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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

Howard A. Rubel - Jefferies & Company, Inc., Research Division

Tyler Hojo - Sidoti & Company, LLC

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

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

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

Orbital Sciences Corp (ORB) Q2 2013 Earnings Call July 18, 2013 9:00 AM ET

Operator

Good morning, my name is Alicia, and I will be your conference operator today. At this time, I would like to welcome everyone to the second quarter financial results conference call. [Operator Instructions] Thank you. Dave Thompson, Orbital's Chief Executive Officer, you may begin your conference.

David W. Thompson

Okay. Good morning, everyone. Thanks for joining us today to discuss Orbital's Second Quarter 2013 Financial Results. I'm Dave Thompson, and with me on the phone 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 earnings release. This paragraph emphasizes 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 plans and financial guidance during the call.

We plan to follow our customary outline of -- for this morning's discussion. I'll begin by discussing several highlights from the second quarter and then, turn it over to Garrett, who will cover our financial results in greater detail and update our guidance for the remainder of the year. After that, I'll come back to recap recent space missions and other operational progress and also provide a preview of upcoming events that are scheduled over the next 3 months. Finally, before we open up the call for your questions, I'll address second quarter new orders and contract backlog as well as our new business outlook for the rest of 2013.

So let me begin by highlighting several areas which characterized our second quarter. Garrett and I will cover each of these in more depth later in this morning's call.

First, let's look at our financial performance. Orbital's revenue in the second quarter was $333 million, a decrease of about 10% compared to the same period last year. Our Launch Systems revenue increased 6% due to growth in missile defense sales. However, satellites and space systems revenue fell about 28% as the result of delays in receiving and starting work on new orders primarily for commercial communications satellites. Operating income in the quarter was $26.3 million, reflecting a 7.9% operating margin on strong performance in both our launch vehicles and our satellites and space systems segments. Net income for the quarter was $16.3 million, and earnings per share came in at $0.27, while free cash flow was just under $7 million, and quarter ending cash was $211 million. I might also add year-to-date revenue of about $668 million was down about 6%, but operating margins were up approximately 160 basis points to 8.6% for the first 6 months of the year. Net income increased about 30%, and earnings per share was up 28% to $0.59 per share for the first half of 2013.

Let's now turn to operational highlights. The company carried out 7 major space missions, launched 9 smaller research rockets and also delivered 3 additional satellites and rockets in the second quarter. The most important operational event of the quarter was April's successful launch of our new Antares rocket, which we discussed in our first quarter call with you back in late April. Other operational events that have taken place in the last few months include the 45th launch of our Pegasus air-launch rocket, which took place in late June, and the 12th flight of its ground-launched derivative, the Orbital Boost Vehicle missile interceptor in early July. These 2 vehicles, which share a common design and technology base, have now amassed a record of 40 consecutive successful launches over the last 16 years. I'll discuss the outlook for Antares and other rocket launches and satellite deliveries and deployments coming up later this quarter and in the fourth quarter of the year a little bit later in the call.

Before that, though, let me give you a summary of our new business activity from the second quarter. New contract awards and option exercises were very strong in the quarter and totaled about $875 million. New business included firm and option orders for 4 satellites, 3 launch vehicles and various Advanced Programs and Technical Services contracts, which together should help to reestablish revenue growth in the second half of the year. Our firm contract backlog increased 7% to about $2.15 billion, and total backlog climbed about 10% to $5.4 billion, both of these in comparison to first quarter levels. I'll provide more details on second quarter new orders and near-term new business pursuits later in the call.

Before that, though, I'd like to ask Garrett to take you through our financial results from the second quarter and to update the guidance for 2013 that we provided back, earlier in the year. 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 the Investor Relations heading on our website.

As Dave indicated, consolidated revenues for the second quarter 2013 were $333 million compared to the second quarter of 2012 revenues of $371 million, down $38 million or 10%. The reduction in revenues was primarily driven by a $54 million decrease in GEO communications satellite revenues as the result of the completion of several satellites since the second quarter of 2012, and a delay award of new commercial satellite contracts. However, we expect GEO bookings to pick up in the second half.

In addition, CRS revenues were down $14 million, primarily reflecting a reduction in certain materials in subcontract activity. The CRS program was about 60% complete at the end of the second quarter 2013. Interceptor revenues were up $16 million, and science and remote-sensing satellites increased by $18 million. Consolidated operating income was $26.3 million in the second quarter of 2013, resulting in a 7.9% operating margin compared to $26.1 million or a 7% operating margin in the second quarter of 2012. Operating income increased $2.4 million in the launch vehicles segment, remained unchanged in the satellites and space systems segment, and decreased $4.3 million in the advanced space programs segment. In addition, it should be noted that the operating income in the second quarter of 2012 included $2 million of professional fees related to a potential acquisition that we did not complete. The 90 basis point increase in consolidated operating margin was driven by higher operating margins in the launch vehicles segment and the satellites and space systems segment.

I would now like to highlight certain factors in each of the 3 operating segments. Launch vehicles segment revenues were $134 million in the second quarter of 2013, an increase of $8 million compared to the second quarter of 2012. This revenues -- this segment's revenues were higher primarily due to a $16 million increase in interceptor revenues. Space launch vehicle revenues were down $9 million. Launch vehicles systems operating income was $10.5 million or 7.8% of revenues, an increase of $2.4 million compared to the second quarter of 2012. This was principally due to increased activity on interceptors and a favorable profit adjustment upon successful completion of the Pegasus rocket launch in June of this year. Satellites and space systems segment revenues were $94 million in the second quarter of 2013, down $36 million compared to the second quarter of 2012. This segment's revenues were down primarily due to the $54 million reduction in GEO communications satellites that I mentioned previously. Science and remote-sensing satellite revenues increased $18 million. Satellites and space systems segment operating income was $10.6 million and was unchanged compared to last year's second quarter. However, segment operating margin was 11.3% of revenues, up significantly from 8.1% operating margin reported in last year's second quarter. Favorable profit adjustments of certain satellites that were substantially complete this year, offset the impact of lower revenues. Operating income for the science and remote-sensing satellites increased by approximately $4 million, while operating income for GEO satellites decreased by $4 million. Advanced space programs segment revenues were $117 million in the second quarter of 2013, down $16 million compared to the second quarter of 2002 (sic) [2012] due to a reduction in CRS Cygnus and national security satellite revenues. Advanced space programs segment operating income was $5.1 million or 4.5% of revenue, a decrease of $4.3 million compared to the second quarter of 2012. This decrease was primarily attributable to lower profit margins on the national security satellite contracts driven by favorable adjustments in the second quarter of 2012, and the reduction of CRS Cygnus revenues. Consolidated research and development expenses increased by $1.3 million, principally due to an increase in COTS research and development expenditures, partially offset by a reduction in Antares research and development expenditures. Despite the 10% reduction in revenues, operating income was up slightly due to a 90 basis point increase in operating margin. Pretax income was up $2 million, principally due to a reduction in interest expense resulting from a refinancing of our debt in December of last year. The GAAP income tax rate for the second quarter 2013 was approximately 36% versus 38% for the second quarter of 2012. Our full year 2013 GAAP effective tax rate is estimated at 37%, while our full year 2013 cash tax rate is estimated at about 10%. Fully diluted EPS for the second quarter of 2013 was $0.27 per share versus $0.25 for the second quarter of 2012, an increase of 8%. Free cash flow for the second quarter of 2013 was $7 million, which included capital expenditures of $11 million. We expect to achieve important CRS building milestones that will result in improved cash flows and lowering receivables in the second half of 2013 and in future periods.

At the end of the quarter, our cash balance was $211 million. In addition, we have a $300 million credit facility available. We are lowering our guidance for the year for revenue to a range of $1,375,000,000 to $1,425,000,000 primarily reflecting lower forecasted GEO communications satellite revenue due to delayed bookings that I mentioned and discussed previously.

However, we are increasing our forecast in operating margin by 50 basis points to a range of 7.5% to 8%, reflecting improved margins in our launch systems and satellites and space systems segments. Relatedly, we are increasing our EPS guidance to a range of $1.05 to $1.15. We are reaffirming free cash flow in the range of breakeven to $20 million. These estimates assume successful execution of the COTS demonstration launch in September and the first CRS mission later this year and no major impact from the impending sequestration under the Budget Control Act. Now back to Dave.

David W. Thompson

Thank you, Garrett. I will now update you on the company's major operational events from this past quarter and preview what's ahead over the next several months. Going beyond the preliminary report that I gave you a few days after the successful first Antares launch back in April, I'm now happy to add that more detailed technical assessments that have been carried out over the past few months have confirmed that the inaugural flight was essentially flawless and that no adjustments of any significance are needed before the next 2 Antares launches coming up in the remainder of the year. Other good news on the operational front concerns the June Pegasus rocket launch, which placed a NASA scientific spacecraft into orbit with near-record accuracy, as well as a series of 5 Coyote supersonic target launches that we carried out in the second quarter. As I noted earlier, we also recently completed our 12th Orbital Boost Vehicle interceptor mission and several additional research rocket launches so far in the month of July.

Looking ahead to the second half of the year, we plan to launch up to 8 major rockets and deploy 5 satellites between now and the end of December. Our near-term schedule shows September launches of both our first upgraded Minotaur V, which will place a NASA spacecraft into lunar orbit, as well as our second Antares rocket, which will carry our first Cygnus cargo ship to the International Space Station. In addition, Orbital is readying 2 more Coyote supersonic targets for launches for the Australian Navy next month, and 4 suborbital research rockets for NASA scientific missions in the months of July and August.

Looking ahead to the fourth quarter, we also expect to launch 3 commercial communications satellites, 1 a month, October, November and December. Plus, another Minotaur rocket, and of course, the third Antares launch vehicle and the second Cygnus spacecraft on the first of our operational cargo missions to the space station. If fully achieved, these launches, together with a few more target and research rocket flights later in the year, would lead to a full-year total of almost 50 missions, 26 of which have been conducted to-date.

I'll now take you through second quarter new business results and also discuss our outlook for additional order opportunities between now and year-end. As I noted earlier, second quarter new business volume totaled a robust $875 million. Our Advanced Programs segment led the way with about $450 million in new orders and option exercises. This was followed by our satellites and space systems segment, with about $410 million, and our launch vehicle business with $15 million in new business. Particularly noteworthy were 2 new commercial communications satellite orders that we received in May and June, and 2 new scientific satellite contracts awarded to the company in April. In addition, another commercial satellite contract has been awarded to us earlier in the month of July, but that is not reflected in our second quarter new bookings figures, but does bring our year-to-date new satellite orders from both commercial and government customers to 6 units. These recent orders should reverse the trend of declining satellite sales and translate into stronger revenue in that part of our business over the coming quarters.

Looking ahead to the third and fourth quarters, the company now has proposals for new contracts and option exercises that are under review or will soon be submitted to customers that total up to about $900 million. These include pursuits for 2 more commercial and 1 more government satellites, additional target and space launch vehicles and various Advanced Programs and technical service opportunities. Assuming a reasonable degree of success in these pursuits, the company would expect to generate between $2.0 billion and $2.25 billion in total new business for the full year, which if achieved, would be at least $250 million better than what I anticipated at the beginning of the year.

In summary, Orbital continued to generate solid financial results in the second quarter. Operating margin expansion and free cash flow were both above plan for this point in the year, while strong new business wins and new proposal opportunities should reestablish revenue growth as we go into the second part of the year. We're looking forward to an eventful third and fourth quarters with major operational milestones ahead in our Antares and Cygnus programs, and together with a fast pace of activity in both commercial and government satellite deployments and launch vehicle missions over the coming 6 months. Thanks for your attention. I think we're now ready to open the call up for your questions.

Question-and-Answer Session

Operator

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

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

I hate to be redundant, but I was wondering if you could -- just looking at the commercial satellites business, maybe just give us a little bit more context on what's going on? Maybe recap what's on the factory floor today, what opportunities are still out there for, potentially, this year? And then, I know it's a little early, but maybe even an outlook for what you're thinking as you start to look at 2014?

David W. Thompson

Sure. I'd be happy to. For Orbital, the -- up until just 2 months ago, the commercial satellite business had been pretty weak in terms of new orders since about this time last year. We were not able to book any new commercial satellite orders in the second half of last year or in the first quarter of this year. And during that time, we completed and delivered 5 satellites that had been going through the factory. And so the backlog situation had really declined. Fortunately, it looks like that's turned around now, and between second quarter contracts and a new program awarded in the early part of July, we have 4 new commercial satellites that we'll start to design, or have started the design phase, and will start to generate additional revenue and work in the factory in the second half of the year. At present, we have 3 satellites from contracts awarded in past years that are completing their production and test. Two of those satellites have been delivered in place in the past couple of months and are awaiting shipment to the launch site paced by launch vehicle availability. The first of those is expected to be physically shipped in September for an October launch, and the second will follow that by some 6 or 8 weeks. We also have one more satellite due to be shipped in October for a launch sometime at or just after the Thanksgiving break. So it looks like with 3 satellites going out of the factory in the next few months, that we'll have at least 4 new commercial satellites starting the cycle with some good opportunities to go this year to add to that backlog. More generally, looking across the industry, announced orders or other bookings that are not yet publicly announced, have totaled by our count, 13 commercial satellites, of which -- 13 firm orders, of which 3 have been in our addressable market for lower power satellites and we've won all 3 of those plus an option order on a fourth one. So we're off to -- although the year started off slow for us, the pace has picked up in the last couple of months and hopefully it will continue from here on. We've also been awarded 2 new scientific satellite programs in the second quarter and are pursuing another opportunity for later in the year in that market. So the overall outlook is one that is promising for the future. It'll take a couple of quarters to see the full effect of revenue growth, and it will take a while to get back to the levels of $125 million to $130 million of quarterly revenue, similar to what we saw in 2011 and 2012 in our satellites segment. But hopefully, if we can build on the momentum we've established recently, that's where we'll head over the next year or 2.

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

Great. Just switching gears and looking at the launch vehicles businesses, have been a bit of an information void and maybe even some conflicting info on the July missile defense test. From your commentary, it certainly sounds like you guys held up your end of the bargain. I just want to confirm that was the case, and whether or not there is anything else you can talk about that test or any upcoming test that you're aware of?

David W. Thompson

Patrick, I can't, at the moment, add a lot to what I've said so far. I think there'll be more information available in the near term. There was some congressional testimony as recently as yesterday on the results of the most recent GMD test, and I don't want to go beyond what government officials said there. I might, though, just emphasize that the Pentagon is still very much committed to the National Missile Defense system. The recent testing experience probably underscores the need for more frequent testing, which I would certainly agree with and which would be good from the standpoint of our business. The testing of the GMD system against longer-range and higher speed and otherwise more sophisticated targets has not been conducted at the same pace, over recent years, as the testing of some of the shorter and midrange interceptors. Those systems such as Aegis and THAAD have typically seen 3 or 4 test flights a year compared to only, roughly, 1 per year for the GMD interceptor and perhaps, we'll see an increase in that pace just based on some of the commentary coming out yesterday and in some of the congressional hearings. So for the time being, I won't go any farther than that. But I would expect there'll be some more information coming out in the fairly near future.

Operator

Your next question comes from the line of Howard Rubel from Jefferies.

Howard A. Rubel - Jefferies & Company, Inc., Research Division

One minor item and then, one market question. First, Garrett, there was $4 million proceeds from settlement in the quarter, it doesn't look like it had a P&L impact. Could you elaborate on that, please?

Garrett E. Pierce

I can elaborate. There was a settlement. I cannot disclose what the settlement involved. The adjustment went through goodwill.

Howard A. Rubel - Jefferies & Company, Inc., Research Division

Okay, all right. And then, Dave, with respect to the NSS segment, is -- if I heard you correctly, you had a fairly large order there. Was this a follow-on to something, was this a new win? And can you provide a little color there?

David W. Thompson

That's always a touchy area to get into in any detail. And what I can say about our new orders in that area is the following: it was a -- the totals resulted from both several existing contracts being added to or extended, and several new contracts being awarded, varying in size from modest to quite significant. But in the Advanced Programs segment, generally, and in the -- some of the classified or proprietary areas specifically, it's hard to provide a whole lot more insight into what we're doing there than that.

Howard A. Rubel - Jefferies & Company, Inc., Research Division

I get that. It looks like I'm 0 for 2 in terms of color. But between the 2 of you, I mean, I'm not going to try anymore. But just maybe a little bit more characterization. Could you say that there's been some further recognition of your approach in some of those markets that have given you, can I say, a market share edge?

David W. Thompson

Yes. I think that's fair. The national security satellite market is, itself, composed of maybe 10 or 12 distinct submarkets. We are not, today, active across that full spectrum. We tend to be -- our business tends to be focused in 2 or 3 of the 10 or 12 areas. We're hoping to, over time, expand into a couple more as customers, for a variety of reasons, including tighter budgets, as well as concerns about systems not being as, perhaps as robust, to either natural or man-made threats in space as we would like them to be switched to architectures that feature a greater number of small- and medium-class satellites as opposed to a smaller number of very large spacecraft. So I think it's catching on. I wish it would catch on a little faster in some areas than it is, but we'll keep on that course. I think it's, in many cases, the right architectural solution and it's the area that plays to our strengths.

Howard A. Rubel - Jefferies & Company, Inc., Research Division

And then, just last. And then, just to conclude, if you were to touch on maybe the headcount for the company overall, are you still adding some people? And Garrett, maybe you could just -- well, I mean, it looks like even though you had this pause in commercial sats, doesn't sound like you're missing a beat.

David W. Thompson

Well, fortunately, when some parts of the business are down, other parts are up. We can't always -- we don't have complete interchangeability from the standpoint of either the technical skills or the geographic locations of our workforce, but we do everything we can to minimize the disruptions on the downside by reassignments on the things that are on the upswing. So year-to-date, our total workforce is down just a little bit, but not as much as you might guess due to the weakness in the satellite business because of reassignments to launch -- in particular, to launch vehicles, that continue to ramp up. So we can't always achieve the perfect balance but the diversity of product lines and market areas is helpful in smoothing out the ups and downs.

Operator

Your next question comes from the line of Tyler Hojo from Sidoti & Company.

Tyler Hojo - Sidoti & Company, LLC

Just -- first question, I was hoping that you could give us a guidance update by segment?

David W. Thompson

Sure. Let me do that. No big changes from before, maybe one area, up a little, satellite's down a little. So let me give you the current scorecard here. In the launch systems, launch vehicles segment, the current outlook would put us somewhere between $550 million and $565 million in revenue for the year. Kind of a midpoint operating margin for that segment would be in the neighborhood of 6% -- I'm sorry, neighborhood of 8%, 8%. So about 100 basis points or so better than last year. The satellites and space systems segment is the weak part of the story right now from a revenue standpoint and current outlook would put us somewhere in the range of $410 million to probably $420 million in revenue. Partly offsetting that, the operating margin outlook continues to be better than it historically has been. For the full year, we're looking at probably somewhere in the neighborhood of 8.5%. That's lower than what we've seen in the first couple of quarters, but keep in mind that the higher margins so far this year have, in part, reflected the release of reserves at the completion of several satellite contracts. And now we're going through a period where we don't have as many satellites being completed. And so the margins, probably, will be a little lower in the second half of the year than they were in the first half, averaging about 8.5% for the full year in the satellites segment. And then finally, the Advanced Programs segment revenue would likely be in the range of about $460 million to $475 million, with operating margins in the neighborhood of 6.5%.

Tyler Hojo - Sidoti & Company, LLC

Okay, great. That's very helpful. And just to clarify, I think from Patrick's question, what are you targeting this year in terms of satellite wins? So you've got 3, I think, in the bag with an option for a fourth, and what's the expectation for the back half?

David W. Thompson

The plan for the full year has been for 3 orders, that's 3 firm orders. And so after a slow start, it looks like we're good on that plan. Hopefully, we can make up for some lost time in the second half of last year and do a little better than that. We've got, as I mentioned earlier, we've got proposals outstanding now for 2 -- if they were both successful, would be 2 more orders. I don't think we can count on winning both of those, but I think we've got a reasonable shot now with an upside of maybe 1, possibly 2 more firm orders. So that would put us, for the full year, either at 4 or 5, which would be very good.

Tyler Hojo - Sidoti & Company, LLC

Got it. Okay. And just lastly for me. I was hoping that maybe you could update us a little bit in regards to what you were thinking in terms of timing for the CRS contract? I think we were thinking 2014 before. But I guess, what I'm curious about is how kind of the current litigation with United Launch Alliance may impact that?

David W. Thompson

Clarification on that, Tyler, are you referring to sort of the follow-on or the...

Tyler Hojo - Sidoti & Company, LLC

Yes, the follow-on.

David W. Thompson

Yes. Okay, okay. That's about where we saw it before. We think NASA will make decisions either late this year or early next year on how they're going to go about structuring the follow-on and make awards sometime before the end of next year. I don't have much more detail than that. But probably second half of next year is the time for decisions. That is, from the standpoint of the Antares rocket, that is a principal reason that I would like to, by early next year, set a final course as to how we're going to proceed from the standpoint of the main engines. As we've noted in the past, we have 20 -- we used 2 engines per Antares rocket, we have 20 engines currently available to us under contract today from the existing inventory of the AJ26 engines. But we understand that there are a limited number of additional engines in the inventory, numbering probably between 6 and 10, that would cover other needs that we would have through 2016. But we will need, again, by roughly this time next year, to have settled on what the long-term supply agreement or supply arrangements are going to be and we're evaluating all those alternatives now to make sure we have the best possible options.

Operator

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

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

Just a couple of questions left. One, Garrett, can you quantify the Pegasus adjustment that benefited the launch vehicle margin this quarter?

Garrett E. Pierce

It'll be about $1 million, $1.5 million, approximately.

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

Okay. And Dave, can you talk a little bit more about the Stratolaunch opportunity, now that the customer has come out and confirmed that you'll be participating in the program? It doesn't look like anything was added to the backlog this quarter, correct me if I'm wrong, and maybe just talk about what the long-term opportunities and how this program might lay out?

David W. Thompson

Sure, sure, Gary. This one, for different reasons, for commercial and kind of private investor proprietary reasons also, is one that we can't talk about in a whole lot of detail. It's a very exciting opportunity. As you've mentioned, Stratolaunch formalized and finalized their selection of Orbital to develop, build and test the rocket part of their air launch system in the second quarter. There is some effect on bookings there in the Advanced Programs segment, which will lead that work for Orbital. The aircraft that is involved is being developed for Stratolaunch by Scaled Composites, which is a division of Northrop Grumman. So I think that between Orbital and Scaled, Stratolaunch has got probably the strongest industrial team for a project of this type that they could possibly find. We're very excited about it. A lot of our engineers love to work on it. We're ramping it up now. It's not going to be a real big part of the company's revenue story this year, but over time, it could become quite meaningful and certainly, I think, a very exciting program that I've spent some time being involved in. And as it develops and as Stratolaunch decides, we'll make more information available in line with their preferences. But for the time being, they want to keep things pretty much under wraps until they get a little farther along. And so we're going to, we'll certainly follow their lead. But they've got a really great team, they're fun to work with and we're looking forward to doing so. It's a fairly long-term program. It's pretty ambitious from a technical standpoint. So you won't actually see test flights and other major operational activities until the second half of the decade.

Operator

Your next question comes from the line of Bill Loomis from Stifel.

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

Just going back to the commercial satellites again, just to be clear, so the revenue on the quarter was, what, roughly $28 million, if I got my math right? And to meet the revenue for that whole segment, based on what you have in hand, you're comfortable to see pretty explosive sequential growth in the second half, you're pretty confident on that on commercial satellite?

David W. Thompson

I think we are now with both the second quarter orders and then, this recent third quarter contract. I think the second half outlook looks good. We do have to -- after a period of declining activity over the past probably 1 year, certainly, the last 2 or 3 quarters, we do have to ramp back up again both in terms of our workforce and our supply chain. These programs have historically been, and we would expect the new wins to also be, relatively short-cycle for the things we do. And the new orders, by and large, follow that model in that, typically, only about 2 years of lapses between contract award and satellite deliveries. So a couple of orders can make a big difference in the revenue in that business.

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

Okay. And then, I know you mentioned the margins will be lower because of the lack of completions. So the 3 commercial satellites that you've completed, you've already captured any profit adjustment in that already in prior -- in the second -- in the first half?

David W. Thompson

In the case of 2 of the 3, yes, because the first satellite was actually completed and delivered in June. The second satellite was completed and delivered earlier this month. And so the clock has pretty much stopped in terms of cost accrual on those 2. The third one still has a couple of months to go. It's not due for delivery until October. But we're rounding the final bend, coming down the homestretch. There may be some minor adjustments as we finish that one out, but I would not expect to see that result in second -- either third quarter or second half operating margins in the satellites segment that are as strong as what you've seen over the past couple of quarters. They're going to kind of tend back towards where they were 1.5 years, 2 years ago.

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

Okay. And then a couple of quick financial ones on the CRS margin revision potential, could that still happen in the September quarter or is it likely December now since the launch got pushed out a little bit?

David W. Thompson

Yes. I think the right time for us to revisit that is going to be the fourth quarter. At present, the COTS demonstration mission is due to be carried out in September, which will give us further confidence that we're on a solid technical track. And the first of the CRS operational missions is scheduled to launch either late November or early December, so I think the fourth quarter will be the right time for that assessment.

Operator

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

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

Dave, maybe just to stay on the satellite theme here. Can you give us an indication, any of the orders you've secured already this year or those 1 or 2 you're targeting, any of those in the GEOStar-3 category?

David W. Thompson

None of the ones so far this year are in that category; 1 of the 2, that proposals have been submitted on, is in that category. To a degree, however, all of the new orders, including the ones last year, are benefiting from the R&D investment we've made over the past several years in what we've described as the GEOStar-3 upgrade, but which in fact, in areas like the spacecraft computer and some aspects of the electrical power and avionic systems will represent kind of a new generation that will be used across both the GEOStar-2 and 3 product lines. So that's kind of a long way of saying that the technical DNA of the GEOStar-3 is now common with the GEOStar-2, and so all of the recent sales have benefited from that investment. But in terms of power levels and mass -- and masses, the 3 firm and 1 option orders this year have all been in the GEOStar-2 class. 1 of the 2 opportunities is in that class and 1 is larger in the 3 class.

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

Okay, perfect. That's helpful. And then, just -- not asking for an outlook on next year, but as you go into this commercial satellite build phase, it seems reasonable to expect that your satellites segment margins will be down next year versus '13, just again, with the lack of launches. Obviously, it would be early in the cycle times there. Is that a reasonable assessment?

David W. Thompson

Yes. I think it is.

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

Okay. And then, if you can, just 2 more quick ones. Would you be willing to give us the update -- I would imagine the backlog coverage with some of these satellite orders had increased. Can you sort of give us the backlog coverage you've got for the remainder of this year and 2014?

David W. Thompson

Yes, Mike. Let me just -- I have that here, let me look it up. For this year, we're at about 95%. And in round terms for next year, we currently stand at about 70% and for 2015, at about 50%. So 95%, 70% and 50%, as of midyear 2013.

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

Okay, perfect. And the last one, you guys used to throw out that kind of 3-year cumulative outlook. Any -- what can we expect in terms of when you guys might kind of re-issue that? I know the last one, I guess, was a 2012 to 2014 cumulative outlook that encompassed revenue growth and importantly, free cash flow. Are you guys prepared to kind of re-release or what can we expect there?

David W. Thompson

Yes. Well, let's see. I would say -- I think we're turning the corner now on CRS, which has been the wildcard from a cash flow standpoint in that area. And for the first time ever, I think, or certainly the first time in the last couple of years, the CRS receivables actually went down a little bit in the quarter. Now they may well bounce back up a bit in the third quarter before they really start a long-term downward trend towards the end of the year with the completion that we expect now of the first CRS mission. I think, probably, the end of the year when we get to that point would be a decent time to reconsider doing that. But we really want to -- we want to get through this year, where the pressure on cash flow from CRS has peaked and we've started to turn that around and then, I think, that would be a reasonable time to do it. So roughly, the end of the year.

Operator

There are no further questions at this time. Presenters, I turn the call back over to you.

David W. Thompson

Okay. Thank you, and to everyone who joined us this morning, thank you for your attention. We'll bring the discussion to a close at this point. And we look forward to the talking with all of you in the future. Thank you very much. Good morning.

Operator

This concludes today's conference call. You may now disconnect.

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