HII Reports First Quarter 2023 Results

• Record first quarter revenues of $2.7 billion, up 3.8% compared to first quarter 2022
  
• Net earnings of $129 million or $3.23 diluted earnings per share
• Awarded $1.3 billion contract for amphibious transport dock LPD 32
• Company reaffirms FY23 guidance expectations1

NEWPORT NEWS, Va., May 04, 2023 (GLOBE NEWSWIRE) -- HII (NYSE:HII) reported first quarter 2023 revenues of $2.7 billion, up 3.8% from the first quarter of 2022, driven by growth at Newport News Shipbuilding and Mission Technologies.

Operating income in the first quarter of 2023 was $141 million and operating margin was 5.3%, compared to $138 million and 5.4%, respectively, in the first quarter of 2022. The increase in operating income was primarily driven by favorable changes to the operating FAS/CAS adjustment and non-current state income taxes compared to the prior year, partially offset by lower segment operating income2.

Segment operating income2 in the first quarter of 2023 was $156 million and segment operating margin2 was 5.8%, compared to $176 million and 6.8%, respectively, in the first quarter of 2022. The decrease in segment operating income2 was driven primarily by lower risk retirement at Ingalls Shipbuilding following the delivery of USS Fort Lauderdale (LPD 28) in the first quarter of 2022.

Net earnings in the quarter were $129 million, compared to $140 million in the first quarter of 2022. Diluted earnings per share in the quarter was $3.23, compared to $3.50 in the first quarter of 2022. The decrease in diluted earnings per share was driven by a less favorable non-operating retirement benefit in the current quarter.

Net cash used in operating activities in the quarter was $9 million and free cash flow2 was negative $49 million, compared to cash used in operating activities of $83 million and negative free cash flow2 of $126 million in the first quarter of 2022.

New contract awards in the first quarter of 2023 were approximately $2.6 billion, bringing total backlog to approximately $47.0 billion as of March 31, 2023.

“First quarter results reflect a good start to the year, as we stay on course executing our nearly $50 billion of backlog and growing our Mission Technologies business in markets that support our customers,” said Chris Kastner, HII’s president and CEO. "Our priority continues to be a focus on the fundamentals in shipbuilding and delivery of critically needed assets to the fleet. Our shipbuilding milestones for 2023 and 2024 remain on track as we work closely with the Navy to optimize the delivery schedule for aircraft carrier John F. Kennedy."

1The financial outlook, expectations and other forward looking statements provided by the company for 2023 and beyond reflect the company's judgement based on information available at the time of this release.
2Non-GAAP measures. See Exhibit B for definitions and reconciliations.

Results of Operations

Segment Operating Results

Ingalls Shipbuilding

Ingalls Shipbuilding revenues for the first quarter of 2023 were $577 million, a decrease of $54 million, or 8.6%, from the same period in 2022, primarily driven by lower revenues in amphibious assault ships and the Legend-class National Security Cutter (NSC) program, partially offset by higher revenues in surface combatants. Revenues on amphibious assault ships decreased due to lower volumes on USS Fort Lauderdale (LPD 28), Bougainville (LHA 8), amphibious ship planning yard services contract and Richard M. McCool Jr. (LPD 29), partially offset by higher volumes on Fallujah (LHA 9) and LPD 32 (unnamed). Revenues on the NSC program decreased due to lower volume on Friedman (NSC 11). Revenues on surface combatants increased due to higher volumes on George M. Neal (DDG 131), Jeremiah Denton (DDG 129), John F. Lehman (DDG 137) and Ted Stevens (DDG 128), partially offset by lower volumes on Lenah Sutcliffe Higbee (DDG 123) and USS Jack H. Lucas (DDG 125).

Ingalls Shipbuilding segment operating income1 for the first quarter of 2023 was $55 million, a decrease of $31 million from the same period in 2022. Segment operating margin1 in the first quarter of 2023 was 9.5%, compared to 13.6% in the same period last year. The decrease was primarily driven by lower risk retirement on USS Fort Lauderdale (LPD 28), which was delivered in the first quarter of 2022, and Bougainville (LHA 8).

Key Ingalls Shipbuilding milestones for the quarter:

• Awarded $1.3 billion detail design & construction contract for LPD 32 (unnamed)
• Awarded $10.5 million modernization planning contract for Zumwalt-class guided missile destroyers,
  USS Zumwalt (DDG 1000) and USS Michael Monsoor (DDG 1001)

1Non-GAAP measures. See Exhibit B for definitions and reconciliations.

Newport News Shipbuilding

Newport News Shipbuilding revenues for the first quarter of 2023 were $1.5 billion, an increase of $116 million, or 8.3%, from the same period in 2022, primarily driven by higher revenues in aircraft carriers and submarines, partially offset by lower revenues in naval nuclear support services. Aircraft carrier revenues increased primarily as a result of higher volumes on the refueling and complex overhaul (RCOH) of USS John C. Stennis (CVN 74) and the construction of Doris Miller (CVN 81), Enterprise (CVN 80) and John F. Kennedy (CVN 79), partially offset by lower volume on the RCOH of USS George Washington (CVN 73). Submarine revenues increased due to higher volumes on the Block V boats of the Virginia-class submarine (VCS) program and the Columbia-class submarine program, partially offset by lower volumes on Block IV boats of the VCS program. Naval nuclear support services revenue decreased primarily as a result of lower volumes in carrier fleet support services.

Newport News Shipbuilding segment operating income1 for the first quarter of 2023 was $84 million, an increase of $3 million from the same period in 2022. Segment operating margin1 in the first quarter of 2023 was 5.6%, compared to 5.8% in the same period last year. The increase in segment operating income1 was primarily due to higher sales volume across all programs, partially offset by unfavorable risk retirement on the Enterprise (CVN 80).

Key Newport News Shipbuilding milestones for the quarter:

• Broke ground on a new multi-class submarine production facility to support the construction and delivery of Columbia-class and Virginia-class submarines
• Reached approximate 99% completion of the RCOH of USS George Washington (CVN 73)
• Reached approximate 89% completion of John F. Kennedy (CVN 79) based on current scope and schedule
  

1Non-GAAP measures. See Exhibit B for definitions and reconciliations.

Mission Technologies

Mission Technologies revenues for the first quarter of 2023 were $624 million, an increase of $34 million, or 5.8%, from the same period in 2022. The increase was primarily due to higher volumes in Mission Based Solutions, which includes our C5ISR, Cyber and Electronic Warfare and Live, Virtual, and Constructive Solutions businesses, as well as higher volumes in Fleet Sustainment.

Mission Technologies segment operating income1 for the first quarter of 2023 was $17 million, compared to $9 million in the first quarter of 2022. Segment operating margin1 in the first quarter of 2023 was 2.7%, compared to 1.5% in the same period last year. The increases were primarily driven by improved performance in Mission Based Solutions and Unmanned Systems and higher equity income from Nuclear and Environmental joint ventures, partially offset by lower performance in Fleet Sustainment.

Mission Technologies results included approximately $27 million of amortization of purchased intangible assets in the first quarter of 2023, compared to approximately $30 million in the same period last year. Mission Technologies EBITDA margin1 in the first quarter of 2023 was 8.0%.

Key Mission Technologies milestones for the quarter:

• Awarded a $1.3 billion ASTRO task order for U.S. Africa Command (USAFRICOM) Personnel Recovery Enterprise Services and Solutions (PRESS)
• Awarded a $70.8 million follow-on contract with the Air Force Nuclear Weapons Center to provide professional and engineering support for key storage, security and infrastructure systems

1Non-GAAP measures. See Exhibit B for definitions and reconciliations.

2023 Financial Outlook1

• Reaffirming prior 2023 outlook expectations
• Expect FY23 shipbuilding revenue2 between $8.4 and $8.6 billion; expect shipbuilding operating margin2 between 7.7% and 8.0%
• Expect FY23 Mission Technologies revenue of approximately $2.5 billion, Mission Technologies segment operating margin2 between 2.5% and 3.0%, and Mission Technologies EBITDA margin2 between 8.0% and 8.5%
• Expect FY23 free cash flow2 between $400 and $450 million3
  
• Continue to expect cumulative FY20-FY24 free cash flow2 of approximately $2.9 billion3

1The financial outlook, expectations and other forward-looking statements provided by the company for 2023 and beyond reflect the company's judgment based on the information available at the time of this release.
2Non-GAAP measures. See Exhibit B for definitions. In reliance upon Item 10(e)(1)(i)(B) of Regulation S-K, reconciliations of forward–looking GAAP and non–GAAP measures are not provided because of the unreasonable effort associated with providing such reconciliations due to the variability in the occurrence and the amounts of certain components of GAAP and non-GAAP measures. For the same reasons, we are unable to address the significance of the unavailable information, which could be material to future results.
3Outlook is based on current tax law and assumes the provisions requiring capitalization of R&D expenditures for tax purposes are not deferred or repealed.
4Outlook is based on current tax law. Repeal or deferral of provisions requiring capitalization of R&D expenditures would result in elevated non-current state income tax expense.

About Huntington Ingalls Industries

HII is a global, all-domain defense partner, building and delivering the world’s most powerful, survivable naval ships and technologies that safeguard our seas, sky, land, space and cyber. As America’s largest shipbuilder and with a more than 135-year history of advancing U.S. national defense, we are united by our mission in service of the heroes who protect our freedom. HII’s diverse workforce includes skilled tradespeople; artificial intelligence, machine learning (AI/ML) experts; engineers; technologists; scientists; logistics experts; and business professionals. Headquartered in Virginia, HII’s workforce is 43,000 strong. For more information, please visit www.HII.com.

Conference Call Information

HII will webcast its earnings conference call at 9 a.m. Eastern time today. A live audio broadcast of the conference call and supplemental presentation will be available on the investor relations page of the company’s website: www.HII.com. A telephone replay of the conference call will be available from noon today through Thursday, May 11th by calling (866) 813-9403 or (929) 458-6194 and using access code 742643.

Cautionary Statement Regarding Forward-Looking Statements

Statements in this release, other than statements of historical fact, constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. You can generally identify forward-looking statements by words such as "may," "will," "should," "expects," "intends," "plans," "anticipates," "believes," "estimates," "predicts," "potential," "continue," and similar words or phrases or the negative of these words or phrases. These statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties, and other factors that may cause our actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by these forward-looking statements. Although we believe the expectations reflected in the forward-looking statements are reasonable when made, we cannot guarantee future results, levels of activity, performance, or achievements. There are a number of important factors that could cause our actual results to differ materially from the results anticipated by our forward-looking statements, which include, but are not limited to: changes in government and customer priorities and requirements (including government budgetary constraints, shifts in defense spending, and changes in customer short-range and long-range plans); our ability to estimate our future contract costs, including cost increases due to inflation, and perform our contracts effectively; changes in procurement processes and government regulations and our ability to comply with such requirements; our ability to deliver our products and services at an affordable life cycle cost and compete within our markets; natural and environmental disasters and political instability; our ability to execute our strategic plan, including with respect to share repurchases, dividends, capital expenditures and strategic acquisitions; adverse economic conditions in the United States and globally; health epidemics, pandemics and similar outbreaks; our ability to attract, train and retain a qualified workforce; disruptions impacting global supply, including those attributable to ongoing public health issues and the ongoing conflict between Russia and Ukraine; changes in key estimates and assumptions regarding our pension and retiree health care costs; security threats, including cyber security threats, and related disruptions; and other risk factors discussed in our Annual Report on Form 10-K for the year ended December 31, 2022 and our other filings with the U.S. Securities and Exchange Commission. There may be other risks and uncertainties that we are unable to predict at this time or that we currently do not expect to have a material adverse effect on our business, and we undertake no obligation to update any forward-looking statements. You should not place undue reliance on any forward-looking statements that we may make. This release also contains non-GAAP financial measures and includes a GAAP reconciliation of these financial measures. Non-GAAP financial measures should not be construed as being more important than comparable GAAP measures.

Exhibit A: Financial Statements

HUNTINGTON INGALLS INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(UNAUDITED)

HUNTINGTON INGALLS INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED)

HUNTINGTON INGALLS INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Exhibit B: Non-GAAP Measures Definitions & Reconciliations

We make reference to “segment operating income,” “segment operating margin,” “shipbuilding revenue,” “shipbuilding operating margin,” "Mission Technologies EBITDA," “Mission Technologies EBITDA margin” and “free cash flow.”

We internally manage our operations by reference to segment operating income and segment operating margin, which are not recognized measures under GAAP. When analyzing our operating performance, investors should use segment operating income and segment operating margin in addition to, and not as alternatives for, operating income and operating margin or any other performance measure presented in accordance with GAAP. They are measures that we use to evaluate our core operating performance. We believe that segment operating income and segment operating margin reflect an additional way of viewing aspects of our operations that, when viewed with our GAAP results, provide a more complete understanding of factors and trends affecting our business. We believe these measures are used by investors and are a useful indicator to measure our performance. Because not all companies use identical calculations, our presentation of segment operating income and segment operating margin may not be comparable to similarly titled measures of other companies.

Shipbuilding revenue, shipbuilding operating margin, Mission Technologies EBITDA and Mission Technologies EBITDA margin are not measures recognized under GAAP. They are measures that we use to evaluate our core operating performance. When analyzing our operating performance, investors should use shipbuilding revenue, shipbuilding operating margin, Mission Technologies EBITDA and Mission Technologies EBITDA margin in addition to, and not as alternatives for, operating income and operating margin or any other performance measure presented in accordance with GAAP. We believe that shipbuilding revenue, shipbuilding operating margin, Mission Technologies EBITDA and Mission Technologies EBITDA margin reflect an additional way of viewing aspects of our operations that, when viewed with our GAAP results, provide a more complete understanding of factors and trends affecting our business. We believe these measures are used by investors and are a useful indicator to measure our performance.

Free cash flow is not a measure recognized under GAAP. Free cash flow has limitations as an analytical tool and should not be considered in isolation from, or as a substitute for net earnings as a measure of our performance or net cash provided or used by operating activities as a measure of our liquidity. We believe free cash flow is an important measure for our investors because it provides them insight into our current and period-to-period performance and our ability to generate cash from continuing operations. We also use free cash flow as a key operating metric in assessing the performance of our business and as a key performance measure in evaluating management performance and determining incentive compensation. Free cash flow may not be comparable to similarly titled measures of other companies.

Reconciliations of forward-looking GAAP and non-GAAP measures are not provided because we are unable to provide such reconciliations without unreasonable effort due to the uncertainty and inherent difficulty of predicting the future occurrence and financial impact of certain elements of GAAP and non-GAAP measures.

Segment operating income is defined as operating income for the relevant segment(s) before the Operating FAS/CAS Adjustment and non-current state income taxes.

Segment operating margin is defined as segment operating income as a percentage of sales and service revenues.

Shipbuilding revenue is defined as the combined sales and service revenues from our Newport News Shipbuilding segment and Ingalls Shipbuilding segment.

Shipbuilding operating margin is defined as the combined segment operating income of our Newport News Shipbuilding segment and Ingalls Shipbuilding segment as a percentage of shipbuilding revenue.

Mission Technologies EBITDA is defined as Mission Technologies segment operating income before interest expense, income taxes, depreciation, and amortization.

Mission Technologies EBITDA margin is defined as Mission Technologies EBITDA as a percentage of Mission Technologies revenues.

Free cash flow is defined as net cash provided by (used in) operating activities less capital expenditures net of related grant proceeds.

Operating FAS/CAS Adjustment is defined as the difference between the service cost component of our pension and other postretirement expense determined in accordance with GAAP (FAS) and our pension and other postretirement expense under U.S. Cost Accounting Standards (CAS).

Non-current state income taxes are defined as deferred state income taxes, which reflect the change in deferred state tax assets and liabilities and the tax expense or benefit associated with changes in state uncertain tax positions in the relevant period. These amounts are recorded within operating income. Current period state income tax expense is charged to contract costs and included in cost of sales and service revenues in segment operating income.

We present financial measures adjusted for the Operating FAS/CAS Adjustment and non-current state income taxes to reflect the company’s performance based upon the pension costs and state tax expense charged to our contracts under CAS. We use these adjusted measures as internal measures of operating performance and for performance-based compensation decisions.

Reconciliations of Segment Operating Income and Segment Operating Margin

Reconciliation of Free Cash Flow

Reconciliation of Mission Technologies EBITDA and EBITDA Margin