Robust New Orders Boost Backlog to Record
Level
Company Reaffirms Full-Year Financial
Guidance
Orbital ATK, Inc. (NYSE:OA), a global leader in aerospace and
defense technologies, today reported financial results for the
first quarter of 2017, highlighted by strong new orders that
boosted the company’s contract backlog to a record level. The
company also reaffirmed its full-year 2017 financial guidance.
Orbital ATK reported GAAP revenues of $1,085 million in the
first quarter of 2017, up 2.7% from $1,056 million in the first
quarter of 2016. GAAP income from continuing operations, before
interest, income taxes and non-controlling interest (which the
company refers to as operating income) was $111.4 million, or 10.3%
operating margin, compared to $120.5 million, or 11.4% operating
margin, in the first quarter of 2016. The company reported first
quarter 2017 GAAP earnings per diluted share of $1.15 compared to
$1.31 in the comparable quarter in 2016. Free cash flow, which is a
non-GAAP measure defined as GAAP cash from operating activities
(negative $46.4 million) minus capital expenditures ($36.6
million), was negative $83.0 million in the first quarter of 2017
compared to negative $97.6 million in the first quarter of
2016.
The company also reported non-GAAP adjusted results for the
first quarter of 2017. Adjusted operating income and profit margin
were $117.4 million and 10.8%, respectively, in the first quarter
of 2017, compared to $130.2 million and 12.3%, respectively, in the
first quarter of 2016. Adjusted diluted earnings per share were
$1.23 and $1.44 in the first quarters of 2017 and 2016,
respectively. Adjusted free cash flow, which excludes certain
restatement-related cash expenses totalling $10.0 million, was
negative $73.0 million in the first quarter (see non-GAAP
reconciliation tables in the appendix for details).
______________________________ Adjusted financial results
and free cash flow 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 is off to a solid start in 2017. First quarter
financial results were in line with our plan for the year, which is
second half weighted as we previously indicated,” said David W.
Thompson, President and Chief Executive Officer. Mr. Thompson
added, “Our first quarter book-to-bill ratio of 150% boosted firm
backlog to a record $9.8 billion. In addition, these strong new
business bookings reflected a return to our historic proportion of
shorter-cycle contracts, which will help drive revenue growth this
year and in 2018, following a period of robust long-cycle orders in
2015 and 2016.”
Consolidated Financial Highlights
GAAP Results
First Quarter ($ in millions,
except per share data) 2017
2016 Revenues $ 1,085 $ 1,056 Operating
Income 111.4 120.5 Net Income 66.5 77.3 Diluted Earnings Per Share
$ 1.15 $ 1.31
Non-GAAP Results
First Quarter ($ in millions,
except per share data) 2017
2016 Adjusted Operating Income $ 117.4
$ 130.2 Adjusted Net Income 70.7 84.6 Adjusted Diluted Earnings Per
Share $ 1.23 $ 1.44
All adjusted financial measures discussed below are non-GAAP
adjusted financial results from continuing operations. See the
reconciliation tables in the “Disclosure of Non-GAAP Financial
Measures” section for details.
Revenues increased $29 million, or 2.7%, in the first quarter of
2017 compared to the first quarter of 2016. Adjusted operating
income decreased $12.8 million, or 9.8%, in 2017 compared to 2016,
primarily due to favorable contract profit adjustments that
occurred in the 2016 first quarter that did not reoccur in the 2017
first quarter.
Net income and earnings per share reflected an income tax rate
of 29.3% in the first quarter of 2017 compared to a 25.1% rate for
the first quarter of 2016. The tax rate in both periods benefited
from research and development (R&D) tax credits. In addition,
there were favorable discrete events that occurred in the first
quarter of the prior year that did not reoccur in the first quarter
of the current year.
“Orbital ATK’s financial performance in the first quarter
reflected top-line revenue growth in each of our business segments
as we converted strong new business bookings to revenue. In
addition, our profit margins and earnings per share results were
consistent with the company’s plan for the year,” said Garrett E.
Pierce, Orbital ATK’s Chief Financial Officer.
Capital Allocation Activities
During the first quarter of 2017, Orbital ATK returned nearly
$18 million to shareholders in the form of dividends. The company
also invested about $60 million in R&D and capital equipment in
the quarter.
New Business Summary
In the first quarter of 2017, Orbital ATK booked approximately
$1,640 million in new firm and option orders. In addition, the
company received about $410 million in option exercises under
existing contracts. As of April 2, 2017, the company’s firm backlog
was approximately $9.8 billion, up 12% compared to a year ago, and
its total backlog (including options, indefinite quantity contracts
and undefinitized orders) was about $14.8 billion, 3% higher than
in the prior year.
2017 Financial Guidance
The company reaffirmed its annual 2017 financial guidance as
summarized below:
Guidance
2017 Revenues ($ millions)
$4,550 - $4,625 Operating Income Margin 11.5%
- 12.0% Free Cash Flow ($ millions) $250 -
$300 Diluted Earnings Per Share $5.80 - $6.20
Orbital ATK currently expects an effective tax rate of
approximately 28% and interest expense of approximately $65 million
for the year, which includes about $6 million of non-cash interest.
Capital expenditures are projected to be about $225 million and
diluted weighted average shares outstanding are expected to be
approximately 57.5 million. The favorable pension adjustment
resulting from the difference between the GAAP Financial Accounting
Standards (FAS) and the Government Cost Accounting Standards (CAS)
is expected to be approximately $100 million for the year.
First Quarter Operational Highlights
Orbital ATK’s strong operational execution led to the
achievement of numerous milestones in the first quarter of 2017.
These included the following important events:
- In the first quarter, Orbital ATK’s
Flight Systems Group supported five launches of U.S. strategic
missiles with company-produced propulsion systems, as well as three
Delta IV and Atlas V space launches with propulsion systems and
composite structures. Also in the quarter, the company accomplished
important development milestones on the Air Force’s Next Generation
Launcher and GEM 63XL rocket booster programs, and continued
on-schedule production of the large-class solid rocket boosters for
NASA’s Space Launch System. In addition, the company established
new production records for composite aerospace structures as
commercial and military aircraft programs continued to increase
production rates.
- In the Defense Systems Group, the
company produced approximately 400 million rounds of small-,
medium- and large-caliber ammunition, as well as about 4,000
tactical missile motors and 3,000 precision artillery and mortar
rounds in the first quarter. The company also successfully tested
new insensitive-munition rocket motors and ramjet propulsion
technologies. The company also hosted its second annual Bushmaster
Users Conference for over 150 U.S. and international customers,
partners and suppliers, including representatives from about 25
countries. The event was highlighted by live-fire demonstrations of
Orbital ATK’s MK44 cannon paired with the company’s new 40mm
precision air-bursting ammunition.
- In the Space Systems Group, first
quarter operational highlights included the successful launch
and check-out of the first group of 10 Iridium NEXT satellites that
the company assembled, integrated and tested. Other operational
milestones included five successful sounding rocket missions in
support of NASA research programs, the check-out of the Air Force’s
third and fourth Geosynchronous Space Situational Awareness Program
satellites, and the shipment of more than 230 spacecraft
components. The company also noted the recent launch in April of
its OA-7 cargo mission for NASA and successful berthing of the
“S.S. John Glenn” Cygnus spacecraft, which delivered more than
7,600 pounds of supplies and experiments to astronauts aboard the
International Space Station.
“First quarter operational results were generally solid as our
teams completed numerous launch vehicle, satellite and defense
systems missions, tests and deployments, as well as maintained
steady production and quality performance on many other important
programs,” said Chief Operating Officer Blake E. Larson.
“Unfortunately, in April we experienced a tragic incident at the
Lake City Army Ammunition Plant where we manufacture small caliber
ammunition. The explosion damaged part of the facility where we
process chemical compounds used in primers and sadly took the life
of one of our employees. Our hearts go out to the family and
friends of the employee we lost and to our entire Lake City
family,” Mr. Larson added. “We are finalizing our thorough internal
investigation into the incident and utilizing our findings and
industry best practices to design our new processes. At this time,
we are resuming production with vendor supplied primer materials
and focusing on a safe return to full operational capacity,” he
concluded.
Segment Financial Results
Orbital ATK conducts its operations in three business segments:
Flight Systems Group, Defense Systems Group and Space Systems
Group. Each of these groups in turn consists of several
product-line divisions. 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:
GAAP Results
First Quarter
($ in millions) 2017
2016 Revenues $ 371 $ 354 Operating
Income 40.6 49.7 Operating Margin 10.9
% 14.0 %
FSG revenues for the first quarter of 2017 increased $17
million, or 4.8%, compared to 2016 due primarily to higher activity
in the Aerospace Structures Division. Operating income decreased
$9.1 million, or 18.3%, primarily due to lower margins in 2017 on
certain Aerospace Structures Division and Propulsion Systems
Division contracts. FSG had no non-GAAP adjustments in either the
2017 or 2016 quarter.
Defense Systems Group:
GAAP Results
First Quarter
($ in millions) 2017
2016 Revenues $ 451 $ 431 Operating
Income 42.0 42.1 Operating Margin 9.3 %
9.8 %
Non-GAAP Results
First Quarter
($ in millions) 2017
2016 Adjusted Operating Income $ 42.0 $
46.1 Adjusted Operating Margin 9.3 %
10.7 %
DSG revenues in the first quarter of 2017 increased $20 million,
or 4.6%, largely due to higher activity on Armament Systems
Division contracts. Operating income decreased $4.1 million, or
8.9%, primarily from favorable profit adjustments in the first
quarter of 2016 that did not reoccur at the same level in 2017.
There were no non-GAAP adjustments in the 2017 first quarter.
Space Systems Group:
GAAP Results
First Quarter
($ in millions) 2017
2016 Revenues $ 301 $ 286 Operating
Income 27.4 29.8 Operating Margin 9.1 %
10.4 %
Non-GAAP Results
First Quarter
($ in millions) 2017
2016 Adjusted Operating Income $ 27.4 $
30.3 Adjusted Operating Margin 9.1 %
10.6 %
SSG revenues for the first quarter of 2017 increased $15
million, or 5.2%, compared to the first quarter of 2016 largely due
to higher activity on Satellite Systems and Advanced Programs
Divisions contracts. Operating income decreased $2.9 million, or
9.6%, largely due to a favorable profit adjustment on an Advanced
Programs Division contract in 2016 that did not reoccur in 2017.
There were no non-GAAP adjustments in the 2017 first quarter.
Conference Call Information
Investors can listen to a live audio webcast of the conference
call with analysts that Orbital ATK will host at 9:00 a.m. (EDT)
May 11, 2017. To listen to the call, visit the company’s website at
www.orbitalatk.com/investors. For those who cannot listen to the
live webcast, a telephone recording of the conference call will be
available by dialing (855) 859-2056 and using the conference ID
14565796. The recording will be available until May 18, 2017.
Orbital ATK has also posted on its investor relations website a
presentation of the first quarter 2017 financial results and
operational highlights.
Form 10-Q Filing Update
The company will file a Form 12b-25 Notification of Late Filing
with the Securities and Exchange Commission indicating that it will
not be able to file its Quarterly Report on Form 10-Q for the
quarter ended April 2, 2017 by the prescribed due date of May 12,
2017, nor within the associated 12b-25 five-day extension period.
This delay results primarily from the focus of the company’s
resources on the completion of the restatement of its consolidated
financial statements for certain prior periods and the preparation
of SEC quarterly and annual reports relating to the
restatement.
The company intends to file the Form 10-Q as soon as reasonably
practicable. As previously disclosed, the company also has entered
into an extension agreement with its lenders extending the deadline
under its credit agreement for filing the Form 10-Q to June 30,
2017; consequently, the expected timing for filing the Form 10-Q
would not result in a default under the credit agreement.
Website and Social Media Disclosure
Orbital ATK communicates material financial information to its
investors using press releases, Securities and Exchange Commission
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 12,500 people in 18 states across the United States
and in several international locations. For more information, visit
www.orbitalatk.com.
“Safe Harbor” Statement Under the Private Securities
Litigation Reform Act of 1995
Certain statements in this press release may be “forward-looking
statements” as defined by 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 include
the company’s 2017 financial guidance and expectations regarding
our financial and operational performance, the benefits of our
long-term growth initiatives, and investments. 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 following: the inherent limitations in internal
control over financial reporting; potential increased costs,
liability, reputational harm or loss of investor confidence
associated with the recent multi-year 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 military or NASA spending, including impacts of
sequestration under the Budget Control Act of 2011; changes in
accounting methods; 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; costs
of servicing debt, including cash requirements and interest rate
fluctuations; the company’s capital deployment strategy, including
share repurchases and dividend payments; actual pension asset
returns and assumptions regarding future returns, discount rates
and service costs; supply, availability, and costs of raw materials
and components, including commodity price fluctuations; performance
of subcontractors and other third parties; development of key
technologies; and the costs and ultimate outcome of contingencies,
including litigation, government investigations and other legal
proceedings, including those related to the company’s recently
completed restatement. Additional information concerning these and
other factors can be found in Orbital ATK’s filings with the
Securities and Exchange Commission. Orbital ATK undertakes no
obligation to update any forward-looking statements, except as may
be required by law.
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. The
reconciliation of GAAP results to adjusted non-GAAP results are as
follows:
Consolidated Non-GAAP
Results
Quarter Ended April 2,
2017
($ in
millions, except per share data)
GAAP Adjustment (1)
As Adjusted
Revenues $ 1,085 $ - $ 1,085 Operating Income 111.4 6.0
117.4 Net Interest Expense (17.5 )
(17.5 ) Income before taxes 93.9 6.0 99.9 Income Taxes (27.5
) (1.8 ) (29.3 ) Minority Interest 0.1
0.1 Net Income $ 66.5 $ 4.2 $
70.7 EPS Diluted $ 1.15 $ 0.07 $ 1.23 Diluted Shares
57.7 57.7
57.7 (1) Includes
costs related to the restatement, among others. Adjustments use the
effective tax rate.
Quarter Ended April 3,
2016
($ in
millions, except per share data)
GAAP Adjustment (2)
As Adjusted
Revenues $ 1,056 $ - $ 1,056 Operating Income 120.5 9.7
130.2 Net Interest Expense (17.3 ) -
(17.3 ) Income before taxes 103.2 9.7 112.9 Income Taxes (25.9 )
(2.4 ) (28.3 ) Minority Interest -
- Net Income $ 77.3 $ 7.3 $ 84.6
EPS Diluted $ 1.31 $ 0.12 $ 1.44 Diluted Shares
58.9 58.9
58.9 (2) Includes
the impact of merger-related costs including the company’s change
in fiscal year, severance payments and IT expenses, among others.
Adjustments use the effective tax rate.
GAAP Results by Group
First
Quarter ($ in millions)
2017 2016
Incr(Decr)
Revenues: Flight $ 371 $
354 $ 17 4.8 % Defense 451 431 20 4.6 % Space 301 286 15 5.2 %
Corporate (38 ) (15 )
(23 ) Total Revenues $ 1,085 $ 1,056 $ 29 2.7 %
Operating Income: Flight $ 40.6 $ 49.7 $ (9.1 ) -18.3 % Defense
42.0 42.1 (0.1 ) -0.2 % Space 27.4 29.8 (2.4 ) -8.1 % Corporate
1.4 (1.1 )
2.5 Total Operating Income $ 111.4 $ 120.5 $ (9.1 ) -7.6 %
Operating Margin: Flight 10.9 % 14.0 % -3.1 % Defense 9.3 %
9.8 % -0.5 % Space 9.1 % 10.4 % -1.3 % Operating Margin
10.3 % 11.4 %
-1.1 %
Non-GAAP Results by
Group
First
Quarter ($ in millions) 2017
2016 Incr(Decr) Adjusted
Operating Income: Flight
$ 40.6 $ 49.7 $ (9.1 ) -18.3 % Defense 42.0 46.1 (4.1 ) -8.9 %
Space 27.4 30.3 (2.9 ) -9.6 % Corporate 7.4
4.1 3.3 Total
Adjusted Operating Income $ 117.4 $ 130.2 $ (12.8 ) -9.8 %
Adjusted Operating Margin: Flight 10.9 % 14.0 % -3.1 % Defense 9.3
% 10.7 % -1.4 % Space 9.1 % 10.6 % -1.5 % Adjusted Operating Margin
10.8 % 12.3 %
-1.5 %
Defense Systems Group Adjusted Non-GAAP
Results
First
Quarter 2016 ($ in millions)
Revenue
OperatingIncome
OperatingMargin
GAAP $ 431
$ 42.1 9.8 % Non-GAAP Adjustments (3)
- 4.0
As Adjusted
$ 431 $ 46.1
10.7 % (3) Includes the
impact of certain merger related costs, among others.
Space Systems Group Adjusted Non-GAAP
Results
First Quarter
2016 ($ in millions) Revenue
OperatingIncome
OperatingMargin
GAAP $ 286 $ 29.8
10.4 % Non-GAAP Adjustments (3) -
0.5
As Adjusted
$ 286 $ 30.3
10.6 % (3) Includes the impact
of certain merger related costs, among others.
Free Cash Flow and Adjusted Free Cash
Flow
2017 ($ in millions)
First Quarter Net Cash Provided By Operating
Activities $ (46.4 ) Capital Expenditures (36.6 ) Free Cash
Flow $ (83.0 ) Adjustments (4) 10.0
Adjusted Free Cash Flow $ (73.0 )
(4)
Includes costs related to the restatement.
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version on businesswire.com: http://www.businesswire.com/news/home/20170511005367/en/
Investors and Media:Orbital ATK, Inc.Barron Beneski,
703-406-5528Barron.Beneski@orbitalatk.com
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