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Executives

David Thompson - Chairman, President and CEO

Garrett Pierce - Chief Financial Officer

Barry Beneski - SVP Communications

Analysts

Howard Rubel - Jefferies

Patrick McCarthy - FBR Capital Markets

Gary Liebowitz - Wells Fargo Securities

Michael Ciarmoli - KeyBanc Capital Markets

Chris Quilty - Raymond James

Orbital Sciences Corporation (ORB) Q2 2014 Results Earnings Conference Call July 17, 2014 9:00 AM ET

Operator

Good morning, my name is Shirley and I will be your conference operator today. At this time, I would like to welcome, everyone to the Second Quarter 2014 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question and answer session. (Operator Instructions).

Thank you. Mr. David Thompson, you may begin your conference.

David Thompson

Thank you, Shirley and good morning, everyone. Thank you for joining us today to discuss Orbital's second quarter financial results. I'm Dave Thompson, and with me on the phone 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 and other important information that appears at the end of our financial press release. This paragraph in particular emphasizes the major uncertainties and risks in the forward-looking statements that we will make this morning. So please keep these factors as well as the other information in mind as we discuss the company’s future operational outlook and our financial guidance during the call.

We’ll follow our customary outline this morning. I'll begin by discussing some highlights from the second quarter and then turn it over to Garrett. He will cover our quarterly financial results in greater detail and update our guidance for the remainder of the year.

After that, I'll recap recent operational events and also provide a preview of upcoming operational activity for the next three months. And finally, I'll also address second quarter new business contract backlog and our outlook for the rest of this year and I’ll also provide an update on Orbital’s planned merger with the ATK. At that point, we'll open up the call for questions.

Let’s begin with some highlights from our second quarter and Garrett and I will cover each of these in more depth later in the call. First, I’ll recap the big news from the second quarter as I think you all know in late April Orbital and ATK announced the proposed merger-of-equals combination of our company and ATK’s Aerospace and Defense Group. As we noted at the time this combination will create a $4.5 billion space defense and aviation systems manufacture and both an unmatched record of product innovation and a very sharp focus on affordability.

When merger closes which is expected later this year. Orbital ATK will have a substantially broader customer base with the technological capabilities and competitive advantages to enable sustain growth in revenue earnings and cash flow as well as to realize substantial near-term opportunities for both strategic and financial synergies.

Second, let's look at our financial performance in the second quarter. Revenues were down about 5% to $318 million, primarily on reduce sales of scientific and national security satellites and space launch vehicles. Excluding $6.6 million of merger related expenses, adjusted operating margin was about 6.9% in the quarter and adjusted EPS on a same basis was $.0.34 per share.

Free cash flow was about $17 million in the quarter, which increased our cash balances, to $366 million at the end of January. Due to the delayed start of work on several commercial communication satellite contracts that have been expected earlier in the year, but which are only ramping up now we are reducing our revenue estimates for 2014 by $50 million to $75 million to a new range of $1.4 billion to $1.425 billion.

We are however maintaining our previous operating margin EPS and free cash flow targets excluding merger related costs as Garrett will discuss momentarily. Next, let’s turn to operational highlights, the company carried out five space missions in the last three months and delivered 10 additional satellites and launch vehicles for future uses. Recent missions included the 13th consecutive successful launch of the company’s Orbital Boost Vehicle Interceptor for the Missile Defense Agency’s GMD program. This was a prerequisite for the Pentagon to proceed with the expanded deployment of additional GMD interceptors over the next three years and so therefore it was very important.

We also launched our fourth Antares rocket this past weekend which boosted the company’s third Cygnus spacecraft into orbit in advance of its rendezvous and docking with the International Space Station which took place yesterday.

Finally, here is a summary of new business activity. New contract awards and options exercises totaled approximately $550 million in the second quarter. These included two orders for our recently introduced GEOStar-3 medium class communication satellite which will provide high throughput capacity in both KA and KU bands, use a hybrid electric chemical propulsion system and boost satellite revenue quite substantially in the second half of the year.

Firm contract backlog increased 5% to approximately $2.27 billion while total backlog was $4.76 billion at the end of the second quarter. Looking ahead to the second half of the year, Orbital is pursuing a dozen or so major new business opportunities widely distributed across our product lines that are valued in excess of $1.5 billion. I’ll discuss these in a little more detail in a few minutes. First though, I'd like to ask Garrett to take you through the company's financial results from the second quarter and to update our guidance for 2014. Garrett?

Garrett 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 of 2014 were $318 million, which compared to $333 million in the second quarter of 2013, down $15 million or 5%. The reduction in consolidated revenues was primarily driven by the completion of a major science and remote sensing satellite in 2013, lower national security satellite revenues and decreased activity on the CRS contract. These reductions were partially offset by revenue increases in the missile defense interceptors area, GEO satellites and our new advanced flight system contract.

Consolidated adjusted operating income excluding the Orbital ATK merger deal cost of $6.6 million was $21.9 million in the second quarter of 2014 or 6.9% operating margin compared to the operating income of $26.3 million or 7.9% operating margin in the second quarter of 2013. Adjusted operating income decreased by $4.4 million, mainly due to lower GEO and science satellite operating income.

Now I'd like to highlight certain factors in each of the three operating segments. Launch vehicle segment revenues were $126 million in the second quarter of 2014, a decrease of $8 million compared to the second quarter of 2013. This segment’s revenues were down primarily due to lower space launch and target vehicle revenues, partially offset by increased revenues for the missile defense interceptors. Launch vehicle segment operating income was $11.1 million or 8.8% of revenue, an increase of $600,000 compared to the second quarter of 2013. Segment operating income increased mainly due to profit improvement in the missile defense interceptors area.

Satellites and space systems segment revenues were $87 million in the second quarter of 2014, down $7 million compared to the second quarter of 2013. This segment’s revenues were down primarily due to the completion of the Landsat contract in the first half of the 2013, offset in part by higher GEO satellite revenues.

Satellites and space systems segment operating income was $2.7 million or 3.1% of revenues, a decrease of $7.9 million compared to the second quarter of 2013. This decrease was principally due to the completion of the Landsat contract last year and a reduction in GEO satellite operating profit. GEO satellite operating profit was down to profit improvements recognized in 2013 as certain satellites were completed last year and due to lower profit rates on recently awarded contracts.

Advanced space programs revenues were $110 million in the second quarter of 2014, down $6 million compared to the second quarter of 2013 due to a reduction in national securities satellite and CRS revenues partially offset by activities on the Advanced Flight System contract awarded last year.

Advanced space programs segment operating income was $8.1 million, or 7.4% of revenue, an increase of $2.9 million compared to the second quarter of 2013. This increase was primarily attributable to profit improvement in the national security satellite area.

Research and development expenditures were $7.4 million in the second quarter of 2014 compared to $23.2 million in the second quarter of 2013, a decrease of $15.8 million. This decrease was principally due to the completion of the COTS, research and development program in 2013.

Selling, general and administrative expenses were $33.5 million in the second quarter of 2014 compared to $24.6 million in the second quarter of 2013, an increase of $8.9 million. This increase was primarily due to a $6.6 million of Orbital ATK merger deal cost incurred this year. Other income for the second quarter 2014 included a $12 million insurance recovery accrual retain to the Amazonas 4A satellite anomaly that occurred in April as discussed in our first quarter 2014 earnings telecom.

Our GAAP income tax rate for the second quarter of 2014 and for 2013 were approximately 36.5% and we estimate that our full GAAP rate for 2014 will be 36.5%. Our full year 2014 cash tax rate is expected to be about 25%.

Adjusted EPS for the second quarter 2014 was $0.34 per share compared to $0.27 in the second quarter of 2013. Free cash flow for the second quarter of 2014 was $17 million including $8 million of capital expenditures we generated $104 million of free cash flow in the first half of 2014 compared to negative $27 million of cash flow in the first half of 2013 driven by 2014 collections of the CRS receivables in connection with the successful emissions and major milestones.

At the end of the second quarter 2014 our cash balance stood at $366 million in addition we have a $300 million credit facility available. Although we have lowered our revenue guidance for 2014 to a range of $1,400 million to $1,425 million due impart to the delay of bookings of two major geo satellite orders which occurred at the end of the second quarter. We are however reaffirming our operating margin and our EPS guidance due to a favorable shift in forecast of product revenue mix and higher than expected insurance recovery, accordingly we are affirming adjusted operating income margin guidance in the range of 7.25% to 7.75% and adjusted EPS in the range of $1.10 to $1.20 per share. We are also maintaining our 2014 free cash flow guidance in the range of $130 million to $150 million.

Now I will turn it back to Dave.

David Thompson

Okay, thanks Garrett. I will now update you of the company’s major operational events that took place in the second quarter and preview what’s ahead over the next six months. As I mentioned previously Orbital conducted five space missions in the quarter with four of them taking place in the month of June, the two major missions were the Orbital Boost Vehicle interceptor launch that I mentioned earlier and the OCO-2 scientific satellite deployment which we conducted for NASA.

We also recently launched the fourth Antares rocket which placed our third Cygnus cargo spacecraft in Orbit which in turn completed his run and docking with the space station yesterday morning.

The company also delivered 10 additional systems in the second quarter consisting of four satellites and six missile defense interceptors and target vehicles.

Accounting operational activity that has taken place so far in July, Orbital was carried out 12 Satellite deployments and rocket launches and delivered 16 additional systems so far in 2014 achieving an average of one major operational event every week since the first of the year.

Maintaining that pace, we expect to conduct another 15 or 16 space missions in the third and fourth quarters and to complete and deliver up to 10 additional systems by year end. In fact, at present we are about two-thirds through a mid sum of surge of mission activity with 10 rocket launches and satellite deployments taking place over a five week period from June 22nd to July 26.

I'll now take you through second quarter new business results and discuss the company's outlook for additional contracts over the next six months. New business volume totaled $550 million in the second quarter and that was made up of approximately $435 million in new contract awards and $115 million in option exercises under existing contracts. Our satellites and space systems segment led the way with about $445 million in new business followed by the launch vehicle segment with $60 million and the advanced programs unit with about $45 million.

New orders and options in the second quarter included three satellites, two for commercial operators and one for NASA as well as one launch vehicle for the Air Force plus add-ons to a variety of existing programs.

Orbital currently has proposals either outstanding or in final preparation for near-term submittals that total over $1.5 billion in value with space launch vehicles, missile defense systems, scientific programs, and additional space station cargo missions representing about three quarters of that total.

Finally, I’ll give you a brief update on our merger activities with ATK’s Aerospace and Defense Groups that we announced back in April. The two companies are making good progress in planning for the proposed merger as we approach the half way point in the transition period. So far, we’ve established the overall organizational structure and settled on most of the first and second level management appointments in the new Orbital ATK. We’ve defined the basic approaches and allocated responsibilities for achieving the revenue and cost synergy targets that we set out for 2015 and 2016. And we have made or will soon complete the necessary filings to support regulatory reviews of the merger. So there has been a lot of preparation work underway over the last couple of months and we remain on schedule to close the transaction in the fourth quarter of this year.

In summary then the second quarter for the company was one in which we generated solid operating profits and free cash flow although quarterly revenues came in below plan due to new satellite program start-up delays that we experienced in the first half of the year. We continued a rapid pace of operational activities by completing 15 space missions and systems deliveries in the quarter and achieved good new business wins including the first two orders for our new medium class communication satellite. Most importantly, Orbital reached agreement on and progressed with transition planning for truly transformational merger with the aerospace and defense business units of ATK.

Thanks for your attention. We're now ready to open up the call for questions.

Question-and-Answer Session

Operator

(Operator Instructions). Our first question comes from the line of Howard Rubel from Jefferies. Your line is open.

Howard Rubel - Jefferies

Good morning. Thank you very much gentlemen.

David Thompson

Good morning, Howard.

Garrett Pierce

Good morning, Howard.

Howard Rubel - Jefferies

I want to start sort of where almost where you ended David. Could you provide a little more color on new booking opportunities? I know some of them are competitive and some of them are not. Could you outline either in terms of the communication satellites, what opportunities are there and then also with the MDA success, does that accelerate the timing for a contract there?

David Thompson

Yes, sure Howard. Let me go back to both the first quarter and second quarter in regards to the commercial satellite bookings. We had booked an order late last year for a follow on satellite with Thaicom to the Thaicom-6 satellite that we had built and launched in the early part of January. And there was a delay in the ramp up of that contract due to some political uncertainty if you remember back in the winter and early spring that was taking place in Thailand. And so that program really did start to ramp until about mid way through the second quarter, sometime in May versus an expectation that we had earlier that if would have ramped up in the first quarter of the year. In addition, we booked two additional orders in the quarter, both fairly late in the second quarter with customers that have not yet been announced but will be in due course. And the first of those was delayed a couple of months. So, we were running behind ramp up schedule on two of the three satellites that have been awarded and started so far this year.

With regard to the more general state of affairs in the commercial satellite market, in general it looks like 2014 will be a good year; we are projecting orders for slightly more than 20 satellites to be made this year, year-to-date 13 have been ordered across the industry. Six of those 13 were addressable by our combined GEOStar-2 and GEOStar-3 product line and we won two of those six both being GEOStar-3s. And we're hoping to book at least one and potentially two more orders in the second half of the year. Although the second of those two new orders that comes perhaps it should have, it should be fairly late in the year and probably not have much revenue contribution until 2015.

Now shifting gears to the missile defense outlook. The launch that took place in late June was very successful not only did Orbital Boost Vehicle have performed very well but the more importantly the rest of the GND system also performed successfully and intercept was accomplished. This was a gating item to the expanded deployment of 14 more West Coast based, ground-based interceptors that our Secretary Hagel had announced a year ago and so we're looking forward to adding new work under our GNP contract towards the end of this year to deal with additional interceptors and also probably carry out a slightly stepped up pace of flight testing as we get into 2015 and 2016.

Howard Rubel - Jefferies

And then just one follow up slightly different, I mean you have to be proud that Antares continues to perform as you would like. We can see their results with the docking, but how do we think about of the financial performance Garrett? And is there any chance that you’ve moved any closer to thinking about a improved booking rate?

Garrett Pierce

Yes. That’s a good question, Howard. It has performed excellently and we’re very proud of the work that our (inaudible) Orbital delivered for the country and for our company. And we’re looking at that now. We had indicated earlier in the first quarter call that we were looking to make an adjustment, the profit adjustment in the second half, we’re still planning to do that and things are looking good. Let me just leave it at that.

Howard Rubel - Jefferies

Thank you very much.

Garrett Pierce

Welcome.

Operator

Our next question comes from the line of Patrick McCarthy from FBR Capital Markets. Your line is open.

Patrick McCarthy - FBR Capital Markets

Good morning guys and thank you for taking my questions. My first questions are on the GEO-3 award. I was wondering if you could discuss on a relative basis what the pricing on that is like relative to the GEO-2? And then I was also wondering whether you could discuss where your margin expectations on that are for the first couple of satellites you do and then what it looks like when they get mature?

David Thompson

Yes. Sure, Patrick. The GEOStar-3 platform provides and its high-end about a 50% improvement in power levels and communication capacity over the upper end of our traditional GEOStar-2 product line. And typically although this can vary quite a bit depending on the configuration of the communication payload, the pricing is 30% or so higher than what has traditionally been the case for the GEOStar-2 products.

Early on, the pricing well the margin, the profit margins will be modest compared to the more matured GEOStar-2 profitability that we've enjoyed over the last couple of years. Also keep in mind that if you compare this year's profitability in the GEO product lines the comparables compared to last year are going to be pretty tough because we were finishing up several contracts last year that had, they came in and good shape, we didn't use up much of our management reserve and so we had profit close out, contract close out profit pick-ups on several of the contracts in 2013.

But anyway to your specific question over the next year or so, the new orders that either have been obtained or that are expected to come and will be at more modest profit rates than what we've seen recently.

Patrick McCarthy - FBR Capital Markets

Just as a follow-up to that from a contractual perspective. Is that product line still going to be negative net working capital for you guys?

David Thompson

Yes, we think that characteristic will continue to be the case.

Patrick McCarthy - FBR Capital Markets

Okay, good. And then just had one other question. With the merger with ATK, does that influence and how does it influence your decision on the engines and do you have an update and when you anticipate to make a decision there?

David Thompson

Yes, as we discussed back in April for the first quarter call, we, at that point said that we though we would be in a position to make a propulsion system decision in three to four months and I think we're right on track to do that. We are very close to doing so now. I think I know which way it’s going to go. I am not going to just yet though get into the details on that. But we have a few more things that have to be verified. But I think we have got a really good approach that I am happy with and that should be solidified here very shortly.

Patrick McCarthy - FBR Capital Markets

Great, thanks for taking the questions.

David Thompson

Okay, thank you Patrick.

Operator

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

Gary Liebowitz - Wells Fargo Securities

Thanks operator, good morning.

David Thompson

Good morning, Gary.

Gary Liebowitz - Wells Fargo Securities

Guys, how do you expect the ATK merger cost to play out for the rest of the year? And Garrett if you can just confirm that those costs are included in your cash flow guidance numbers?

Garrett Pierce

Yes. We are comfortably in that cash flow range, including the merger expenses. So I will answer your question that way. They will come through in the quarter I would imagine towards the end of the year when we are close to closing, the number will move up. I don’t think we have provided a number but 6.6 is what we took a charge for in this quarter and there will be some more and I would say it would be skewed up towards the -- just before the merger as we’re paying banking success fees. So, but that’s in our forecast right now and the cash flow that we provided you, we are comfortably in that range, $130 million to $150 million with the inclusion of the expenses.

Gary Liebowitz - Wells Fargo Securities

Okay. Also since you guys are closer to it than we are, can you give any thoughts on the outlook for the reauthorization of the Ex-Im Bank? I know you guys; you have customers on the satellite side yet, a fair amount of support there. Any update you have there or what your sense is going to happen in September?

David Thompson

Gary, I'll take that one. First of all, I want to compliment you on the research note you put out on that week or so ago, I think that was pretty much on target.

We don't have a perfect crystal ball here, but I'm generally optimistic that things will work out. We certainly are making our views known within the Congress as to the both the importance to our industry and really more broadly to the country of continuing with the Ex-Im program which from an economic standpoint has really been a great boon not only to exports, but it's been a good investment by the U.S.

So, I'm generally optimistic that things will work out well there. But again it's one of those things that’s hard to predict in detail.

Garrett Pierce

Let me just add from a personal note, I served on the advisory committee of the Export-Import Bank in 2012 and ‘13 and I have seen the professional job that they have delivered, I have seen the unbalanced playing field with other economic development agencies around the world and I have seen the creation of jobs. So, I'm personally speaking I support the continuation of Export-Import Bank. That's my view when I was on the committee and it's continued.

Gary Liebowitz - Wells Fargo Securities

Thanks Garrett. And then just I have one last clean up question. The increase in receivables during the quarter, I know first quarter was a very liquidated a lot in the first quarter; it’s just a function of timing or are there any issues we should be aware of?

Garrett Pierce

It’s timing and it will decrease in the ensuing quarter. So it’s just the timing of milestones et cetera. Our forecast is to further decrease it in the balance of the year.

Gary Liebowitz - Wells Fargo Securities

Thank you very much.

Garrett Pierce

You’re welcome.

David Thompson

Thanks. Thank you too Gary.

Operator

Our next question comes from the line of Michael Ciarmoli from KeyBanc Capital Markets. Your line is open.

Michael Ciarmoli - KeyBanc Capital Markets

Hey, good morning guys. Thanks for taking my question and congratulations.

David Thompson

Yes, sure Mike.

Michael Ciarmoli - KeyBanc Capital Markets

Congrats on another successful Antares launch.

David Thompson

Thank you.

Michael Ciarmoli - KeyBanc Capital Markets

I guess just sticking with the Antares, you’ve got the successful launches under your belt now. We’ve talked about opportunities with new cost numbers. Can you give us a sense as to how progress is coming along there? I mean your customers want I guess an answer on the engine first before they commit to the rocket or can you just give us a sense as to what’s happening with either the U.S. government or other commercial customers?

David Thompson

Yes, sure Mike. Well, in terms of specific near-term pursuits, we submitted our first non-NASA proposal back I think it was at the end of the first quarter, sometime back in the late winter or early spring and that’s under evaluation for reasons that are unrelated to the launch vehicle choice, the customer and the program and question there has been delayed in making a decision. And I can’t today say exactly when that decision is going to be forthcoming, although I would expect it sometime before the year is out. And then more recently, we submitted our second proposal to a different customer with expectations that the decision will be made there probably in the fourth quarter after some discussions during this quarter.

So we have two proposals outstanding but those are for, if we were to be selective, those would be for missions between late 2016 and early 2018. And so we'll wait and see how those come out, but I think those customers and hopefully others are having confidence built by the first four launches of Antares that have all been from a technical standpoint just about flawless and have taken place over a 15 month period. So it's been a good introductory phase for Antares and we hope to continue that winning streak with the next launch coming up here inside of about three months.

Michael Ciarmoli - KeyBanc Capital Markets

Can you give us a sense has the revenue market opportunity or even the pricing environment that you guys first envisioned Antares would have when you had it on the drawing board; has that changed with what's been happening with SpaceX and their success with the Falcon rockets?

David Thompson

Not in any big way.

Michael Ciarmoli - KeyBanc Capital Markets

Okay.

David Thompson

I would say the first order, no.

Michael Ciarmoli - KeyBanc Capital Markets

Okay. And then just one last one, maybe more just housekeeping, Garrett. Can you just walk me through, you obviously had the satellite anomaly that hit operating income by about I guess it was $6.4 million last quarter. You got the insurance catch up this quarter but it was $12 million that added basically to earnings. So did the operational earnings come down a bit? It seems like optically you picked up more insurance that drove earnings than maybe looking your initial forecast for the year?

David Thompson

Well that’s correct. And if you go back to the first call transcript I was asked the question did I think that we would collect $6.5 million or less I said no we will certainly collect $6.5 million and it could be more. The engineers are studying the anomaly and we have got submit our claims et cetera. So once we have done that, the recovery will be $12 million so that is versus our forecast, we had $6.5 million forecasted.

Garrett Pierce

I might just add to that Mike that in the second quarter we had cost of somewhere between $2.5 million and $3 million that did reduce satellite segment operating income for additional investigations and testing work we did to make sure that that problem we had on Amazonas 4A was truly isolated and is well understood as possible. So that it was showed up in a different place on the income statement than the $12 million recovery but we did incurred a better part of the $3 million of extra R&D and testing cost to be real sure that we have a good handle on the problems so it’s not going to occur again.

Michael Ciarmoli - KeyBanc Capital Markets

Okay, perfect. That’s helpful, thank you very much guys.

David Thompson

Okay, thanks. Thank you as well.

Operator

Our next question comes from the line Chris Quilty from Raymond James. Your line is open.

Chris Quilty - Raymond James

Thanks, David just want to follow up your statements on the commercial end parties customers. I'm assuming that those decisions are based upon on the reconfigured Antares with new propulsion?

David Thompson

Chris, I would for competitive reasons at this point probably refrain from commenting on that.

Chris Quilty - Raymond James

Okay. I guess you have said in the past that there are additional AJ-26s at Aerojet Rocketdyne so, that still could be potential but then it could also be based upon new propulsion. So, is that a fair assumption?

David Thompson

Yes, I think I'll have to just leave you guessing on that one.

Chris Quilty - Raymond James

Okay. Have you in anyway changed your mid to longer term outlook on interceptors and missile defense? I have seen some very positive budget language both FY15 as well as reprogramming actions to push more money towards the GMD program, is there enough of that looking solid to you that you had ratchet up your outlook or still too tenuous at this point?

David Thompson

I think it's a little premature to do that. I know what you're referring to and it's encouraging. I think that one of the reasons the GMD program has struggled a little bit in the last couple of years with flight testing is that the testing pace has been quite modest compared to the pace of testing of some of the other short range interceptors. And it looks like that's something that Missile Defense Agency is going to address which I think will be good.

From a near-term perspective, just looking at 2014, I don’t believe that just from a timing standpoint we’ll see a lot of upside this year compared to our earlier planning assumptions, maybe a small amount but quite modest. For next year, there could be a bit of upside. I think one of the better appreciation for that as we get towards the end of this year and see how some of the statements translate into little more tangible activity. But it feels us like at least a mild tailwind and hopefully it will develop into a strong win as we get through this year.

Chris Quilty - Raymond James

Got you. And following up on the GEO satellite outlook, I think you said one, maybe two more orders this year which unless you get the high end of that both orders, I think you’re going to come up short of your original forecast for the year. And I am imaging the shift towards GEOStar-3 is probably better than you were thinking. And I guess the bottom-line question here is when you look at the GEOStar-2 platform where I don’t think you’ve inked any wins yet this year, has the Amazonas issue hurt you to the point that you need to change things with pricing to bring back orders? I know Thales Alenia picked up a couple of orders that you probably thought might be yours or do you think the reputational issues are all that large at this point?

David Thompson

I don’t think those concerns really are significant. I think the mix of GEOStar-3 versus 2 opportunities and orders so far is pretty much unrelated to that. One of the, pretty high potential second half orders would be a GEOStar-2, the other more likely a GEOStar-3. So I think it's -- they're not really coupled to the Amazonas for a situation.

Chris Quilty - Raymond James

Got you. And final question Garrett, the insurance settlement whether it was a little more or less than expected that was presumably included in your free cash flow projections for the year?

Garrett Pierce

Yes.

Chris Quilty - Raymond James

Okay, perfect. Thank you.

David Thompson

Okay. Thanks Chris.

Operator

There are no further questions in queue at this time. I’ll turn the call back over to Mr. Thompson.

David Thompson

Okay. Thank you, Shirley. I think we'll bring the discussion to a close at this point. Thanks again to everyone for joining us and we look forward to talking with you soon. Good morning.

Operator

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

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Source: Orbital Sciences' (ORB) CEO David Thompson on Q2 2014 Results - Earnings Call Transcript

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