Orbital Announces Second Quarter 2014 Financial
Results
-
Orbital Sciences Corporation reported its
financial results for the second quarter of 2014.
Second quarter 2014 revenues were $318.1 million,
compared to $333.1 million in the second quarter of
2013. Second quarter 2014 operating income was $15.3
million. Adjusted operating income* in the second
quarter of 2014 was $21.9 million, or 6.9% of
revenues, compared to $26.3 million, or 7.9% of
revenues, in the second quarter of 2013
Net income in the second quarter of 2014 was $16.5
million. Adjusted net income* in the second quarter of 2014
was $20.7 million, or $0.34 adjusted diluted earnings per
share*, compared to net income of $16.3 million, or $0.27
diluted earnings per share, in the second quarter of 2013.
Orbital’s free cash flow* in the second quarter and first
half of 2014 was $16.7 million and $103.7 million,
respectively, compared to positive $6.9 million and negative
$27.3 million in the second quarter and first half of 2013.
“While revenues were down due to the delayed start of
several satellite contracts, the quarter’s adjusted earnings
per share and year-to-date free cash flow were well ahead of
last year’s results,” said Mr. David W. Thompson, Orbital’s
Chairman and Chief Executive Officer. “In addition to
carrying out a series of important space missions and
booking $550 million of new business, the company’s big news
in the second quarter was the announcement of a proposed
merger-of-equals combination of Orbital and ATK’s Aerospace
and Defense Groups. Transition planning and related
activities for the merger are on track for an anticipated
closing in the fourth quarter,” he added.
________
* “Adjusted operating income,” “adjusted net income” and
“adjusted diluted earnings per share” exclude professional
fees and other costs incurred in 2014 pertaining to the
planned merger of Orbital and the Aerospace and Defense
Groups of Alliant Techsystems Inc. (“ATK”) pursuant to an
April 28, 2014 definitive transaction agreement. These
financial measures, together with “free cash flow,” are
non-GAAP financial measures. For additional details
concerning these measures, please refer to the sections of
this press release entitled “Cash Flow” and “Disclosure of
Non-GAAP Financial Measures.”
Financial Highlights
Second Quarter
First Six Months
($ in millions, except per share data)
2014
2013
2014
2013
Revenues
$318
.1
$ 333
.1
$ 641
.4
$ 667
.9
Operating Income
15
.3
26
.3
38
.2
57
.4
Adjusted Operating Income
21
.9(1)
n/a
44
.8(1)
n/a
Net Income
16
.5
16
.3
30
.3
35
.9
Adjusted Net Income
20
.7(1)
n/a
34
.5(1)
n/a
Diluted Earnings Per Share
$ 0
.27
$ 0
.27
$ 0
.50
$ 0
.59
Adjusted Diluted Earnings Per Share
$ 0
.34(1)
n/a
$ 0
.57(1)
n/a
(1)Adjusted to exclude $6.6
million ($4.2 million after tax) of merger
transaction costs.
Revenues decreased $15.0 million, or 5%, in the second
quarter of 2014 compared to the second quarter of 2013.
Revenues declined $8.2 million in the launch vehicles
segment, $6.6 million in the satellites and space systems
segment and $6.4 million in the advanced space programs
segment. Intersegment revenue eliminations decreased $6.2
million.
Adjusted operating income decreased $4.4 million, or 17%,
in the second quarter of 2014 compared to operating income
in the second quarter of 2013. Operating income in the
satellites and space systems segment decreased $7.9 million,
while operating income in the advanced space programs and
launch vehicles segments increased $2.9 million and $0.6
million, respectively.
Results for the second quarter of 2014 included an
approximately $12 million insurance recovery accrual
recognized in “other income (expense)” pertaining to a
satellite anomaly reported in the first quarter of 2014.
The company’s effective income tax rate was 36.6% in the
second quarter of 2014 compared to 36.4% in the second
quarter of 2013.
Adjusted net income in the second quarter of 2014 was
$20.7 million, or $0.34 adjusted diluted earnings per share,
compared to net income of $16.3 million, or $0.27 diluted
earnings per share, in the second quarter of 2013.
Segment Results
Launch Vehicles
Second Quarter
First Six Months
($ in millions)
2014
2013
% Change
2014
2013
% Change
Revenues
$125.8
$134.0
(6%)
$263.0
$268.3
(2%)
Operating Income
11.1
10.5
6%
22.8
22.5
1%
Operating Margin
8.8%
7.8%
8.7%
8.4%
Launch vehicles segment revenues decreased $8.2 million
in the second quarter of 2014 compared to the second quarter
of 2013 mainly due to decreased activity on space launch
vehicles and target vehicles, partially offset by increased
activity on missile defense interceptors.
Segment operating income increased $0.6 million in the
second quarter of 2014 compared to the second quarter of
2013, despite the reduction in revenues, largely due to
profit improvement on missile defense interceptors. Segment
operating margin increased primarily due to the same factor.
Satellites and Space
Systems
Second Quarter
First Six Months
($ in millions)
2014
2013
% Change
2014
2013
% Change
Revenues
$ 87.2
$ 93.8
(7%)
$170.0
$194.6
(13%)
Operating Income
2.7
10.6
(75%)
6.0
21.5
(72%)
Operating Margin
3.1%
11.3%
3.5%
11.0%
Satellites and space systems segment revenues decreased
$6.6 million in the second quarter of 2014 compared to the
second quarter of 2013 primarily due to lower science and
remote sensing satellite revenues partially offset by higher
communications satellite revenues. Science and remote
sensing satellite revenues declined mainly due to the
completion and launch of a satellite in 2013. Communications
satellite revenues increased largely due to increased
activity on several recently awarded contracts.
Segment operating income decreased $7.9 million in the
second quarter of 2014 compared to the second quarter of
2013 principally due to the completion of a science and
remote sensing satellite in 2013 and a reduction in
communications satellite operating profit. Operating results
in 2013 included profit improvements in connection with the
successful completion of certain communications and science
and remote sensing satellite contracts. Segment operating
margin decreased primarily due to the profit improvements
recognized in 2013 and lower profit rates on contract
activity in 2014.
Advanced Space
Programs
Second Quarter
First Six Months
($ in millions)
2014
2013
% Change
2014
2013
% Change
Revenues
$110.2
$116.6
(5%)
$217.5
$229.9
(5%)
Operating Income
8.1
5.2
56%
16.0
13.4
19%
Operating Margin
7.4%
4.5%
7.4%
5.8%
Advanced space programs segment revenues decreased $6.4
million in the second quarter of 2014 compared to the second
quarter of 2013 primarily due to decreased activity levels
on national security satellite contracts and the CRS space
station cargo contract, partially offset by activity on a
new advanced flight system contract awarded in 2013.
Segment operating income increased $2.9 million in the
second quarter of 2014 compared to the second quarter of
2013, despite the reduction in revenues, principally due to
a profit improvement in connection with the substantial
completion of important milestones on a national security
satellite contract. Segment operating margin increased
primarily due to the same factor.
Cash Flow
Second Quarter
First
Six Months
($ in millions)
2014
2014
Net
cash provided by operating activities
$ 24.4
$109.9
Capital expenditures
(7.7)
(16.2)
Proceeds from disposition of property
-
10.0
Free
cash flow
16.7
103.7
Other, net
(1.5)
(3.5)
Net
increase in cash
15.2
100.2
Beginning cash balance
350.8
265.8
Ending cash balance
$366.0
$366.0
New Business Highlights
In the second quarter of 2014, Orbital recorded
approximately $435 million in new firm and option contract
bookings. In addition, the company received approximately
$115 million of option exercises under existing contracts.
As of June 30, 2014, the company’s firm contract backlog was
approximately $2.3 billion and its total backlog (including
options, indefinite-quantity contracts and undefinitized
orders) was approximately $4.8 billion.
Operational Highlights
In the second quarter of 2014, Orbital carried out one
major space mission, launched three small research rockets
and delivered ten other space and rocket systems for future
missions. In June, the Orbital Boost Vehicle (OBV), the
company’s long-range missile defense interceptor, was
successfully launched in support of a test of the U.S.
Missile Defense Agency’s Ground-based Midcourse Defense
system. More recently, Orbital conducted two other important
space missions in July. In early July, the Orbital-built
Orbiting Carbon Observatory-2 (OCO-2) environmental
monitoring satellite was successfully deployed for NASA and
is now progressing well with its in-orbit checkout
procedures. Earlier this week, Orbital launched its Antares
rocket carrying the Cygnus spacecraft, which arrived
yesterday at the International Space Station (ISS) with over
3,600 pounds of supplies and scientific experiments. This
successful launch was the fourth in the first 15 months of
operations of the Antares program. In addition, the Cygnus
cargo logistics spacecraft is completing its third cargo
delivery mission to the ISS in the last ten months.
For the remainder of 2014, Orbital plans to conduct
numerous major operational events and to deliver additional
systems to customers for future space missions or
operational deployments, averaging about one mission or
product delivery per week. Major mission operations for the
remainder of 2014 will be highlighted by another Antares
rocket launch and Cygnus spacecraft deployment to the ISS,
which will be the third operational cargo supply mission for
NASA under the eight-mission CRS contract. The company is
also scheduled to deploy several national security
spacecraft this summer and to deliver and launch
approximately 15 short- and medium-range targets and
research rockets before the end of the year.
2014 Financial Guidance
The company updated its financial guidance for full year
2014, as follows:
Current
Previous
Revenues ($ in millions)
$1,400 - $1,425
$1,450 - $1,500
Adjusted Operating Income Margin (1)
7.25% - 7.75%
7.25% - 7.75%
Adjusted Diluted Earnings per Share (1)
$1.10 - $1.20
$1.10 - $1.20
Free Cash Flow ($ in millions) (1)
$130 - $150
$130 - $150
(1)
Adjusted to exclude merger transaction costs.
Disclosure of Non-GAAP Financial Measures
We define free cash flow as GAAP (U.S. Generally Accepted
Accounting Principles) net cash provided by (used in)
operating activities less capital expenditures for property,
plant and equipment, plus proceeds from disposition of
property. A reconciliation of free cash flow to net cash
provided by (used in) operating activities is included above
in the section entitled “Cash Flow.” Management believes
that the company’s presentation of free cash flow is useful
because it provides investors with an important perspective
on the company’s liquidity, financial flexibility and
ability to fund operations and service debt.
Adjusted operating income is defined as GAAP income from
operations adjusted to exclude professional fees and other
costs incurred in connection with the planned merger of
Orbital and the Aerospace and Defense Groups of ATK.
Adjusted net income is defined as GAAP net income adjusted
to exclude these merger transaction costs. Adjusted diluted
earnings per share is equal to adjusted net income divided
by diluted shares. These measures are provided so investors
can more easily compare current and prior period results
without the impact of significant nonrecurring expenses. The
reconciliation of GAAP income from operations to adjusted
operating income and GAAP net income to adjusted net income
is as follows:
Second Quarter
First
Six Months
($ in millions, except per share data)
2014
2014
GAAP income from operations
$ 15.3
$ 38.2
Adjustments, before tax
Merger transaction costs (1)
6.6
6.6
Adjusted operating income
$ 21.9
$ 44.8
GAAP net income
$ 16.5
$ 30.3
Adjustments, net of tax
Merger transaction costs (1)
4.2
4.2
Adjusted net income
$ 20.7
$ 34.5
Adjusted diluted earnings per share
$ 0.34
$ 0.57
(1)Professional fees
and other costs pertaining to the planned merger
of Orbital and ATK's Aerospace and Defense
Groups.
Orbital does not intend for the above non-GAAP financial
measures to be considered in isolation or as a substitute
for the related GAAP measures. Other companies may define
these measures differently.
