Sponsored by TCI International Inc.
03 Feb 22. Viasat continued to execute on its core strategy and achieved excellent results for the third quarter of fiscal year 2022 (FY2022) across multiple fronts. We earned double digit organic revenue growth, reported Virgin Atlantic as a new in-flight connectivity (IFC) customer, and continued to expand our fixed broadband presence internationally. Although COVID-19 continues to create uncertainty, the gradual re-opening of the global economy has been a tailwind, especially for our commercial IFC business. The most significant news of the quarter was our agreement to acquire Inmarsat, which we expect to accelerate and enhance Viasat’s future. We have achieved several initial milestones in support of the transaction.
In addition, we were proud to receive recognition during the quarter from Euroconsult, which selected Viasat for its 2021 Global Satellite Business of the Year Award. Subsequent to quarter end, Glassdoor included the Company in its list of 2022 Best Places to Work among large U.S. employers. We supported responsible space practices and policies, joining the Paris Peace Forum’s Net Zero Space Initiative to acknowledge and address the growing space debris crisis in Lower Earth Orbit. We also published our inaugural Environmental, Social and Governance report. For Q3 FY2022 we earned record revenue of $720m, a 25% year-over year (YoY) increase from $576m in Q3 FY2021.
Top-line growth was driven by our recent acquisitions, broad-based service revenue growth across each of our segments and strong product sales. While Q3 FY2022 net income* was down YoY due to higher depreciation and non-recurring acquisition expenses, we achieved record Adjusted EBITDA of $163m, a 10% YoY increase from the prior year period. We earned double digit Adjusted EBITDA growth despite the anticipated increase in expenses associated with the impending deployment of the ViaSat-3 (Americas) satellite network, new market entry costs, and growth in research and development (R&D) investments. Total consolidated awards in Q3 FY2022 were $569m, 12% lower than a year ago due primarily to comparison against an exceptional quarter from our Commercial Networks segment in Q3 FY2021. We ended the quarter with a backlog of $2.1bn (excluding $3.8bn of Indefinite Delivery Indefinite Quantity (IDIQ) awards), slightly lower compared to the prior year period.
At the segment level, Satellite Services Q3 FY2022 revenue increased to a record $310m, a 40% increase YoY and the sixth quarter of sequential growth since the height of the pandemic in Q1 FY2021. The two acquisitions that closed earlier this fiscal year and continued improvement in IFC service revenues were the primary drivers. Government Systems revenue increased 2% YoY, to $270m, with most of the growth coming from higher services revenue. Commercial Networks revenue surged by 55% YoY to $140 m for Q3 FY2022. The main growth drivers in that segment continued to be mobile IFC terminal deliveries and the performance of our ground antenna systems business. The ViaSat-3 (Americas) payload is being readied for thermal vacuum testing at Boeing – a major milestone in final spacecraft integration. Supplier issues resulted in modest slippage in the launch schedule, which is now targeted for late summer 2022. We anticipate that good progress on space-ground “Alpha” system testing may enable us to maintain commencement of initial services by the end of calendar year 2022. We have also made significant progress on the second ViaSat-3 payload module (for the EMEA region) in our own facilities, with ~95% of the payload units now installed. With strong financial results through the first three quarters of FY2022, good revenue visibility and a continuing recovery in mobility, our business is well positioned to capitalize on the proposed Inmarsat transaction. We expect to continue growing revenue and Adjusted EBITDA consistent with our previously stated stand-alone financial targets by executing our substantial backlog and capturing growth opportunities across our growing product and service addressable markets. The Inmarsat acquisition, once closed, is expected to reinforce our strategy and support a broader foundation for long-term growth by enabling global coverage sooner, expanding our premium service capabilities to more markets and customers, increasing network resiliency, leveraging established global distribution networks, leveraging a leading position in L-band spectrum and space resources, capturing operational and capital synergies and creating new business and innovation opportunities. *”Net income” as used herein is defined as Net (loss) income attributable to Viasat, Inc.
Viasat achieved another strong quarter of financial performance from continued momentum in our IFC business, contributions from RigNet and Euro Broadband Infrastructure Sàrl (EBI), steady demand and execution in U.S. fixed broadband and modest growth in our Government Systems business.
Revenue grew 25% YoY from top-line growth across all segments and the impact of the acquisitions completed in Q1 FY2022. Organic revenue grew at 14% YoY excluding the impact of the acquisitions.
The net loss of $6.6m reported for Q3 FY2022 compared to net income of $6.8m in the prior year period was due primarily to higher depreciation and non-recurring acquisition related expenses. Adjusted EBITDA grew 10% YoY on revenue growth. Margins declined approximately 300 bps YoY primarily from costs associated with the upcoming ViaSat-3 service launch, international expansion and increased R&D Q3
Fiscal Year 2022 Highlights
Satellite Services revenue increased substantially YoY mainly due to 53% more IFC aircraft in service compared to the prior year period, growth in enterprise services as a result of the RigNet acquisition, the EBI acquisition, international fixed broadband organic growth and higher fixed broadband ARPU, which was partially offset by fewer U.S. residential subscribers due to bandwidth reallocation to mobility services.
Consolidated awards for the quarter were $569m, resulting in consolidated backlog of a healthy $2.1bn. Net leverage was flat sequentially at 3.2x LTM Adjusted EBITDA and ahead of plan due to strong earnings and solid cash management.
Segment Highlights Awards
In Q3 FY2022, Government Systems awards were $168m, a decrease of 12% YoY. This decrease YoY was primarily due to the timing of a large, multi-year order for network management services in the prior year period. Year-to-date, Government Systems’ $838m in awards supported backlog of $956m as of Q3 FY2022, which does not include approximately $3.8bn of unawarded IDIQ contract value. Revenue Government Systems revenue was $270m in Q3 FY2022, up 2% YoY, led by 5% growth YoY in services revenue from a combination of government satcom system services, higher government aircraft mobile broadband utilization and cybersecurity. In the quarter, tactical satcom radio and tactical data link products drove higher product revenues, offsetting a near term bottleneck in sales of new security assurance products that are experiencing longer than an› Announced a new contract with the Department of Defense for secure, rapidly deployable 5G prototypes and soldier-wearable secure wireless hubs for providing resilient, broadband, multipath communications to individuals using commercial networking technologies specifically adapted by Viasat for military use. Awarded Department of Defense contract as the first external team to provide vulnerability assessment testing and response support focused on improving the cybersecurity and resilience of weapon systems. Received 2021 HIRE Vets Medallion Gold Award by the U.S. Department of Labor, which is the only federal awards program that recognizes job creators who successfully recruit, hire and retain veterans.
Adjusted EBITDA Q3 FY2022
Adjusted EBITDA for Government Systems was $74m, a decrease of 6% YoY. Higher R&D, selling, general and administrative (SG&A) expenses and proposal and marketing expenses offset higher gross margins. Increased investments were focused on government mobile broadband and cybersecurity – capabilities aligned to the government’s growing demand for bandwidth intensive applications and services.
Satellite Services Q3 FY2022 revenue reached $310m, a new record and the sixth consecutive quarter of sequential growth. U.S. fixed broadband revenue was flat YoY with higher ARPU from continuing favorability on plan mix offsetting a slight decrease in the number of U.S. subscribers driven by reallocation of bandwidth to mobility services. Commercial IFC services revenue grew considerably both YoY and sequentially and was the primary contributor to sustained progress on diversifying satellite services revenue. Mobility, international and other revenue reached over 37% of total Satellite Services quarterly revenue. Adjusted EBITDA In Q3 FY2022, Satellite Services earned a new Adjusted EBITDA record of $113m, an increase of 28% YoY. Higher YoY revenue flow-through was offset by ViaSat-3 pre-launch expenses, lower margin contributions from RigNet and higher advertising costs.
Revenue surged 40% YoY on growth in IFC services, steady fixed broadband performance, plus contributions from the RigNet and EBI acquisitions which closed in Q1 FY2022 (organic revenue grew at 16% YoY excluding the impact of these acquisitions) Enabled IFC service on over 300 Delta Air Lines aircraft by the end of Q3 FY2022 and achieved a total of 1,800 aircraft in service, an increase of 53% YoY – also reflecting returning domestic passenger demand and volume. We anticipate sustained growth in the IFC service fleet from an additional ~860 commercial aircraft expected to be put into service on our IFC networks under existing customer agreements › Progressed in multiple international markets – grew residential and enterprise subscriber base in Mexico and Brazil, advanced EBI integration efforts and expanded broadband activities in several parts of Africa › Named 2021 Global Satellite Business of the Year by Euroconsult at the World Satellite Business Week Summit.
AWARDS, REVENUE AND ADJ.
Achieved 30% YoY revenue growth across the advanced ground antenna systems business portfolio, driven by full motion antennas and earth observation products. Delivered over 150 commercial air IFC terminals for the second consecutive quarter as a result of the continued ramp from existing and new airline customers.
Launched the Africa Real-Time Earth facility in partnership with the Ghana Space Science and Technology Institute, enabling new space opportunities and jobs to the region and expanding Viasat’s earth observation global network to five continents.
Following the close of the quarter, signed an agreement with Telstra in Australia to advance the ViaSat-3 (APAC) ground segment.
In Q3 FY2022, Commercial Networks awards were $90m, a decrease of 62% YoY and 16% sequentially. The relative decrease was due to comparison with substantial orders for large aperture antenna systems and IFC mobility terminals in both the prior year period and prior quarter. New IFC orders include agreements with new airlines including Virgin Atlantic.
Commercial Networks Q3 FY2022 revenue was $140m, up 55% YoY, from a combination of higher mobility terminal shipments, increased deliveries for advanced antenna systems products, and product revenues from RigNet.
Adjusted EBITDA Commercial Networks Adjusted EBITDA for Q3 FY2022 was a loss of $24m, declining 27% YoY. Lower gross margin, higher SG&A and increased R&D investments for advanced satellite payload development contributed to lower earnings YoY in the segment. On a YTD basis Adjusted EBITDA improved by $12m YoY. ViaSat-3 Update Supplier issues resulted in a modest delay to the ViaSat-3 (Americas) launch schedule, now expected to occur in late summer 2022. Continued progress on “Alpha” testing space-ground integration may enable us to maintain planned launch of initial services by calendar year end.
Operating Cash Flow
Viasat generated $159m in operating cash flow, a decline of 29% YoY and 3% sequentially. The YoY comparison reflects the higher earnings this quarter that were more than offset by an increase in working capital. Most of the working capital change was due to an increase in accounts receivable attributable to revenue growth in Commercial Networks and Satellite Services – driven by increased IFC terminal shipments and service revenues – combined with a decrease in customer advance payments. Sequentially, the decrease relates to an increase in working capital partially offset by higher earnings.
Capital Expenditure & Investment
Capital expenditures in Q3 FY2022 were $237m, a decrease of 2% YoY. The decrease was primarily due to lower customer premise equipment and other investments with expenditures in our ViaSat-3 constellation and future payloads remaining flat YoY. Debt and Leverage Cash and net leverage remained at comfortable levels during the quarter. Net debt increased $89m to $2.0bn at the end of Q3 FY2022 while net leverage remained flat at 3.2x LTM Adjusted EBITDA, ahead of plan. As we discussed in prior quarters, we expect net leverage to slowly increase next quarter and into FY2023 heading into the launch of the first ViaSat-3 satellite and with continued investment in the second and third satellites of the ViaSat-3 constellation. We ended the quarter with $166m in cash and cash equivalents and liquidity of $437m, with $271m of availability under our revolving credit facility. We continue to focus on maintaining a healthy balance sheet and expect that our record of strong execution and forecasted earnings growth will allow us flexibility in the capital markets as we position Viasat for its next phase of growth.
Inmarsat Acquisition Update
On November 8, 2021, we announced that we entered into a definitive agreement to acquire Inmarsat. The combination will create a leading global communications innovator with enhanced scale and scope to affordably, securely and reliably connect the world. The combined company intends to integrate the spectrum, satellite and terrestrial assets of both companies into a high-capacity multi-band, multi-orbit global hybrid space and terrestrial network, capable of delivering superior services in fast growing commercial and government sectors.
Since the announcement we have achieved several initial milestones necessary for completing the acquisition:
Amended our existing $700m credit facility to permit the acquisition of Inmarsat and provide additional covenant flexibility.
Completed the amendment of Inmarsat’s $1.7bn term loan and $700m revolving credit facility to allow the facilities to stay in place after the acquisition.
Submitted pre-merger notification under antitrust regulations with the U.S. Department of Justice and prepared regulatory filings for many additional jurisdictions around the world We previously said we expect to close the transaction 9 – 18 months from signing and continue to believe that is a good estimate, with a goal of closing by the end of this calendar year. Until that time, Viasat and Inmarsat continue to operate as independent companies. Inmarsat’s disclosures show good growth through the first three quarters of calendar 2021, as the recovery in aviation and maritime added to growth in their government segment.
As noted in CEO Rajeev Suri’s LinkedIn post last quarter, Inmarsat stated that its top-line performance for the September 30, 2021 quarter was ahead of pre-COVID levels of 2019, and included the following highlights:
Revenue growth of 11% YoY for both the quarter and 9 months ended September 30, 2021
Adjusted EBITDA growth of 8.5% and 15% YoY for the quarter and 9 months ended September 30, 2021, respectively
Free cash flow increase of 30% YoY for the quarter Operationally, on December 22, 2021, Inmarsat successfully launched its I-6 F1 satellite, which has a dual L-/Ka-band payload. The first of two planned I-6 spacecraft, these hybrid satellites feature both an ELERA (L-band) and Global Xpress (Ka-band) payload to enhance capabilities, coverage and capacity of communications networks for global mobility, government and Internet of Things (IoT) customers. While we await approvals from regulators and shareholders, we have begun internal integration planning, positioning us to fully realize the compelling strategic, financial and operational benefits of this transaction.
03 Feb 22. JSE suspends Denel bonds trading. Embattled Denel finds itself not able to trade its bonds on the Johannesburg Stock Exchange (JSE), another blow to the beleaguered State-owned company (SOC) in the wake of the release of the second part of the Zondo Commission of Inquiry report into State Capture. SENS (Stock Exchange News Service) of the Johannesburg bourse has it the Centurion headquartered defence and technology conglomerate failed to comply with set down debt listings requirements by not submitting annual financial statements within a stipulated timeframe. To meet this requirement for State-owned entities (SOEs) – and ensure trade in Denel bonds can continue – financial year-end statements must be published and submitted within seven months of financial year-end.
“The requirements further stipulate that one month after the end of the seven-month period the JSE will consider suspension of the Issuer’s (in this instance, Denel) securities. Debt security holders are referred to the JSE’s announcement dated 3 November 2021 in which it was confirmed the Issuers listing of debt securities was under threat of suspension.
“The Issuer announced on 29 October 2021 its board of directors made the decision to defer publication of the annual financial statements and that will be combined with publication of the 2022 financial information. Considering the aforementioned and after due process and consideration, the JSE made the decision to suspend the Issuer’s debt securities with immediate effect,” according to the SENS statement.
The non-appearance of the financials was highlighted in December by Democratic Alliance (DA) shadow deputy public enterprises minister Michele Clarke. She said it was “yet another indication Denel simply doesn’t have either the financial or operational capacity to meet deadlines of any sort”.
Last October, Public Enterprises Minister Pravin Gordhan told Parliament Denel was “experiencing serious liquidity challenges”. Denel, he said in an official announcements, tablings and committee report (ATCs), “is in the process of exploring various options in respect of the future of the company. Consequently, they are not able to prepare and submit the 2020/21 annual report and annual financial statements”.
In a 2 February SENS notice, Denel said it experienced a delay in processing two interest payments due on 31 January. They are for R688 000 and R107m.
“Denel and its shareholder are currently finalising the necessary approvals for the payments which will be made as soon as approvals are in place,” the company said.
Also last year Gordhan said National Treasury allocated Denel R2.9bn to pay its government guaranteed debt and this would save Denel R250m a year in interest payments.
Finance Minister Enoch Godongwana announced Denel would be getting an extra R2.9bn in the 2021 Medium Term Budget, to cover debt, during his medium-term budget policy statement (MTBPS) on 11 November.
Earlier this week Bloomberg quoted Gordhan as saying government is committed to rebuilding Denel. “How this will be done in refloating Denel still has to be determined.”
While it is settling its government debt, Denel owes staff and suppliers in excess of R1.5bn and will face court action again next week over unpaid salaries. (Source: https://www.defenceweb.co.za/)
02 Feb 22. With Lockheed deal in doubt, Aerojet faces internal crisis.
“The near-term future of Aerojet depends on which faction within the company succeeds in asserting control,” said defense consultant Loren Thompson. But ultimately, he added, the long-term future of the company will be contingent on finding a new buyer “with big pockets.”
The future of Aerojet Rocketdyne appears on shaky ground, with its $4.4bn merger with Lockheed Martin seemingly dead in the water and a public war brewing among the company’s leadership.
On Tuesday evening, Aerojet announced it had begun an internal investigation into Warren Lichtenstein, who has been the company’s executive chairman since 2016. Earlier that day, SPH Group Holdings LLC — an affiliate of Lichtenstein’s Steel Partners Holdings L.P. — filed documentation to replace four of Aerojet’s existing board members, including CEO and President Eileen Drake.
In a statement, Aerojet called Lichtenstein’s machinations a “disruptive proxy contest” driven by “personal concerns and [a] desire to secure his board position and gain leverage” as the company’s internal probe continues. Lichtenstein’s Steel Partners has rebutted those claims, saying that the new slate of directors would better position a standalone Aerojet, should the Lockheed acquisition fall though.
The internal controversy came just a week after the Federal Trade Commission filed suit to block Lockheed Martin’s planned $4.4bn acquisition of Aerojet. Lockheed has 30 days following the filing of the lawsuit on Jan. 25 to determine whether to fight or back out of the deal, both options a Lockheed spokesman said on Tuesday that it was still considering.
But with no public condemnation of the FTC’s complaint from the Defense Department, multiple analysts who spoke to Breaking Defense said that Lockheed will likely cancel the transaction.
That will leave Aerojet to solve its current internal conflict, which boils down to “a tension between investors and innovators” at the company, said Loren Thompson, a defense industry consultant who has worked with both Lockheed and Aerojet.
“The near-term future of Aerojet depends on which faction within the company succeeds in asserting control,” Thompson said. But ultimately, he added, the long-term future of the company will be contingent on finding a new buyer “with big pockets.”
The big question is, who else might be in the market?
At Aerojet, Battle Lines Are Drawn
At its core, the fracture in Aerojet leadership appears to be a divide between Drake — a former US Army aviator who rose up the ranks of the defense industry — and Lichtenstein, a private equity investor whose holding company owns 4.9% of Aerojet.
In a statement, Steel Partners said that its slate of proposed directors was “assembled to help the company thrive if it needs to pursue a standalone future” after the potential dissolution of a Lockheed buy.
Spearheaded by Heidi Shyu, the strategy will seek investments and concentrated efforts on 14 critical technology areas.
However, Aerojet suspects that Lichtenstein intends to “clean house” — evicting Drake and her allies and installing a board that will position Aerojet for a private equity takeover, a source with knowledge of the situation told Breaking Defense.
A further source of the dispute is the investigation itself, which Steel Partners characterized as retaliation against Lichtenstein due to continued disagreements with Drake.
“We question the motivation and timing behind the disclosure of an internal investigation into a conflict between Mr. Lichtenstein and Ms. Drake, which the company’s own general counsel described two days ago as ‘innocuous,’” Steel Partners said in a statement.
Aerojet noted in a statement that the investigation was unrelated to the company’s operations or financial reporting. An Aerojet spokeswoman, when contacted by Breaking Defense, declined to give further details. (The source with knowledge of the situation said that the investigation was launched prior to Steel Partners announcing their proposed slate of directors.)
In the end, the future of Aerojet will rest on the results of the investigation and the upcoming shareholders meeting. If Lichtenstein is able to install new leadership, the direction of the company could change dramatically, according to Thompson.
“The only reason why Lockheed Martin was willing to offer over $4bn for an enterprise that has annual revenues of $2bn is because of the potential functional synergies,” Thompson said. “It appears there’s nobody else on the horizon that has the rationale for paying that kind of money.”
Aerojet has traditionally structured itself as an engineering company with high fixed costs and low margins, Thompson said. But if private equity buys the company, it will want to see more robust financial returns, which could come at the cost of innovation.
“This really comes down to whether the financial interests or the engineering interests within Aerojet prevail in the struggle,” he said. “My heart is with the engineering interests. My brain, which knows the history of these types of struggles, assumes the financial interests will ultimately prevail.”
FTC Unanimity, Pentagon Silence Don’t Bode Well For Lockheed Deal: Analysts
After the FTC filed late last month to stop the Lockheed-Aerojet deal, analysts said not only the suit itself, but how the suit was decided and announced, signaled it would be difficult to salvage the merger.
The FTC’s move “puts Lockheed management in a tough position, because pushing back and fighting the government — the FTC — in court … it takes a lot of time and resources,” said Roman Schweizer, a defense analyst with Cowen Washington Research Group.
Seth Seifman of J.P. Morgan pointed to the FTC’s unanimous 4-0 vote in favor of blocking the deal, which means that the case against the deal was enough to convince the commission’s Republican members.
“If DoD was willing to really stand up for the deal, then I would imagine that maybe there would have been more opposition from the Republicans on the commission,” he said. “But because there wasn’t, it seems like maybe DoD either was fairly indifferent, or didn’t want to spend time … on this.”
In its suit, the FTC argues that Lockheed competes against other major defense primes like Boeing, Northrop Grumman and Raytheon to build missiles, missile interceptors and hypersonic weapons — and that Aerojet is, in some cases, the sole provider of critical propulsion systems required to develop those technologies.
If Lockheed were to acquire Aerojet, the FTC believes Lockheed could disadvantage its competitors by raising prices, impacting schedules or reducing the quality of other companies’ engineering teams.
In fact, its complaint alleges that Lockheed has already “sought unsuccessfully to prevent Aerojet from supplying critical propulsion technologies to other prime contractors on a number of occasions.” Though the explanation of the event is redacted, the FTC states that “this is not the first time Lockheed made such an attempt.”
The Defense Department, which provided the FTC the results of its independent review, has remained silent on the issue. Pentagon Press Secretary John Kirby told reporters last week that the department would not publicly discuss its position unless the FTC disclosed it first. (The FTC, in the public version of its complaint, redacted all references to the results of the Pentagon review.)
Byron Callan, an aerospace and defense analyst at Capital Alpha Partners, said that situations indicates a certain synergy between the FTC and the DoD on the issue, which would be a “stoplight” for Lockheed Martin.
To Lockheed, “it says that [the] FTC really worked very closely with the DoD. And so don’t think that you’re going to end run us or get a lot of support from the DoD, if you think you can contest this in court.”
A Shift In The Political Sands
The potential dissolution of the Lockheed-Aerojet deal signals a new wave of antitrust concerns that came in with the Biden administration and appears reflected in the Pentagon, analysts said.
Lockheed’s planned merger with Aerojet comes after two major acquisitions by defense industry juggernauts: Raytheon’s acquisition of United Technologies Corp. in 2020 and Northrop Grumman’s 2018 acquisition of Orbital ATK. The Northrop-Orbital merger in particular bears similarities to the proposed Lockheed-Aerojet deal, as Orbital also specializes in solid rocket motors, scramjets and other critical propulsion systems.
However, both the Raytheon-UTC and Northrop-Orbital mergers occurred under the Trump administration, and analysts said that the Biden administration’s skepticism of the defense industry — coupled with a more aggressive FTC — may have stifled Lockheed’s prospects.
“Certainly things have changed. [It’s] certainly a different administration, admittedly a different FTC with a different view on consolidation, not only in defense, but in other industries,” said Schweizer.
“Maybe Lockheed could have gotten this in under the wire in the first half of 2021,” Callan said. “But the more it got delayed and the more you had this changeover in DoD personnel, that probably argued against it.”
While the FTC’s decision sends a strong signal that the Biden administration will be looking more closely at proposed consolidation in the defense sector, analysts said the FTC’s complaints against the Lockheed-Aerojet merger are unique due to Aerojet’s status as the only independent US manufacturer of solid rocket motors and Lockheed’s standing as the world’s largest defense company.
“I don’t think that this puts defense M&A [mergers and acquisitions] into the icebox for a while,” Callan said. “On the contrary, I think you’ll continue to see a decent pace of deals progress.”
Before news broke about the internal rift at Aerojet, Schweizer and Callan told Breaking Defense that some other entity — perhaps private equity or a smaller defense prime — could swoop in and attempt to buy Aerojet instead.
“I think there’s probably another potential buyer out there, as long as they’re not named Northrop, Raytheon, Lockheed or Boeing,” Schweizer said.
Callan listed BAE Systems, L3 Harris and Leidos as three defense firms that might be able to acquire Aerojet without triggering the concerns posed by Lockheed.
But Aerojet will likely have to resolve its leadership crisis before it establishes a new buyer, Thompson said.
“This is going to be a murky situation for a while,” he said. (Source: Breaking Defense.com)
02 Feb 22. Capewell Increases Support to UK Warfighters through European Subsidiary. Capewell, a global leader in engineering aviation and life support solutions, announced it has established Capewell Europe, a subsidiary in the United Kingdom, to provide continuing support to allied warfighters in Europe.
“We are creating this subsidiary within the context of AUKUS, which is an enhanced trilateral security partnership between Australia, the UK and the US,” said Gregory Bloom, Capewell’s CEO. “It is also as a result of ongoing defence interoperability efforts and our national focus on allies and partners.”
Lieutenant General (retired) Edward Davis, CB, CBE, has been named Capewell Europe’s Strategic Director. Davis served for 35 years in the Naval Service as a Royal Marines Officer, was the 63rd Commandant General Royal Marines and Commander United Kingdom Amphibious Forces, and served as the Deputy Commander of NATO Land Command Headquarters. In January 2016, upon retirement from the military, he was appointed by Her Majesty The Queen as the 67th Governor and Commander-in-Chief of Gibraltar, completing this tenure in February 2020.
Lt Gen Davis expressed his delight at Capewell’s commitment to the UK Ministry of Defence (MoD) and its service members. “Having recently established Capewell Europe as a subsidiary company in the UK, Capewell is determined to offer the UK MoD world-leading capabilities that enable the Nation’s Armed Forces to continue to make a decisive contribution to international peace and stability in our dynamically changing world,” said Davis. “It is a challenge we relish and are determined to meet.”
Capewell Europe will enable real-time, in-country expertise in solution development, coordination, and synchronization with the Ministry of Defence and other defence entities.
“Capewell is currently engaged with the UK MoD in providing unique, mission-tailored solutions for UK Defence Forces,” said Davis. “Our passion is centered on innovative engineering solutions and premium products that save lives and increase mission success across the globe, and our history of support to the Ministry of Defence validates this passion.”
“We are proud to bring over 140 years of performance and expertise to our allies in the UK, supporting global freedom and liberty,” added Bloom. “Capewell Europe is a significant step forward for Capewell’s global expansion efforts, and it’s both appropriate and fitting that our longest and most trusted ally is the home of our first overseas subsidiary. Delivering capabilities to UK service members that increase survivability and enable mission accomplishment is at the heart of what we do.”
Founded in 1881, Capewell is the global leader in the custom engineering and manufacture of critical aerial delivery systems and combat water survivability solutions for the United States government and its partner nations. Capewell’s foundational mission – to protect people who operate systems in dangerous environments in support of national security – continues to this day. Operating out of South Windsor, Conn., and Meadows of Dan, Va., the company offers four core product segments of mission-critical components and systems: Aerial Delivery & Parachute Systems, Aerial & Marine Life Support & Safety Hardware, Operator and Maintainer Training and Logistics, and Engineering Services. (Source: PR Newswire)
02 Feb 22. Why the FTC’s lawsuit could chill the market for defense deals. The federal government’s move to block Lockheed Martin’s planned $4.4bn purchase of Aerojet Rocketdyne could have a chilling effect on future mergers and acquisitions among large defense firms, according to experts.
With the Federal Trade Commission’s lawsuit last week to stop the deal, it rejected a proposed behavioral remedy that would require Aerojet continue to supply missile components to Lockheed’s competitors. That’s being interpreted as a sign regulators will more heavily scrutinize vertical acquisitions, in which a company acquires a supplier.
“Anybody doing a sizable vertical deal has to look at this precedent and recognize, if there’s a real vertical issue, the [FTC’s] predilection may be not to do a remedy, which means it’s an up or down decision,” said Jeff Bialos, an antitrust attorney and former deputy undersecretary of defense for industrial affairs.
In its announcement of its opposition, the FTC argued that if the acquisition between Lockheed, “the world’s largest defense contractor,” and Aerojet, the “last independent U.S. missile propulsion provider” were to take place, “Lockheed will use its control of Aerojet to harm rival defense contractors and further consolidate multiple markets critical to national security and defense.”
Some view the FTC’s tough language as a clear signal to the defense industry.
“It’s hard not to read the complaint any way other than that big vertical transactions will be viewed very skeptically by the FTC, and it seems like it’s pretty clear,” said Jerry McGinn, a Pentagon manufacturing and industrial base policy official in the Obama and Trump administrations.
Brett Lambert, who served as a deputy assistant secretary of defense for manufacturing and industrial base policy in the Obama administration, predicted the decision would reverberate through the board rooms of every prime contractor in the defense sector. Lambert was Northrop Grumman’s vice president for corporate strategy when the company made a similar acquisition.
“Their position is quite clear, and how industry reacts and whether that’s in the best interest of the warfighter and the taxpayer is still unclear,” said Lambert, now the managing director of the Densmore Group, a national security and intelligence consultancy.
An administrative law judge will decide the case in a trial that is scheduled to begin on June 22. In the meantime, the FTC filed the complaint in the U.S. District Court for the District of Columbia to seek a preliminary injunction to stop the deal pending the administrative trial.
The FTC, in 2018, allowed Northrop Grumman’s $7.8bn acquisition of Orbital ATK. The FTC sought to address anticompetition concerns by requiring behavioral remedies, mandating the combined company provide solid fuel rocket motors on a nondiscriminatory basis to competitors for missile contracts and implement firewalls to ensure the combined company would not misuse information from competitors.
Since 2019, the FTC has been probing “a potential issue” with Northrop’s compliance with those remedies, in connection with a then-pending missile competition, according to company filings. In its latest annual filing, Northrop disclosed that it has reopened discussions with the FTC over the issue.
The company said it promptly complied with the FTC’s original civil investigative demand and that it “has been and continues to be in compliance with the Order,” in line with ongoing “robust actions to help ensure compliance with the terms of the Order.”
The competition is likely the Air Force’s multibillion-dollar Ground Based Strategic Deterrent program to replace the intercontinental ballistic missile. Boeing accused Northrop of holding an unfair advantage in the competition and pulled out, leaving Northrop the competition’s lone bidder and winner.
Regulators in the Biden administration have been most vocal about their concerns about competition in the tech industry, primarily about behemoths like Facebook and Google.
But in August, Federal Trade Commission Chair Lina Khan caught the eye of defense watchers when she sent a letter to one of the Lockheed-Aerojet deal’s opponents, Sen. Elizabeth Warren, D-Mass., where she said behavioral remedies “have often failed to prevent the merged entity from engaging in anticompetitive tactics.”
“While structural remedies generally have a stronger track record than behavioral remedies, studies show that divestitures, too, may prove inadequate in the face of an unlawful merger,” Khan’s letter reads. “In light of this, I believe the antitrust agencies should more frequently consider opposing problematic deals outright.”
Warren had raised concerns to Khan about vertical integration and consolidation in the defense industry, and she noted the FTC’s 2019 investigation into Northrop.
At a Jan. 26 Council on Foreign Relations event, Lockheed’s chief executive, Jim Taiclet, defended the company’s effort at vertical integration with Aerojet, saying the intent was to make the contractor’s development of hypersonic missiles, certain space vehicles and other missiles more efficient.
“The benefit of putting the companies together in a vertical integration … is that we would bring our engineering power to the propulsion side of those products. We would be able to integrate them faster, test more quickly, take cost out, actually, and we made all those cases to both the Department of Defense and the FTC,” Taiclet said.
The Pentagon hasn’t made its views on the merger public, and those views were redacted from the complaint, which some speculate is a sign DoD would have accepted the Lockheed-Aerojet merger with conditions. That, in turn, has fueled speculation about a diminished role for the Pentagon in antitrust reviews.
“I think what’s interesting … is the diminution of the role of the customer in decision making,” Lambert said. To Lambert, the Pentagon’s voice as the sector’s main client “should weigh on the scale a bit more” with regulators.
A lead official in those reviews, Deputy Defense Secretary Kathleen Hicks, told lawmakers at her confirmation hearing a year ago she was “concerned” about consolidation in the defense industrial base and that competition is needed to maintain an edge over China and Russia.
“Extreme consolidation does create challenges for innovation,” Hicks said at the time. “We need to have a lot of different good ideas out there. That’s our competitive advantage over authoritarian states like China, and Russia. And so if we move all competition out, obviously, that’s a challenge for the taxpayer. But it’s also a challenge in terms of the innovation piece.”
Still, McGinn said it seems likely the Pentagon would have favored the Lockheed-Aerojet deal because the transaction would have bolstered Aerojet, which has struggled at times as a producer of vital missile parts, and because DoD previously favored the Northrop-Orbital ATK transaction.
“This transaction on the face of it gives Aerojet strong financial footing, being part of a big prime,” said McGinn, now executive director of the Center for Government Contracting at George Mason University. “I’ve anticipated that DoD would recommend approval [of the deal] with a consent decree, and nothing in the reporting has contradicted that.”
A slowdown in vertical integration could mean more companies will be absorbed by private equity firms, experts said.
“In my experience over 30 years, defense companies in private-equity hands tend not to be in the interest of the warfighter,” Lambert said. “Their motive is cash. The typical case is there’s no investment in research, and if you think about the unique nature of the defense industry, these are companies that need to be around for 20 to 25 years.”
Lockheed said it may elect to end the merger agreement or fight the case, and its decision is expected before the end of the month.
If the case goes to court, it’s likely Pentagon leaders will be called to voice their views in public.
“There’s some chance that the parties could persuade the court a remedy is appropriate, and … you would probably see testimony from the Defense Department … and that would be factor in the judge’s decision,” Bialos said. (Source: Defense News)
03 Feb 22. Daher to buy Triumph aerostructures plant. French aviation company Daher plans to expand its presence in the United States by acquiring Triumph Group’s aircraft structures factory in Stuart, Florida, the buyer and the seller both announced on 2 February.
The Stuart site assembles wing and fuselage structures and serves several kinds of aircraft, including the Boeing KC-46 military tanker. It employs about 400 people.
When the transaction closes, Triumph will have completed a long-planned exit from structures manufacturing, as it seeks to focus on the more profitable role of providing systems and aftermarket services. Stuart is the 16th non-core business Triumph will have divested since 2016.
The Stuart deal is expected to close in the first half of 2022 after clearing regulatory reviews. Financial terms were not disclosed.
North America is key to Daher’s growth strategy. In 2019, Daher acquired Idaho-based Quest Aircraft Company, whose Kodiak 100 turboprop is flown by a wide range of customers, including the armed forces. (Source: Janes)
02 Feb 22. France’s Thales considers move for Atos cybersecurity arm BDS -sources. France’s Thales is working on a plan to buy the cybersecurity business of IT consultancy group Atos, sources told Reuters, in a potential $3bn tie-up likely to test the political determination for shoring up France’s digital defences.
Thales, which ranks as Europe’s largest defence electronics company, and its adviser Centerview Partners have approached several private equity firms including Bain Capital to explore a possible joint offer as part of a deal that would involve a complex break-up of Atos (ATOS.PA), the sources said.
Thales would buy the big data and cybersecurity business, known as BDS, while private equity funds would swallow the remaining IT services operations of Atos, the sources said on condition of anonymity.
Thales said in a statement it was not currently in talks with Atos over a potential takeover, adding that the company led by Chief Executive Patrice Caine was “potentially interested” in any cyber-security asset that could be up for sale.
Atos declined to comment.
Shares in Atos were up 10.32% at 1515 GMT after Reuters first reported on the plan, while Thales’ stock was down 3%.
Atos’ share price has plummeted to its lowest level since mid-2012 after issuing two profit warnings in seven months, becoming an attractive private equity target. read more
Yet any sale would face major obstacles in France where the administration of Emmanuel Macron is wary of seeing such ‘national champions’ sold to foreign investors with presidential elections looming in April.
“The French government will strongly oppose any break-up of Atos right now,” one of the sources said.
Thales’ advisers have also begun talks with CVC Capital Partners and PAI Partners over a possible joint bid for Atos, but the timing of such a move remains unclear, another said.
Bain, which in January bought French IT services firm Inetum in a deal worth about $2.27bn, would use any joint buyout of Atos to expand its portfolio of tech assets in Europe, where it also controls Italian IT firm Engineering Group.
Bain, CVC and PAI declined to comment.
The French finance ministry did not immediately respond to a request for comment.
HOSTILE AND UNWANTED
Atos, with a market value of 3.5bn euros ($3.95bn), gave former French Prime Minister Edouard Philippe a seat on its board of directors in 2020 and had European Commissioner Thierry Breton as its CEO for more than a decade, making it a politically-sensitive target, the sources said.
Atos, advised by Rothschild, has rebuffed previous overtures by Thales for BDS and would view any move by private equity funds to launch a public offer and delist Atos from the Paris exchange as hostile and unwanted, one of the sources said.
BDS is valued at between 2 and 3bn euros ($3.4bn) and accounts for about half of Atos’ overall revenue, the source added.
Thales and Atos have recently partnered on a joint venture known as Athea to develop a sovereign big data and artificial intelligence platform for the public and private sector with a focus on defence, intelligence and internal state security.
For Thales, bulking up cybersecurity operations has been on the cards since it bought Dutch data protection firm Gemalto for 4.8bn euros in 2019, pledging to create a global powerhouse in digital security.
Chief Executive Patrice Caine said in October there would be opportunities for Thales to strengthen its existing portfolio in key markets after buying Gemalto, but that any assets would have to bring a “good level of growth.”
Thales says cybersecurity generates about 1 bn euros in sales for the French defence and security company, which is controlled by Dassault Aviation and the French state, whose support would be crucial for any tie-up involving defence and security technologies to succeed.
A hostile bid affecting technologies that France has described as vital to its “digital sovereignty” in the face of military and civil threats, is widely seen as unlikely.
However, a 2018 government study said consolidating the industrial base in cyber defence would be “advisable” to provide high security while ensuring companies were economically viable.
Thales said last month the number of cyberattacks and episodes of ransomware had “exploded” in the last 12 months, growing by some 150%, with the pandemic exposing new vulnerabilities by driving more economic activity online.
Since 2019, it said, the cost to the world economy from cybercrime has more than doubled.
The head of the company’s digital security business told investors last October that expansion of the cybersecurity market was “here to stay for many years,” averaging 10% a year in compound terms. ($1 = 0.8835 euros) (Source: Reuters)
02 Feb 22. Thales statement regarding market rumors. Thales (Euronext Paris: HO) has a clear strategy regarding acquisitions, focused on strengthening its three major business segments: aerospace, defence & security, and digital identity & security.
Thales has no intention whatsoever of diversifying into markets other than those it serves already, such as global IT services.
Following the rumors in the market regarding a potential interest of Thales in acquiring Atos’s cyber-security business, Thales wishes to confirm that:
- The Group is potentially interested in acquiring any cybersecurity asset that could be for sale
- No discussions with Atos are underway in this regard
03 Feb 22. Atos’ M&A prospects hang in the balance of French government. The French government holds the final keys to any move to buy the BDS cybersecurity division of France’s Atos (ATOS.PA), industry sources and analysts said, after French defence company Thales was reported to be devising a break-up plan.
Atos said on Thursday that its cybersecurity arm, BDS, was not for sale after sources told Reuters that Thales was working on a plan to buy the business, having approached private equity firms about exploring a joint offer and break-up. read more
Atos, formed partly by a string of acquisitions made under former CEO Thierry Breton, now EU industry chief and a former French finance minister, has deep links to France’s security world in which the state has the ultimate say over tie-ups.
Atos secures communications for the French military and secret services and manufactures servers to make supercomputers able to process troves of data for research or to develop the nascent artificial intelligence industry.
“The real question is about Atos future and that’s really a political one,” said Mikael Jacoby, who heads continental European sales trading at Oddo Securities.
“I think that issue will stay on investors’ mind even if in the short term there’s nothing to expect,” he added, saying that interest from clients had gone down after Thales denied considering a bid for the entire Atos group.
Atos shares fell around 7% on Thursday after rising 10% on Wednesday.
One of Atos’ oldest clients is France’s CEA, the country’s atomic energy commission, which it helped simulate nuclear missile tests. It also inherited confidential technology through the 2014 purchase of Groupe Bull, industry sources say.
It won a contract to help build a supercomputer in India, a country with which France has strengthened its partnership on defence and security.
“This is highly strategic and a matter of sovereignty,” said a source close to Atos, with the regards to the Indian contract. “Just like nuclear submarines.”
The biggest manufacturers of supercomputers servers are IBM and Hewlett Packard, both U.S.-based companies.
French President Emmanuel Macron has made the matter of ‘digital sovereignty’ a top priority as France presides the European Union until June. A ministerial conference on “building digital sovereignty in Europe” is scheduled early next week.
“We follow all French companies closely,” a spokesperson for the Finance Ministry said when asked about the situation at Atos, whose shares have lost half of their price over the last year following a string of setbacks that led to the ousting of Breton’s successor, Elie Girard. read more
Thales has long coveted the cybersecurity assets of Atos, which it beat to the purchase of Gemalto in 2019, two people familiar with matter said.
Thales said on Wednesday it would potentially be interested in any cybersecurity activities that were on sale, adding that no discussions were under way with Atos.
Cybersecurity is part of a cluster of sectors subject to extra government approval where foreign bidders are involved.
“If Thales wanted to bid for the whole of Atos as a French company and dispose of assets it did not want such as IT services, that would not pose a serious problem,” a senior French industry source said.
“Putting across an offer together with foreign funds and then breaking it up is a different discussion,” he added.
However, another senior industry source said Thales, controlled by the French state in partnership with Dassault Aviation , would be unlikely to have got as far as contacting outside funds without at least a preliminary nod from the government allowing it to explore available options.
Thales ruled out any interest in the whole of Atos on Wednesday.
Barring official approval, sensitivity over the Atos security assets and the French state’s position in Thales make the alternative of a hostile bid difficult to contemplate.
“Thales is the state and it is also Dassault, which would not go against the state,” the first industry source said. (Source: Reuters)
02 Feb 22. Autonomy specialist Anduril buys underwater drone-maker Dive Technologies. Defense technology company Anduril Industries has acquired autonomous underwater vehicle-maker Dive Technologies in a bid to grow its portfolio of artificial intelligence-powered products.
Dive Technologies, based in Boston, builds the DIVE-LD large displacement unmanned underwater vehicle, or LD UUV. The system has already been matured and could conduct defense and commercial missions such as long-range oceanographic sensing, undersea battlespace awareness, mine countermeasures, anti-submarine warfare, seabed mapping and infrastructure health monitoring.
Anduril’s chief strategy officer, Christian Brose, told Defense News that the two companies had been in talks for some time about how to pair Dive’s lower-cost UUV — which is built using commercial off-the-shelf internal parts and a 3D-printed hull — with Anduril’s expertise in machine learning and intelligent networking.
Ultimately, the two companies decided the best path forward was for Anduril to acquire Dive Technologies and turn it into the maritime division of the larger firm.
“We very much feel like we’re already on the same team in the sense that they just want to move very quickly; they want to build disruptive capabilities; they want to get them out onto the water, under the water, into the hands of operators; and solve problems fast — which is the very same kind of disruptive approach that we bring,” Brose said of the 30-person Dive Technologies team.
“They also bring just an enormous wealth of expertise and experience in the undersea domain, which is just very different than every other domain that the military operates in. Everything is different and unique there in terms of communications, or lack thereof; navigation; much higher levels of autonomy required to be successful down there; to say nothing of just the unique challenges of being under the water.”
Brose repeatedly described Dive Technologies’ work and potential collaboration with Anduril as “disruptive.” He said the open-architecture DIVE LD comes in at about a tenth of the cost of competing LDUUVs and was built for rapid integration of new technologies — with new payloads to be integrated and tested on the DIVE LD in a matter of weeks.
“The thesis of [Anduril when it was founded] was that rather than sort of trying to build better versions of traditional things … these technologies allow you to change the approach to your problem radically, where autonomy allows you to reduce cost and manpower such that you can now envision approaches to problems that look like larger, and larger numbers of very autonomous, very intelligent, much lower-cost, more attritable systems working together to actually automate and accomplish missions,” he said.
On the military side, he said the U.S. Navy’s Snakehead LDUUV program is being built for a good mission set, but “I think we would contend that there’s actually a lot of things that a large autonomous underwater vehicle could do beyond the things that the current program of record has been specifically focused on accomplishing. Particularly when you start adding in higher levels of autonomy, embedded sensor processing, rapid customization, and just the cost reduction, the ease of launch and recovery, all things that the Dive system makes possible — it really starts to open up other missions,” Brose said.
The DIVE LD, at 20 feet long and 4 feet in diameter, can travel hundreds of kilometers and “carry a pretty significant amount of payload,” Brose said. That, plus the low cost, coupled with Anduril’s “AI-enabled systems and processes,” create something the company thinks it can sell to a range of customers.
Brose was also excited to bring Dive Technologies’ maritime expertise to Anduril’s original counter-drone system for base defense and force protection. Coupled with the current system — the Lattice operating system, Sentry tower and a small Anvil drone as the interceptor — Brose said a UUV could provide additional sensing for the defense of coastal bases and facilities.
Anduril was founded in 2017. In April 2021, it acquired drone-maker Area-I, giving it a low-cost, tube-launched drone to pair with its advanced autonomy developments.
In January, U.S. Special Operations Command selected Anduril to lead its counter-drone systems integration work in a $1bn deal, Defense News reported.
02 Feb 22. Spirit AeroSystems Reports Fourth Quarter and Full-Year 2021 Results.
Fourth Quarter 2021
- Revenue of $1.1bn, up 22% y/y
- EPS of $(1.15), up 60% y/y; Adjusted EPS* of $(0.84), up 36% y/y
- Cash from operations of $(77) m, improving 42% y/y; free cash flow* of $(137) m, improving 24% y/y
- Revenue of $4.0bn, up 16% y/y
- EPS of $(5.19), up 38% y/y; Adjusted EPS* of $(3.46), up 40% y/y
- Cash from operations of $(63)m, improving 92% y/y; free cash flow* of $(214)m, improving 75% y/y
Spirit AeroSystems Holdings, Inc. (NYSE: SPR) (“Spirit” or the “Company”) reported fourth quarter and full-year 2021 financial results.
“We successfully managed the company through another challenging year due to the COVID-19 pandemic. Our free cash flow was in line with our guidance of $(200) to $(300)m. We also made substantial progress on our diversification efforts, as highlighted by the announcement of new reporting segments and a new organizational structure. We are pleased to begin reporting our three new business segments this quarter: Commercial, Defense & Space and Aftermarket,” said Tom Gentile, Spirit AeroSystems President and Chief Executive Officer.
Spirit’s revenue in the fourth quarter of 2021 revenue was $1.1bn, up 22 percent from the same period of 2020, primarily due to higher production deliveries on the Boeing 737 and increased revenue from the recently acquired A220 and Bombardier programs. These increases were partially offset by lower widebody production rates due to reduced international air traffic resulting from the impacts of COVID-19, and the pause in Boeing 787 deliveries. Overall deliveries increased to 281 shipsets during the fourth quarter of 2021 compared to 231 shipsets in the same period of 2020. This includes Boeing 737 deliveries of 51 shipsets compared to 19 shipsets in the same period of the prior year and Boeing 787 deliveries of 6 shipsets compared to 20 shipsets in the same period of the prior year.
Spirit’s full-year 2021 revenue was $4.0bn, up 16 percent from 2020, primarily due to higher production deliveries on the Boeing 737 and increased revenue from the recently acquired A220 and Bombardier programs, as well as additional aftermarket activity. These increases were partially offset by lower widebody production rates due to reduced international air traffic due to impacts from COVID-19, and the pause in Boeing 787 deliveries. Overall deliveries increased to 1,028 shipsets during 2021 compared to 920 shipsets in 2020. This includes Boeing 737 deliveries of 162 shipsets compared to 71 shipsets in the prior year, and Boeing 787 deliveries of 37 shipsets compared to 112 shipsets in 2020.
Spirit’s backlog at the end of the fourth quarter of 2021 was approximately $35bn, with work packages on all commercial platforms in the Airbus and Boeing backlog.
Operating loss for the fourth quarter of 2021 was $79.0m, as compared to operating loss of $101.4m in the same period of 2020. The decreased loss was primarily driven by higher production on the Boeing 737 program and $37.0m of income recognized related to the Aviation Manufacturing Jobs Protection Program (AMJP) awarded during the third quarter of 2021. The decreased loss was partially offset by higher forward loss charges recognized on the Boeing 787 program resulting from lower production rates. Fourth quarter 2021 earnings included $45.3m of excess capacity costs and net forward loss charges of $46.5 m, $32.3m of which were from Boeing 787 schedule changes. In comparison, during the fourth quarter of 2020, Spirit recorded excess capacity costs of $50.1m and $28.1m of net forward loss charges.
Operating loss for the full-year of 2021 was $459.2m, as compared to operating loss of $812.8 m in 2020. The decreased loss was primarily driven by higher production on the Boeing 737 program, AMJP income of $41.1m as well as lower changes in estimates, COVID-19 charges and excess capacity costs in 2021 compared to 2020. Full-year 2021 earnings included excess capacity costs of $217.5m, abnormal costs related to COVID-19 of $12.0m, net forward loss charges of $241.5m, $153.5m of which were from the Boeing 787 program, and unfavorable cumulative catch-up adjustments of $5.0m. In comparison, during 2020 Spirit recorded excess capacity costs of $278.9m, abnormal costs related to COVID-19 of $33.7m, net forward loss charges of $370.3m and unfavorable cumulative catch-up adjustments of $30.4m. Additionally, during 2020, Spirit recognized restructuring expenses of $73.0m for cost-alignment and headcount reductions.
Other income for the full-year 2021 was $146.6m, compared to a net expense of $77.8m in the prior year. The increase was primarily driven by a curtailment gain of $61 m recognized in the third quarter of 2021, resulting from the closure of the defined benefit plans acquired as part of the Bombardier acquisition, as well as non-cash expenses of $86.5m as a result of the voluntary retirement program offered during 2020.
Fourth quarter 2021 EPS was $(1.15) compared to $(2.85) in the same period of 2020. Fourth quarter 2021 adjusted EPS* was $(0.84), excluding the incremental deferred tax asset valuation allowance and a pension settlement loss. During the same period of 2020, adjusted EPS* was $(1.31), which excluded the impacts of planned acquisitions, restructuring costs and the incremental deferred tax asset valuation allowance.
Full-year 2021 EPS was $(5.19), compared to $(8.38) in 2020. 2021 adjusted EPS* was $(3.46), which excluded the impacts from the acquisitions, restructuring costs, the incremental deferred tax asset valuation allowance, the curtailment gain and a pension settlement loss. During 2020, adjusted EPS* was $(5.72), which excluded the impacts of planned acquisitions, restructuring costs, the voluntary retirement program offered during 2020 and the incremental deferred tax asset valuation allowance. (Table 1)
Cash from operations in the fourth quarter of 2021 was $(77)m, up from $(132)m in the same quarter last year, primarily due to the receipt of a $73m tax refund as a result of carrybacks permitted by the CARES Act and positive impacts of working capital, partially offset by the payment of $154m towards the Belfast pension plan. Free cash flow* in the fourth quarter of 2021 was $(137)m, as compared to $(181)m in the same period of 2020.
Full-year cash from operations improved to $(63)m, compared to $(745)m in 2020, primarily due to the receipt of $300 m of tax refund as a result of carrybacks permitted by the CARES Act, significantly higher production deliveries, positive impacts of working capital and lower restructuring costs, partially offset by the payment of $154m towards the Belfast pension plan and the absence of $215m received in 2020 as a result of the February 2020 MOA with Boeing. Full-year free cash flow* was $(214)m, compared to $(864)m in 2020. The cash balance at the end of the fourth quarter of 2021 was $1.5bn.
Commercial segment revenue in the fourth quarter of 2021 increased 22 percent from the same period of the prior year to $844.3m, primarily due to increased production volumes on the Boeing 737 and recently acquired A220 and Bombardier programs, partially offset by lower production volumes on the Boeing 777 and 787 programs. Operating margin for the fourth quarter of 2021 increased to (2) percent, compared to (9) percent during the same period of 2020. This increase was primarily due to higher volumes on the Boeing 737 program as well as income related to the AMJP of $32.3m, partially offset by higher forward losses recognized during the fourth quarter of 2021. The Commercial segment includes excess capacity costs of $43.3m, compared to $47.2m during the same period in 2020. In the fourth quarter of 2021, the segment recorded $47.0m of net forward losses, primarily due to Boeing 787 schedule changes, compared to $29.6m of net forward losses during the same period in 2020.
Commercial segment revenue for the full-year 2021 increased 15 percent from 2020 to $3.1bn, primarily due to increased production volumes on the Boeing 737 and recently acquired A220 and Bombardier programs, partially offset by lower production volumes on the Boeing 777 and 787 programs. Operating margin for 2021 increased to (7) percent, compared to (23) percent during the same period of 2020. This increase was primarily due to higher volumes on the Boeing 737 program, income related to the AMJP of $35.9m, as well as lower expenses related to changes in estimates, restructuring, COVID-19 and excess capacity in 2021 compared to 2020. Full-year 2021 Commercial segment earnings included forward losses of $227.3m, unfavorable cumulative catch-up adjustments of $5.7 m, restructuring expenses of $6.8m, abnormal costs related to COVID-19 of $12.0m and excess capacity costs of $206.7m. In comparison, during 2020 Commercial segment earnings included forward losses of $366.8m, unfavorable cumulative catch-up adjustments of $28.9m, restructuring expenses of $64.0m, abnormal costs related to COVID-19 of $33.7m and excess capacity costs of $265.5m.
Defense & Space
Defense & Space segment revenue in the fourth quarter of 2021 increased 11 percent from the same period of the prior year to $152.0m, primarily due to increased production volumes on the Boeing P-8 program. Operating margin for the fourth quarter of 2021 was 8 percent, compared to 14 percent during the same period of 2020, with the decrease primarily due to a one-time charge. The segment recorded excess capacity costs of $2.0m and favorable changes in estimates on forward loss programs of $0.5m in the fourth quarter of 2021, compared to excess capacity costs of $2.9m and favorable changes in estimates on forward loss programs of $1.6 m in the fourth quarter of 2020.
Defense & Space segment revenue for the full-year 2021 increased 19 percent from the same period of the prior year to $585.0 m, primarily due to increased production volumes on the Boeing P-8 and KC-46 Tanker programs. Operating margin for 2021 was 8 percent, compared to 10 percent during 2020, with the decrease primarily due to a one-time charge and higher forward losses recognized during 2021. In 2021, the segment recorded excess capacity costs of $10.8m and net forward losses of $14.2m, compared to excess capacity costs of $13.4m and net forward losses of $3.5m in 2020.
Aftermarket segment revenue in the fourth quarter of 2021 increased 49 percent from the same period of 2020 to $73.8m, primarily due to the inclusion of a full quarter of maintenance, repair and overhaul (MRO) activity from the Belfast, Northern Ireland and Dallas, Texas sites which were acquired late in the fourth quarter of 2020, as well as higher spare part sales compared to the same period in the prior year. Operating margin for the fourth quarter of 2021 increased to 23 percent, compared to 17 percent during the same period of 2020, primarily due to favorable product mix.
Aftermarket segment revenue for the full-year 2021 increased 19 percent from 2020 to $239.9m, primarily driven by the inclusion of a full-year of MRO activity from the Belfast, Northern Ireland and Dallas, Texas sites which were acquired late in 2020, partially offset by lower spare part sales compared to the prior year. Operating margin for 2021 increased to 21 percent, compared to 18 percent during 2020, primarily due to favorable product mix and lower restructuring costs. Restructuring costs in 2021 were $0.3m, compared to $5.2m in 2020. (Source: BUSINESS WIRE)
02 Feb 22. Advisory Disruptor Trachet Leads Landmark Deal for Cybersecurity Sector. Breakthrough deal sees global cyber specialists Proofpoint acquire AI front-runners Dathena. Claire Trachet, CEO and Founder of Trachet, discusses what the deal means for the sector and the firm’s role in facilitating the ground-breaking acquisition. AI driven data protection specialists Dathena have been acquired by USA-based Proofpoint, a global leading cybersecurity and compliance company following the help of Trachet’s M&A advisory counsel. Amidst many previous approaches of M&A opportunities for Dathena in the past, Trachet has played an instrumental role in the successful outcome of this landmark deal for the cybersecurity sector, helping to facilitate the acquisition after working with Dathena since mid 2020. Assuming a critical role within the business, the female founded advisory firm was able to leverage an in-depth understanding of the working culture of Proofpoint (recently de-listed after a $12.3bn acquisition from Tomas Bravo) and the compatibility of not only both entities’ technological fit, but the cultural alignment as well.
The Trachet advisory team has been helping founders accelerate growth since 2016 by utilising decades of cross-industry experience as one of the only female led teams in the sector, they also firmly believe in the importance of sourcing and matching the right buyers for their clients. Their people first approach ensures that the businesses and founders they work with are able to secure finance or complete deals in a way that allows the company to achieve their commercial growth goals while fulfilling their mission.
In the case of this transaction, they began to collaborate as Dathena required a business plan for their new offer, but as their relationship evolved, and Trachet began to share their expertise, CEO Chris Muffat and the Board requested to broaden the scope of the relationship. This is where Trachet brings real value as an advisor, comfortably fitting into all roles the client needs. Trachet successfully took on the role of CFO, designing and implementing a 360-company strategy for the new version of the platform being launched, pitched to potential new investors for an extension of Series A. Consequentially they assumed the role of COO/CFO and advisor and in March of last year had to step in for the founder after an accident, in which they led the company in close cooperation with the key executives, remotely, before executing the M&A with Proofpoint remotely across 3 continents.
Claire Trachet, founder and CEO of Trachet said: “We are incredibly proud to have played such a vital role in the acquisition by Proofpoint which will undoubtedly allow Dathena to achieve the kind of growth and success that they deserve. We are people first and that’s what differentiates us from traditional investment bankers or advisory firms and that was clear in this deal, with the compatibility of company cultures being crucial to the eventual deal. We have all really enjoyed our work with Dathena and can’t wait to see how the future growth of the company pans out.”
Christopher Muffat, CEO of Dathena, said: “The Dathena team are incredibly grateful to Trachet, who were instrumental in the completion of this deal from start to finish. Over the last nine months Claire and the team have provided vital support, advice, and expertise on a wide range of issues and opportunities, critical to the success of the business. I’m incredibly proud of what we have achieved as a team through our unique technology and many innovations enabling better data protection. Working together with Proofpoint we will reach thousands of new customers, while further building trust in a digital world.”
Christophe Aulnette, Executive Chairman of Dathena, said:“Dathena acquisition by Proofpoint, a world leader in Cybersecurity, is a clear recognition of its unique value proposition and opens for the team huge opportunities to expand globally and contribute to improving trust in the digital world. I’m extremely grateful to Claire Trachet and the Trachet team for the hard work and professionalism during the whole process to help make the transaction a reality. They’ve not only been critical resources on the deal execution but also on finance and operations front demonstrating in depth business understanding.”
01 Feb 22. ILUS Acquires European Industrial Drone Company Vira Drones. ILUS International Inc. has agreed to acquire Vira Drones, an Unmanned Aerial Vehicle (UAV) company based in Germany and Switzerland. Vira Drones develops and manufactures UAVs or Industrial Drones. ILUS is a Mergers and Acquisitions company focused on acquiring and developing public safety technology-based companies across the globe. Having completed 4 acquisitions in 2021, ILUS has been in the process of completing several further acquisitions in January 2022.
This technology is a world first in that it delivers the unmanned capability of light helicopters, with competitors of the acquisition achieving pre-production valuations of over $1.2bn.
Vira Drones currently creates industrial heavy drones (UAVs) for rescue and logistics. Through the company’s proprietary technology, its UAVs can carry loads of up to 1000kg for as long as two hours, making these UAVs a viable unmanned alternative to light helicopters and free of their limitations. Vira Drones’ mission is to save more lives and access hard-to-reach locations more efficiently and cost effectively. The company is on track to become the world’s leading cargo and rescue drone manufacturer and plans to capture a significant share of the light helicopter market in the process.
The global light helicopter market is currently valued at $13bn per annum. Within this, the market for light helicopters used for logistics and rescue is estimated to be between $2 and $3bn. Vira Drones anticipates that at least 20% and up to 50% of these light helicopters can be replaced by industrial drones. It is expected that the market for UAVs will grow to $1.5trn by 2040. To say that Vira Drones has a bright future ahead is a substantial understatement. Airbus is planning to build 3 unicorn-sized scaleups per year and Boeing recently invested $450m in the “flying taxi” company, Wisk. Eve Urban Air Mobility also recently confirmed it is going public via a SPAC merger with Zanite Acquisition Corp. after obtaining a pre-money valuation of around $2.4bn. These examples illustrate the UAV industry potential, with Vira Drones already having received extensive interest from global aviation juggernauts and prominent international organisations.
The two major competitors of Vira Drones in the logistics sector have already achieved valuations of $1.2bn and $1.3bn respectively. Neither of these competitors have an offering for the rescue sector and currently, they do not have certifications or technology in commercial production for their existing technology. Vira Drones has already created and tested 3 prototypes and has applied for several patents. ILUS has acquired Vira Drones with the goal of integrating its technology into ILUS’ existing and planned emergency response solutions as well as with that of upcoming ILUS acquisitions. The company will prioritize the registering of a further 10 patents and the obtaining of 3 type approval certificates before focusing on the aviation certification. This will enable Vira Drones’ UAVs to fly commercially in inhabited areas. Vira Drones is currently registering a patent for its revolutionary 3D access airflow system for each rotor which ensures constant horizontal stabilization during flight. Horizontal stability is critical for logistics and rescue applications, and it is one of the many key differentiators between Vira Drones and its competitors. The company has also developed and successfully tested the world’s first “scalable body” which enables 3 drones to be connected to each other to form a flying train. This will increase capacity and reduce certification costs whilst providing a more cost effective, modular solution for customers.
Vira Drones started its life by developing a fire and rescue drone which was designed to rescue victims from high-rise buildings in the event of fires or other tragic events like the 9/11 terrorist attacks, where people cannot get rescued with helicopters due to the rotors. The first fire and rescue drone prototypes were developed for this project and the company continued onwards from there to develop surveillance drones for fire prevention, monitoring and rescue applications. The company’s specialist drone engine and rotor technology which enables the drones to fly in most weather conditions and achieve up to four hours of flight time, has been combined with smart cameras and artificial intelligence software.
Prior to the agreed acquisition of Vira Drones, ILUS had been working with the company to develop this into a practical solution for fire and rescue, whereby the drones could be used for early detection of fires and carry onboard fire extinguishing capability that could be deployed in the early stages of fires – to extinguish them before they develop further. Early detection is critical to the control of wildfires which can often smoulder for days or even weeks before igniting. The firefighting industry is urgently seeking a solution which can detect and combat a potential wildfire before it develops. Cost-effective unmanned surveillance combined with IoT technology will play a vital role in the fighting of wildfires in the future. The ILUS strategy has long been to be utilise IoT, combined with ground-breaking engineering to provide real-world solutions for emergency response. The agreed acquisition of Vira Drones is a giant leap forward for ILUS in this regard. ILUS will be energetically pushing forward with the fire and rescue product development at Vira Drones and has several potential customers lined up to commence testing of the technology.
Following the original development of the fire and rescue drone prototypes, Vira Drones began the development of its drones for the logistics sector. This was driven by the need for the UAVs to deliver humanitarian aid in war and disaster zones. The company has now created prototypes which are in the process of being air tested and it has also developed 3 types of innovative engines. The system has been autopilot tested and the company is now working to finish further improved prototypes while thorough testing continues, to meet aviation specifications and standards.
Vira Drones already has customers such as the World Food Programme lined up to test its UAVs for the delivery of supplies in several African countries. In addition to the transport of supplies to drought or flood ravaged regions and other disaster zones, the UAVs will also play a vital role in rescue operations. Vira Drones has partnered with distributors such as Agility Prime, Senator International and Hevilift to name a few. In the logistics sector, ILUS has initial plans to commence sales to helicopter and drone companies for leasing. It then plans to launch a subscription service for cargo delivery (by number of flying hours). This business model is well suited to the logistics sector and there is already significant interest from the oil and gas industry for the delivery of supplies to oil rigs.
Once ILUS has successfully completed the development, testing and certification of its emergency response drone solutions, which will include its fire and rescue drones, it plans to offer them to the market via similar leasing and subscription services. This will make them more accessible to the emergency response industry whilst providing ongoing recurring revenue for Vira Drones.
The Vira Drones product range currently consists of the Vira M250, M500 and M750 which have a payload of 250kg, 500kg and 750kg respectively. The Vira M250 has a flight time of up to 4 hours. The Vira M1000 is currently in testing and will be able to transport 1000 kg for a flight time of up to 2 hours. Maximum speeds for the UAVs range from 125 to 150 km/h.
There are several significant disadvantages of light helicopters which strengthen the value proposition of the Vira Drones technology. Some of the disadvantages include high purchase, operation and maintenance costs, the requirement for highly skilled pilots, limited mobility in urban environments, geometric dimensions of the loading area, geometric limitations when maneuvering, dependance on weather conditions, the need to change angles when operating (cannot remain horizontal), increased difficulty of load centering and increased noise pollution.
The average purchase cost of a light helicopter is 10 times that of a Vira UAV whilst the operating costs are approximately 15 times more. The company has also developed technology for the control of multiple drones from a centralized point, further reducing cost and increasing the capability of the technology.
Vira Drones will continue to be managed by the two company founders, Valeriy Gorshkov and Igor Maslov, who respectively will remain CEO and CTO of the company. They will continue to be supported by their core team which includes a Lead Engine Designer, Head of Artificial Intelligence, and a Business Development Specialist. ILUS will focus initially on the patents, certifications, and the sales and marketing aspects of the business. The current management’s focus has been on the research and development of the technology and although there is enormous interest in the company’s technology, ILUS is already working on the improvement of the company’s branding, its website, technical documentation, and aggressive business development strategy, to name a few.
Given the trailblazing technology and mammoth potential gained through the acquisition of Vira Drones, ILUS has extraordinary plans for the company. ILUS believes that Vira Drones will transform the emergency response and logistics industry and its valuation should skyrocket as patents and certifications are awarded. ILUS believes that this and similar upcoming acquisitions will catapult its up-listing plans. The company will incorporate aspects of Vira Drones’ fire and rescue technology into its Emergency Response Technologies (ERT) business, whilst it will further develop the commercial drone business for logistics and transportation under a Vira Drones subsidiary within ILUS. The company is planning a third defense division which will transport supplies and equipment for the military, especially in volatile locations. There is already peaked interest in this capability. This third division is more than likely going to sit within a new subsidiary which ILUS management is currently working on and will expand on further at the company’s Annual Shareholder’s Meeting.
ILUS Managing Director, John-Paul Backwell, commented: “This acquisition has been going on behind the scenes for some time and is very exciting for the company to have completed. It is one of several exciting deals that we have been working on in-line with the technology advancement strategy which we have been communicating to our Shareholders for some time now.”
Nick Link, CEO of ILUS, added: “This is a massive leap forward for ILUS. The valuation of this acquisition is mind blowing and it will play an important role in accelerating many of our upcoming plans. We look forward to unveiling our more detailed roadmap for Vira Drones and how it fits into the bigger ILUS picture along with the similar deals which we will announce soon.” (Source: UAS VISION)
31 Jan 22. GomSpace (provider of nanosatellites) announces its quarterly results for the fourth quarter 2021. GomSpace Group AB (the “Company”) announces its interim report for the fourth quarter of 2021. The report is available on the Company’s homepage (www.gomspace.com). The following is taken from the quarterly report:
Fourth quarter summary
1 October – 31 December 2021 (2020)
- Order intake increased to T.SEK 286,667 (73,441)
- Net revenues increased to T.SEK 81,125 (72,256)
- Gross margin increased to 38% (33%)
- Operating profit (EBIT) increased to T.SEK 3,473 (310)
- Earnings per share were SEK 0.10 (a negative 0.08)
1 January – 31 December 2021 (2022)
- Order intake increased to T.SEK 552,959 (270,703)
- Net revenues increased to T.SEK 213,605 (194,576)
- Gross margin is 23% (24%)
- Operating profit (EBIT) is negative T.SEK 30,009 (a negative 30,261)
- Earnings per share were a negative SEK 0.50 (a negative 0.83)
- The Board proposes no dividend for 2021
- We almost reached our full-year outlook for 2021 of M.SEK 215-235 with full-year revenue of M.SEK 214
- In 2022, we expect to generate M.SEK 264-292 in revenue i.e., a growth of 30%
- In 2022, we expect EBIT margin to be better than -15%. Earnings next year will be impacted by increased investments in product development of standard products, which will improve margins in future projects.
- In November 2021, we signed a contract with Politecnico di Milano valued at M.SEK 5.8 to support the H.E.R.M.E.S. mission with products
- In December 2021, we signed a contract with Unseen Labs valued at M.SEK 8 to establish the next-generation satellite platform
- In December 2021, we signed a contract with the Colombian Air Force valued at M.SEK 6.1 for the continuation of the FACTSAT-2 satellite mission
- In December 2021, we signed a contract with ESA valued at M.EUR 24 to implement ESA SCOUT-1 mission for climate observation (CubeMAP)
“In the fourth quarter, the order intake was impressive M.SEK 287. As we communicated in the third quarter, we now have an even more robust and diversified order backlog with a value of M.SEK 540.
Revenue increased to M.SEK 81 compared to M.SEK 72 last year. We almost reached our full-year revenue guidance of M.SEK 215-235, with full-year revenue of MSEK 214.
In the quarter, we improved cash flow from primary operating activities with M.SEK 40 through improved working capital and operational performance.
We have concluded our second consecutive year with positive cash flow from operating activities. Even though the year started with a headwind due to the global shortage of components, we have improved our profitability and ended the fourth quarter with positive operating profit.
To improve our profitability, we continuously focus on decreasing non-recurrent engineering and increasing the R&D investment level and strive to reach GomSpace’s full operating and financial potential, with a higher degree of product content in our revenue stream. When we have fully productized, we will increase margin and scalability.” CEO Niels Buus commented. (Source: PR Newswire)
31 Jan 22. L3Harris Technologies Reports Fourth Quarter and 2021 Results; Initiates 2022 Guidance.
- Orders and revenue
o 2021 orders of $18.1bn; funded book-to-bill of 1.02
o Q4 revenue of $4.4bn, down 7% versus prior year, and down 1% on an organic basis; 2021 revenue of $17.8bn, down 2% versus prior year, and up 2% on an organic basis
- Margins and earnings
o Q4 GAAP net income margin of 11.1%, and GAAP earnings per share from continuing operations (EPS) of $2.46; 2021 GAAP net income margin of 10.3%, and GAAP EPS of $9.09
o Q4 non-GAAP adjusted earnings before interest and taxes (EBIT) margin of 19.2%, and non-GAAP EPS of $3.30; 2021 non-GAAP adjusted EBIT margin of 19.1%, and non-GAAP EPS of $12.95
- Cash flow and capital deployment
o 2021 operating cash flow of $2.7bn and adjusted free cash flow (FCF) of $2.75bn
o Returned $4.5bn to shareholders in share repurchases and dividends in 2021
- Initiated 2022 financial guidance
L3Harris Technologies, Inc. (NYSE: LHX) reported fourth quarter and 2021 results, and initiated its 2022 financial guidance.
“The L3Harris team delivered solid EPS growth, consistent with expectations, despite supply chain headwinds and budget uncertainty,” said Christopher E. Kubasik, Vice Chair and Chief Executive Officer. “In 2022, we look forward to taking the next step as the industry’s trusted disruptor to deliver innovative and affordable solutions, and with a focus on creating value over the long term.”
Fourth Quarter 2021 Results:
Revenue decreased 7% versus the prior year, primarily due to divestitures within Aviation Systems and supply chain-related constraints within Communication Systems, and decreased 1% on an organic basis. At the segment level, organic revenue was driven by Integrated Mission Systems and Space & Airborne Systems, up 6% and 2%, respectively, offset by a decline in Communication Systems and Aviation Systems, down 11% and 5%, respectively. Funded book-to-bill3 was 0.90 for the quarter.
Net income margin expanded 720 bps and adjusted EBIT margin expanded 70 bps to 19.2% versus the prior year. GAAP EPS increased 167% to $2.46 driven primarily by prior-year charges for the impairment of intangibles, goodwill, and other assets related to the commercial aerospace business and other COVID-related impacts. Non-GAAP EPS increased 5% to $3.30 versus the prior year driven by e3 performance, integration benefits, expense management, and a lower share count, more than offsetting supply chain and divestiture-related impacts.
Full Year 2021 Results:
Revenue decreased 2% versus the prior year, primarily due to divestitures within Aviation Systems and supply chain-related constraints within Communication Systems, and increased 2% on an organic basis. At the segment level, organic revenue was driven by Integrated Mission Systems and Space & Airborne Systems, up 5% and 3%, respectively, partially offset by a decline in Communication Systems and Aviation Systems, down 3% and 2%, respectively. Funded book-to-bill was 1.02 for the year.
Net income margin expanded 430 bps and adjusted EBIT margin expanded 110 bps to 19.1% versus the prior year. GAAP EPS increased 75% to $9.09 driven primarily by prior-year charges for the impairment of goodwill and other assets and other COVID-related impacts. Non-GAAP EPS increased 12% to $12.95 versus the prior year driven by e3 performance, integration benefits, and a lower share count, more than offsetting supply chain and divestiture-related impacts as well as higher R&D investments.
Integrated Mission Systems
Fourth Quarter 2021 Results:
Revenue increased 6% from strong growth in ISR, driven by aircraft missionization on a NATO program, and in Electro Optical from higher product deliveries, partially offset by classified program timing in Maritime. Operating income increased 24% to $259 m, and operating margin expanded 230 bps to 16.6% versus the prior year from e3 and program performance, expense management, and integration benefits. Segment funded book-to-bill was 0.85.
Key contract awards in the fourth quarter included:
- Approximately $350m in orders for advanced ISR capabilities across incumbent platforms, such as the Rivet Joint reconnaissance, National Command Authority, Compass Call and classified aircraft, further solidifying the company’s position as a partner of choice with the U.S. Air Force
- More than $200m in orders for WESCAM airborne, maritime and ground sensor systems from both domestic and international customers across key regions
- More than $150m in follow-on awards for power systems on the U.S. Navy’s Columbia and Virginia-class submarines, increasing inception-to-date awards on the platforms to over $850m
- Approximately $70m in follow-on orders to provide additional ISR aircraft and missionization capabilities to a NATO customer, increasing total orders for the year to over $600m
- $70m Indefinite Delivery, Indefinite Quantity (IDIQ) contract to provide sensor sustainment services in support of the AC-130 platform
Full Year 2021 Results:
Revenue increased 5% from strong growth in ISR, driven by aircraft missionization on a NATO program, and in Maritime from a ramp on key platforms, along with higher product deliveries in Electro Optical. Operating income increased 12% to $950m, and operating margin expanded 100 bps to 16.3% versus the prior year from e3 and program performance, expense management, and integration benefits. Segment funded book-to-bill was 1.00.
Fourth Quarter 2021 Results:
Revenue increased 2% versus the prior year driven by Space from a ramp on missile defense and other responsive programs. This growth was partially offset by the transition towards modernization programs within the airborne businesses, and classified program timing in Intel & Cyber. Operating income decreased 4% to $235m, and operating margin contracted 120 bps to 18.3% versus the prior year as e3 performance, higher pension income, and integration benefits were more than offset by expense timing and mix impacts from growth programs. Segment funded book-to-bill was 0.95.
Key contract awards in the fourth quarter included:
- More than $275m in orders on long-term airborne platforms (F-35, F/A-18, F-16, and B-52), including modernization and development, increasing total orders for the year to over $1.1bn
- More than $225m in classified responsive and exquisite space awards, potentially leading to multi-billion-dollar follow-on opportunities
- $125m award from the U.S. Space Force for ground-based, deployable electronic warfare systems to safeguard U.S. military operations and warfighters
- Approximately $100m award to provide three fully-digital navigation payloads to be integrated into GPS III follow-on space vehicles
- Approximately $100m, sole-source IDIQ contract from the U.S. Navy for next-generation shipboard electronic attack systems to counter anti-ship missile threats
Full Year 2021 Results:
Revenue increased 3% versus the prior year and on an organic basis driven by Space from a ramp on missile defense and other responsive programs, as well as classified growth in Intel & Cyber. This growth was partially offset by the transition towards modernization programs within the airborne businesses. Operating income increased 4% to $970m, and operating margin expanded 20 bps to 19.0% versus the prior year from e3 performance, higher pension income, and integration benefits, net of higher R&D investments and mix impacts from growth programs. Segment funded book-to-bill was 1.03.
Fourth Quarter 2021 Results:
Revenue decreased 11% due to anticipated product delivery delays from supply chain-related constraints mainly within Tactical Communications, lower volume on legacy platforms in Broadband Communications, contract roll-offs in Global Communications Solutions, and delivery timing within Integrated Vision Solutions. This decline was partially offset by higher sales in Public Safety. Operating income decreased 15% to $253m, and operating margin contracted 100 bps to 24.9% versus the prior year as e3 performance and integration benefits were more than offset by supply chain impacts and higher R&D investments. Segment funded book-to-bill was 0.97.
Key contract awards in the fourth quarter included:
- More than $250m, five-year, sole-source IDIQ contract from the U.S. Defense Logistics Agency for legacy radios and accessories
- Approximately $225m to provide advanced multi-channel Falcon IV® handheld radios, sustainment services, and other upgrades to international customers across key regions, reflecting a ramp in modernization
- More than $80m from the U.S. Special Operations Command, including a contract to integrate modernized software-defined manpack radios into MH-47 and MH-60 aircraft, and follow-on production orders under the Next Generation Tactical Communications multi-channel manpack IDIQ contract
- Approximately $40m in follow-on production orders under the U.S. Army’s multi-bn-dollar HMS Manpack and two-channel Leader radio IDIQ contracts
- Approximately $40m to provide video data link systems to international customers in the Asia-Pacific and European regions
Full Year 2021 Results:
Revenue decreased 4% versus the prior year and 3% on an organic basis due to product delivery delays from supply chain-related constraints mainly within Tactical Communications and lower volume on legacy unmanned platforms in Broadband Communications, along with a modest decline in Public Safety. This decline was partially offset by U.S. DoD modernization growth within Global Communications Solutions, with flat revenue in Integrated Vision Solutions. Operating income increased 1% to $1,092m, and operating margin expanded 110 bps to 25.5% versus the prior year from e3 performance and integration benefits, net of supply chain impacts and higher R&D investments. Segment funded book-to-bill was 1.10.
Fourth Quarter 2021 Results:
Revenue decreased 37% versus the prior year due to divestitures, and decreased 5% on an organic basis from contract roll-offs and delayed awards within Defense Aviation, as well as lower FAA volume in Mission Networks. This decline was partially offset by a recovery in training and avionics product sales within the commercial aerospace business. The increase in GAAP operating income was driven by the prior-year impairment of goodwill and other assets related to the commercial aerospace business, and other COVID-related impacts, as well as expense management, net of divestitures. Non-GAAP operating income decreased 39% to $77m primarily due to divestitures, and non-GAAP operating margin contracted 50 bps to 14.4% versus the prior year as expense management, commercial aerospace recovery, and integration benefits were more than offset by divestitures. Segment funded book-to-bill was 0.79.
Key contract awards in the fourth quarter included:
- Approximately $90m classified award for next-generation systems, reflecting a key revenue synergy for the company and potentially leading to multi-bn-dollar follow-on opportunities
- More than $50m in follow-on production awards for fuzing and ordnance systems from the U.S. DoD
Full Year 2021 Results:
Revenue decreased 19% versus the prior year due to divestitures, and decreased 2% on an organic basis driven by lower volume on divested businesses, as well as COVID-related impacts in the commercial aerospace business. This decline was partially offset by higher FAA volume in Mission Networks. The increase in GAAP operating income was driven by the prior-year impairment of goodwill and other assets related to the commercial aerospace business, and other COVID-related impacts, as well as e3 performance, net of divestitures. Non-GAAP operating income decreased 13% to $412m primarily due to divestitures, and non-GAAP operating margin expanded 100 bps to 14.8% versus the prior year as e3 performance, expense management, and integration benefits more than offset divestitures. Segment funded book-to-bill was 0.90.
Cash Generation and Capital Deployment
In the fourth quarter of fiscal 2021, L3Harris generated $822m in operating cash flow and $758m in adjusted free cash flow2, and returned $999m to shareholders through $800m in share repurchases and $199 m in dividends. For the full year, the company generated $2.7bn in operating cash flow and $2.75bn in adjusted free cash flow, and returned $4.5bn to shareholders through $3.7bn in share repurchases and $817m in dividends.
L3Harris also completed the divestitures of the ESSCO and Narda-MITEQ businesses, with total gross proceeds in the quarter of $130m, contributing to gross proceeds from post-merger portfolio shaping of approximately $2.8bn. (Source: BUSINESS WIRE)
31 Jan 22. Raytheon Technologies (RTX), BUY, $89.28 PT: $105.00. 2021 met expectations even as several defense and comml cos missed. RTX generated $5BN in FCF in 2021 with the goal of 20% growth and $6bn anticipated in 2022, driven by higher profit of $1.1bn. 2021 revs could grow 8% organically w/ EBIT up 14% to $8.3bn. Our ests. are in line with mgmt w/ one exception. Our AM assumptions are at the low-end, resulting in EPS of $4.70 vs mgmt guidance range of $4.60-$4.80. RTX trades at an 11% disct to peers’ avg EV/EBITDA.
Revising Ests on Lower Collins Profitability. Our 2022 EPS est. moves to $4.70 from $5.00 to reflect lower incrementals at Collins (-$0.14 vs prior est), coupled with lower Pratt AM and Military growth (-$0.05) and -$0.06 from below-the-line items.
2022 H2-Weighted due to Near-Term Supply Chain Issues. Revs grew 4% organically in Q4 w/ 8% organic growth anticipated in 2022E. We forecast 2022 sales of $69.6bn w/ the Aerospace franchise up 12% and Defense advancing 4% organically (+1% including a 3-pt headwind from RIS Services). 2022 is expected to be a H2-weighted year again due to supply chain headwinds in H1:22 reflecting labor shortages for skilled welders and casting workers in Commercial, as well as disruptions in Defense. As we look forward, EPS rises to $6.40 by 2024. This reflects comm’l AM sales surpassing its 2019 peak by 5%, while OE remains 14% below. We est. a 3% CAGR for the defense businesses (RMD + RIS) over the period. Conservatism in Our AM Expectation Up 20% at Collins vs. Guidance >20%. RTX expects global air traffic to exit 2022 at 90% of 2019 levels, well ahead of our estimate (and IATA) of 75% (Ex. 1). We assume 2022 domestic traffic at 95% of 2019 levels, rising to 107% in 2023, relatively in line with RTX. However, we expect international traffic at just 45% of 2019 levels through 2022, rising to 72% in 2023. International traffic was 25% of 2019 levels in 2021. This implies a Q4:22 exit rate well shy of RTX’s assumption of 75-80%. Our more moderate expectations for the int’l recovery put us at the low-end of guidance with a 20% increase in Collins Commercial AM, reaching 86% of 2019 levels to exit the year, 11-pts above ASKs in line with the gap exiting 2021. However, ASKs have historically trended within 1-pt of AM revenues, implying some risk to the downside if pre-buy normalizes.
Cash Supports Deployment with 20% Growth in FY22. We forecast 2022 FCF of $6bn, up 20% y-o-y, assuming $68m WC usage in 2022 vs. WC usage of $278bn in 2021, coupled w/ $1.1bn net income growth. Capex guidance was $2.5bn due to timing of projects vs $2.1bn in 2021. We est FCF rises to $7.3bn through 2024 w/ the main driver $2.1bn of incremental NI relative to 2021. FCF/share is expected at $4.01 in 2022E rising to $5.11 in 2024E, at a 16% CAGR vs Defense peers’ average of 9% (Ex 43). Cap deployment is embedded into our estimates, with nearly 100% returned to shareholders (similar to large-cap peers) as $19BN deployed via dividends and share repo in 2022-24E.
Trading at an 11% Discount to Peers. If we take peer average multiples on a SOTP value of $117, or 30% upside (Ex. 45). RTX is currently trading at an 11% discount to peers’ average 2023 EV/EBITDA (Ex. 46). (Source: Jefferies)
31 Jan 22. QinetiQ Voted Highest on List of Defence and Aerospace Companies. With the award announcements made last Friday by Britain’s oldest and apparently most referenced survey of corporate reputations, namely the annual ‘Most Admired Companies’ survey list and one that I am told is the oldest of its type, it was pleasing to see that QinetiQ had been voted as the highest and most well thought of company in the aerospace and defence category and 48th on the list overall.
Established in 1990, the ‘Most Admired Companies’ annual survey of corporate reputation uses criteria to make its judgement that includes Quality of Products and Services, Ability to Attract, Develop & Retain Top Talent, Capacity to Innovate, Effective use of Corporate Assets, Inspirational Leadership, Competitiveness, Effective Corporate Governance and Commitment to Diversity, Equity & Inclusion. The survey is apparently voted on by a mix of 300 board representatives, analysts and ‘city’ commentators.
While not something that I would normally have chosen to write on, what sparked my interest this morning was not only that QinetiQ had been voted in 48th position in the overall list of 280 leading British companies, one that covers 27 different sectors and that the company had come out top of all those within the aerospace and defence sector but that of companies comprises or should I say, resembles a list of FTSE100 and FTSE250 companies. Nothing wrong with that of course but what about the hundreds of thousands of other British based companies and exporters that are also doing a very good job for their employees, customers, the economy and society as a whole?
Meanwhile, other notable performances on the list of ‘Most Admired Companies’ this year include BAE Systems, Meggitt, Rolls-Royce, Smiths Group, Babcock International, Chemring, Cobham, Ultra Electronics and Senior Engineering. All of these companies are widely respected for what they achieve and are huge employers but collectively, so too of thousands and thousands of small and medium sized companies whose work and success so easily gets ignored.
All credit to QinetiQ though and I am genuinely pleased that its route to success has been recognised. Headquartered in Farnborough, QinetiQ is a long-established company that provides a large range of expertise and services particularly within test and evaluation and innovative technology-based products.
The QinetiQ mantra is one of deploying scientific and technological knowledge, proven research capabilities and unique, purpose-built facilities to provide both services and products that meet the needs of a wide range of UK and international customers including the UK MOD and many other defence organisations. The mission is to be a world-class enabler of growth, competitiveness and sustainable global business delivery. Covering a wide range of sectors across defence, aviation, energy and utilities, marine, space, telecoms and that include specialism in mission led innovation and data, cyber and digital resilience, QinetiQ employs over 6,000 highly skilled personnel worldwide and a long record of success.
Earlier this month QinetiQ updated investors on current year trading performance as likely to be ‘in-line with previous expectations’ and that it now had more certainty in relation to one particularly difficult and complex contract situation although it still anticipated taking a £14.5m charge in the full-year results to March 31 2022 and that are expected to be published on the 19th May.
So back to the awards. I suspect that what concerns me most about this type of well publicised award is that while it singles out large companies within the list of 280 companies it completely fails to address the small and medium sized enterprises and none quoted privately owned companies, many of whom in their consistency and approach, quality of product, employment values, social and governance, capacity to innovate that while smaller, are no less important in the context of being admired for what they achieve.
I am not in any way knocking deserved success and companies such as QinetiQ and all those others on the list of ‘Most Admired Companies’ deserve to be recognised for what they are, what they are achieving and what, in the eyes of others, they are doing right.
But we should in my view start placing much greater emphasis on some of the huge number of success stories to be found in privately owned unquoted companies. Small many of them may well be but these companies are after all the lifeblood of for what makes everything else tick. Many, though I am sure not all, are not only very good employers and would love to be better recognised for what they achieve and the excellence of what they attempt to do in these more difficult and trying times! (Source: Howard Wheeldon, FRAeS, Wheeldon Strategic Advisory Ltd.)
27 Jan 22. New, Satellite-Focused Business Lines Debut From Comtech. Comtech Telecommunications Corp. (NASDAQ: CMTL) has established two business units that are focused on exploiting long-term and growing business opportunities in the satellite ground station market. These two new business units, each of which will have its own agile and nimble business structure, will formalize and improve Comtech’s ability to serve U.S. and allied governments as a defense contractor and will facilitate the establishment of a major innovation center for Comtech’s growing commercial, VSAT platforms.
Daniel Gizinski and Dr. Vagan Shakhgildian have been appointed Presidents of two, recently created, U.S. and Canadian-based subsidiaries, respectively.
“Our customers expect Comtech to apply expertise and state-of-the-art technology to address their complex challenges,” said Comtech Chief Executive Officer and President, Michael Porcelain. “This is especially the case for satellite and defense-related hardware and government contracts, both in the VSAT arena and more broadly. This organizational shift is the latest example of how Comtech is transforming itself to anticipate and meet the changing needs of our end markets. I congratulate both Daniel and Vagan for taking on these new roles and share a sense of 1 momentum as we move toward a very bright future.”
About Comtech Satellite Network Technologies, Inc. (a U.S. Corporation)
Daniel Gizinski will serve as President of this unit which will be based in the firm’s new, state-of-the-art, Chandler, Arizona high-volume manufacturing and technology facility as well as the existing Santa Clara, California facility. Mr. Gizinski will lead a team focused on providing integrated, satellite-based solutions for government and commercial customers who have a need to rely on technologies developed and manufactured in-house at Comtech’s facilities based in the United States. This business unit brings together a full range of Comtech’s satellite Earth station products, including EF Data and Radyne branded modem lines and all of Comtech’s XICOM branded, solid-state and traveling-tube wave satellite amplifiers.
About Comtech Satellite Network Technologies Corp. (a Canadian Corporation)
Dr. Vagan Shakhgildian will serve as President of this unit which will be based in a new technology center located in Montreal, Quebec. Dr. Shakhgildian will lead a team focused on streamlining, accelerating and capturing commercial networking opportunities for VSAT platforms and building out an innovation center for Comtech’s commercial satellite Earth station communications technologies. This business unit brings together Comtech’s VSAT products, including Heights™, UHP and Memotec branded, satellite networking solutions.
Daniel Gizinski first joined Comtech in August of 2019 and has served in a variety of senior management positions, including Vice President of Product and Strategy for Comtech Systems Inc., where he oversaw the rollout of the Comtech COMET™, the world’s smallest, over-the-horizon (OTH) microwave, troposcatter terminal. Prior to joining Comtech, Daniel held program management and leadership roles at L3Harris Technologies, Sierra Nevada Corporation and General Electric. Daniel holds a Bachelor’s degree in Electrical Engineering from the University of Virginia and a Master’s degree from Duke University.
Dr. Vagan Shakhgildian first joined Comtech in March of 2021 as part of the acquisition of Canada-based UHP Networks. As the CEO of UHP Networks, he led the company from a virtual start-up to a market leader in high performance VSAT systems. Prior to that, Dr. Shakhgildian was the President and Chief Operating Officer of Advantech Wireless, Head of Research at Adaptive Broadband and held senior R&D positions with Motorola and Signal Processors. Dr. Shakhgildian holds advanced degrees in mathematics and electronic engineering, as well as an MBA from the London Business School.
Comtech Telecommunications Corp. is a leading global provider of next-generation 911 emergency systems and secure wireless communications technologies to commercial and government customers around the world. Headquartered in Melville, New York, Comtech designs, produces and markets advanced and secure wireless solutions. (Source: Satnews)
24 Jan 22. Network Innovations Acquires STS Global, Inc. Network Innovations has acquired STS Global Inc., an experienced global ground systems integration company that offers turnkey network systems and engineering design.
Over the years, STS Global has provided services to connect clients in remote locations, transmit crucial data, provide secure networks and more to ensure reliable services anywhere on earth.
Network Innovations’ will complement STS Global’s capabilities in integration and engineering design, as they continue to operate under their existing management team. By leveraging the combined expertise of each company, this partnership will enhance the creation and delivery of reliable communication to our media, enterprise, government, and other markets.
For Network Innovations, the decision to acquire STS Global completes a critical part of its strategy in strengthening partnerships and enabling clients to operate anywhere.
“Network Innovations proudly welcomes STS Global, including Mr. David Hershberg, the current management, and its’ team, to Network Innovations. This acquisition offers great potential in the markets we serve and I’m confident that STS Global will find benefits from the additional capabilities and resources NI can offer,” said Derek Dawson, President, Network Innovations.
David Hershberg, CEO of STS Global, said, “We are glad to be part of the Network Innovations team. This new venture will enable our customers to leverage the expertise of both companies to receive more customized services and solutions with a focus on the customer’s mission.” Hermes Capital Advisors, Securities Offered through Arcadia Securities, LLC, acted as financial advisor to STS Global in connection with this transaction.
Since 1989, Network Innovations has grown to be a global leader in connecting people, places, and things with always available solutions. Our dedicated specialists have the depth of training and experience to design, build, and execute the most successful technology solutions for the unique needs of government and defense, public safety, oil and gas, media, mining, utilities, maritime and recreation and leisure. We are a trusted partner empowering our clients to Succeed. Anywhere.
STS Global Inc. is a telecom, satellite, and media solutions company, bringing a knowledge-based value proposition to a global set of clients. Our experience gained from completing hundreds of systems integration projects and developing pre-engineered products has enabled us to refine our designs, add features and improve performance. This integration and engineering design expertise, combined with our managed network and life cycle support services, allows us to provide our customers with a complete end-to-end solution. We have a reputation of being very customer responsive and meeting all customer expectation. (Source: Satnews)
TCI International, Inc., is a wholly-owned subsidiary of SPX Corporation. TCI provides turn-key solutions for spectrum management and monitoring, direction finding, geolocation and communications intelligence to civilian, government, military and intelligence agencies as well as antennas for communications and high-power radio broadcasting. TCI is headquartered in Fremont, California, USA. For more information, visit www.tcibr.com.