Orbital Announces First Quarter 2014 Financial Results

Net income in the first quarter of 2014 was $13.8 million, or $0.23 diluted earnings per share, compared to net income of $19.6 million, or $0.33 diluted earnings per share, in the first quarter of 2013. Orbital’s free cash flow* in the first quarter of 2014 was positive $87.0 million, a new quarterly record for the company, compared to negative $34.2 million in the first quarter of 2013. The company’s cash balance as of March 31, 2014 increased to $350.8 million, up 76% compared to March 31, 2013.

Mr. David W. Thompson, Orbital’s Chairman and Chief Executive Officer, said, “Orbital’s free cash flow in the first quarter of 2014 set a new record for the company, reflecting achievement of important milestones in connection with the completion of our first operational cargo mission to the International Space Station under the company’s Commercial Resupply Services (CRS) contract with NASA.” He continued, “Although first quarter revenues and operating income were lower than expected due to an anomaly on a recently launched communications satellite, the company remains on track with our financial guidance for 2014.”

Revenues decreased $11.5 million, or 3%, in the first quarter of 2014 compared to the first quarter of 2013. Revenues declined $18.0 million in the satellites and space systems segment and $6.0 million in the advanced space programs segment, while revenues increased $2.9 million in the launch vehicles segment. Intersegment revenue eliminations decreased $9.6 million.

Operating income decreased $8.1 million, or 26%, in the first quarter of 2014 compared to the first quarter of 2013. Operating income decreased $7.6 million in the satellites and space systems segment, $0.3 million in the launch vehicles segment and $0.2 million in the advanced space programs segment.

Operating results in the first quarter of 2014 reflected the impact of an anomaly detected during in-orbit testing of the Amazonas 4A communications satellite that was launched in March 2014. Although the investigation of the anomaly is currently in progress, the company believes that the satellite’s capacity could be diminished. Accordingly, in the first quarter of 2014, the company reduced revenues by approximately $13 million and operating income by $6.4 million to reflect the potential loss of performance incentives partially offset by related costs that are not expected to be incurred. The company believes that the loss of incentives is covered by insurance and that insurance proceeds could be recognized as income as early as the second quarter of 2014.

Net income in the first quarter of 2014 was $13.8 million, or $0.23 diluted earnings per share, compared to $19.6 million, or $0.33 diluted earnings per share, in the first quarter of 2013. The company’s effective income tax rate was 37% in the first quarter of 2014 compared to 36% in the first quarter of 2013.

Segment Results

Launch vehicles segment revenues increased $2.9 million in the first quarter of 2014 compared to the first quarter of 2013 primarily due to increased activity on missile defense interceptors for the Ground-based Midcourse Defense (GMD) program and space launch vehicles, partially offset by decreased activity on target launch vehicles.

Segment operating income decreased $0.3 million in the first quarter of 2014 compared to the first quarter of 2013 primarily due to lower activity and operating income margins on certain target launch vehicle contracts, partially offset by increased activity on space launch vehicles and missile defense interceptors. Segment operating margin decreased primarily due to lower operating margins on certain target launch vehicles.

Satellites and space systems segment revenues decreased $18.0 million in the first quarter of 2014 compared to the first quarter of 2013 primarily due to lower communications satellite and science and remote sensing satellite revenues. Communications satellite results in the first quarter of 2014 were lower than expected due to the potential loss of approximately $13 million of incentives as a result of the satellite anomaly discussed above. Science and remote sensing satellite revenues declined mainly due to the completion of a satellite in 2013.

Segment operating income decreased $7.6 million in the first quarter of 2014 compared to the first quarter of 2013 mainly due to a $6.4 million reduction in operating income related to the communication satellite anomaly discussed above. Operating margin decreased for the same reason.

Advanced space programs segment revenues decreased $6.0 million in the first quarter of 2014 compared to the first quarter of 2013 primarily due to decreased activity on national security satellite contracts and the CRS contract, partially offset by activity on a new advanced programs contract awarded in 2013.

Segment operating income decreased $0.2 million in the first quarter of 2014 compared to the first quarter of 2013 principally due to the reduction in revenues and a favorable contract closeout adjustment recorded in the first quarter of 2013, partially offset by higher operating margins on certain national security contracts. Segment operating margin increased mainly due to higher operating margins on certain national security contracts.