08 May 20. Branson clears path to sell $1bn stake in Virgin Galactic. Filing opens door to potential sale of half of Virgin Group’s holding in space venture Virgin Galactic Spaceship. Richard Branson is free to sell up to half his stake in his space tourism venture — potentially raising close to $1bn — after a little-noticed filing by Virgin Galactic lifted constraints on investors.
The entrepreneur has come under fire for seeking state help for Virgin Group’s airlines businesses, which have been hammered by the Covid-19 pandemic. But even as other parts of the empire have been paralysed, Virgin Galactic’s market value has almost doubled from $2.3bn at its initial public offering six months ago to $4.25bn, lifting the value of Virgin Group’s stake close to $2bn. A US securities filing last week clears the way for Virgin Group to sell up to half its holding and — coupled with the publication of first-quarter results this week — removes some barriers to insiders selling shares in the coming weeks. Virgin Group, which declined to comment, is unlikely to be able to place a stake that large in Virgin Galactic in one block, and it cannot sell the remaining half until two years after the IPO.
Virgin Galactic has yet to send any paying passengers to the edge of space, although it has flown five crew members on two successful test flights and taken 600 reservations from would-be astronauts, including celebrities such as the actor Leonardo di Caprio. Cashing in part of his holding would allow Sir Richard to inject more capital into Virgin Atlantic, the airline which has asked the UK government for up to £500m of support in the form of loans and guarantees. The request for state help has exposed Sir Richard to criticism because of his estimated $4bn-plus wealth and because he is resident not in the UK, but in the low-tax British Virgin Islands. Recommended AnalysisRichard Branson Space or bust: Richard Branson’s Virgin dilemma Any sale would also free up cash to inject into Virgin Australia, which has collapsed into administration, wiping out Sir Richard’s 10 per cent equity stake. The Australian airline has attracted interest from several interested parties and Virgin Group may come in alongside a new investor to retain a voice in its future.
Sir Richard has invested almost $1bn in Virgin Galactic, as well as roughly $600m in Virgin Orbit, a still nascent satellite-launching business. He had hoped to make his own maiden flight last year, to coincide with the 50th anniversary of the first Apollo moon landing, but this week the company said only that it remained focused on getting him to the edge of space “as soon as we can”. “It would be a huge thing for them — They’ve said for years now that this is the year Richard Branson will go up,” said Laura Forczyk, a consultant at Astralytical who said the maiden flight was looking unlikely to happen this year, even before the pandemic. “They’re making technical progress,” she said, but a move to New Mexico slowed the company down. “There’s no doubt it’s hype — their whole business is hype. But if it plays out, it will be a big moment,” she said of the prospect of Sir Richard’s first flight. Virgin Galactic, which this week hailed a new partnership with Nasa around high-speed flight technologies, has also raised money from more than 400 people who have paid it refundable deposits under its “One Small Step” initiative. The venture has lost almost $500m over the past three years. (Source: FT.com)
07 May 20. Axon Reports Strong First Quarter Results; Axon Dispatch Is Live, Record International Sales, Pipeline is Robust. Axon (Nasdaq: AAXN), the global leader in connected public safety technologies, today released the following quarterly update letter to shareholders.
Dear Shareholders, The first several months of 2020 are proving that Axon is resilient. You can see this in our adaptability to change, in the solutions-oriented culture embodied by our dedicated employees, and in our financial position.
For more than 25 years, Axon has been dedicated to serving those who protect and serve. Now, as always, our public safety customers are on the front lines of protecting the public, and sadly, too many of them have lost their lives to COVID-19. Axon mourns for fallen officers and their families, and we have pivoted to dedicate a portion of our supply chain to source critical safety equipment such as masks, gloves and hand sanitizer for first responders.
We continue to ship our hardware products at volume. Axon is viewed as “mission critical” under Department of Homeland Security guidelines and we hear this in feedback from our customers. We are focused on keeping our manufacturing lines open and our employees and customers safe.
Our cloud-based software has proven more useful than ever in supporting public safety and promoting social distancing. In March, we began providing global access to the full feature set of Axon Citizen, free of cost this year, to every agency that is not already using it. Axon Citizen enables virtual evidence collection, eliminating the need for officers to have to collect digital files in person and reducing the need for community members to visit a station.
Axon’s core business remains robust and healthy, as seen in our Q1 2020 results, with revenue up 27% year over year. Particularly noteworthy was international revenue growth of 38%, driven by strong sales in the UK, Australia and Canada and sales to new, untapped international markets in Asia and Latin America — the direct result of our targeted investments in sales channel expansion. We discuss current market trends in our Outlook section.
We have a big mission to fulfill, which supports our robust long-term revenue growth and profitability goals. Axon is on track to complete record hiring through the first six months of this year, and we continue to attract bar-raising technology talent from the world’s other top innovators.
Our strategic priorities in 2020 are to continue to execute in our core market, while accelerating our path-to-market in new product categories such as productivity (Records) and communications (Dispatch), and expanding to new customer categories, such as corrections, U.S. federal agencies and new international markets.
Axon’s response to COVID-19:
We have been clear-eyed about the challenges surrounding COVID-19 and we aspire to lead from the front. We certainly do not celebrate difficult times, but we do see them as challenges that can bring out the greatness in people and companies. We believe Axon will emerge from this crisis even stronger.
Customer support: We are supporting our customers through a period of upheaval, doing our best to be a stable and reliable partner in this storm. Initiatives include:
- Free access to Axon Citizen cloud software, to enable social distancing, for the rest of 2020. After this offering, we saw agency usage of Citizen climb by 35%.
o “Our officers were excited to hear that now, they can send the link directly to the citizen from their city-issued smartphones,” said Bakersfield Police Department Sgt. Uriel Pacheco. “The implementation has not only saved our officers time, but reduced the need for interaction when collecting digital evidence.”
- A partnership with the National Police Foundation where Axon has committed over $1.7 m, plus the efforts of our operations and supply chain, in sourcing personal protective equipment (PPE) for first responders. This effort, which allows the public to donate, has been trending on social media with the hashtag, #gotyoucovered, and received a mention on Twitter from Vice President Mike Pence.
- An online support center for our customers. https://www.axon.com/covid-19-support-center
- The Axon Accelerate user conference in Nashville in early August is going virtual. Axon’s annual user conference has grown to be the largest technology-focused conference in law enforcement. We’re looking forward to delivering immersive engagement to educate our customers about our products in an online and VR format.
Employee safety & manufacturing: Axon takes health and safety seriously, and our entire mission is to protect life. Just days after our last quarterly update, we curbed all non-essential employee travel and then quickly moved to support our information workers to do their jobs from home.
Our customers are counting on us to deliver TASER 7 and Axon body cameras. We are proud to be able to ensure that first responders have the tools they need to keep society safe and orderly. Early on in the US outbreak, Axon management was in discussions with local authorities and our Board, particularly Dr. Richard Carmona, the former US Surgeon General, and determined that the best course of action was to keep our critical manufacturing lines open to satisfy customer demand.
We’ve also taken steps to mitigate contamination risk in our facilities. This includes staggering work schedules, proactively sending high-risk groups home with pay, providing access to a registered nurse on site and increasing our cleaning standards to a level that exceeds CDC guidance.
Supply chain: We have adapted well to ongoing challenges. In 2019, we took action to diversify our supply chain and global manufacturing footprint. Those initiatives positioned us well to handle COVID-19, enabling us to produce and ship our critical core products with little to no interruption. While we feel confident in our preparations, there are still many unforeseen challenges that lay ahead. We continue to manage through supply chain disruptions, finding alternate sources when available or working with foreign regulators to ensure that our suppliers can provide parts. We elevated our inventory build in Q1 2020 and are continuing to do so over the course of 2020, which is a proactive approach to building safety stock in an effort to minimize shipping disruptions. We are committed to working through challenges as they arise to support our customers and deliver mission critical equipment.
Shareholder engagement: We have pivoted our shareholder engagement to a virtual format. Our annual meeting, scheduled for May 29, will be held online at www.virtualshareholdermeeting.com/AAXN2020, and we will be participating in several upcoming investor conferences utilizing video conferencing. All investor materials and events are available at investor.axon.com.
Progress on our core initiatives:
- Axon Dispatch is officially powering 911—we are live in Maricopa, Ariz., with our first paid customer: At 6 am on April 19, Arizona’s City of Maricopa Police Department moved over from a competitor and went live on Axon’s cloud-based Computer Aided Dispatch (CAD) solution to power their 911 incident response. We are proud of our engineering, product, customer support and professional services teams for delivering this key milestone, and excited that Axon is now officially powering mission-critical 911 infrastructure in a US city. Particularly during COVID-19, this deployment required intense attention to detail, with more than two dozen people on Zoom and a reduced, scrappy onsite team. We internally live-streamed the deployment and coordinated among our staff and with the agency using our own situational awareness tools: Axon Body 3 camera hardware and Axon Aware live-streaming cloud software. Axon’s ability to deliver a key new product, on schedule, in the middle of a global pandemic, is a testament to Axon’s adaptability in the face of challenges and the dedication of our talented employees. It’s also a testament to our customer, the City of Maricopa Police Department, led by Chief Steve Stahl and his relentless commitment to modern policing and innovation on behalf of the citizens he protects.
- Our SaaS strategy is driving a net revenue retention of 120%: We drive adoption of our cloud software solutions through integrated bundling, which creates a flywheel effect of compounding benefits for customers. Officer Safety Plan 7+, our highest-tier bundle, combines our latest generation TASER devices and body cameras with a growing suite of cloud software, including the Axon Records records management system (RMS) and the Axon Aware live-streaming and real-time situational awareness platform. We are seeing major cities upgrading their subscriptions at individual net dollar retention rates of 150% to 300% to take advantage of our growing suite of productivity and digital evidence management tools. And, because our agency customers sign up for five-to-ten-year subscriptions, we continue to experience low annual churn. These factors have combined to sustain a dollar-based net revenue retention of about 120% across our entire SaaS customer base over the past two quarters. (This SaaS metric purposely excludes the hardware portion of customer subscriptions. We further define this metric under “Statistical Definitions.”)
- Flock Safety strategic partnership augments camera sensor strategy: In Q1 2020, we entered into a commercial partnership with Flock Safety, a venture-backed provider of advanced security for neighborhoods and law enforcement. Our relationship with Flock is three-fold: We are a channel partner, an integration partner, and a minority investor. We intend to make it easier and more cost effective for police departments to deploy a network of fixed and mobile automated license plate reader (ALPR) sensors by integrating and bundling Flock’s solution alongside our upcoming Axon Fleet 3 in-car solution. Both Fleet 3 and Flock are built with an ethical design framework, and seek guidance from Axon’s independent AI Ethics Board. We are excited that through our Flock partnership, our camera sensor offerings now include body-worn, in-car and fixed pole cameras.
- Increased momentum in corrections: Axon is now engaged with more than 10 state departments of corrections, including the five most populous states in the country — California, Texas, Florida, New York and Pennsylvania — which are either purchasing our products, undergoing trials at scale, or seeking to have budget discussions and command demonstrations of TASER devices, Axon body cameras and Axon Cloud software. In the US, there are about 450,000 correctional officers and about 92,000 probation and parole officers, and we estimate that TASER device and Axon body camera penetration among them is minimal. State departments of corrections are seeing dramatic reductions in violence following the deployment of TASER devices, Axon body cameras, or both. As one example, within a recent webinar sponsored by the Department of Justice, Bureau of Justice Assistance, the Florida Department of Corrections shared results of a 1.5-year pilot deploying TASER devices and Axon body-worn cameras, which resulted in a 42% reduction in staff assaults, 51% reduction in uses of force in the general population, and a 70% reduction in excessive force complaints.
Summary of Q1 2020 results:
- Revenue grew 27% year over year to $147m, with strength driven by our Software & Sensors product segment, which grew 41% year over year due to demand for Axon Cloud software offerings and Axon Body 3, our latest generation camera that features LTE-connectivity and location-based services. International revenue grew 38% in the quarter to a record $30m.
- Gross margin increased both sequentially and year over year to 60.2%
- Operating expenses of $89m included $20m in stock-based compensation expense and $6 m in costs related to the FTC litigation. (An update on FTC litigation is below, under “Update on Legal Matters.”)
- GAAP EPS was $0.07 and Non-GAAP EPS was $0.40.
- Quarterly Adjusted EBITDA of $30m more than doubled year over year, representing a 20% margin on revenue, and delivering a 51% incremental contribution margin on revenue when compared with Q1 2019.
- Cash and cash equivalents and investments totaled $395m, including an investment payable of $13.5m at March 31, 2020.
o Uses of cash in the first quarter included $8.5m tied to selling long-term hardware subscriptions, which results in recognizing revenue ahead of invoicing, $8.6m tied to building up hardware inventory, which helped us respond to strong product demand while preparing us well to stagger factory work schedules due to COVID-19, and $4.7m related to a strategic investment in Flock Safety.
o Accounts payable of $32m included the above mentioned $13.5m payable, which settled in early April.
- Axon has zero debt.
Financial commentary by segment:
- Segment revenue grew 16% year over year on strong demand for our cloud-connect TASER 7 device, and cartridges.
- Gross margin of 60.1% reflects product mix and 100 basis points of incremental COVID-19 related manufacturing overhead.
o Manufacturing employees who did not work, either due to belonging to a high risk group or to reduce the number of people in the factory to ensure adequate spacing and physical distancing, continued to receive payment. We incurred incremental expenses in Q1 2020 related to this decision, which included the cost of paying these employees in Q2 2020.
o Through at least Q2 2020, TASER segment gross margin may continue to reflect COVID-19-related costs, including hazard pay, an on site nurse, extra cleaning, staggered shifts, and other precautionary measures to keep our workers safe.
Software & Sensors:
- Axon Cloud revenue grew 42% year over year to $39m, driven by public safety adoption of our high-value, software-heavy bundles.
- Axon Cloud gross margin of 75% includes some low-to-no margin professional services that support new installations for SaaS customers. The software-only revenue in this segment, which includes cloud storage and compute costs, has consistently carried a gross margin above 80%.
- Sensors & other revenue grew 41% year over year due to strong demand and shipments of our Axon Body 3 camera.
- Sensors & other gross margin was 42%. As a reminder, we manage toward a 25% gross margin for camera and sensors hardware, and the gross margin will fluctuate quarter to quarter depending on the customer mix.
Forward-Looking Performance Indicators:
- Annual Recurring Revenue grew 42% year over year to $174m.
- Total company future contracted revenue grew to $1.27bn. This amount is limited to revenue from arrangements that meet the definition of a contract under Topic 606 as of March 31, 2020. We expect to recognize between 20% to 25% of this balance over the next 12 months and generally expect the remainder to be recognized over the following five to seven years, subject to risks related to delayed deployments, budget appropriation or other contract cancellation clauses.
- The percentage of TASER devices sold on a subscription fell to 43% in the quarter because of the mix of units sold internationally, which has a lower subscription-adoption rate than the US.
Current market trends and outlook:
The following forward-looking statements reflect Axon’s expectations as of May 7, 2020, and are subject to substantial uncertainty due to the COVID-19 pandemic.
What we’re seeing in the market: To date, we are seeing mixed changes to buying habits among major US city police departments — some departments are continuing to place large orders for Axon products, and communicating gratitude that we are shipping mission critical equipment. We are seeing some agencies move to standard issue on Axon devices, to reduce sharing among officers, which has boosted orders.
A small number of agency customers have delayed their body camera programs, or postponed their subscription upgrades until unspecified later dates. Thus far, the impact of these COVID-19-related order delays to our full-year projections have been more than offset by a stronger-than-expected Q1 2020, better-than-expected international TASER orders realized through May 2020, and a strengthening Federal pipeline.
Through May, Axon has been executing upon orders from countries with which Axon has not historically done business, and this widening customer base is providing new revenue opportunities. So far in 2020, Axon has received body camera and TASER orders from Latin America, Asia, Southeast Asia, and South Asia — all representing new country markets — and we are also seeing stronger-than-average order activity in the UK.
We have also been encouraged by the speed with which the federal government has provided financial support to public safety. It is still early in the federal response, and the 2020 CARES Act contains $850 m in grants to state and local law enforcement, through the Edward Byrne Memorial Justice Assistance Grant (JAG), which is already more proactive than what we saw in the global economic recession of 2008-2009, as the first JAG grant then didn’t occur until 2009. In addition, the early phase COVID-19 stimulus packages included $150 m for federal law enforcement.
Withdrawing formal guidance: Given the number of factors outside of Axon’s control, we are withdrawing our previously provided formal full year guidance of $100m to $105m in Adjusted EBITDA on revenue of $615m to $625m, as we closely monitor municipal budgets and their potential impact on customer procurement cycles, which could materially alter our pipeline. While municipal government budget appropriations have not been a historical challenge for Axon, the severity of the economic slowdown related to COVID-19 increases appropriations risk.
Internal estimates & visibility: At this time, our best estimate for our 2020 performance remains in line with our previously issued guidance, but there is enough uncertainty in how the current crisis will affect our customers that we don’t feel that our internal estimates should be considered formal guidance.
Axon remains confident in its long-term, multi-year outlook, and we firmly believe we will emerge from the COVID-19 crisis even stronger. Our confidence is supported by our strong Q1 2020 performance and the state of our current pipeline, which remains robust and is more geographically diverse than ever. While our contracts are subject to appropriations risk, at this point in time, the revenue realized in Q1 2020 plus the recurring revenue under contract for the remaining three quarters gives Axon visibility into approximately 50% of the midpoint of the previously issued full-year revenue guidance range.
Axon is proud to be taking care of our customers, our employees, and our societal stakeholders. We feel confident we will one day look back at 2020 as a pivotal year where we not only rose to the challenge, but we accelerated progress and created new opportunities. More importantly, we extended a hand to help our customers and their communities when it mattered. (Source: PR Newswire)
07 May 20. American Defense Systems (OTC: ADFS) Restructuring To Become A Defense Industry Leader. EA American Science & Technologies Inc. (“EAAST USA”), announced the completion of its acquisition of Iroku Inc. (dba EA Armament & Surveillance Technologies Inc.) The date of the acquisition is effective January 1st, 2020.
EAAST USA has therefore become the single largest beneficiary shareholder of American Defense Systems (OTC: ADFS), representing approximately 21% of the public company’s equity, according to the Form 4 filed with the SEC on Friday, May 1, 2020.
EAAST USA also announces its intention to fulfill previously signed contracts by Iroku Inc. to acquire another 30% in common shares from the founders and previous directors of ADFS, who currently hold the restricted stock.
EAAST USA also announces its intentions to work closely with ADFS’ newest Director, Mr. Wayne Wright, (a Senior Vice President at Mizhuho Bank, New York), and ADFS’ newest legal counsel, Mr. Mark Pena, Esq. (of The Law Offices of Mark Pena, Esq., Florida) to complete all regulatory requirements in the transition of ownership, and rebuilding of the company.
EAAST USA commits to supporting the previously adopted schedule for reviving ADFS, a defense contractor that specializes in the design and production of armored glass, structures, and vehicles.
Mr. Osita Iroku, the Acting-CEO for the investor, states that, “Step one has always been to ensure a functioning board and key executives were in place; and we found these in the two directors ADFS has, and the company’s new legal counsel. The second step was to ensure all past-due tax filings at the state and federal levels were made; and those were completed sometime in March, just before the pandemic shutdown began in New York. The third step, and most difficult, was to obtain a certificate of revival from Delaware State, where ADFS is registered; and this was completed on May 6th, 2020, when ADFS received a physical copy of the certificate around 5pm.. The fourth step will be the updating of ADFS’ corporate information with the OTC; which is in process right now. Then, lastly, we shall resume normal filing requirements, before applying to be reinstated on the NASDAQ.”
EAAST USA also announces the intention to restructure the operations of ADFS into three broad categories: Defense Products & Services; Real Estate Holdings; Strategic Investments; and Crisis & Disaster Management. The company intends to recruit a new CEO and CFO for ADFS, and CEOs for each of these new divisions. The center of operations will continue to be 555 Madison Avenue, Fifth Floor, New York, NY 10022, until further notice.
EAAST USA also announced that, as far as their due diligence has discovered, and to the best of their knowledge and understanding, ADFS does not have any tangible or valuable assets, or any sales contracts or accounts receivables, as of this date. “We are basically starting from zero,” Iroku reported, “ADFS has nothing right now, but intellectual property that, first off all, has to be properly protected. But we also have a large portfolio of resources that we can harness to pull this company back into shape this year.
“The world is currently facing the worst natural disaster of our lifetime; and it’s the responsibility of small defense contractors like ADFS, to step up and provide the American people more options for managing this crisis, and getting better prepared for the next one. Our Crisis & Disaster Management team already has decades of experience and a global network to tap from. We intend to leverage that, start from scratch, and build something that can lead the industry into the next era.”
About EAAST: EA American Science & Technologies Inc., a New York company, was established in 2020, to acquire the former Iroku Inc., (dba ‘EA Armament & Surveillance Technologies’; or ‘EA Tech USA’) from EA Tech Nigeria. This acquisition has made EAAST the beneficiary owner of approximately 21% of OTC: ADFS. The new holding company has expressed its intentions to: (a) continue to acquire shares in OTC:A DFS; (b) ensure a strong board of directors and administrative team is established; (c) ensure the highest levels of regulatory compliance at both the ADFS and EAAST levels; and (d) revive the company by diversifying operations to include real estate and other equity holdings, in addition to its traditional defense products and services. (Source: PR Newswire)
08 May 20. Rheinmetall sees virus hitting sales, profits but confirms defence outlook. Rheinmetall (RHMG.DE) said on Friday it expected significantly lower sales and profits this year due to the coronavirus pandemic but the German military equipment and auto parts group upheld its outlook for its defence division.
“Rheinmetall does not currently expect the COVID-19 crisis to have any lasting impact on the Defence sector’s business performance in the current year,” the Duesseldorf-based maker of armoured fighting vehicles said in a statement. (Source: Reuters)
08 May 20. Rheinmetall in the first quarter of 2020: Strong performance at Defence sees Rheinmetall through coronavirus crisis.
– Consolidated sales increase by 1.1% to €1,358m during the first quarter
– Coronavirus crisis reduces consolidated operating earnings from €54m to €34m
– Automotive: Crisis-related decline in sales of around 14% to €618m
– Operating earnings shrink from €49m to €10m
– Significant growth in Defence: Sales increase by 18% to €740m Operating earnings more than triple year-on-year to €29m
– Order backlog increases by 13% to €10.3bn
Forecast for fiscal 2020 confirmed with regard to the Defence sector; a forecast for Automotive is currently impossible
in the first quarter of fiscal 2020, Rheinmetall AG in Düsseldorf succeeded in further increasing consolidated sales overall and partially heading off crisis-related adverse performance in the Automotive sector as well as on the earnings side. The Defence sector, which recorded significant growth in sales and earnings, played a decisive role in this development. The figures for the Automotive sector, on the other hand, are already showing the effects of the coronavirus crisis, which has engulfed the global automotive industry, particularly towards the end of the first quarter, and has triggered substantial decreases in production worldwide.
The technology group confirms its 2020 forecast from March of this year for the expected business performance of the Defence sector. A forecast for the Automotive sector is currently impossible due to persistent uncertainties in regard to the future development of demand and production in the automotive industry.
“Rheinmetall is fighting against the coronavirus crisis with all of our strength – and not only at the business level,” says Armin Papperger, CEO of Rheinmetall AG. “We are aware of our responsibility in this context, both for protecting the health of our 30,000 employees worldwide as well as for society as a whole. As such, it is currently a key priority of ours to help those who help us: This includes measures such as procuring protective equipment from China in large quantities, manufacturing components for medical devices, and supplying disinfectants and other urgently needed goods. We are dedicating all available resources towards dealing with this crisis, and hope to serve as a capable and reliable partner with respect to government health and crisis response measures so that we can overcome the situation together.”
Armin Papperger: “Our Defence sector has proven robust and resilient under these challenging macroeconomic circumstances and will help us to soften the impact of the crisis at the Group level. This is currently expected to remain the case over the further course of the year, too. We had a successful start to the fiscal year in Defence and profitably expanded the business volume during the first quarter. Like all other automotive suppliers, we have had to significantly limit our production in the Automotive sector. This will have a considerable negative impact on us in the second quarter in particular. However, in light of the market recovery beginning to take effect in China and the resumption of production by our international customers, we are confident that we will be able to ramp up manufacturing further at a number of our Automotive sites in the second quarter.”
Rheinmetall provides assistance in the battle against coronavirus
In the context of the current virus-related threat situation, the technology group is making substantial contributions towards resolving the urgent shortage of protective equipment for medical and nursing personnel. Rheinmetall has already procured a m respiratory masks from China and had them delivered to Germany. The Group has now concluded an exclusive framework agreement with the Procurement Office of the Bundeswehr that encompasses the supply of large quantities of medical protective equipment in the coming months. This includes 20 m respiratory masks of various types and protective suits, goggles and gloves in comparably large quantities.
A Rheinmetall site in South Africa is producing disinfectants, including for the German market. Roughly half a million liters of disinfectant will soon be delivered to Germany for use by the medical sector, with up to another million liters then to follow at a later date.
A major priority of the company’s management during the coronavirus situation is the protection of the employees of both sectors at the Group’s roughly 130 sites worldwide. Comprehensive measures have been adopted in order to minimize the risk of infection for employees and to ensure the highest possible level of safety in operational processes.
Shortfalls in orders from customers in the Automotive sector will be addressed with a variety of measures for reducing production which will be adjusted according to the respective situations of the different Automotive sites. Consistent efforts are being made to ensure that the plants’ supply chain remains functional as far possible. At the same time, all necessary preparations have been made at Automotive for a controlled restart of the plants which were required to suspend production by government order.
Rheinmetall AG: Slight increase in sales; order backlog of more than €10bn
Rheinmetall AG is reporting consolidated sales of €1,358m for the first quarter of 2020, after €1,342m in the same quarter of the previous year. This represents growth of €15m or 1.1%.
The order backlog for the Group remains at a high level. As of the end of the quarter (March 31, 2020), it amounts to €10.3bn after €9.1bn in the previous year, equating to growth of 13%.
Operating earnings amounted to €34m during the reporting period, after €54m in the first quarter of the previous year. This decrease was entirely due to the Automotive sector, which posted a decline in operating earnings of €-39m. By contrast, the Defence sector increased its operating earnings by €20m to €29m. The operating earnings margin decreased accordingly from 4.0% in the previous year to 2.5% in the first quarter of 2020.
Automotive hampered by coronavirus – positive operating earnings despite substantial decline in sales
In the first quarter of 2020, Rheinmetall Automotive did not escape the downward trend on the global automotive markets and the effects of the coronavirus crisis, and reported decreased sales of €618m for the first quarter of 2020 after €714m in the same period of the previous year. This represents a decrease of €96m or 13.5%. In comparison, the number of vehicles under 6 t produced worldwide outside of China decreased by 14.7% year-on-year. Calculated including the Chinese market, global automotive production decreased during the first quarter of 2020 by as much as 23% year-on-year.
Despite these industry-wide difficulties, Rheinmetall Automotive can report positive earnings for the first quarter of 2020. Operating earnings amounted to €10m after €49m in the same period of the previous year. The operating earnings margin of the sector therefore decreased to 1.7% (previous year: 6.9%).
The Mechatronics division is reporting a sales decline of 13% to €348m in the first quarter of 2020. Operating earnings amounted to €9m in the first quarter of 2020 after €31m in the previous year.
At €210m, the Hardparts division’s sales were down in the first quarter of 2020, falling by 16% year-on-year. The operating earnings for the first three months of 2020 decreased from €13m in the previous year to €-3m.
In the Aftermarket division, sales for the first quarter of 2020 remained stable at the same level as the previous year. The sales volume generated by the division of €83m stands only €2m below the previous year’s figure of €85m. The decrease amounts to 2.4%. The division’s operating earnings amounted to €4m (Q1 2019: €8m).
The joint ventures in China, which are not included in the Automotive sector’s sales figures, were affected by the coronavirus crisis at an earlier point in the quarter and are reporting significant production downtime following government-ordered closures (which have now been lifted). These companies generated sales of only €144 m in the first quarter. This corresponds to a decrease by 34% relative to the figure for the same period of the previous year of €219m. In comparison, light vehicle production in China decreased by 47% during the same period relative to the same quarter of the previous year. Production at the Chinese joint venture has now almost returned to the level from before the outbreak of the coronavirus crisis.
Defence: Substantial increase in sales – earnings tripled and order intake up by almost one third
The Defence sector has been largely unaffected by the coronavirus, and has had a successful start to the new fiscal year. The sector strongly increased its sales, with growth of about 18% to €740m following €629m in the corresponding quarter of the previous year.
The operating earnings of Rheinmetall Defence more than tripled relative to the figure for the same quarter of the previous year, climbing from €9m to €29m. The sector’s operating margin climbed from 1.4% (Q1 2019) to 3.9% in the first three months.
Order intake also registered significant growth with an increase of 30%. In the first three months of 2020, Rheinmetall Defence posted orders of €731m, after €564m in the first quarter of 2019. The order backlog totaled €10,034m, 16% higher than the previous year’s figure (€8,615 m).
The Weapon and Ammunition division generated sales of €167m in the first quarter, €38 m or 6% below the figure for the previous year. This decrease in sales is a result of outstanding and pending export licenses, mainly for foreign subsidiaries. In terms of earnings, this led to a decrease in operating earnings of €-11m to €-16m.
With sales of €174m, the Electronic Solutions division registered an increase of €7m or 4% year-on-year. At €11m (previous year: €10m), operating earnings were improved slightly.
Sales in the Vehicle Systems division increased by roughly one third to €446m due to higher deliveries in the area of tactical and logistical vehicles. This corresponds to growth of €117m or 36%. At the same time, the division tripled its earnings from €12 m in the same quarter of the previous year to €36m in the first quarter of 2020 thanks to successful project progress and high-margin products.
Outlook for 2020: Defence forecast confirmed, forecast for Automotive not yet possible at present
Rheinmetall does not currently expect the COVID-19 crisis to have any lasting impact on the Defence sector’s business performance in the current year. For this reason, it is confirming the annual forecast for the Defence sector published in mid-March 2020, which anticipates sales growth of between 5% and 7% for 2020 as a whole. The Defence sector’s operating margin is expected to come to between 9% and 10%.
In the Automotive sector, the potential effects of the COVID-19 crisis on end-customer demand, automotive manufacturers’ production figures and global supply chains cannot be reliably forecast at present. An adjusted outlook for the Automotive sector for 2020 as a whole that reflects the changed market situation therefore is not yet possible under the circumstances due to the high level of uncertainty.
Rheinmetall expects that sales and operating earnings in the Automotive sector and the Group will be significantly lower than in previous forecasts, which did not yet account for the effects of the coronavirus crisis.
07 May 20. Having received US regulatory approval, Chemring (CHG) has completed the $17m (£14m) of its ordnance business to Nammo Defence Systems. Expecting net proceeds of $15m following a working capital adjustment, this will be used for general corporate purposes. Buy. (Source: Investors Chronicle)
07 May 20. Thales issues a €700m bond. Thales (Euronext Paris: HO) has issued today a €700m, 1% fixed-rate bond maturing in May 2028. This issue will be used in particular to partly replace the €2bn syndicated credit facility signed last April. It will strengthen the overall liquidity of Thales, by maintaining the Group’s financial flexibility and extending the maturity of its financial resources. The success of this issue with investors confirms the confidence of the market in the creditworthiness of the Group, which is rated A2 (outlook: stable) by Moody’s and A- (outlook: negative) by S&P Global Ratings. The issue was lead managed by Banco Santander, BNP Paribas, CIC, Commerzbank, Crédit Agricole Corporate & Investment Bank, Deutsche Bank, HSBC, Natixis, Société Générale and Unicredit.
07 May 20. Parsons Delivers Strong First Quarter 2020 Revenue Growth.
Q1 2020 Financial Highlights:
– Revenue increases 7% year-over-year to $971m
– Strong revenue growth driven by Federal Solutions growth of 13%, including organic growth of 11%
– Net income increases 33% to $13m and net income margin increases to 1.3%
– Adjusted EBITDA decreases 16% to $60m and adjusted EBITDA margin decreases to 6.2%
– Q1 2020 book-to-bill ratio of 1.0x, driven by Federal Solutions book-to-bill ratio of 1.3x
– Reiterates fiscal year 2020 guidance
Recent Strategic Highlights:
– Launched DetectWise™, a touchless, biometric sensing product suite
– Recognized as one of the World’s Most Ethical Companies for the 11th consecutive year
– Named to the CIO 100 list of the world’s most innovative companies
– Published 2020 CSR report highlighting quest to Deliver a Better World
Parsons Corporation (NYSE: PSN) today announced financial results for the first quarter ended March 31, 2020.
“I would like to send our deepest sympathies to all who have been affected by the COVID-19 pandemic. These are challenging times for everyone, and we will continue to put the safety and well-being of our employees, customers and partners first,” said Chuck Harrington, Chairman and CEO of Parsons Corporation. “In what was an unprecedented first quarter, we delivered strong organic revenue growth and achieved profitability results that exceeded our internal plan. We continue to win high-end work in our Federal Solutions market and delivered revenue growth in our Critical Infrastructure segment. Our strong balance sheet, low leverage, more than $400 m of undrawn revolver capacity, and our deep backlog positions us well to weather COVID-19 uncertainties.”
First Quarter 2020 Results
Total revenue for the first quarter of 2020 increased 7% to $971m. This increase was primarily driven by organic revenue growth of 11% in the Federal Solutions segment, along with 2.5% organic growth in the Critical Infrastructure segment. Operating income increased 3% to $24m primarily due to organic revenue growth. Net income increased 33% over the prior year period to $13m, and net income margin increased to 1.3%. Diluted earnings per share (EPS) attributable to Parsons was $0.13 in the first quarter of 2020 compared to $0.12 in the first quarter of 2019.
Adjusted EBITDA including noncontrolling interests for the first quarter of 2020 was $60m, a 16% decrease from the strong prior year period. Adjusted EBITDA margin decreased to 6.2%.
Adjusted EPS decreased to $0.33, compared to $0.62 in the first quarter of 2019.
Information about the Company’s use of non-GAAP financial information is provided on page ten and in the non-GAAP reconciliation tables included herein.
First quarter 2020 revenue increased $55m, or 13%, compared to the prior year period. The increase was driven by organic growth of 11% and $6m from acquisitions.
First quarter 2020 Federal Solutions Adjusted EBITDA including noncontrolling interests decreased by $9m, or 22%, compared to the prior year period. Adjusted EBITDA margin decreased to 6.6%. The decreases were driven primarily by an increase in volume on contracts with higher subcontractor and material costs, and an increase in indirect, general and administrative (IG&A) expenses, due in large part to various favorable overhead adjustments, which occurred in first quarter of 2019 but did not reoccur in the first quarter of 2020.
First quarter 2020 revenue increased $12m, or 2.5%, compared to the prior year period. The increase was driven primarily by growth on existing contracts.
First quarter 2020 Critical Infrastructure Adjusted EBITDA including noncontrolling interests decreased by $3m, or 8%, compared to the prior year period. Adjusted EBITDA margin including noncontrolling interests decreased to 5.8%. These decreases were primarily driven by lower equity in earnings from unconsolidated joint ventures.
First Quarter 2020 Key Performance Indicators
- Book-to-bill ratio: 1.0x on net bookings of $966m. Trailing twelve-month: 1.0x on net bookings of $4.0bn.
- Total backlog: $7.8bn, a 9% decrease over the first quarter of 2019.
- Cash flow used in operating activities: First quarter 2020: $119 m, compared to cash used in operating activities of $60 m in the first quarter of 2019. The outflow increase was primarily driven by costs related to previously disclosed pre-IPO long-term incentive compensation plans linked to the company’s share price.
- Debt: total and net debt were $314m and $195m, respectively. The company’s net debt to trailing twelve-month adjusted EBITDA leverage ratio at the end of the first quarter of 2020 was 0.6x. The company defines net debt as total debt less cash and cash equivalents.
First Quarter 2020 Significant Contract Wins
Parsons continued to win large single-award contracts in its Federal Solutions segment. In addition, the company, won a prime position on a significant multiple-award indefinite-delivery/indefinite-quantity (IDIQ) contact and a large joint venture project.
- Awarded a contract valued at approximately $180m for security work by a classified customer.
- Awarded a $109m contract by the General Services Administration’s Special Programs Division to provide program, design and construction management services for a wide range of Federal Customers Nationwide.
- Awarded a $91m contract with the Air Force research laboratory to perform functional onsite training, demonstrations, enhancements, modifications, integration, testing, and deployment of technologies.
- Awarded classified contracts valued at approximately $60 m to provide cyber, operational software development work, security assessment, and protection of systems and critical infrastructure worldwide.
Recent Additional Corporate Highlights
Parsons continues to be recognized for its Ethics and IT leadership. In addition, the company launched a touchless, biometrics sensing product suite and established a partnership with Adaptive Launch Solutions (ALS) to further its position within the Space market. Parsons also published its latest Corporate Social Responsibility (CSR) report, highlighting its initiatives to making the world a better place.
- Launched DetectWise™, a product suite that includes contactless, mobile health screening kiosks, modular testing and decontamination facilities to keep the public safe in high-traffic areas like airports, shopping malls, corporate buildings and sports stadiums. Parsons is re-inventing the personal screening process – leveraging innovative technologies, data analytics and artificial intelligence. Our scalable solutions will help ensure the economy remains stable and minimize future COVID or other virus events.
- Named by Ethisphere, a global leader in defining and advancing the standards of ethical business practices, as one of the 2020 World’s Most Ethical Companies®. The company has been honored with this recognition for 11 consecutive years.
- Named to the CIO 100 list of the world’s most innovative companies. The CIO 100 Award celebrates companies that are using IT in innovative ways to deliver business value, whether by creating competitive advantage, optimizing business processes, enabling growth or improving relationships with customers.
- Established a strategic partnership with ALS for launch and space system engineering, operations, and integration opportunities with the U.S. government and commercial customers.
- Parsons’ Creative Services team was recognized by the Association of Marketing & Communication professionals with seven Hermes awards. The awards include Platinum recognition for the company’s Brand Refresh, Annual Report and Parsons.com and Gold level recognition for our 24 Foundation infographic, “Do More of What You Love” ESOP campaign, and National Cybersecurity Awareness Month infographic. The team also received an honorable mention for the Data Privacy Day infographic. These wins are a testament to the innovative talent and inspiration of Parsons’ Creative Services team.
- Published Parsons’ 2020 CSR report titled “Believe in Better” on April 22, Earth Day (located on Parsons.com). In addition to reporting on the company’s environmental, social and governance (ESG) accomplishments, the report highlights the company’s implementation of best practices and innovative approaches to creating value for stakeholders while enhancing the communities in which we live, work and play.
Fiscal Year 2020 Guidance
The company is reiterating the fiscal year 2020 guidance it issued on March 10, 2020, based on its financial results for the first quarter of 2020 and its current outlook for the remainder of year. The table below summarizes the company’s fiscal year 2020 guidance.
Net income guidance is not presented as the company believes market volatility in its share price and the resulting impact on the company’s equity-based compensation expense and net income will preclude the company from providing accurate projections for fiscal year 2020. (Source: PR Newswire)
07 May 20. Leonardo signs new credit facilities to strengthen liquidity. Leonardo confirmed on 6 May that it has agreed a new €2bn ($2.15bn) credit facility from a number of international banks with the aim of strengthening liquidity and supporting its financial flexibility.
These credit facilities, along with existing credit lines provide a total liquidity value for the company of more than €5bn and have a maturity of up to 24 months. There are no financial covenants.
Alessandro Profumo, CEO of Leonardo, said: ‘The new credit facilities represent further confirmation of Leonardo’s commitment to pursuing a disciplined financial strategy even in an exceptional period.’
He continued that: ‘Through this, we are further strengthening the Group’s liquidity and providing additional financial flexibility in the changed economic environment caused by the COVID-19 pandemic.’
The banking pool includes: Banca IMI, Banco BPM, BNP Paribas, Credit Agricole CIB, HSBC, NatWest, Société Générale and UniCredit. (Source: Shephard)
06 May 20. Pentagon reports boost in predatory foreign investment to US tech firms amid pandemic. Since the coronavirus pandemic began, the Defense Department has seen a small increase in predatory foreign investment in U.S. companies, such as small drone manufacturers, the Pentagon’s head of industrial policy said Wednesday.
“In general terms, there has been of an uptick, but it’s always been pretty high,” Jennifer Santos, deputy assistant secretary of defense for industrial policy, said Wednesday during the C4ISRNET Conference.
The Pentagon has become increasingly concerned about what it calls “adversarial capital” — a tactic whereby foreign nations, particularly China, make investments into U.S. technology startups that are part of the defense market. Once those countries make their investments, they could own or have access to unique American technologies, while the Pentagon loses its own access due to security considerations.
With the U.S. economy increasingly fragile due to COVID-19, the Defense Department must be vigilant about potential risk to American companies, Santos said. “We simply cannot afford during this period of economic uncertainty the loss of American know-how in critical tech.”
But Santos stopped short of saying the uptick in predatory foreign investment was a direct result of the pandemic, instead noting that the Defense Department recently expanded its existing tools to monitor adversarial capital.
One tool, known as the Committee on Foreign Investment in the United States, or CFIUS, allows the government to block a foreign investment attempt on national security grounds. The jurisdiction of that tool increased in February, so the Defense Department has seen a boost in the number of cases it is tracking, Santos said.
“Twenty percent of our [gross domestic product] is foreign direct investment, which is fantastic. But there’s some areas where there are threats associated with some of that capital, and we want to protect those industry partners,” she said.
Over the past eight weeks, the Pentagon hosted 25 teleconferences with industry to help guide companies that might be experiencing financial distress caused by COVID-19. Some of that outreach, such as a webinar held last week, centered around avoiding adversarial capital, Santos said.
While her comments on adversarial capital did not center specifically on the small drone industry, she noted that the pandemic has made supply chain vulnerabilities in that sector more apparent to the department.
“The market for UAS [unmanned aerial systems] in the United States is dominated primarily by foreign companies, especially Chinese companies,” she said, adding that Chinese firms hold 97 percent of the small UAS market, with about 75 percent of sales in the U.S. commercial market coming from Chinese drone maker DJI.
“U.S. firms have struggled to compete in this drone area,” she said. “Even commercial drones manufactured in the United States often use components made in China. We don’t know what the exact effects of COVID will be on this small UAS sector, but I know one thing: We will emerge from this stronger.”
Brent Ingraham, the Pentagon’s unmanned systems technical director, pointed to the American Drone Security Act currently under proposal by Congress. If passed, the legislation would apply the same security restrictions on UAS used by the Defense Department to the rest of the federal government, which would secure industrial opportunities for U.S. vendors that have a trusted supply chain, he said.
As the Defense Department looks to expand its base of small UAS manufacturers, one of the military’s legacy providers offered a word of caution.
“We as a community are all in favor in faster, cheaper, better, but we need to have an exercise in caution when you do that,” said Gorik Hossepian, AeroVironment’s vice president of UAS product line management. “Our past is full of examples of when we do those kinds of things, we tend to sacrifice one versus the other. We need to not lose sight that what we need is a balance.”
“At the end of the day, the war fighter at the edge of the battlefield … needs to have a product that is trusted,” he said. “Members of some of our community, to some extent, have that as some of our DNA — the DNA of working with the end user to solve those problems.” (Source: Defense News)
06 May 20. UK will only consider support for individual aero firms as a last resort – minister. British aerospace and aviation firms must look at existing government schemes and self-help measures before individual packages for companies are considered, housing minister Robert Jenrick said on Wednesday.
“We want to support the aviation sector in any way that we can,” Jenrick said, asked at a news conference about possible job cuts at engine-maker Rolls-Royce (RR.L)
“We’ve said before that we’re willing to consider situations where we would support individual firms, but obviously only when they’ve worked through the existing government schemes and other ways in which they might be able to raise finance commercially, or through existing shareholders.” (Source: Reuters)
06 May 20. Curtiss-Wright Corporation (NYSE: CW) reports financial results for the first quarter ended March 31, 2020.
First Quarter 2020 Highlights:
- Reported diluted earnings per share (EPS) of $1.21, with Adjusted diluted EPS of $1.34 (defined below), down 6% and up 3%, respectively, compared to the prior year;
- Net sales of $601m, up 4%;
- Reported operating income of $72m, up 1%, with Reported operating margin of 12.0%, down 50 basis points;
- Adjusted operating income of $80 m, up 10%, with Adjusted operating margin of 13.3%, up 80 basis points;
- Share repurchases of approximately 1.1m shares or $112m, including $100 m conducted opportunistically at an average share price below $100 per share; and
- Company maintains a strong balance sheet with Adjusted Net Debt-to-EBITDA of 1.4x, providing ample liquidity.
“We delivered solid Adjusted diluted EPS of $1.34 in the first quarter, exceeding our expectations, due to strong sales growth in our defense markets, which we expect to remain resilient,” said David C. Adams, Chairman and CEO of Curtiss-Wright Corporation. “However, the challenges posed by the COVID-19 pandemic have caused volatility and disruption across our operations and the global economy, with a heightened impact in our most economically-sensitive, industrial end markets. As we moved through the quarter, several of our operations were impacted due primarily to customer driven delays and government-mandated shutdowns.”
“Curtiss-Wright is a well-positioned, agile business with significant financial flexibility. Our continued focus on free cash flow generation and maintaining a strong balance sheet provides us with ample liquidity to continue to execute our balanced capital allocation strategy and will help mitigate the impact of reduced sales and profitability that we expect in the quarters ahead.”
COVID-19 Impact and Response:
“On behalf of Curtiss-Wright Corporation, our deepest sympathies go out to all who have been affected by the outbreak of COVID-19,” continued Mr. Adams. “Since this crisis began, our team has taken the necessary actions to protect the health and safety of our employees and continuity of our operations.”
In response to COVID-19, the Company has taken the following actions:
- Implemented several health and safety best-practices in alignment with Centers for Disease Control (CDC) guidelines and local government requirements, including limiting employee travel, practicing social distancing and working from home (where appropriate) across our offices and manufacturing facilities globally;
- Utilizing our recession planning scenarios developed in 2019, we are conducting stress testing of all of our segments, to determine and plan for potential sales and profitability risks; and
- Implementing various cost containment and mitigation plans, that began in the first quarter, including workforce reductions, employee furloughs, reduced discretionary spending and measures to preserve profitability and Free Cash Flow.
Full-Year 2020 Guidance Update:
Due to the ongoing uncertainty of the COVID-19 situation and its potential impact on the Company’s operations and financial results, Curtiss-Wright’s previously communicated guidance for full-year 2020 has been suspended.
Mr. Adams concluded, “We are confident that the decisions we are making today will position Curtiss-Wright to weather the challenging environment before us and enable us to emerge an even stronger company when the pandemic subsides. Consistent with how we have always run the business, we are approaching these uncertain times proactively and remain focused on executing on our long-term strategy to deliver significant value for our shareholders.”
Balance Sheet and Liquidity Highlights as of March 31, 2020:
- Curtiss-Wright maintains a flexible and conservative capital structure, including significant dry powder for acquisitions and other corporate needs;
- Cash balance of $158m;
- Adjusted Net Debt of $739m, with the next maturity of $100m due in 2021;
- $500m Revolver with current capacity of $324m, $200m accordion feature available, maturing in 2023;
- Borrowing capacity of $1.5bn before reaching debt covenants;
- Adjusted Net Debt-to-Net Capitalization of 30.7%; and
- Comfortable Leverage ratios:
o Adjusted Debt-to-EBITDA: 1.7x
o Adjusted Net Debt-to-EBITDA: 1.4x
o Interest coverage: 16.9x.
First Quarter 2020 Operating Results
- Sales of $601m, up $23m, or 4%, compared to the prior year (1% organic, 3% acquisitions);
- From an end market perspective, total sales to the defense markets increased 26% (20% organic), led by strong growth in aerospace and naval defense, while total sales to the commercial markets decreased 11%, principally due to reduced demand in power generation and general industrial. Please refer to the accompanying tables for an overall breakdown of sales by end market;
- Adjusted operating income of $80m, up 10%, principally reflects higher profitability on strong defense revenues in the Defense segment, partially offset by lower power generation revenues in the Power segment and higher non-segment foreign currency transactional losses; and
- Adjusted operating margin of 13.3%, up 80 basis points, primarily reflects higher revenues and favorable absorption in the Defense segment, and increased profitability in the Commercial/Industrial segment, despite lower revenues, due to the benefits of our cost containment actions.
Net Earnings and Diluted EPS
- Reported net earnings of $52m, down $4m, or 7% from the prior year, principally reflecting higher corporate expenses and a higher effective tax rate, partially offset by higher segment operating income;
- Reported diluted EPS of $1.21, down 6% from the prior year, principally reflecting lower net earnings, partially offset by a lower share count;
- Adjusted net earnings of $57m, up 2%;
- Adjusted diluted EPS of $1.34, up 3%; and
- Effective tax rate (ETR) of 26.6%, an increase from 20.9% in the prior year quarter, primarily due to a change in valuation allowances.
Free Cash Flow
- Reported free cash flow was ($211)m, a decrease of $142m compared to the prior year, principally due to a $150m voluntary contribution to the Company’s corporate defined benefit pension plan, as well as the timing of advanced payments received in the fourth quarter of 2019 which were expected in 2020;
- Capital expenditures increased by $2m to $19m compared to the prior year, primarily due to higher capital investments within the Power segment, principally related to the new, state-of-the-art naval facility for the DRG business; and
- Adjusted free cash flow, which excludes the pension contribution and restructuring in the current period, as well as the DRG facility investment in the current and prior periods, improved by $11m, or 17%, to ($53m).
New Orders and Backlog
- During the first quarter, new orders of $570m decreased 24% compared to the prior year, principally due to the timing of strong naval defense orders in the prior year period.
- Backlog of $2.1bn decreased 2% from December 31, 2019.
Share Repurchase and Dividends
- During the first quarter, the Company repurchased 1.1m shares of its common stock for approximately $112m, which included a $100m opportunistic share repurchase program in March.
- The Company also declared a quarterly dividend of $0.17 a share, unchanged from the previous quarter.
First Quarter 2020 Segment Performance
- Sales of $264m, down $5m, or 2%, compared to the prior year;
- Strong sales growth in the aerospace and naval defense markets principally reflects higher sales of actuation systems on the F-35 program and both the CVN-80 and CVN-81 aircraft carrier programs, respectively;
- Commercial aerospace market sales increased primarily due to higher sales of actuation equipment;
- Lower general industrial market sales principally reflect reduced demand for industrial vehicle products and surface treatment services;
- Reported operating income was $35m, with Reported operating margin of 13.2%; and
- Adjusted operating income was $36m, up 2% from the prior year, while Adjusted operating margin increased 60 basis points to 13.6%, principally reflecting favorable mix for actuation products and the benefits of our cost containment initiatives.
- Sales of $166m, up $32m, or 24%, compared to the prior year (13% organic, 11% acquisition);
- Higher aerospace defense market revenues principally reflect increased sales of embedded computing equipment on unmanned aerial vehicles (UAVs), helicopter platforms and various Intelligence, Surveillance and Reconnaissance (ISR) programs;
- Naval defense market revenue growth was primarily due to higher sales of embedded computing equipment and valves on the Virginia class submarine and CVN-80 aircraft carrier programs, as well as the contribution from the 901D acquisition;
- Lower commercial aerospace market revenues principally reflect lower sales of flight test instrumentation equipment;
- Reported operating income was $29m, with Reported operating margin of 17.3%; and
- Adjusted operating income was $32m, up 49% from the prior year, while Adjusted operating margin increased 320 basis points to 19.0%, primarily reflecting favorable overhead absorption on higher defense revenues and a gain on sale of a product line, partially offset by higher research and development expenses.
- Sales of $171m, down $4m, or 2%, compared to the prior year;
- Higher naval defense market sales primarily reflect higher CVN-80 and CVN-81 aircraft carrier program revenues;
- Reduced power generation market sales reflect lower international aftermarket revenues and the timing of production on the China Direct AP1000 program, while domestic aftermarket sales were flat; and
- Reported operating income was $21m, with Reported operating margin of 12.1%; and
- Adjusted operating income was $24m, down 4%, while Adjusted operating margin decreased 20 basis points to 14.3%, primarily reflecting unfavorable overhead absorption on lower power generation revenues.
07 May 20. Melrose AGM Trading Statement. Melrose Industries PLC (“Melrose” or the “Group”) publishes the following trading update for the four months from 1 January 2020 to 30 April 2020 (the “Period”) ahead of its Annual General Meeting taking place later today. All numbers are calculated at constant currency.
The Group traded in line with expectations from 1 January 2020 until mid-March 2020, at which point the worldwide impact from COVID-19 caused significant disruption, resulting in many factories being shut or remaining only partially open. As a result of the effects from COVID-19, Group sales in the Period were down approximately 20% versus the same period last year.
As previously stated in our announcement dated 30 March 2020, due to the impact of COVID-19, Melrose is not in a position to give any trading guidance for the year as conditions remain too unpredictable to forecast. In these challenging times, the health and safety of our employees is clearly of vital importance and we are following government guidance on hygiene and social distancing protocols, as well as coordinating the sourcing of protective equipment globally to ensure no disruptions.
Robust cash management remains the top commercial priority of the Group this year with comprehensive cash preservation actions being successfully implemented in each business, including a focus on reducing working capital to match reduced sales, cutting or delaying both capital expenditure and longer-term restructuring projects and also reducing costs. Capital expenditure and trade working capital actions alone are forecast to deliver approximately £200m of cash savings in the second quarter.
Melrose started the year with approximately £1bn of committed bank facility headroom and due to the excellent results of the cash management procedures put into place, this amount of headroom also exists at the end of April 2020. On the basis of current Group forecasts this is not expected to materially change at the half year. A combination of salary sacrifices by Group employees and furloughing (where possible with the benefit of the relevant government schemes) has also helped to reduce costs. Additionally, cash preservation has been significantly assisted by the cancellation of the 2019 final dividend to shareholders.
Factories in our Aerospace division have largely remained open. Defence related factories make up approximately 30% of last year’s sales and are expected to be relatively unaffected by the COVID-19 virus.
In relation to civil aerospace, five factories within the Aerospace division are currently closed (representing 5% of the division’s sales in 2019) and the rest are operating at reduced capacity.
Actions have been taken to reduce the cost base of this division and detailed plans are being drawn up to position the business appropriately for future demand. Further information on this will be disclosed in the 2020 interim announcement. Whilst clearly there will be a detrimental effect on the aerospace industry arising from current events, the Board believes there is substantial opportunity to continue to improve this market leading business and position it well for the future.
The net result of the above trading conditions in the Period was a sales decline of 8% versus the same period last year.
Automotive and Powder Metallurgy
The Automotive and Powder Metallurgy businesses have seen similar trading patterns to each other with their factories in Europe and North America largely being shut since mid- March. Factories closed in whole or part during this period represented approximately 88% of the 2019 sales. All our factories in China have now been open for several weeks and we are seeing encouraging signs of a recovery in demand. There is also a steady process of factories being reopened in Europe and North America, albeit a gradual return with productivity affected by social distancing measures.
Again, management has taken significant actions to reduce the cost base of these businesses, and plans are being drawn up to position for the future. In both cases these businesses enjoy large market shares and strong customer relationships and the Board believes significant opportunity exists to improve their performance.
The net result of the above trading conditions in the Period was that these two divisions combined had a sales decline of 31% versus the same period last year.
Nortek Air Management and Other Industrial
The economic impact of the virus on the Nortek Air Management and Other Industrial businesses has varied but overall it has been less pronounced than within the other divisions. HVAC has seen StatePoint and data centre sales continue their extremely encouraging development. Ergotron has coped well with significant growth in its health and education sectors. AQH and Security have been more affected by COVID-19.
The net result of the above trading conditions in the Period was that these two divisions combined had a sales decline of 12% versus the same period last year.
Melrose debt facilities are well balanced and there are no short-term maturities. Prudently, the Group took action at the end of last year to extend the maturity of the c.£0.9 bn committed term loan, solely at Melrose’s option, from April 2021 to April 2024. The Group’s committed c.£3.2bn revolving credit facility is repayable in January 2023. The leverage covenant (net debt to EBITDA) on the Group’s committed banking facilities has been waived for the June 2020 and December 2020 testing periods. In addition to these committed banking lines the Group has two bonds: a £450m bond maturing in September 2022; and a £300m bond maturing in May 2032, both of which have no financial covenants.
As stated above, the headroom on the committed bank facilities at the end of April remains largely unchanged since the start of the year, at c.£1 bn, and is not expected to change materially over the remainder of the first half of 2020.
In the circumstances the Board has asked David Roper to delay his retirement as Executive Vice Chairman and we are pleased to inform shareholders that he has agreed to do so.
In light of current government guidance prohibiting gatherings of more than two people, your Board has also upgraded the attendance restrictions for our AGM and so regretfully are unable to allow attendees other than the two employee shareholders necessary for a quorum.
Simon Peckham, CEO of Melrose Industries PLC said: “Our divisional management teams and head office employees have responded brilliantly to these unparalleled circumstances, which are likely to remain challenging for a while. During the next few months we will put in place plans to position our businesses to achieve their future potential in different market conditions. Melrose has a track record of managing its businesses successfully in all market environments and crucially our recent cash generation performance shows we have been able to maintain the strength of the balance sheet to position the Group’s businesses in the best way for the future.”
BATTLESPACE Comment: This announcement is not unexpected and in line with the current trend of aerospace reporting. However the reported loss of the BMW contract in the automotive segment is not mentioned. Given forecasts of a serious contraction in aerospace sales for the next three years at least, perhaps Melrose will use this COVID-19 effect to break their promise not to sell GKN Aerospace for five years and engineer an eventual merger with the likes of Meggitt albeit at a much reduced valuation. This would enable Melrose to retain its borrowings limits.
06 May 20. Defence companies weather Covid-19 storm, but M&A’s are down. Despite a number of prominent deals recently closing, the Covid-19 crisis has seen the defence industry shy away from mergers and acquisitions to safeguard cash and see themselves through the pandemic. At the start of last month, Raytheon and United Technologies completed their merger and began trading as a single company. Despite this blockbuster M&A, like many industries, defence has seen a slow down in deal activity.
Positive signs for defence
Duff & Phelps M&A Advisory managing director Paul Teuten told Army Technology: “The current situation has caused quite a few actions to pause or be put on hold, or decisions to be deferred. Whether they continue rather depends on if it was the beginning of the transaction or the end of the transaction .”
“Clearly, in these market conditions, buyers tend to be very cautious and so the closer we are to a discussion about value, the harder it is to bridge the gap between buyer and seller.
“The bright spot is the defence industry, which is demonstrating its trading resilience; it’s not that its businesses are not impacted (they are – as companies respect government regulations to protect employee safety), but revenues are typically holding up as the end customers are often government bodies and furthering national security with budgets unchanged. “
Echoing ideas of a downturn in M&A activity, GlobalData aerospace, defence and security analyst Nicolas Jouan, like Teuten, told Army Technology that, despite a number of deals recently closing, a slowdown in M&A activity was occurring across the board as businesses focus their efforts on staying afloat.
Jouan said: “M&A activities have slowed down indeed after the blockbuster mergers between L3 Technologies and Harris Corp last year and Raytheon/United Technologies that started trading as a single company at the beginning of the month.
“South Korea’s shipyards Hyundai Heavy Industries and Daewoo also merged last year. But all of those were decided in a pre-COVID-19 world. Negotiations are still going on for the potential merger of Germany’s main shipyards TKMS, Kiel and Lurssen but again those were launched before the crisis.”
Jouan added: “A more recent example is the termination of Boeing’s partnerships with Embraer commercial aircraft and special mission aircraft businesses, which rather suggests a slowdown of M&A activities and a more risk-averse attitude from investors for the time being.”
Despite signs of slowing, Teuten stressed that defence was a ‘bright spot’ across manufacturing with deals, although slowing, continuing to go ahead as defence remains an aspect of the economy that has largely remained unscathed by Covid-19.
Unlike a number of industries, defence contractors like Northrop Grumman have grown in Q1 of 2020, and defence business within larger contractors like Boeing has stayed stable as their commercial-focused counterparts collapse. In a letter to employees, Boeing president and CEO Dave Calhoun described how Boeing’s defence business would help stave off further damage to the company as a whole as a result of Covid-19.
Across the aerospace, defence and government services industry, financial deals are still occurring. However, Teuten explained that the deals that were taking place were more likely to be defence than civil-focused. This, as Teuten explained, reflected the reliable customer base of defence as, despite private entities going into lockdown or pausing operations, governments continue to operate, and militaries have not halted operations.
Possible threats to come
Despite looking to be a haven for current or future deals, however, defence does have some threats lying on the horizon. One such threat is the potential of budget cuts to help pay for governmental response efforts to curb the spread of Covid-19 and the economic hit they have taken as a result.
Across a number of countries, defence spending is aimed at a percentage of GDP or is kept at a relatively high rate in order to maintain forces. After the 2007-08 financial crisis a number of countries slashed their defence budgets in order to save money, this could happen again as countries look to balance budgets with weakened economies and recover money spent on supporting people and businesses through the pandemic.
Teuten commented: “A number of people are concerned for considerable reasons about defence being the right place to be right now as it still relies on a commitment to defence budgets by governments.
“The massive amounts of money being allocated to address Covid-19 have to be paid for somehow and defence budgets, being big budgets, will not be immune to that. While defence may be protected for a while, at some point, those defence budgets are going to come under renewed pressure to reduce, along with all budgets, to pay for the broader Covid-19 bailout.”
However, on the flip-side, it is also possible that given the critical role armed forces have played in responding to the pandemics, defence budgets could increase as countries seek to bolster their national resilience capabilities and strengthen local supply chains. (Source: army-technology.com)
05 May 20. FLIR Systems Announces First Quarter 2020 Financial Results.
– First Quarter Revenue of $450.9m
– First Quarter Revenue Growth of 1.4% over Prior Year Quarter
– Record First Quarter Total Backlog of $859.3m
– First Quarter GAAP Diluted Earnings Per Share (“EPS”) of $0.11; Adjusted Diluted EPS of $0.42
FLIR Systems, Inc. (NASDAQ: FLIR) (“FLIR” or the “Company”), a world leader in the design, manufacture, and marketing of intelligent sensing technologies, today announced financial results for the first quarter ended March 31, 2020.
Commenting on FLIR’s first quarter results, Jim Cannon, President and Chief Executive Officer, said, “As the COVID-19 pandemic has created unprecedented challenges around the globe, we are extremely proud that FLIR products and technology are playing a critical role in helping combat the spread of this virus. As a result, we continue to experience increased demand for our thermal cameras for use in Elevated Skin Temperature—or EST—screening. Although these thermal cameras cannot detect or diagnose any type of medical condition, the cameras do serve as an effective tool to identify elevated skin temperatures through accurate, non-contact temperature monitoring. I’d like to extend my gratitude to our employees for their commitment, as we work to ensure that governments, first responders, and businesses across the globe all have appropriate EST resources during this challenging time. In this environment, the health and safety of our employees is our top priority. We have enacted stringent protocols to help ensure their safety, including restricting visitors to our facilities, requiring temperature screening upon arrival, implementing staggered work schedules to reduce the number of employees working at a given time, and regular deep cleanings at all of our facilities.”
Mr. Cannon continued, “While it is still too early to estimate longer term demand for our EST screening technology, sales of these products have offset other headwinds to our business resulting from the pandemic. Consistent operational execution contributed to FLIR delivering revenue and adjusted diluted earnings per share at the higher-end of the expectations we provided for the first quarter. We also continued to execute our ‘Project Be Ready’ initiative to drive cost savings across the enterprise. During the quarter we experienced continued demand in our Defense Technologies segment, particularly for our unmanned systems and solutions and in our Industrial Technologies segment for our EST products. However, the COVID-19 pandemic has resulted in disruptions to our supply chain as well as significantly reduced sales in our commercially-centric businesses including maritime and security. Although our first quarter bookings faced a difficult year-over-year comparison, we were pleased to end the quarter with a record total backlog of $859.3m.”
Mr. Cannon concluded, “Today, we are operating in a highly uncertain environment. I am pleased that FLIR has entered this pandemic with financial flexibility to continue operating our business through this difficult time. We look forward to emerging from this crisis as a more resilient company that stepped-up in a time of need for the customers we serve.”
Revenues for the quarter were $450.9m, compared to $444.7m in the prior year quarter, reflecting a 1.4% increase. Bookings totaled $502.0m in the quarter, representing a book-to-bill ratio of 1.11. Backlog at the end of the quarter was a record $859.3m, reflecting a 2.8% increase relative to the prior year quarter.
GAAP Earnings Results
Gross profit for the quarter was $219.4m, compared to $233.9m in the prior year quarter. Gross margin decreased to 48.6% from 52.6% in the prior year quarter, primarily attributable to increases in intangible asset amortization and a shift in product mix in the Defense Technologies segment. The mix shift included lower-margin unmanned programs, in-line with the Company’s strategic priorities to focus on leadership in sensor solutions, unmanned and autonomous solutions, airborne ISR and decision support. Operating income for the quarter was $28.5m, compared to $81.1 m in the prior year quarter. Operating margin decreased to 6.3% from 18.2% in the prior year quarter, primarily attributable to product mix in the Defense Technologies segment and increases in restructuring expenses, intangible asset amortization, consent agreement costs, research and development expenses, and deferred compensation costs. Diluted EPS was $0.11, compared to $0.45 in the prior year quarter. The weighted average diluted share count for the quarter was 135 m compared to 137 m in the prior year quarter, primarily due to stock repurchases.
Non-GAAP Earnings Results
Adjusted gross profit for the quarter was $229.5m, compared to $237.5m in the prior year quarter. Adjusted gross margin decreased to 50.9% from 53.4% in the prior year quarter, primarily attributable to the aforementioned product mix in the Defense Technologies segment. Adjusted operating income for the quarter was $75.5m, compared to $97.4m in the prior year quarter. Adjusted operating margin decreased to 16.7% from 21.9% in the prior year quarter, primarily attributable to product mix in the Defense Technologies segment and an increase in research and development expenses and deferred compensation costs. Adjusted diluted EPS was $0.42, compared to $0.53 in the prior year quarter.
As previously announced, in connection with the Project Be Ready initiative to simplify and reshape the Company’s product portfolio and organizational structure, the Company has restructured its business into two reportable segments effective January 1, 2020 – the Industrial Technologies segment and the Defense Technologies segment. Segment operating results for the three months ended March 31, 2019 have been recast to reflect the new presentation as two reportable segments.
Industrial Technologies Segment
Industrial Technologies revenues for the quarter of $276.4m increased by $5.0 m, or 1.9% compared to the prior year quarter. The revenue increase was primarily attributable to heightened demand for EST cameras as a result of the COVID-19 pandemic, partially offset by lower volume in maritime products, security products and cooled cameras and components.
Industrial Technologies segment operating income was $64.3m, compared to $69.0 m in the prior year quarter. Segment operating margin decreased to 23.2% from 25.4% in the prior year quarter, primarily attributable to a non-cash loss on disposal of equipment and product mix.
Industrial Technologies bookings totaled $335.6m for the quarter, representing a book-to-bill ratio of 1.21. Backlog at the end of the quarter was $330.0m, reflecting a 28.3% increase relative to the prior year quarter, primarily as a result of increased orders for EST cameras.
Defense Technologies Segment
Defense Technologies revenues for the quarter of $174.5m increased by $1.2m, or 0.7% compared to the prior year quarter. The revenue increase was primarily attributable to contributions of unmanned revenue from the Aeryon Labs and Endeavor Robotics acquisitions, partially offset by the completion of certain contracts that contributed to revenue in the prior year quarter.
Defense Technologies segment operating income was $33.2m, compared to $46.9m in the prior year quarter. Segment operating margin decreased to 19.0% from 27.0% in the prior year quarter, primarily attributable to a shift in product mix towards lower-margin unmanned programs, and an increase in research and development expenses to support future franchise programs.
Defense Technologies bookings totaled $166.4m for the quarter, representing a book-to-bill ratio of 0.95. Backlog at the end of the quarter was $529.3m, reflecting an 8.6% decrease relative to the prior year quarter, primarily as a result of order and subsequent deployment timing for a few major programs.
Corporate Developments—COVID-19 Update
FLIR’s businesses have been deemed essential for critical infrastructure under the Cybersecurity and Infrastructure Security Agency exemption, and all of its manufacturing facilities remain operational. FLIR has implemented stringent safety protocols and continues to monitor recommendations and guidelines issued by the Centers for Disease Control, the European Centre for Disease Prevention, and the World Health Organization to ensure the health and safety of its employees.
While the situation remains highly fluid, FLIR ended the first quarter of 2020 with ample liquidity and financial flexibility. As of March 31, 2020, the Company had $309m in cash and cash equivalents and approximately $260m in borrowing capacity within its credit facility based on current profitability levels and leverage covenants. Given the high degree of uncertainty in the current macroeconomic environment resulting from COVID-19, the Company remains focused on cash preservation activities, disciplined capital allocation, and executing Project Be Ready to simplify its product portfolio and better align resources with higher growth opportunities while reducing costs.
Shareholder Return Activity
In the first quarter of 2020, prior to escalation of the COVID-19 pandemic, the Company invested $150.0m to repurchase approximately 4.1m shares of its common stock at an average price of $36.46 per share. As of March 31, 2020, approximately 8.3m shares remained available for future purchases under the current stock repurchase program.
FLIR’s Board of Directors has declared a quarterly cash dividend of $0.17 per share on FLIR common stock, payable on June 5, 2020 to shareholders of record as of close of business on May 22, 2020.
FLIR expects to continue to provide returns to its stockholders in the form of quarterly dividends. However, in order to preserve cash given the COVID-19 pandemic, FLIR will pause its share repurchase activity for the foreseeable future.
The COVID-19 pandemic has generated significant uncertainty, including an overall lack of visibility into future demand trends and economic conditions in the markets in which FLIR operates. The Company is continuing to closely monitor the impact of the pandemic on its operational and financial performance and adjust as necessary; however, the magnitude and duration of the outbreak including its impact to FLIR’s operations, supply chain partners and customers remains uncertain. As a result, the Company has withdrawn its previously issued guidance for the full year ending December 31, 2020.
05 May 20. Leidos Holdings, Inc. Reports First Quarter Fiscal Year 2020 Results.
– Revenues: $2.89bn, year-over-year growth of 12%
– Diluted Earnings per Share: $0.80; Non-GAAP Diluted Earnings per Share: $1.19
– Net Bookings: $5.5bn (book-to-bill ratio of 1.9)
– Cash Flows from Operations: $372m
— Leidos Holdings, Inc. (NYSE: LDOS), a FORTUNE 500® science and technology leader, today reported financial results for the first quarter of fiscal year 2020.
Roger Krone, Leidos Chairman and Chief Executive Officer, commented: “First quarter results demonstrated the resiliency of our business, as evidenced by strong pro-forma organic revenue growth across all business segments, significant bookings and a new record backlog position. While the COVID-19 pandemic presented some late quarter headwinds, we are confident that the critical nature of our work, coupled with our early business contingency planning, will largely mitigate any long-term impacts.”
Revenues for the quarter were $2.89bn, compared to $2.58bn in the prior year quarter, reflecting a 12.1% increase. Revenues for the quarter included $129m related to the acquisition of Dynetics, Inc. (“Dynetics”).
Operating income for the quarter was $192m, consistent with the prior year quarter. Operating income margin decreased to 6.6% from 7.5% in the prior year quarter. Non-GAAP operating income margin for the quarter was 8.5%, compared to 9.3% in the prior year quarter, primarily attributable to higher indirect expenditures, including the impacts of the coronavirus pandemic (“COVID-19”), and a charge related to an international receivable, partially offset by higher net profit write-ups in the current quarter.
Diluted earnings per share (“EPS”) attributable to Leidos common stockholders for the quarter was $0.80, compared to $1.29 in the prior year quarter. The prior year quarter results included a $0.44 per share impact from the gain on the sale of our commercial cybersecurity business. Non-GAAP diluted EPS for the quarter was $1.19, compared to $1.13 in the prior year quarter. The weighted average diluted share count for the quarter was 144 m compared to 147m in the prior year quarter.
Defense Solutions revenues for the quarter of $1,705m increased by $214m, or 14.4%, compared to the prior year quarter. The revenue increase was primarily attributable to $129m of revenues related to the acquisition of Dynetics, program wins, a net increase in program volumes and higher net profit write-ups in the current quarter. This was partially offset by the completion of certain contracts and temporary reductions in some parts of the business due to the impacts of COVID-19.
Defense Solutions operating income margin for the quarter was 5.6%, compared to 7.0% in the prior year quarter. On a non-GAAP basis, operating income margin for the quarter was 6.8%, compared to 8.0% in the prior year quarter, primarily attributable to higher indirect expenditures, including the impacts of COVID-19, and a charge related to an international receivable, partially offset by higher net profit write-ups in the current quarter.
Civil revenues for the quarter of $654m increased by $31m, or 5.0%, compared to the prior year quarter. The revenue increase was primarily attributable to program wins and a net increase in program volumes, partially offset by the completion of certain contracts, negative impacts from reduced volume on certain contracts due to the impacts of COVID-19 and the impact of the sale of our commercial cybersecurity business in the prior year quarter.
Civil operating income margin for the quarter was 9.0%, compared to 9.3% in the prior year quarter. On a non-GAAP basis, operating income margin for the quarter was 10.9%, compared to 12.4% in the prior year quarter, primarily attributable to lower fees on certain programs, product volume timing related to the impacts of COVID-19 and a higher level of early-phase programs at initially lower profit margins.
Health revenues for the quarter of $530m increased by $67m, or 14.5%, compared to the prior year quarter. The revenue increase was primarily attributable to a net increase in program volumes, program wins and the impact of our acquisition of IMX Medical Management Services, Inc. in the third quarter of fiscal year 2019. This was partially offset by the impact of the sale of our health staff augmentation business in the third quarter of fiscal year 2019.
Health operating income margin for the quarter was 13.8%, compared to 9.7% in the prior year quarter. On a non-GAAP basis, operating income margin for the quarter was 15.5%, compared to 11.9% in the prior year quarter, primarily attributable to a net increase in program volumes on higher margin contracts and net profit write-downs in the prior year quarter.
Cash Flow Summary
Net cash provided by operating activities for the quarter was $372m compared to $288m in the prior year quarter. The increase was primarily due to the sale of some accounts receivable in the last month of the quarter and the timing of payroll payments, partially offset by higher advance payments from customers in the prior year quarter.
Net cash used in investing activities for the quarter was $1,685m compared to $237m net cash provided by investing activities in the prior year quarter. The increase in cash outflows was primarily due to net cash paid related to the acquisition of Dynetics and proceeds received in the prior year quarter for the disposition of our commercial cybersecurity business and sale of real estate properties.
Net cash provided by financing activities for the quarter was $1,161m compared to $297m net cash used in financing activities in the prior year quarter. The increase in cash inflows was primarily due to proceeds received related to the issuance of a bridge facility associated with the acquisition of Dynetics, stock repurchases in the prior year quarter and the timing of debt payments.
As of April 3, 2020, we had $445m in cash and cash equivalents and $4.2 bn of debt.
New Business Awards
Net bookings totaled $5.5bn in the quarter, representing a book-to-bill ratio of 1.9.
Notable recent awards received include:
- Defense Information Systems Agency Global Network Management: The Company was awarded a prime contract by the Defense Information Systems Agency to provide network services under the Global Solutions Management – Operations II contract. Under the contract, Leidos will manage the Department of Defense Information Network/Defense Information System Network, a series of interconnected networks and computer systems that serve as the backbone of the Department of Defense’s command and control systems. The single award, indefinite delivery/indefinite quantity, hybrid contract has a five-year base period of performance followed by two two-year option periods and a final one-year option period, at a ceiling value of $6.5bn.
- Hanford Site Waste Management and Cleanup Support: The Department of Energy awarded the Hanford Mission Essential Services Contract to the Hanford Mission Integration Solutions (“HMIS”), LLC. HMIS members are Leidos Integrated Technology, LLC; Centerra Group, LLC; and Parsons Government Services, Inc. Under the contract, Leidos will provide infrastructure and site services necessary to accomplish critical waste management and continued environmental cleanup of the Hanford Site, which once served as a government complex that manufactured large quantities of plutonium. The single award, indefinite delivery/indefinite quantity, cost-plus-award-fee contract has a five-year base period of performance followed by one three-year option period and a final option period of two years, at an approximate value of $4bn, if all options are exercised.
- Air Force National Capital Region Information Technology Services Support: The Company was awarded a new contract by the U.S. Air Force to provide information technology (“IT”) services to users within the National Capital Region (“NCR”). Under the contract, Leidos will provide a full range of support and services including: IT program management, enterprise IT operations, system engineering and cybersecurity to the Air Force, National Military Command Center, Joint Chiefs of Staff and other tenant agencies and organizations in the NCR. The single award, indefinite delivery/indefinite quantity contract has a five-year period of performance and a total value of approximately $450m.
- U.S. Intelligence Community: The Company was awarded contracts valued at $869m, if all options are exercised, by U.S. national security and intelligence clients. Though the specific nature of these contracts is classified, they all encompass mission-critical services that help to counter global threats and strengthen national security.
Backlog at the end of the quarter was $28.3bn, of which $6.2bn was funded.
As a result of the Company’s year-to-date performance and updated expectations, the Company is revising its fiscal year 2020 guidance as follows:
- Revenues of $12.5bn to $12.9bn, from $12.6bn to $13.0bn;
- Adjusted EBITDA margins of 9.8% to 10.0%, from 10.0% to 10.2%;
- Non-GAAP diluted EPS of $5.00 to $5.30, from $5.30 to $5.65; and
- Cash flows provided by operating activities at or above $1.0bn.
The Company’s updated forward guidance reflects the currently expected impacts related to COVID-19 and the acquisition of L3 Harris’ security detection and automation businesses.
Non-GAAP diluted EPS excludes amortization of acquired intangible assets, acquisition, integration and restructuring costs, amortization of equity method investment, gain on sale of business, acquisition related financing costs, loss on debt modification and other tax adjustments. For additional information regarding non-GAAP diluted EPS and Leidos’ other non-GAAP financial measures, see the related explanations and reconciliations to GAAP measures included elsewhere in this release.
The Company does not provide a reconciliation of forward-looking adjusted EBITDA margins (non-GAAP) or non-GAAP diluted EPS to GAAP net income, due to the inherent difficulty in forecasting and quantifying certain amounts that are necessary for such reconciliation. Because certain deductions for non-GAAP exclusions used to calculate projected net income may vary significantly based on actual events, the Company is not able to forecast on a GAAP basis with reasonable certainty all deductions needed in order to provide a GAAP calculation of projected net income at this time. The amounts of these deductions may be material and, therefore, could result in projected GAAP net income and diluted EPS being materially less than projected adjusted EBITDA margins (non-GAAP) and non-GAAP diluted EPS.
The COVID-19 pandemic is affecting major economic and financial markets, and effectively all industries and governments are facing challenges and has resulted in a period of business disruption, the length and severity of which cannot be predicted. On March 27, 2020, the President signed the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), a $2trn coronavirus response bill to provide widespread emergency relief for Americans and the country’s economy.
There is the potential that awards and execution of new contracts may also be delayed and our ability to perform on existing contracts has been delayed or impaired. In addition, our costs have increased and may not be fully recoverable or adequately covered by insurance, which could impact our profitability. The continued spread of COVID-19 could also have similar impacts on our customers, subcontractors and suppliers, causing delay or limiting their ability to perform, including in making timely payments to us.
We have experienced delays on certain contracts as a result of standby leave absences, which has caused a portion of our contracts to be less profitable. We expect to recover a portion of these costs through Section 3610 of the CARES Act.
For the quarter, COVID-19 adversely impacted revenues by approximately $50m. The full extent of the impact of the COVID-19 pandemic on our operational and financial performance, including our ability to execute on programs in the expected timeframe, will depend on future developments, including the duration and spread of the pandemic and related actions taken by the U.S. government, state and local government officials and international governments to prevent disease spread, all of which are uncertain and cannot be predicted.
The CARES Act enabled us to defer our federal and some state income tax payments from the second quarter of fiscal year 2020 to the third quarter of fiscal year 2020 and also to defer payment of the employer portion of social security taxes for the balance of fiscal year 2020.
We have taken measures to protect the health and well-being of our workforce and are working with our customers to minimize the disruption of the performance on our contracts. (Source: PR Newswire)
05 May 20. AMETEK Announces First Quarter Results. AMETEK, Inc. (NYSE: AME) today announced its financial results for the first quarter ended March 31, 2020.
AMETEK’s first quarter 2020 sales were $1.20bn, a 6.6% decline compared to the first quarter of 2019. GAAP operating income was $232.0m. Adjusted operating income was $276.0m, down 3% versus last year’s first quarter, with adjusted operating margins of 23.0%, an increase of 100 basis points over the prior year.
On a GAAP basis, first quarter earnings per diluted share were $1.22. Adjusted earnings were $1.02 per diluted share, up 2% versus the first quarter of 2019. Adjusted earnings adds back non-cash, after-tax, acquisition-related intangible amortization of $0.13 per diluted share, and excludes a pre-tax $141m, or $0.47 per diluted share, gain from the sale of Reading Alloys and a pre-tax $44m, or $0.15 per diluted share, realignment charge. A reconciliation of reported GAAP results to adjusted results is included in the financial tables accompanying this release and on the AMETEK website.
“We are pleased with the way our colleagues have responded to the unprecedented personal and professional challenges presented by the COVID-19 pandemic,” commented David A. Zapico, AMETEK Chairman and Chief Executive Officer. “The safety and well-being of our employees remains our top priority. To that end, we have implemented significant safety measures to help safeguard our employees while also providing continued support for our essential customers.”
“Although first quarter sales were impacted by the spread of COVID-19, our businesses reacted swiftly and our proven operating capability allowed us to expand adjusted operating margins 100 basis points and deliver earnings in-line with expectations,” Mr. Zapico continued. “Additionally, AMETEK’s operating cash flow in the quarter was excellent at $271m, up 38% over the first quarter of 2019. This cash generation, along with proceeds from the sale of Reading Alloys, have strengthened AMETEK’s already strong balance sheet.”
Electronic Instruments Group (EIG)
First quarter EIG sales were $774.2m, down 4% compared to the same period in 2019. On a GAAP basis, EIG’s first quarter 2020 operating income was $171.3m. Excluding realignment costs, first quarter EIG operating income was $194.1m and operating margins were 25.1% in the quarter.
“While recent acquisitions, including Rauland, Mocon, Telular and Gatan continue to deliver solid performance given the attractive, secular growth opportunities in markets they serve, EIG sales were negatively impacted as the coronavirus spread globally during the quarter. Despite lower than expected sales, our businesses delivered strong operating performance and core margin expansion,” noted Mr. Zapico.
Electromechanical Group (EMG)
EMG sales in the first quarter were $428.0m, down 11% compared to last year’s first quarter. On a GAAP basis, EMG first quarter operating income was $76.6m. Excluding realignment costs, EMG’s operating income was $97.5m and operating income margins were a record 22.8%.
“Despite a challenging macro environment due to the spread of the coronavirus, EMG delivered exceptional operating performance in the quarter. By proactively driving Operational Excellence initiatives, EMG achieved impressive operating margins in the quarter,” commented Mr. Zapico.
“Given the uncertainty related to the timing and magnitude of the COVID-19 pandemic, we previously withdrew our full year financial guidance provided on February 5, 2020,” noted Mr. Zapico. “We will provide forward guidance when visibility improves.”
“While these are historically uncertain times, we remain focused on delivering long-term, sustainable success for our shareholders, colleagues, customers and suppliers, and the communities where we operate. The AMETEK Growth Model is adaptable and provides our businesses with the tools needed to successfully navigate uncharted economic environments,” noted Mr. Zapico.
“We are well positioned to manage this challenge with a portfolio of outstanding businesses that provide our customers with innovative solutions. The niche markets our businesses serve today are diverse, our operating capabilities are robust and proven, and we have a strong, flexible balance sheet and excellent liquidity. Most importantly, we have a world-class workforce dedicated to our mission of solving our customers’ most complex challenges with differentiated technology solutions. We are confident in AMETEK’s future,” Mr. Zapico concluded. (Source: PR Newswire)
05 May 20. Virgin Galactic Holdings, Inc. (NYSE: SPCE) (“Virgin Galactic” or “the Company”), a vertically integrated aerospace company, today announced its financial results for the first quarter ended March 31, 2020.
“In the first quarter we made significant progress toward our goal of opening access to space in a safe and responsible way,” said George Whitesides, Chief Executive Officer of Virgin Galactic. “We are encouraged by the response to our ‘One Small Step’ initiative, with over 400 refundable deposit payments received from individuals from 44 countries, representing over $100 m of potential future revenue upon full ticket payment. We believe this response to our ‘One Small Step’ initiative demonstrates the appetite for our product offering among new potential Future Astronauts, complementing the strength and ongoing support of our existing customer base of 600 Future Astronauts who already have reservations on our spaceflights. The COVID-19 outbreak led to an unprecedented situation for companies and individuals across the world, but I am encouraged by the commitment displayed by our team in helping to support relief efforts while making program progress. We remain focused on our strategic goals and our path to commercial launch.”
First Quarter 2020 Business Highlights:
- Launched “One Small Step” initiative, enabling prospective customers to secure their place at the front of the line for future ticket reservations when ticket sales re-open.
- Completed five VMS Eve carrier aircraft flights and a captive carry flight to ferry VSS Unity from Mojave, CA to Spaceport America, as well as significant preparations for the first glide flight of VSS Unity from Spaceport America.
- Cleared four new FAA Verification and Validation provisos, bringing the total number of provisos cleared to date to 24 out of 29.
- Achieved “Weight on Wheels” milestone, completed numerous structural and mechanical installations, commenced assembly of flight control systems and began preparing for Integrated Vehicle Ground Testing on second spaceship.
- Relocated VSS Unity to Spaceport America in New Mexico.
- Completed the first and second floors at Spaceport America and continued to build out the third floor, which will be used for astronaut training and flight preparation activities.
- Appointed Enrico Palermo as Chief Operating Officer.
First Quarter 2020 Financial Highlights:
- Strong cash position, with cash and cash equivalents of $419m as of March 31, 2020.
- Revenue of $238,000, generated by providing engineering services.
- Net loss of $60m, narrowed from a $73m net loss in fourth quarter of 2019.
- GAAP selling, general, and administrative expenses of $27 m, compared to $37m in fourth quarter of 2019. Non-GAAP selling, general and administrative expenses of $23m in the first quarter of 2020.
- GAAP research and development expenses of $34m, compared to $37m in fourth quarter of 2019. Non-GAAP research and development expenses of $33m in first quarter of 2020.
- Adjusted EBITDA totalled $(53)m, compared to $(55)m in fourth quarter of 2019.
- Cash paid for capital expenditures totalled $4m, compared to $6m in fourth quarter of 2019.
- Completed the redemption of all outstanding public warrants on a cashless basis on April 13, 2020, in accordance with the Warrant Agreement. All public warrants and units ceased trading at 5:00pm Eastern Time on April 13, 2020.
Recent Business Highlights:
- Entered into Space Act Agreement with NASA to facilitate the development of high speed technologies.
- Strong interest in the “One Small Step” initiative, with over 400 deposit payments received from individuals from 44 countries as of April 29, 2020. If Virgin Galactic can convert all of these customers, that would represent over $100m of future business, depending on ticket price.
- Registrations of interest in flight reservations increased by approximately 1,200 as of April 29, 2020, a 15% increase since February 23, 2020.
- Completed transition of all Virgin Galactic operations personnel from Mojave, California to Spaceport America, bringing current total number of staff in New Mexico to 178.
- Completed glide flight of VSS Unity from Spaceport America on May 1, 2020, marking the spaceship’s first flight from a new home base and in new airspace.
Impact of COVID-19 and Support in the Community
Along with its first quarter 2020 financial results, Virgin Galactic also provided an update regarding the impact of COVID-19 on its business and operations. The full impact of the COVID-19 pandemic on the Company’s full year financial results and test flight program will depend on future developments, such as the ultimate duration and scope of the outbreak, the timing and impact of future stay-at-home orders and other government mandates, and the pace at which the Company can resume normal course operations. Virgin Galactic continues to monitor the impact of COVID-19 and will provide updates as appropriate.
Virgin Galactic has been assisting with COVID-19 relief efforts in its communities and has partnered with NASA to develop innovative solutions to the problems facing healthcare workers on the frontlines, including developing negative pressure enclosures and low-cost breathing hoods (PPB Hoods) that provide oxygen-rich positive pressure to patients in need. In addition, the Company has donated medical supplies from its stocks to communities in California and New Mexico, including masks, suits and gloves, and has donated Powered Air Purifying Respirators to local hospitals. (Source: BUSINESS WIRE)
04 May 20. Leidos Completes Acquisition of L3Harris Technologies’ Security Detection and Automation Businesses Creating a Comprehensive, Global Security and Detection Portfolio. Leidos (NYSE: LDOS), a FORTUNE® 500 science and technology leader, today announced that it has completed the acquisition of L3Harris Technologies’ (“L3Harris”) Security Detection and Automation businesses, for approximately $1bn in cash. The transaction was previously announced on Feb. 4, 2020.
The acquired businesses provide airport and critical infrastructure screening products, automated tray return systems and other industrial automation products. They will operate within the Leidos Civil Group, led by Jim Moos, Civil Group president. Combined with Leidos’ existing cargo and baggage screening product lines, Leidos now goes to market with a global security detection and automation footprint of more than 24,000 systems deployed in more than 120 countries. Leidos will continue to serve global customers in the aviation, transportation, government and critical infrastructure markets.
“In line with our mission of making the world safer, healthier and more efficient, this security detection and automation acquisition furthers our important work in the secure movement of people and commerce globally,” said Leidos Chairman and CEO Roger Krone. “We are excited to support critical infrastructure wherever it is needed, and to help transform the global security marketplace.”
“This deal expands our scope and scale in securing ports and borders, enhancing passenger movement in airports of the future, and fortifying infrastructure for national security and public venues,” said Moos. “We are pleased to welcome more than 1,200 L3Harris employees around the world to the Leidos team, who share our deep commitment of providing our customers with a fully-integrated security technology ecosystem.”
Compelling Strategic and Operational Benefits
- Expands Product Portfolio in High-Growth, Global Security Market: The closing of this acquisition creates a comprehensive and cohesive security detection platform by adding technologies including checkpoint CT scanners, people scanners, explosives trace detectors, checked baggage screeners, and automated tray return systems (ATRS) to Leidos’ security detection portfolio. The combined solutions enhance the company’s offerings in an evolving global security product market, which allows diversification beyond the federal budget and positions the company for long-term growth.
- Increased International Presence Diversifies Revenue: This business expands customer penetration across aviation, ports, borders, and critical infrastructure internationally and increases Leidos’ international security products revenue more than six-fold. The deal brings Leidos products into 75 additional countries.
- Growth and Innovation Accelerated by Scale: The integration of these new businesses into a comprehensive portfolio enables Leidos to leverage its core technical strengths, in-depth biometrics capabilities, and global sales channels to rapidly develop and deliver new solutions. Technology investments across the combined portfolio will help accelerate innovation to address emerging and evolving threats and improve service efficiency for customers.
The transaction is expected to be immediately accretive to Leidos’ revenue growth, EBITDA margins, and non-GAAP diluted earnings per share upon closing. Cash consideration of approximately $1.0bn plus related transaction costs was funded through a combination of excess cash on hand and a two-year term loan.
Leidos retained Credit Suisse Securities (USA) LLC as financial advisor, and Fried, Frank, Harris, Shriver, & Jacobson LLP and DLA Piper as legal advisors in connection with the transaction. (Source: PR Newswire)
28 Apr 20. Interest in OneWeb’s Assets While in Chapter 11 Protection. Journalist Chris Forrester is reporting at the Advanced Television infosite that Elon Musk’s SpaceX, as well as Paris-based Eutelsat, have looked at OneWeb Global’s assets.
OneWeb is in Chapter 11 protection. Trade news publication Space Intel Report suggests that Eutelsat’s interest is undertaken on behalf of the French government. The UK government has also taken a look at the company’s assets and accounts.
More detail is likely to emerge on April 29th when a hearing is scheduled before the bankruptcy court. What is already known is that a Bidding process has been agreed with the court including a “stalking horse” process. The actual auction (if the business is not sold) is scheduled to start on July 2nd at the offices of Milbank LLP, lawyers for the action, and finalized a week later on July 10th.
If the bidding goes to several rounds, then each potential bidder must participate in each round of the bidding.
Eutelsat’s interest is fascinating given that it has only extremely limited plans for its own LEO plans. Eutelsat is planning a fleet of smallsats for IoT access. Acquiring the OneWeb fleet might be seen as a ‘bargain basement’ option, although winning an auction would also force Eutelsat to fund the building of the rest of OneWeb’s fleet.
SpaceX is also an interesting aspect, given that the company already has 400+ satellites already on-orbit — perhaps it is interested in the Airbus joint-venture which OneWeb has to build satellites in Florida. (Source: Satnews)
01 May 20. Jetmaker Embraer Focuses on Future After Boeing Divorce ‘Pain.’ The head of Embraer’s commercial aircraft unit defended the benefits of a $4.2bn tie-up abandoned by Boeing Co last week, but said the Brazilian aerospace group was focusing on its future as a re-united company. Commercial Aviation Chief Executive John Slattery said Embraer had incurred pain and costs in separating jetliners from defence and business-jet activities in preparation for the merger, including a loss of deliveries in January. He declined to comment on an arbitration process Embraer launched after Boeing abruptly cancelled the deal on Saturday. Speaking in a webinar hosted by Aviation Week, Slattery said he was convinced the commercial aerospace partnership with Boeing would have provided “extraordinary benefits” to airline customers who had expressed disappointment at its collapse. Boeing has said Embraer failed to meet conditions for closing the deal. Slattery said Embraer was burning cash but had capacity to raise more if needed. “I am not concerned about liquidity.” It was the first public appearance by the company’s commercial boss since the deal collapsed in acrimony. (Source: defense-aerospace.com/Reuters)
04 May 20. Kromek’s valuable IP materially undervalued. A trading update from Kromek (KMK:17.5p), a radiation detection technology company focused on the medical, security screening and nuclear markets, prompted a 12 per cent share price markdown that simply isn’t warranted.
True, Covid-19 restrictions means that two key contracts will be postponed until the new financial year, the impact of which is that Kromek will break-even on a cash profit basis in the 12 months to 30 April 2020. However, the contracts have only been delayed, not lost. There is clearly demand for its products as highlighted by the massive ventilator order I commented on in mid-April (‘Stock picking for bear market gains’, 16 Apr 2020).
Moreover, analyst Paul Hill at Equity Development points out that Kromek is well advanced on its US Department of Defence contract to develop a groundbreaking vehicle biological threat detector that rapidly detects any airborne pathogen used in germ warfare. Mr Hill understands that the “same first-of-its-kind science can also accurately and consistently recognise Covid-19” and could have “substantial benefits for many non-military applications, such as shopping centres, sports arenas, theme parks, schools, hospitals, offices, airplanes, and cruise ships”. This is certainly not being priced in, nor is the real possibility of additional ventilator orders. The shares offer 100 per cent upside to my 35p target price. Buy. (Source: Investors Chronicle)
04 May 20. Further to the announcement of 20 January 2020, BAE Systems has completed the acquisition of Raytheon Technologies Corporation’s Airborne Tactical Radios business (“Radios business”), after receiving regulatory and other customary approvals. The consideration of $275m (approximately £218m) has been funded from BAE Systems’ existing cash resources. As a leading provider of airborne tactical radio solutions, the Radios business designs, manufactures and supplies a broad range of mission-critical communication systems to the US Department of Defense, allied governments and large defence aircraft manufacturers. These systems feature state of the art anti-jamming, multi-band, multi-channel and encryption capabilities, which are essential to secure communication.
Over its long history of innovation, the Radios business has developed valuable intellectual property in the secure radio communications domain resulting in a significant installed base of radios across a number of military airborne platforms in allied countries.
The Radios business is a strong strategic fit, adding complementary positions in the airborne communications domain including software-defined radio capabilities and a catalogue of waveforms.
The business employs approximately 100 employees in locations in Indiana and Florida. The highly skilled engineering workforce and experienced management team will join the C4ISR Systems business area of the Electronic Systems sector.