group:

        First Quarter
($ in millions)       2018     2017
Revenues $316     $301
Operating Income 21.4 27.4
Operating Margin       6.8%     9.1%
 

SSG revenues for the first quarter of 2018 increased $15 million, or
5.0%, compared to 2017 largely due to higher activity on Satellite
Systems Division contracts. First quarter operating income decreased
$6.0 million, or 21.9%, primarily due to changes in contract mix.

Conference Call

Due to the proposed acquisition of Orbital ATK by Northrop Grumman, the
company will not conduct a first quarter financial results conference
call or webcast with financial analysts, and will no longer provide
financial guidance.

Website and Social Media Disclosure

Orbital ATK communicates material financial information to its investors
using press releases, Securities and Exchange Commission (SEC) filings,
its investor relations website, public conference calls and webcasts.
From time to time, Orbital ATK communicates information regarding its
business and operations, such as new contract awards and mission
updates, via Twitter and Facebook. It is possible that the information
disclosed through our website or social media channels could be deemed
to be material. Therefore, we encourage investors, media and others
interested in Orbital ATK to follow the information we post on our
website at www.orbitalatk.com/investors,
on Twitter at https://twitter.com/OrbitalATK
and on Facebook at https://facebook.com/OrbitalATK.

About Orbital ATK

Orbital ATK is a global leader in aerospace and defense technologies.
The company designs, builds and delivers space, defense and aviation
systems for customers around the world, both as a prime contractor and
merchant supplier. Its main products include launch vehicles and related
propulsion systems; missile products, subsystems and defense
electronics; precision weapons, armament systems and ammunition;
satellites and associated space components and services; and advanced
aerospace structures. Headquartered in Dulles, Virginia, Orbital ATK
employs approximately 14,000 people across the U.S. and in several
international locations. For more information, visit www.orbitalatk.com.

"Safe Harbor" Statement Under the Private Securities Litigation
Reform Act of 1995

This communication, and any documents to which Orbital ATK refers you in
this communication, contains not only historical information, but also
forward-looking statements made pursuant to the safe-harbor provisions
of the Private Securities Litigation Reform Act of 1995. Forward-looking
statements often include the words "forecast," "expect," "believe,"
"will," "intend," "plan," and words of similar substance. Such
forward-looking statements are subject to risks and uncertainties that
could cause actual results or performance to differ materially from
those expressed in or contemplated by the forward-looking statements,
including the risk that the proposed acquisition of Orbital ATK by
Northrop Grumman may not be completed in a timely manner or at all,
which may adversely affect Orbital ATK's business and the price of
Orbital ATK's common stock; potential increased costs, liability, or
reputational harm associated with the restatement of the company's
financial statements; the company's ability to maintain and grow its
relationship with its customers; reductions or changes in U.S.
Government spending; changes in cost and revenue estimates and/or timing
of programs and payments; the potential termination of U.S. Government
contracts; failure to win or retain key contracts; supply, availability,
and cost of raw materials and components; performance of subcontractors
and other third parties; development of key technologies; the costs and
ultimate outcome of contingencies, including litigation, government
investigations and other legal proceedings; changes in tax law arising
from the 2017 Tax Act and any related Treasury regulations, rules or
interpretations, if and when issued; and other risks described in
Orbital ATK's filings with the SEC. Readers are cautioned not to place
undue reliance on these forward-looking statements that speak only as of
the date hereof.

Appendix: Disclosure of Non-GAAP Financial Measures

The adjusted financial results contained in this press release are
non-GAAP financial measures adjusted to eliminate nonrecurring costs and
expenses as summarized in the tables below.

We define free cash flow as GAAP cash from operating activities less
GAAP capital expenditures. Management believes that the company's
presentation of free cash flow is useful because it provides investors
with an important perspective on the company's liquidity, financial
flexibility and ability to fund operations and service debt.

Adjusted measures are provided so investors can more easily compare
current and prior period results of the company. These adjusted results
should not be considered in isolation or as a substitute for the related
GAAP measures, and other companies may define such measures differently.
We encourage investors to review our financial statements and
publicly-filed reports in their entirety and not to rely on any single
financial measure.

Certain income statement reclassifications have been made to the prior
year results to conform to the current year presentation.

The reconciliation of GAAP results to adjusted non-GAAP results are as
follows:

Consolidated Non-GAAP Results

Quarter Ended April 1, 2018

($ in millions, except per share data)       GAAP     Adjustment (1)     As Adjusted
             
Revenues $1,312 $1,312
Operating Income 153.6 1.3 154.9
Pension and Postretirement (14.7) (14.7)
Net Interest Expense (16.4)   (16.4)
Income Before Taxes 122.5 1.3 123.8
Income Taxes (21.3) (0.2) (21.5)
Minority Interest (0.2)   (0.2)
Net Income $101.0 $1.1 $102.1
 
Diluted EPS $1.74 $0.02 $1.76
Diluted Shares       58.1           58.1
 

(1)

 

Includes costs related to the potential acquisition by Northrop
Grumman. Adjustments use the effective tax rate.

 

Quarter Ended April 2, 2017

($ in millions, except per share data)       GAAP     Adjustment (1)     As Adjusted
             
Revenues $1,085 $1,085
Operating Income 121.1 6.0 127.1
Pension and Postretirement (9.7) (9.7)
Net Interest Expense (17.5)   (17.5)
Income Before Taxes 93.9 6.0 99.9
Income Taxes (27.6) (1.8) (29.3)
Minority Interest 0.0   0.0
Net Income $66.4 $4.2 $70.7
 
Diluted EPS $1.15 $0.07 $1.23
Diluted Shares       57.7           57.7
 

(1)

 

Includes the impact of the restatement of our financial
statements and costs related to the Orbital-ATK merger, including
the company's change in fiscal year, among others. Adjustments use
the effective tax rate.

 

Free Cash Flow and Adjusted Free Cash Flow

        2018     2017
($ in millions)      

First
Quarter

   

First
Quarter

Net Cash Provided By Operating Activities ($237.0) ($35.0)
Capital Expenditures (71.3) (42.7)
Free Cash Flow (308.3) (77.7)
 

Non-GAAP Adjustments - Acquisition and Restatement

4.0 10.0
Adjusted Free Cash Flow       ($304.3)     ($67.7)
 

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