Orbital ATK Announces First Quarter 2018 Financial Results

5/3/18

DULLES, Va.--(BUSINESS WIRE)--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).

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(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.”

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)RevenuesOperating IncomeOperating Margin

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.

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.

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