EL SEGUNDO, Jul 27, 2020 (GLOBE NEWSWIRE via COMTEX) -- Aerojet Rocketdyne Holdings, Inc. /zigman2/quotes/205342146/composite AJRD +0.50% today reported results for the three months ended June 30, 2020.
Three months ended June 30, Six Months ended June 30, 2020 2019 2020 2019 (In millions, except percentage and per share amounts) Net sales $ 512.4 $ 485.0 $ 988.5 $ 976.7 Net income 39.2 44.1 70.6 82.8 Net income as a percentage of net sales 7.7 % 9.1 % 7.1 % 8.5 % Adjusted Net Income (Non-GAAP measure*) 38.5 41.4 67.9 77.7 Adjusted Net Income (Non-GAAP measure*) as a percentage of net sales 7.5 % 8.5 % 6.9 % 8.0 % Earnings Per Share ("EPS") - Diluted 0.47 0.54 0.84 1.01 Adjusted EPS (Non-GAAP measure*) 0.46 0.50 0.81 0.95 Adjusted EBITDAP (Non-GAAP measure*) 76.3 78.4 138.7 149.4 Adjusted EBITDAP (Non-GAAP measure*) as a percentage of net sales 14.9 % 16.2 % 14.0 % 15.3 % Cash provided by operating activities 144.7 48.9 127.6 31.2 Free cash flow (Non-GAAP measure*) 131.5 43.5 111.4 24.3
* The Company provides Non-GAAP measures as a supplement to financial results based on accounting principles generally accepted in the United States ("GAAP"). A reconciliation of the Non-GAAP measures to the most directly comparable GAAP measures is included at the end of the release.
"Q2 2020 was a great quarter for Aerojet Rocketdyne," said Eileen Drake, CEO and President of Aerojet Rocketdyne Holdings, Inc. "Sales in the quarter were up 6% year over year primarily driven by growth in defense programs, including GMLRS and MRBM. Margins in the quarter were a solid 14.9%, reflecting a continued focus on strong program performance. Backlog has once again reached an all-time high - $6.8 billion at quarter end. Included in our backlog was the NASA contract modification award received in May to produce an additional 18 RS-25 engines in support of deep space exploration missions. Free cash flow of $131.5 million was excellent in the quarter, bringing year-to-date free cash generation to $111.4 million compared with $24.3 million in the first six months of 2019."
"The safety protocols that were put in place during the first quarter to combat the potential disruption impact of COVID-19 continue," Drake added. "The majority of our non-touch employees still work remotely and we continue to enforce various safety protocols for those employees who are on site. The safety and health of our employees is our number one priority and I couldn't be more pleased with our employees' demonstrated ability to maintain the focus on safety as well as on continuing to deliver excellent performance to our customers and drive improvements and efficiencies across our operations."
Second quarter of 2020 compared with second quarter of 2019
The increase in net sales was primarily driven by the Guided Multiple Launch Rocket System ("GMLRS") and Medium Range Ballistic Missile ("MRBM") programs partially offset by a decline in the Redesigned Exoatmospheric Kill Vehicle ("RKV") program which was canceled in 2019.
The decrease in net income was impacted by (i) risk retirements in the prior period on the Terminal High Altitude Area Defense ("THAAD") and Standard Missile programs and (ii) higher retirement benefits expense, partially offset by lower stock-based compensation. The Company had $11.4 million of net favorable changes in contract estimates on net income in the current period compared with net favorable changes of $19.0 million in the second quarter of 2019.
First half of 2020 compared with first half of 2019
The increase in net sales was primarily driven by the GMLRS and RS-25 programs partially offset by a decline in the RKV program which was canceled in 2019.
The decrease in net income was impacted by the following: (i) cost growth on a portion of the Standard Missile program in 2020; (ii) risk retirements in 2019 on the THAAD and Standard Missile programs; (iii) the reserve release upon the final AJ-60 solid rocket motor delivery in 2019; and (iv) higher retirement benefits expense, partially offset by lower stock-based compensation. The Company had $13.3 million of net favorable changes in contract estimates on net income in the current period compared with net favorable changes of $28.7 million in the first half of 2019.
As of June 30, 2020, the Company's total remaining performance obligations, also referred to as backlog, totaled $6.8 billion compared with $5.4 billion as of December 31, 2019. The increase in backlog was due to a $1.8 billion contract modification for the production of an additional 18 RS-25 engines to support future deep space exploration missions. The Company expects to recognize approximately 30%, or $2.1 billion, of the remaining performance obligations as sales over the next twelve months, an additional 22% the following twelve months, and 48% thereafter. A summary of the Company's backlog is as follows:
June 30, 2020 December 31, 2019 (In billions) Funded backlog $ 3.2 $ 2.1 Unfunded backlog 3.6 3.3 Total backlog $ 6.8 $ 5.4
Total backlog includes both funded backlog (unfilled orders for which funding is authorized, appropriated and contractually obligated by the customer) and unfunded backlog (firm orders for which funding has not been appropriated). Indefinite delivery and quantity contracts and unexercised options are not reported in total backlog. Backlog is subject to funding delays or program restructurings/cancellations which are beyond the Company's control.
During the three and six months ended June 30, 2020, the Company's financial results and operations were not materially adversely impacted by the coronavirus ("COVID-19") pandemic. The safety and welfare of employees remains a top priority, and the Company has continued to follow its established safety protocol, which includes selected and site-specific work and travel restrictions, in addition to other measures intended to reduce the spread of COVID-19. The Company has also continued to evaluate new opportunities to protect its employees. Although the Company has not experienced significant absenteeism or supply chain disruption, the extent to which the COVID-19 pandemic impacts the Company's financial results and operations for 2020 and beyond depends on future developments which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the pandemic and the actions being taken to contain and treat it, and other indirect effects that may come as a result of actions taken by governments, companies, and individuals in response to the pandemic and its economic impact.
This release contains certain "forward-looking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995. Such statements in this release and in subsequent discussions with the Company's management are based on management's current expectations and are subject to risks, uncertainty and changes in circumstances, which could cause actual results, performance or achievements to differ materially from anticipated results, performance or achievements. All statements contained herein and in subsequent discussions with the Company's management that are not clearly historical in nature are forward-looking and the words "anticipate," "believe," "expect," "estimate," "plan," and similar expressions are generally intended to identify forward-looking statements. A variety of factors could cause actual results or outcomes to differ materially from those expected and expressed in the Company's forward-looking statements. Important risk factors that could cause actual results or outcomes to differ from those expressed in the forward-looking statements include, but are not limited to, the following:
-- the COVID-19 pandemic and its impact on economic and other conditions worldwide, including global spending, sourcing and the business operations of the Company and its customers and suppliers, among others;
-- reductions, delays or changes in U.S. government spending;
-- cancellation or material modification of one or more significant contracts;
-- cost overruns on the Company's contracts that require the Company to absorb excess costs;
-- changes in estimates related to contract accounting;
-- failure to secure contracts;
-- failure of the Company's subcontractors or suppliers to perform their contractual obligations;
-- failure to comply with regulations applicable to contracts with the U.S. government;
-- the release, unplanned ignition, explosion, or improper handling of dangerous materials used in the Company's businesses;
-- loss of key qualified suppliers of technologies, components, and materials;
-- failure of the Company's information technology infrastructure, including a successful cyber-attack, accident, unsuccessful outsourcing of certain information technology and cyber security functions, or security breach that could result in disruptions to the Company's operations;
-- the Company's Competitive Improvement Program may not be successful in aligning the Company's operations to current market conditions;
-- the funded status of the Company's defined benefit pension plan and the Company's obligation to make cash contributions in excess of the amount that the Company can recover in its current period overhead rates;
-- effects of changes in discount rates and actuarial estimates, actual returns on plan assets, and government regulations on defined benefit pension plans;
-- costs and time commitment related to potential and/or actual acquisition activities may exceed expectations;