HUNTINGTON INGALLS INDUSTRIES REPORTS THIRD QUARTER 2020 RESULTS

• Revenues were $2.3 billion in the quarter
• Operating margin was 9.6%
• Diluted earnings per share was $5.45
• Cash from operations was $222 million, and free cash flow1 was $160 million
• Backlog of $45.3 billion

PASCAGOULA, Miss., May 07, 2021 (GLOBE NEWSWIRE) -- Huntington Ingalls Industries’ (NYSE: HII) Ingalls Shipbuilding division has extended full-time job offers to 29 high school seniors across coastal Mississippi and Alabama who have successfully completed Ingalls Shipbuilder Academy.

NEWPORT NEWS, Va., Nov. 05, 2020 (GLOBE NEWSWIRE) -- Huntington Ingalls Industries (NYSE: HII) reported third quarter 2020 revenues of $2.3 billion, up 4.3% from the third quarter of 2019. The increase was driven by growth at both HII's Newport News and Ingalls Shipbuilding divisions.

Operating income in the quarter was $222 million and operating margin was 9.6%, compared to $214 million and 9.6%, respectively, in the third quarter of 2019. The increase in operating income was mainly the result of a higher operating FAS/CAS adjustment, partially offset by lower segment operating income, compared to the prior year.

Net earnings in the quarter were $222 million, compared to $154 million in the third quarter of 2019. The increase in net earnings was the result of lower federal income taxes due to a claim for higher research and development tax credits for prior years and a favorable change in the non-operating portion of retirement benefits, as well as higher operating income, partially offset by higher interest expense. Diluted earnings per share in the quarter was $5.45, compared to $3.74 in the same period of 2019.

Third quarter cash from operations was $222 million and free cash flow1 was $160 million, compared to $363 million and $250 million, respectively, in the third quarter of 2019.

New contract awards in the quarter were approximately $1.6 billion, bringing total backlog to approximately $45.3 billion as of Sept. 30, 2020.

“We are very pleased with shipbuilding program execution in the quarter, particularly as we continue to navigate our way through the challenges posed by COVID-19,” said Mike Petters, HII’s president and CEO. “In addition to achieving a number of key shipbuilding program milestones during the quarter, we also broke ground on our Unmanned Systems Center of Excellence, a facility purpose-built for unmanned systems prototyping, production and testing as we continue to invest in and expand our unmanned capabilities."

COVID-19 Update

"We continue to aggressively manage our response to the ongoing COVID-19 pandemic. The health and safety of our employees remains paramount as we continue our important work to support the nation’s defense,” said Petters. "The rate of new cases has stabilized in our shipyards, and we are maintaining a sustainable and manageable level of attendance. This has been driven by our ability to start rapid testing of employees and move them out of quarantine and back to work in a prudent way. While this has proven to be successful, the dynamic nature of this virus will force us to continue refining our policies to adapt to changing circumstances."

Financial Outlook

• Expect FY20 shipbuilding revenue of approximately $7.9 billion; shipbuilding operating margin1 between 5.5% and 6.5%
• Expect FY20 Technical Solutions revenue of approximately $1.25 billion and segment operating margin1 of approximately 2.6%
• Expect FY20 free cash flow1 of >$500 million
• Expect cumulative FY20 and FY21 free cash flow1 of approximately $900 million
• Expect cumulative FY20-FY24 free cash flow1 of approximately $3 billion

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

Results of Operations

Three Months Ended Nine Months Ended September 30 September 30 ($ in millions, except per share amounts)20202019$ Change% Change 20202019$ Change% ChangeSales and service revenues$2,314 $2,219 $95 4.3% $6,604 $6,487 $117 1.8%Operating income222 214 8 3.7% 494 550 (56) (10.2)% Operating margin %9.6 %9.6 % (5) bps 7.5 %8.5 % (100) bpsSegment operating income1162 191 (29) (15.2)% 313 458 (145) (31.7)% Segment operating margin %17.0 %8.6 % (161) bps 4.7 %7.1 % (232) bpsNet earnings222 154 68 44.2% 447 400 47 11.8%Diluted earnings per share$5.45 $3.74 $1.71 45.7% $10.98 $9.66 $1.32 13.7% Pension Adjusted Figures Net earnings2152 133 19 14.3% 230 319 (89) (27.9)%Diluted earnings per share2$3.73 $3.23 $0.50 15.5% $5.65 $7.71 $(2.06) (26.7)%1 Non-GAAP measures that exclude non-segment factors affecting operating income. See Exhibit B for definitions and reconciliations.2 Non-GAAP measures that exclude the impacts of the FAS/CAS Adjustment. See Exhibit B for reconciliation.

Segment Operating Results

Ingalls Shipbuilding

Three Months Ended Nine Months Ended September 30 September 30 ($ in millions)20202019$ Change% Change 20202019$ Change% ChangeRevenues$675 $647 $28 4.3% $1,926 $1,853 $73 3.9%Segment operating income162 61 1 1.6% 185 176 9 5.1%Segment operating margin %19.2%9.4 % (24) bps 9.6 %9.5 % 11 bps1 Non-GAAP measures. See Exhibit B for definitions and reconciliations.

Ingalls Shipbuilding revenues for the third quarter of 2020 were $675 million, an increase of $28 million from the same period in 2019, primarily driven by higher revenues in surface combatants and the Legend-class National Security Cutter (NSC) program, partially offset by lower revenues in amphibious assault ships. Surface combatant revenues increased due to higher volumes on Ted Stevens (DDG 128), Jeremiah Denton (DDG 129), Thad Cochran (DDG 135), and George M. Neal (DDG 131), partially offset by lower volumes on USS Fitzgerald (DDG 62) restoration and modernization. Revenues on the Legend-class NSC program increased due to higher volumes on Stone (NSC 9) and Calhoun (NSC 10), partially offset by lower volume on Friedman (NSC 11). Amphibious assault ship revenues decreased as a result of lower volumes on Tripoli (LHA 7) and Richard M. McCool Jr. (LPD 29), partially offset by higher volume on Harrisburg (LPD 30).

Ingalls Shipbuilding segment operating income for the third quarter was $62 million, an increase of $1 million from the same period last year. Segment operating margin in the quarter was 9.2%, compared to 9.4% in the same period last year.

Key Ingalls Shipbuilding milestones for the quarter:

• Completed sea trials for Legend-class National Security Cutter Stone (NSC 9)
• Achieved electronic systems light-off for Fort Lauderdale (LPD 28)

Newport News Shipbuilding

Three Months Ended Nine Months Ended September 30 September 30 ($ in millions)20202019$ Change% Change 20202019$ Change% ChangeRevenues$1,358 $1,274 $84 6.6% $3,821 $3,832 $(11) (0.3)%Segment operating income179 121 (42) (34.7)% 105 273 (168) (61.5)%Segment operating margin %15.8%9.5% (368) bps 2.7%7.1 % (438) bps1 Non-GAAP measures. See Exhibit B for definitions and reconciliations.

Newport News Shipbuilding revenues for the third quarter of 2020 were $1.4 billion, an increase of $84 million, or 6.6%, from the same period in 2019, driven by higher revenues in submarine and aircraft carrier construction, as well as fleet support services. Submarine revenues increased primarily as a result of higher volumes on Block V boats of the Virginia-class program and the Columbia-class program, partially offset by lower volumes on Block III boats of the Virginia-class program. Aircraft carrier revenues increased primarily as a result of higher volumes on Enterprise (CVN 80) and the advance planning contract for the refueling and complex overhaul (RCOH) of USS John C. Stennis (CVN 74), as well as higher volume on Doris Miller (CVN 81), partially offset by lower volumes on the RCOH of USS George Washington (CVN 73), John F. Kennedy (CVN 79) and USS Gerald R. Ford (CVN 78).

Newport News Shipbuilding segment operating income for the third quarter was $79 million, compared to operating income of $121 million from the same period last year. Segment operating margin was 5.8% for the quarter, compared to 9.5% in the same period last year. These decreases were primarily due to lower risk retirement on the Virginia-class submarine program and the use of lower profit booking rates following the second quarter reset of cost and schedule expectations. Additionally, results were impacted by lower risk retirement on fleet support services compared to the prior year period, which benefited from contract actions related to work on Los Angeles-class submarines.

Key Newport News Shipbuilding milestones for the quarter:

• John F. Kennedy (CVN 79) is approximately 76% complete
• Commencement of shore steam testing on USS George Washington (CVN 73) RCOH, which is approximately 81% complete
• Christened the Virginia-class submarine Montana (SSN 794)

Technical Solutions

Three Months Ended Nine Months Ended September 30 September 30 ($ in millions)20202019$ Change% Change 20202019$ Change% ChangeRevenues$320 $326 $(6) (1.8)% $957 $887 70 7.9%Segment operating income121 9 $12 133.3% 23 9 14 155.6%Segment operating margin %16.6%2.8 % 380 bps 2.4%1.0% 139 bps1 Non-GAAP measures. See Exhibit B for definitions and reconciliations.

Technical Solutions revenues for the third quarter of 2020 were $320 million, a decrease of $6 million from the same period in 2019, primarily driven by lower revenue at the San Diego Shipyard due to the conclusion of several repair contracts, partially offset by the acquisition of Hydroid in March 2020.

Technical Solutions segment operating income for the third quarter was $21 million, compared to segment operating income of $9 million in the third quarter of 2019. The increase was primarily driven by improved performance in Defense and Federal Solutions following the successful integration of recent acquisitions and post-acquisition cost synergies.

Key Technical Solutions milestones for the quarter:

• Nationwide Remediation Partners, a joint venture led by HII Nuclear, was awarded a contract to provide nationwide deactivation, decommissioning and removal services at excess DOE facilities. The multiple award contract has a 10-year ordering period, with a maximum ordering ceiling of $3 billion
• Awarded a contract by the U.S. Navy to continue providing logistics support products and services to the Naval Expeditionary Logistics Support Group
• Broke ground on a new Unmanned Systems Center of Excellence in Hampton, Virginia, which will be purpose-built for unmanned systems prototyping, production and testing
• Completed a strategic equity investment in Sea Machines Robotics, Inc., a Boston-based autonomous technology company that specializes in advanced software for unmanned surface vessels

2020 Outlook