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Executives

David W. Thompson - Co-Founder, Chairman, Chief Executive Officer and President

Garrett E. Pierce - Vice Chairman and Chief Financial Officer

Analysts

Patrick J. McCarthy - FBR Capital Markets & Co., Research Division

William R. Loomis - Stifel, Nicolaus & Co., Inc., Research Division

Greg Konrad - Jefferies & Company, Inc., Research Division

Gary S. Liebowitz - Wells Fargo Securities, LLC, Research Division

Chris Quilty - Raymond James & Associates, Inc., Research Division

Michael F. Ciarmoli - KeyBanc Capital Markets Inc., Research Division

Tyler Hojo - Sidoti & Company, LLC

Orbital Sciences (ORB) Q1 2013 Earnings Call April 23, 2013 9:00 AM ET

Operator

Thank you for standing by, and welcome to the First Quarter 2013 Financial Results Conference Call. [Operator Instructions]

I would now like to hand the conference over to your speaker today. Mr. David Thompson, please go ahead.

David W. Thompson

Okay. Thank you, Brandy. Good morning, everyone. Thank you for joining us to discuss Orbital's first quarter 2013 financial results. I'm Dave Thompson, and with me on the phone here this morning are Garrett Pierce and Barry Beneski.

Before we get underway, I'd like to ask everyone to take note of the Safe Harbor paragraph at the end of our press release. This paragraph highlights the major sources of uncertainties and risks in the forward-looking statements that we'll make this morning. Please keep these factors in mind as we discuss our future operational outlook and our financial guidance during today's discussion.

We will follow our customary outline for the call this morning. I'll begin by discussing several highlights from the first quarter and then turn it over to Garrett. He will cover our financial results in greater detail and update our outlook for the rest of the year. After that, I'll recap recent space missions and development program progress and also provide a preview of upcoming operational events that are scheduled over the next 3 months.

Finally, I'll address first quarter new orders and contract backlog, as well as our new business outlook for the next 6 months. And then we'll open up the call for your questions.

So let's begin with 3 highlights that characterized Orbital's first quarter of 2013. Garrett and I will cover each of these areas in more depth later in the call. First, here's a look at our financial performance. Orbital's revenue in the first quarter was $335 million, a decrease of about $3 million or roughly 1% compared to the same period last year. Our launch system segment generated a 7% revenue increase, but satellites and space systems revenue dropped about 9% and advanced programs revenue were essentially flat in the quarter. Operating income in the first quarter was $31.1 million, up about 31% compared to the same figures this time last year.

Our operating margin of 9.3%, our highest in nearly 5 years, reflected substantial margin improvement in all 3 of our reporting segments. In fact, we saw an especially large gain in our satellites and space systems unit somewhat similar to what we experienced in the fourth quarter of last year.

Net income and earnings per share were $19.6 million and $0.33 per share, respectively, increases of about 50% over last year's first quarter results. Free cash flow in the quarter was negative $34.2 million, which produced a cash balance of $199 million at the end of March.

Second, let's turn to some operational highlights. In the first quarter, the company carried out 5 major space missions and also delivered 6 additional launch vehicles and satellites for future application. In the Antares rocket program, we completed the hot fire test of the vehicle's first stage in late February and then rolled out the first complete flight vehicle to the launch pad just over 2 weeks ago and conducted a flawless first launch on Sunday afternoon. Later in the call, I'll discuss some of the details of the launch and the outlook for the second and third flights of Antares coming up in the summer and fall.

Finally, here's a summary of our new business activity. New contract awards and option exercises totaled about $440 million in the first quarter. These were made up of about $335 million in new firm and option orders, and approximately $105 million in option exercises under existing contracts.

Firm contract backlog was just over $2.0 billion and total backlog was approximately $4.9 billion at the end of March. And I'll provide some more details on recent orders and new business pursuits later on in the call.

Before that though, I'd like to ask Garrett to take you through the financial results from the first quarter and to discuss our guidance for the remainder of 2013. Garrett?

Garrett E. Pierce

Thank you, Dave, and good morning. Before commenting on the financial results, I want to note that during this call, we will provide certain non-GAAP financial measures. A reconciliation of these measures to comparable GAAP financial measures can be found in our earnings release, or to the extent not addressed there but discussed in this call, will be available as an appendix to the transcript of this call and will be posted under our Investor Relations heading on our website.

As Dave indicated, consolidated revenues for the first quarter 2013 were $335 million, down $3 million compared to the first quarter of 2012. I'll get into some detail right now to dissect the numbers and the primary revenue drivers by product lines were as follows. Target launch vehicles were up $5.3 million or 10%. Science and remote-sensing satellite revenues increased by $5.3 million or 25%. Interceptor revenues grew by $4.7 million or 27%; and CRS contract revenues were up $800,000. Geo-communication satellite revenues decreased by $16.1 million and the national security space system revenues were down $7.9 million. Consolidated operating income was $31.1 million in the first quarter of 2013, resulting in a 9.3% operating margin. Operating income was up $7.3 million or 31% as compared to the first quarter of 2012. Satellite and space systems segment operating income was $3.5 million, and launch vehicle segment operating income increased $3.1 million.

Now, I'd like to highlight certain factors in each of the 3 operating segments. Launch vehicle segment revenues were $134 million in the first quarter of 2013, an increase of $8.2 million compared to the first quarter of 2012. This segment's revenues were up primarily due to a $5.3 million increase in target launch vehicle revenues and a $4.7 million increase in interceptor revenues. Space launch vehicle revenues were down $2.3 million. Launch vehicle segment operating income was $12 million or 8.9% of revenues, an increase of $3.1 million or 35% compared to the first quarter of 2012. This was principally due to increased revenues and operating margin improvements on the target launch vehicle contracts.

Satellite and space system revenues were $101 million in the first quarter of 2013, down $10.5 million compared to the first quarter of 2012. This segment's revenues were down primarily due to a $16.1 million decrease in GEO satellite revenues as a result of completion of several satellites since the first quarter of 2012. Since science remote-sensing satellite revenues increased by $5.3 million. Satellites and space systems segment operating income was $10.9 million or a 10.8% of revenues, an increase of $3.5 million relative to the first quarter of 2012. This increase was primarily due to favorable profit adjustments resulting from recent successful deployments of satellites and in addition to a favorable resolution of a customer claim. Advanced space program segment revenues were $113 million in the first quarter of 2013, down $2 million compared to the first quarter of 2012, primarily due to a reduction in national security satellite revenues, partially offset by an increase in CRS revenues.

Advanced space program segment operating income was $8.2 million or 7.2% of revenue, an increase of $700,000 compared to the first quarter of 2012. This increase was primarily attributable to a favorable contract closeout adjustment, partially offset by decreased activity and lower profit margins on the national security satellite contracts. Research and development expenses increased by $4.2 million, principally due to an increase in COTS research and development expenditures. The GAAP income tax rate for the first quarter of 2013 was 36%. This compares to a tax rate of 38% for the first quarter of 2012. The first quarter of 2013 benefited from a research and development tax credit adjustment of $500,000 or had an impact of $0.01 per share favorable. Our full year 2013 effective tax rate is estimated at 37% reflecting the first quarter R&D tax credit. Our full year 2013 cash tax rate is estimated to be about 10%.

Fully diluted EPS for the first quarter of 2013 was $0.33 per share compared to $0.22 for the first quarter of 2012, an increase of 50%. The growth in EPS was due to an increase in operating income of $7.3 million and a $2 million reduction in interest expense resulting from the refinancing of our debt in December of last year.

Free cash flow for the first quarter of 2013 was negative $35 million, largely due to planned increases in receivables attributable to the CRS contract. Capital expenditures were $8 million in the quarter. We are forecasting negative free cash flow for the first half of the year and positive free cash flow in the second half of the year. We expect to achieve important backloaded CRS building milestones that will result in improving cash flows and reducing receivables in the second half of 2013 and in future periods. At the end of the quarter, our cash balance was $199 million.

We are reaffirming our guidance for the full year 2013. We will reassess our guidance when we release the second quarter of 2013.

I'll now turn it back to Dave.

David W. Thompson

Thank you, Garrett. I'll now update you on the company's major operational events from the first quarter and the early part of the second quarter and also a preview of what's ahead over the next 3 months.

Starting with the first quarter. Our space missions in the January, February and March period consisted of 3 major rocket launches and 2 satellite deployments, together with another 3 launches of smaller suborbital research rockets. All 8 of these operations were fully successful. The major launches included the 11th flight of our Orbital Boost Vehicle or OBV interceptor rocket for the Missile Defense Agency and 2 flights of our Coyote Supersonic Target Vehicle for the U.S. Navy. The satellite deployments were of the Azerspace-1 geosynchronous communication satellite and the LandSat-8 low earth orbit imaging spacecraft. The OBV launch for the Missile Defense Agency was particularly important in helping to reestablish the GMD flight test program, which has assumed greater national importance in view of North Korea's recent bellicose statements and nuclear test.

The LandSat-8 deployment for NASA was also critical as it was one of the highest-value satellites that Orbital has ever built for a science and remote-sensing application.

As I mentioned earlier, the Antares launch vehicle completed a fully successful first flight on Sunday, following a picture-perfect launch from Wallops Island. The payload for the launch was a Cygnus spacecraft simulator which weighed about 4 tons and which was placed in an approximate 160x150-mile high orbit, nearly identical to the parking orbits that we'll use for the follow-on COTS demonstration mission this summer and the CRS operational cargo delivery flights starting in the fall.

The launch itself took about 10 minutes from lift-off to orbit insertion and payload deployment, with the operation commencing at 5:00 p.m. on Sunday afternoon. Early results of engineering analysis indicated that the vehicle's all-important first stage system, including its twin liquid rocket engines, performed exactly as expected as did other vehicle systems, as well as the launch complex's propellant and pressurization equipment.

In a broader sense, this past weekend's launch completed Orbital's 5-year $300 million research and development and capital investment program to develop and test the Antares rocket. And it also accomplished one of the 2 flight tests and demonstration missions under the company's 2008 COTS cooperative R&D initiative with NASA. The launch also inaugurated a new $140 million space port at Wallops Island, constructed and commissioned over the last 4 years by the Virginia Commercial Spaceport Authority and NASA on the Atlantic Coast about 125 miles southeast of Washington.

The third and final part of our space station cargo delivery system, the Cygnus spacecraft, has also now completed its development and ground testing. The first Cygnus cargo ship was delivered to the facilities at Wallops Island in March. It is now fueled and will soon be integrated with its Antares rocket at the Wallops site.

Looking ahead to the next 3 months, Orbital has a busy operational schedule consisting of 7 or 8 space missions to be carried out between now and the end of July. These include the second Antares launch, which will carry that first Cygnus spacecraft on the COTS demonstration mission to the International Space Station, which is now planned for mid-July. Other upcoming launches include our 12th OBV interceptor flight in May, our 42nd Pegasus rocket mission in June, our second commercial geosynchronous communication satellite deployment of the year in late June or early July, and 2 or 3 target vehicle missions scheduled throughout the month of May.

We also expect to deliver one additional satellite and several interceptor and target vehicles for future missions over the course of the next 3 months.

I'll now take you through our first quarter new business results and also discuss our outlook for additional contracts and option exercises over the next 2 quarters.

As I mentioned earlier, first quarter new business volume totaled approximately $440 million. Our advanced program segment led the way with about $270 million in orders and option exercises. The launch vehicles segment contributed $140 million, and the satellite segment added $30 million in new business volume in the first quarter.

Looking ahead to the second and third quarters, Orbital currently has proposals for new contracts and option exercises that are under review by customers totaling up to about $1.4 billion in potential value. These include 2 or 3 good opportunities in the launch vehicles segment worth up to about $500 million and involving space launch vehicles, as well as interceptors and target rockets. They also include satellite segment pursuits involving 2 or 3 commercial satellite orders and several scientific spacecraft contracts having a combined value of about $500 million, and another set of possible new orders and option exercises in our advanced program segment worth up to about $400 million.

We're off to a good start in April, and so far this month, the company has received 2 NASA scientific satellite contracts, one for an astrophysics mission, the other for a heliophysics program with launch dates in 2017 and 2018. The former, the astrophysics mission, is managed by MIT, and the latter, the heliophysics program is managed by the University of California at Berkeley. In addition, we also received a technical services contract from NASA. These 3 contracts, together, have a combined value of about $175 million.

In summary, Orbital's off to a strong start in 2013. The company had a very productive first and early second quarters highlighted by the inaugural Antares flight and a string of other successful rocket launches and satellite deployments. We're now looking forward to the second flight of Antares on the COTS demonstration mission to the space station, together with a busy schedule of other operational activities over the next 3 months.

On a final note, I'd like to thank our long-term investors who have maintained their confidence in the company during some challenging times over the last few years, and also, to express our appreciation to our partners at NASA who worked with us on the Antares program since 2008. It took a little longer than we originally thought to develop this new launcher, but I believe Antares now will serve Orbital and our country well for many decades to come.

Thank you for your attention. We're now ready to open the call for your questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Patrick McCarthy with FBR.

Patrick J. McCarthy - FBR Capital Markets & Co., Research Division

I had a couple questions, can I start with the GBIs? Dave, you had mentioned restarting the GMD flight test program, and I was wondering, there seems to be some debate or concern as to whether or not the -- you're producing production vehicles at the current time. Is there something going on with either the vehicle or the interceptors -- the kill vehicle itself that you can talk about?

David W. Thompson

The products -- the current production rate is at a relative low point. We delivered one new interceptor in the first quarter and have -- we have, if I remember the right number, Patrick, we have another handful of vehicles that are scheduled for delivery this year before the production rate ramps back up again. Let me just give you the overall numbers as we currently stand. We have 70 Orbital Boost Vehicles under contract. 54 of those vehicles have been delivered to date through, that is, from early 2003, when we delivered the first vehicle, through this past month of March. We have 16 more under contract today, with deliveries planned, a few this year, but most of them in 2014 and '15. And not under contract at the present time, but with the proposed expansion of the GMD program that was announced last month, we have the potential for seeing another 10 to 15 OBVs added to our contract for deliveries in the 2015 to 2017 period. The timing -- the magnitude and the timing of those additional units are not certain, but with the proposal to expand the deployed units back to a total of 44 vehicles, it looks like the Missile Defense Agency will need to up the totals that will be under contract. I'd also point out that our target program benefits quite a bit from the commonality with the Orbital Boost Vehicle, particularly the IRBM, and now, the ICBM targets that we're developing for the Missile Defense Agency are quite similar to the 2-stage configurations of OBV and that collection of targets is expected to add about 20 additional OBV-like deliveries over the period beginning this year and stretching out through almost the end of the decade. So adding all that up, from the early part of the last decade through the end of this decade, the company expects to build and deliver over 100 OBV and related target vehicles. 54 of those have been delivered to date and about 50 more, plus or minus a few, should be built and delivered over the next 6 or 7 years.

Patrick J. McCarthy - FBR Capital Markets & Co., Research Division

That's great. Very helpful. And then just in your commentary, you said that you have 2 to 3 launch vehicles that you're going after for a market of about $500 million. Does any of that include Antares, or is it still too early there? And if there's no Antares in there, could you maybe give us a sense as to when you start thinking that may turn into more than just the CRS program?

David W. Thompson

Okay, Patrick, sure. Now, Antares is not a big factor in the near-term new business outlook. We do think there's a good chance of an option exercise for the, I guess, what would be the 9th Antares vehicle under the current CRS contract in the coming months. But in terms of new orders for other applications, I think that's still a little ways off, probably late this year, early next year before we'd see activity under either the NASA ordering provision under the NOS contract for a potential Antares launch or under the Air Force's OSP-3 contract that also has a provision for ordering Antares. So I think that's -- in terms of non-CRS applications, that's still probably another flight demonstration, and 6 to 9 months in the future. I think we can probably move on now to the next question?

Operator

And our next question comes from the line of Bill Loomis with Stifel.

William R. Loomis - Stifel, Nicolaus & Co., Inc., Research Division

Let's see. Just looking at the -- obviously, first quarter had great margin performance. You have 2 to 3 more satellite deployments this year, and I guess I'm trying to understand the margin progression through the year. How will those contribute to margins, and then are you still expecting a margin boost from 5% to 6%, say in the third quarter on the COTS CRS program? Because you left that guidance range unchanged and we had such a good first quarter on the margin side. I didn't see anything in the release that talked about headwinds that weren't discussed before.

David W. Thompson

Yes. Well, that's right. As Garrett said, we're going to assess the current outlook for the year over the next couple of months and we may have some modifications to it by the time of our second quarter report. It's still early, though, and the market environment is more turbulent, particularly in the government market than is ordinarily the case. So we want to look carefully at things before raising guidance if that's called for. Our general outlook for the year remains about what it was at the outset of 2013 from a profit margin standpoint, the launch vehicles segment and the satellite and space systems segment are probably going to come in around 8% and the advanced space program segment, somewhat below that. Satellites have clearly outperformed that level over the last couple of quarters and we'll see how things go over the next quarter or 2. So there may be an upward bias, but we just need a little more time to confirm that before it'd be appropriate to make an adjustment.

William R. Loomis - Stifel, Nicolaus & Co., Inc., Research Division

Okay. And just a follow-on on the satellites, so you have 2 to 3 deployments. You talked about the bids you have outstanding for satellites. When you're talking to customers out there, what's your sense of looking a little bit longer term, like into '14, of how activity might play out on the commercial communications satellite market? Do you see it still being about the current levels or picking up or down based on what you're hearing from the customers?

David W. Thompson

Well, I would say, in general, we're in the down part of the capital spending cycle by the large commercial operators and the mid-sized operators were also in a relatively slow period for new orders. So year-to-date across the industry, there have been 2 announced satellite contracts and we believe one other contract not yet announced, and this is across all geographic areas and all classes of satellites. So it's not been a real robust start to 2013 in the commercial area. Our view for the full year continues to be somewhere in the upper teens of total orders, somewhere between 16 and 20 satellites, but we're going to need to see a pickup in order activity across the industry as we get into the summer and fall in order to achieve that level of orders. We are targeting, at Orbital, 3 orders this year. We've got 3 proposals under evaluation now and we're hoping to have some progress to report this quarter against that objective. But it is a fairly slow period in the commercial satellite business, and I don't think that's going to change dramatically as this year goes forward. Looking a couple of years into the future, we would expect to see a bit of a cyclical upturn sometime next year or in 2015. But I think 2013 will be a somewhat lackluster year, very much along the lines of 2011 and 2012 in the commercial sector. Somewhat offsetting the weakness in that area, though, we were very happy to come out on top on our first 2 scientific satellite pursuits this year and we have several more good opportunities coming up later this year in the scientific satellite market. The budget outlook, which is a little harder to read now than in many past years, also seems to portent pretty good opportunities in the civil space market for small and mid-class satellites of the type that we specialize in as we analyze the budget information that was released a couple of years ago. Some of the newer opportunities look pretty good. So that may pick up some of the slack from the commercial market for the balance of this year.

Operator

Your next question comes from the line of Greg Konrad with Jefferies.

Greg Konrad - Jefferies & Company, Inc., Research Division

Just 2 quick questions. First, in the quarter at COTS, you said R&D was up and then also intersegment eliminations also spiked up from Q4. Does that decline now that the first flight is done, or is that -- will that decline after the COTS demo mission?

David W. Thompson

On the R&D side, we should see a drop-off, the big final push leading up to the Antares first flight, which reflected in higher R&D spending in the first quarter compared to the prior periods. So that should drop off. The intersegment eliminations will continue to be significant in the second quarter. Most of what you see there is the result of our activities under the COTS cooperative program with NASA. And right now, our outlook for the second and final flight demonstration is for July. So you'll continue to see some intersegment eliminations in the current quarter. After this quarter, though, those will drop down at pretty low levels. So I'm presuming that half of the year, the intersegment elimination should be quite small.

Greg Konrad - Jefferies & Company, Inc., Research Division

And you also mentioned, I think this was your initial view to that cash flow. It's positive in the second half of the year. In the past, you provided a 3-year cash outlook. Any kind of update to kind of where you picture cash flow trending over the next 3 years now that the first flight is behind you?

Garrett E. Pierce

Greg, it's Garrett. We still want to work through the R&D portion of the program that is COTS. And so once we get through that, as I said in my script this morning, where we do expect the cash flow to turn and certainly turn positive in 2014. But right now, we do not have a 3-year forecast we're providing.

David W. Thompson

The basic driver of negative cash flow recently and hopefully to positive cash flow in the second half of the year and beyond will be the reduction of our CRS contract receivables, which are billed and paid upon the completion of each of the individual cargo delivery missions. So the buildup of the receivable balance, as you've seen over the past year or so, has reflected work that we've done in preparing the launch vehicles and the satellites for those CRS missions. But until the missions are accomplished, about 25% of the value of each mission is not billable or collectible. As we get into the first CRS mission later on this fall and the second mission over the winter. That will reverse and that will continue to be the trend over the next couple of years. So cash flow should bounce back pretty strongly. You'll see some of that in the second half of this year and certainly in '14 and '15.

Garrett E. Pierce

Greg, what Dave was talking about manifests itself on the balance sheet. When you look at the balance sheet that we released early this morning, you'll see that the receivables were $500 million or $577 million, $578 million. That increase is primarily and principally due to the CRS program.

Operator

Your next question comes from the line of Gary Liebowitz with Wells Fargo.

Gary S. Liebowitz - Wells Fargo Securities, LLC, Research Division

Dave, I was wondering, have you had any discussions with your government customers, NASA or DOD, as to how the sequester is going to affect some of your specific programs? Or is there still great uncertainty and that's part of the reluctance to update the guidance?

David W. Thompson

As we see it, there's still quite a bit of uncertainty, the -- even though we're halfway through, a little better than halfway through the current government fiscal year and the sequester is in effect, the individual agencies still, in many cases, have not finalized their actual spending plans for the year. And the outlook for fiscal 2014 is also less clear than it would ordinarily be at this point in the cycle in part because the budget request came over just a few weeks back and in part because some of the details behind those top line requests are still either not available or have just become so. I mean, on the surface, things look encouraging. For instance, in the NASA budget, the line -- the program line that funds the CRS program is up by double-digit amounts. So that's good news. And while the overall science budget is up just a little bit, more encouraging to us is looking deeper to some of the new mission areas, including several that we were selected for over the past couple of weeks and several others that were in the running for, for decisions later this year, up a good bit. So that looks pretty good on the surface. Same story in the Missile Defense Agency, the request on the GMD program is up something like 15% over last year. The target programs are also up about the same amount. So things look pretty good there, but we have a less than crystal clear baseline for comparison. And exactly how the administration and Congress are going to converge on not just the '14 budget, but a final '13 operating approach is not clear. So yes, I think that underpins some of our reluctance to want to go too far at this point. There are also some weak spots in the budget outlook. Some of the publicly available information, for instance, in the intelligence agencies suggests pretty significant reductions in '14 compared to '13. And again, just based on public information, '13 is down compared to '12. So not everything that we're involved in is showing increases. And so, I think it's going to take a little longer than it ordinarily would to make some sense out of all this.

Gary S. Liebowitz - Wells Fargo Securities, LLC, Research Division

Okay. Thanks for those details. And Garrett, could you quantify some of the one-time or the nonrecurring-type benefits that you saw in the first quarter, whether it's the customer claim settlement or the closed out adjustment you had in advanced space?

Garrett E. Pierce

Sure. I guess I would throw the R&D tax credit into that category. I'd say collectively at about $0.04 or $0.05 impact on the bottom line.

Gary S. Liebowitz - Wells Fargo Securities, LLC, Research Division

Okay. And that does include the favorable accruals on completing the -- on deploying the satellites?

Garrett E. Pierce

No, it does not. Operationally, there's probably another $0.05.

Operator

And next question comes from the line of Chris Quilty with Raymond James.

Chris Quilty - Raymond James & Associates, Inc., Research Division

Just want to circle back quickly, just to clarify on a couple of the segment breakdowns. If the target business was up 10%, that would imply the launch business was down, correct, year-over-year?

David W. Thompson

A little -- yes, a little bit. I think the small space launch vehicles that is the product -- the Pegasus and Minotaur product line was down year-over-year. Antares was up. Those probably netted out to about a push and targets and interceptors generated most of the growth, and that continues a trend that we've seen, really dating back us to about -- well, at least on the target side, to about 2011.

Garrett E. Pierce

But CRS, collectively, the contract was up, but it was actually down in the launch group in the quarter.

Chris Quilty - Raymond James & Associates, Inc., Research Division

Okay. And again, did you give a number for the GEO satellite business and the NSS?

David W. Thompson

I don't -- hold on that one for a minute, Chris. I don't think we did.

Chris Quilty - Raymond James & Associates, Inc., Research Division

Okay. On national security, I mean, you've had a bit of a downtrend after a meteoric rise in that business. Does that simply reflect the intel budget issues you just mentioned or are there some kind of macro shifts in the type of satellite systems that they're buying?

David W. Thompson

Well, to the extent there any macro shifts, I think those are generally favorable. The stress on some of the military space and the intel space related budgets, I think are having the effect of pushing out new opportunities and in some cases, slowing down add-ons or other extensions of current work. So it looks to me like you say after very fast growth over the period, say 2009 to 2012, we'll be down a little bit in that area. This year, expecting a bit of a bounce back maybe to 2011 or 2012 levels in '14 and then growth thereafter.

Chris Quilty - Raymond James & Associates, Inc., Research Division

Okay. And on the GEO satellite business, again, a tough overall industry backdrop, but also some increased competition from Boeing and Thales and others, can you give us a sense of where you feel you stand competitively with the existing product line or recent modifications?

David W. Thompson

With regard to our well-established small geosynchronous satellite product, I think we continue to be in very strong competitive position. Historically, we've won -- it varies from year-to-year, but typically, 40% to 50% of the available demand in the 5-kilowatt and smaller segment. I think we'll continue to do well in that business. The -- some of the new pursuits this year are in that area and a couple of them are in the next higher level of satellite payload powers, up to around 7.5 kilowatts. And that's a more competitive market segment. I think we have some real advantages with our product line there. But I would expect our share of new wins in that area, at least for the next couple of years, to be smaller than what it's been in this -- in the lower power end. So in that middle -- in that medium class market, I think we will see more competitive intensity and I think we'll do okay, but we probably won't be in the 50% market share area there for quite a while.

Chris Quilty - Raymond James & Associates, Inc., Research Division

Got you. And does the -- the more -- the medium class reflect competition from Boeing with their new all-electric SP platform and...

David W. Thompson

Yes, yes.

Chris Quilty - Raymond James & Associates, Inc., Research Division

And is that a product line modification that you're exploring at all?

David W. Thompson

We are and I think there are circumstances in which that technology makes good sense. There are other circumstances where it probably doesn't. It's a multifaceted situation that involves the schedule sensitivity of the customer, the availability of certain types of launch systems and the risk tolerance of individual operators. Sometimes those factors all line up pretty well and many other times, they don't. But we are investing now in a electric system of our own for those cases where it looks like that may be an attractive approach to customers.

Chris Quilty - Raymond James & Associates, Inc., Research Division

Okay. And final question, if I can. The -- on the Antares, I haven't asked this question in a while because we've been so focused on the demo launch. But now that the program looks like a go, when you look at the long-term requirements for both your existing CRS contract, the expansions with NASA, the military and possible commercial customers and the supply of AJ26 engines, can you remind us what Aerojet currently has available in their inventory, what's available in the larger inventory of NK-33s and if you expect to be able to maintain pricing at the same level given the fact that, I believe, they've introduced now a Soyuz-2 version that uses that NK-33 engine and the Russians have been known, at least with NASA-accrued transport, to increase prices where they can?

David W. Thompson

Yes, a good -- a very good question, Chris. Well, let me respond to at least some aspects of it. First of all, from a near-term perspective, I think we're in good shape. The AJ26 engines on the first launch vehicle, plus the engines we used a couple of months back on the hot fire test really performed quite well. And the supply of the 20 engines that we need for 10 Antares vehicles to carry out our obligations under the COTS agreement and the CRS contract are either available now, they've completed their acceptance testing or by and large, will have done so over the course of the next year. So we're in good shape for the next few years and for the term of the CRS program. There are a limited number of additional AJ26 engines in Aerojet's current U.S. inventory that should be suitable for flight. The exact number there is not yet known with precision. I would say, we're probably looking at something between 6 and 10 engines that should be flight worthy, that means 3 to 5 rockets which should cover our needs outside of the COTS and CRS program through 2016 or thereabouts. We have been, for some time, studying options for long-term engine supply. I won't get into those in a lot of -- in any detail right now. You'll probably be hearing a little bit more about that in coming months and I think we need to make a decision on the right long-term propulsion system probably over the course of the next year. But we're in good shape for the next 3, 3.5 years and certainly for everything that we're signed up to do now with NASA and things that we would expect to have an opportunity to bid on for launches through 2016 or '17.

Operator

Your next question comes from the line of Michael Ciarmoli with KeyBanc Capital Markets.

Michael F. Ciarmoli - KeyBanc Capital Markets Inc., Research Division

If I may, can I just probe a little bit? I understand and appreciate you guys are still kind of reviewing the outlook and the guidance. But the implied margins for the remainder of the year, I think you said launch vehicles would kind of come in around 8% the satellite and systems just below. It seems like you guys are hedging right now. And again, I can appreciate the conservatism. But it would look as it stands that you would have to have margins back of the envelope here, x the launch vehicles running below 6% in the other 2 segments. I mean, are we going to see that type of margin compression or is this -- you guys still kind of working through the full year plan?

Garrett E. Pierce

I would say, the general conditions, the macro conditions, if you will, that Dave described a moment ago, are really playing upon our forecast. Yes, we had a strong first quarter. Some of it was one-time and some of it was maybe one-time operational, efficacy [ph]. But as we look at the year, the range we have out there, we believe it's the appropriate range to stay within right now. There are a number of moving parts. As I said and Dave underlined, we're certainly looking at this very closely and if it's warranted in the second quarter call, we'll revisit it. I think with the passage of time, there's just some additional inputs we need to be responsible in terms of our forecast.

Michael F. Ciarmoli - KeyBanc Capital Markets Inc., Research Division

Sure. Does a lot of that center on how in fact some of the sequester cuts were made? I mean, they're going to have to be squeezed in and compressed over the next 6 months. I mean, I would imagine that's one of the big factors that you guys are kind of waiting...

Garrett E. Pierce

It's certainly a concern. Yes, it is a concern. I wish we had specificity, but we don't. Yes, I think that's the main driver from an operational standpoint. The satellite business is really firing on all cylinders now and has been for quite some time. I would say, going back to the second or third quarter of last year, the operational performance of the satellite business has really been outstanding. We -- our experience has -- well, our practice has been and our experience suggests that it's the right approach to establish some reasonable reserves early in the cycle of these individual satellite contracts, and if everything goes smoothly, then those reserves won't be needed. If we have a problem or a hiccup along the way, that's what those reserves are there for. And the satellite business, beginning midway through last year, has had just a remarkably efficient run of production and test work and hopefully, that is not nonrecurring. That just reflects the maturation of our systems in that part of the business. But the external uncertainty, primarily in the government market, to a lesser degree in the commercial market, makes us want to get a couple of more months of run time under our belt here before we make any changes to the outlook that might be warranted for this year.

Michael F. Ciarmoli - KeyBanc Capital Markets Inc., Research Division

Yes, that's fair, completely understandable. And just one more, Garrett, just thinking about the cash flow and certainly the receivable balance, are we at a peak for the receivables now? I mean, prior to CRS and COTS, your receivables, I guess, maybe have been 20% or so of sales. How should we think about maybe the cadence of the drawdown in receivables over the next 12 to 24 months? Obviously, second half improved cash flow. I imagine we'll see some drawdown to start in 3Q and 4Q. But how do we think about that balance getting reduced over the longer term?

Garrett E. Pierce

Once we get cadence on the program, that was the CRS program, we will see cash flow flipping to be positive and that certainly is our strong expectation in 2014. The latter part of this year, we expect to achieve milestones that will be paid and that will have a favorable impact. But I'd say the principal movement would be 2014. But certainly, as we close the year, our expectation is that our receivables will be down.

Operator

And your final question comes from the line of Tyler Hojo with Sidoti & Company.

Tyler Hojo - Sidoti & Company, LLC

So just -- I'm not sure if I missed this. But in regards to the sales guidance, just from a segment perspective, has anything changed?

David W. Thompson

No. I think we're about where we were at the beginning of the year. Just to reiterate, the ranges for segment revenue would be roughly as follows. The launch vehicle segment would probably be somewhere in the range of $545 million to $565 million revenue. The satellite and space systems segment would be in the $475 million to $495 million range. And the advanced space program segment would be bracketed by $440 million to $460 million of revenue. If I'm doing my math right, that puts the pre-elimination figures somewhere in the $1.46 billion to $1.52 billion. And then we subtract from that $25 million or $30 million or so of -- in our segment eliminations.

Tyler Hojo - Sidoti & Company, LLC

Okay. Perfect, and -- I'm sorry, we're you finished?

David W. Thompson

No, that -- yes, I'm -- I was -- that was all I had.

Tyler Hojo - Sidoti & Company, LLC

Okay, great. And just one other follow-up. In regards to CRS, I think we we're talking about $400 million in revenue contribution in the guidance. First, is that still the case? And just -- if you could maybe update us on the timing from the CRS margin jump from 5% to 6%.

David W. Thompson

Okay. Well, that -- yes, that is still the general revenue target for this year, $400 million or a little less, say $380 million to $400 million. A little bit backloaded because in the first and to some degree, the second quarters of the year, the main push has been on completing the COTS work, which does not show up ultimately as revenue, but it consumes similar hardware and labor as the CRS work will. In the first quarter, we had about $75 million of CRS revenue. So in order to get to something close to $400 million, you'll see a pretty steady increase over the next couple of quarters in that revenue. In general, we still see a pretty good balance between our two reporting segments, with the advanced programs segment likely reporting probably 60% or so of the CRS revenue and the launch vehicles segment, about 40%. That's about where we were in the first quarter. In terms of the profit margin outlook, we want to get through the COTS demonstration mission in the summer and kind of take a look at where things stand at that point. And that would be either third quarter or fourth quarter, that would be the time that if a profit rate adjustment is warranted that you'd see it coming through.

Tyler Hojo - Sidoti & Company, LLC

Okay. But that's -- but is that included in the guidance range, the step on CRS margin?

David W. Thompson

Yes, it is.

Okay. Thank you, Tyler, and thanks to everyone that joined us this morning. I think we will bring our discussion to a close at this point. Again, thank you, and have a good day.

Operator

This does conclude our conference for today. Thank you for participating. You may all disconnect.

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