OA
#Thanks, <UNK>.
The Company did receive a fourth extension mission under the original CRS-1 contract back in the first quarter.
And in addition, in the quarter, we were selected for the CRS-2 contract that will pick up missions in 2019, once the current contract has run its course in late 2018.
So that the outlook there is good, both near term and well into the middle part of the next decade.
We are pleased with the performance of that program from NASA to date, and are optimistic about its continued growth for a number of years to come.
<UNK> <UNK>, good to hear your voice.
Our unbilled receivables do reflect progress in completion of contracts through milestones, as I said on the call.
We expect to hit milestones on these contracts.
Certainly, the CRS area is one that will contribute significantly to cash flow and our other contracts that are in backlog.
What you see is in the first quarter is, in our business, not atypical.
We're not concerned.
We forecasted out our free cash flow for each quarter, and we expect that, as I said on the call, to improve, particularly in the second half.
We are very focused on that, and there's nothing customer-wise or structurally that's a problem.
It's just simply a matter of executing the backlog, and the cash flows should come through.
Let me give you the bigger picture.
Purchase accounting, as you know, when you merge or a company is acquired, you have 12 months to finalize it.
This happens to be the last quarter, and we did some finalization on that, in the purchase accounting area.
One of the areas in the purchase accounting area has to do with fair-valuing contracts, and you push that through your numbers, and you discount that back, and it is amortized through the number.
So it's non-cash, and I would bound that for the year about $10 million that will go through.
It's not necessarily linear on a quarter.
So there's nothing ---+ it's just a matter of finalizing the purchase accounting, and it came through in this quarter.
Unfortunately, the line item we have on the financials is for interest.
It includes ---+ by the way, interest expense includes debt amortization expenses and interest expense.
We would like to keep this as a separate line item, but it's not large enough, so we've included in interest expense, and simply underline that it's non-cash, non-debt-related, purely purchase accounting.
It will amortize out over time, yes.
It will be in the next couple of years, but it will amortize out.
You are welcome.
Just on that point, <UNK>, I might add that in the first quarter, the net impact of the lower tax rate, which was a positive impact, and the non-cash interest expense that you asked about, which was a negative item, came out at about $0.02 per share.
And for the full year, the net of those two probably will be about $0.05.
Sure, Mike, good morning.
Yes, sure.
There were no really major developments in the first quarter on that program.
We did ---+ as I mentioned back a couple of months ago, Orbital ATK and the Air Force started at the beginning of the year the first phase of what could be about a four year, jointly funded development program that would be aimed at creating a new, all US-based intermediate- and large-class space launch vehicle.
Our objective in pursuing this, if it goes through the full development cycle, would be to introduce a modular vehicle capable of launching not only defense-related satellites in the larger class, but also scientific and commercial satellites.
And it would be competitive, both domestically and internationally.
Our investments this year, and those of the Air Force, will cover the initial phase of design and early development work, and the decision in the first half of next year will be made concerning whether the remaining activity to complete development, to produce and introduce this new vehicle, will proceed.
There will be ---+ it represents a relative ---+ not an insignificant, but a relatively modest investment over the next couple quarters, which, if the market indicators and the product performance continue to move in a favorable direction, could lead to a decision sometime about this time next year or a little later relating to the remaining work to actually build and test the vehicle.
In the first quarter, the margins in those two segments were up nicely compared to last year, and were both a bit ahead of our plan.
Partly it reflected the addition of the CRS-1 extension missions.
And also the flow-through ---+ really, for the first time it materialized in a significant way, of some of the cost efficiencies that we achieved last year and in the early part of this year.
I think that latter factor will continue, and we may see a little bit of upside for the balance of the year as a result before any other potential adjustments are factored in.
This is <UNK>.
It's about $200 million on CRS, and about $400 million or so on the A350.
Thanks, Mike.
Sure.
I think it was really the first quarter comparison to the same time last year resulted from really two somewhat independent factors.
First, the March quarter last year was a particularly strong quarter.
Defense generated about $500 million in revenue in that quarter last year because of a surge in product deliveries both to domestic and international customers that happened to fall into the February and March period of 2015.
That created a fairly tough comparable for us.
Secondly, we did see some slowdowns in the timing of awards of some new defense orders in the Middle East in the latter part of 2015.
We've had some catch-up in that so far this year; a few more are still expected.
And so that's pushed out anticipated revenue from the first half of the year to the second half in the Defense Segment.
It's really a combination of a tough comp compared to last year, and some first half/second half timing adjustments for this year.
No, there was not.
I know there had been an article in the press a month or so back on that.
We did have some supply chain slowdowns, but it turned out we had a sufficient work- in-process inventory of the particular component in question, that it really didn't slow down deliveries.
In fact, AARGM had a good first quarter, both from a flight-test standpoint and production-delivery perspective; and the outlook of that program continues to be very favorable.
As an example, the US government budget request that came out back in February for FY17 has about almost a 65% increase in funding targeted for AARGM in 2017 compared to 2016, and 2016 itself was up a bit compared to 2015.
You may have also noticed that the US Navy, our principal customer for AARGM to date, has extended the production run to now 2,400 missiles out through the early years of the next decade.
AARGM is doing fine now, and I think it's going to be a real bright spot in terms of defense growth.
A little bit of that coming through this year, but a lot more coming through in 2017 and 2018 such that over about a three-year period, we expect to basically double AARGM revenue between 2015 and 2018.
Yes, you bet.
Hello, Joe.
Yes, hello, Joe.
I would say, it's just early in the year.
We'd rather wait and see how a few things pan out.
We do have the next CRS cargo mission coming up, probably early July.
That will be a significant event.
We expected it to go very well.
Assuming it does, there's some opportunity there for improvements.
We will be watching it over the next quarter or two.
And when and if the circumstances are right, we will provide an update there.
At this point, coming out of the first quarter, we just felt we ought to stick with the current outlook.
Okay, good question, Joe.
First of all ---+ <UNK> alluded to this in his comments ---+ we've got, I think, three big events relating to Antares this year.
The first one will occur later this month.
In fact, next week, we will roll out to the launch pad, the first re-engined Antares in preparation for buyer testing of the first stage and its new engines, which will occur later this month.
That's the first milestone.
Assuming things go smoothly there, then probably on the order of six weeks later ---+ so that would put us around just after the fourth of July ---+ we expect to be ready to launch the first of two re-engined Antares rockets on a space station cargo mission, which we call OA-5.
And then we will turn around about three or four months later, probably sometime in November, for a second Antares launch on another space station cargo run.
So those are the three big events this year.
All of the hardware necessary for the engine test, as well as the first two launches of the re-engined rocket, is at the Wallops Island launch base now.
And so we are getting close to being back to flight-ready status.
Beyond this year, with the new extension mission added, and with the new CRS-2 contract coming on line, the base level of demand, really through the middle of the next decade, for Antares should run at two or three launches per year.
And that gives us a solid foundation on which we can increase market reach of the vehicle, and flight rates as well.
We designed Antares, like we do most of our launch vehicles, to represent good businesses for our customers in terms of schedule and reliability, and good businesses for us in terms of profit margin, at fairly modest launch rates.
And we do that by commonality across a broad range of target vehicles, missile defense interceptors, small space launch vehicles, and now with Antares medium-class vehicles, we use a lot of interchangeable parts and subsystems.
We use the same engineering and manufacturing teams and facilities, and so as we go from two or three launches a year to five or six launches a year, there's a lot of operating leverage for us in that.
Once we get back to flight status and put a couple of good launches behind us, then I think we will start to see some real traction in the broader market, beyond just NASA cargo delivery.
Okay, thank you.
Yes, <UNK>.
(laughter)
It was mostly international defense.
Yes, I think that's the essence of it.
It was probably a few tens of millions of dollars in the quarter.
I'm not sure I have that number handy.
I can tell you another way of looking at it is, if we just compare last year ---+ which was a pretty good year for our international business, in general, and our defense export sales, in particular ---+ across the whole Company last year, about 20% of our total new business, and roughly 22% of our revenue came from international sales.
The first quarter of this year, we booked about $275 million of international orders.
It was down to 8% or 9% of total bookings.
And I think that's just mostly a reflection of some lumpiness, some ---+ plus, it was the total new business was quite robust in the quarter.
I think that will smooth out as the year goes on, but we did see some slowdowns, both in the second half of last year, and so far in the first quarter of this year in the award, or the ramp-up once awards have been made, of defense orders mostly coming out of our customers in the Middle East.
In round terms ---+ I won't get into too much in the way of detail ---+ it was between $100 million and $125 million last year.
Yes, sure, <UNK>.
The original target which we set out ---+ was even before, I think even before 2015 started, and we used throughout last year for the three-year period 2015, 2016, and 2017 ---+ was on the order of, or slightly above, $1 billion.
And I think we are still pretty comfortable with that.
The new growth initiatives will have some impact, all else equal.
But the rest of the business is doing a little better than expected.
I think that three-year target of about $1 billion is still a target the Company feels ---+ we are comfortable with.
Yes, that's correct.
Thanks, <UNK>.
Hello, <UNK>.
Yes, the buyback authorization that we have today through the end of 2016 could allow us to go somewhat higher than the range that we show on page 6, where we are talking about our capital deployment.
And for this year, with stock repurchases in a range from $125 million to $150 million, the authorization would let us go up to $175 million, and we may well do that.
I think right now, our sense is, our best guess is, it would probably be in the range presented here.
But we will see how it goes, and we may well go a little higher than that range.
And on capital expenditures, we spent $22 million in the first quarter, <UNK>.
I think our initial guidance was about $215,000,000.
As you will see in the current guidance, we pulled that down a little bit.
That's very typical.
Businesses, I think, as you do your planning, as you start out, is a little bit slow.
There will be some ramp-up.
You did touch on that, it also affects the cash flows.
Yes.
There are a couple of programs that, six months ago when we were putting the capital budget in place for this year, had some reasonable capital expenditure requests we approved.
We are now four months into the year, and some of that's just not turned out to be necessary quite as soon as we thought.
Or we found other ways of increasing capacity without making those capital investments.
So we've reduced the CapEx outlook on the order of 10%, compared to where we started the year.
Yes, we've really ---+ in production programs, we have four major, maybe even five ---+ let's call it four major production programs.
The A350, where we work both for Airbus and for Rolls-Royce ---+ Airbus on the fuselage structures and Rolls-Royce on the engine structures.
The Boeing 787; a F35 joint strike fighter; and A400 military transport.
Of those, the A400 is by far the smallest program.
We are running at pretty modest production rates on that, roughly one a month.
And that's ---+ we didn't anticipate that, that would be much different this year.
I don't have the number off of the top of my head, but I would guess that's 5% or less of our aerostructures business.
The other larger programs, relative to early expectations, I would say, 787s may be up a little bit.
Joint strike fighter is about on track; and A350 ---+ we are doing really well in terms of ramping up our production rate.
I think any areas or any concerns that we might have had about our ability to achieve their necessary rate has pretty much been put behind us now.
We're fully prepared to meet both near-term and mid- and long-term rate commitments there.
We are currently producing about seven a month on the A350.
Okay, thank you, <UNK>.
Hello, Matt; good morning.
Sure.
The outlook in the small caliber ammo business is pretty good this year.
Certainly, stronger overall than last year.
Last year was actually ---+ within the commercial ammo production for Vista, was quite good.
We think it will continue to be strong this year.
What we are seeing in 2016, though, is a significant bounce back in demand on the part of the Army.
As <UNK> mentioned, we produced about 400 million rounds of ammo in the first quarter.
Just based on a round count, that was dominated by small-caliber production at Lake City.
Our outlook for the full year is total production of small-caliber ammo in the neighborhood of 1.5 billion rounds, plus or minus maybe 50 million.
That would be an increase of 25%, maybe even pushing 30%, compared to last year.
Overall ammo revenue should increase modestly this year.
The higher domestic production at Lake City is anticipated to be partly offset by lower nonstandard ---+ non-NATO-standard ---+ ammo sales.
Nevertheless, when you put it all together, we do see a reasonable increase in total small cal ammo sales this year.
That's also likely to continue next year, since the leading indicators with US government budgets also are reflecting increases from 2016 to 2017.
As you probably know, that's one of our shortest cycle businesses between order and delivery.
The half-life of a small-caliber ammo contract or order is measured in months, so we turn those orders into revenue pretty quickly.
I believe it will.
We haven't guided to that, but I think we've signaled that, that it will be stronger in 2017.
So that's the answer ---+ yes, we think we will be stronger.
Welcome.
Thank you, Matt.
With that, I think we will bring the call to a close.
Thank you for joining us today, and we look forward to speaking with you again, when we report our second quarter 2016 financial results.
That concludes today's call.
Thank you for joining us.
