Aerospace & Defense Update
Numerous companies announced 3Q17 earnings this past week with mixed results. Lockheed Martin missed earnings per share (“EPS”) estimates by 0.6% but increased revenue by 5.4% year-over-year (“YoY”) to $12.2 billion. Despite Lockheed’s slight miss on EPS figures and lower than expected revenue, management increased EPS and revenue guidance for 2017. Northrop Grumman exhibited strong 3Q17 performance, beating EPS estimates by 26.0% and growing revenue by 6.0% YoY to $6.5 billion. The revenue increase was driven by sales growth in the Aerospace Systems and Mission Systems segments. Additionally, Boeing beat EPS estimates by 2.3% and increased its revenue by 1.7% YoY to $24.3 billion. Boeing set a record with 202 commercial aircraft deliveries in the quarter and raised its earnings and cash flow guidance for the year.
United Technologies beat EPS estimates by 3.0% and increased revenue by 3.6% YoY to $15.4 billion. This increase was sustained by investments in innovation, resulting in its best quarter of organic growth since 2011 per Chairman and CEO, Greg Hayes. Hayes also reaffirmed United Technologies’ confidence in its proposed acquisition of Rockwell Collins and the transformational aspect the acquisition will have for United Technologies. General Dynamics beat EPS estimates by 3.3% but lowered its revenue by 1.0% YoY to $7.6 billion. However, General Dynamics said its total order backlog was up to $63.9 billion, an increase of 9.2% from the end of 2Q17. Lastly, Raytheon beat EPS estimates by 3.0% and increased its revenue by 4.5% YoY to $6.3 billion. This increase was driven by robust growth in its Missile Systems unit.
Government Technology Solutions
Rep. Robin Kelly voiced her support Thursday for the Connected Government Act, a bill that would require federal agencies to maintain mobile-friendly public websites. The bill was approved by the Oversight and Government Reform Committee in September and by the Senate Homeland Security and Governmental Affairs Committee in early October. The legislation would codify an existing Office of Management and Budget memorandum that calls for agencies to ensure that their websites perform equally well on non-desktop devices, such as smartphones and tablets. However, an Information Technology and Innovation Foundation Report from March found that many agencies have not heeded this advice, as 31% of popular federal agencies’ websites failed a mobile friendliness test by a significant margin. With 77% of Americans owning a smartphone, Kelly called the inability by the government to design mobile friendly websites a “complete failure”. According to a study, approximately 40% of visits to government websites in the past 90 days were via a mobile device.
Bhupesh Wadhawan, the founder of a small business contracting firm, Link Solutions, has plead guilty to five years in prison for bribing a contracting official to award his company a $50 million contract. The bribery scheme began almost immediately after the company was founded in 2006 and lasted through 2012. To grow Link Solutions’ business with the Army Public Health Command at Aberdeen Proving Ground in Maryland, Wadhawan bribed Rainer Ramos, a contracting official at Aberdeen, with gifts that included Wizards basketball tickets, various football team tickets, and access to the company luxury suite at FedEx Field. In one instance, Wadhawan convinced Ramos to convert full-and-open work into an 8(a) set-aside contract that Link Solutions ultimately won. While commercial companies can offer potential customers certain incentives to encourage business transactions, government contractors are explicitly forbidden from offering government contracting officials any form of monetary compensation, including gifts that cover entertainment activities. Wadhawan’s actions resulted in a five-year prison sentence and $2.2 million in restitution.
FLIR (up 8.9%) – Share prices were up this week after the company reported positive third quarter earnings and increased revenue by 15% YoY.
Airbus (up 5.4%) – Share prices were up this week after the company acquired a majority stake in the Bombardier C Series program.
Serco, Inc., the wholly-owned U.S. subsidiary of Serco Group plc, has agreed to acquire BTP Systems, LLC, a provider of satellite communications (“SATCOM”), radar modernization, operations and maintenance, and sustainment services that enable customers to extend the lives of existing systems and achieve phased upgrades. KippsDeSanto & Co. served as the exclusive advisor to BTP Systems, LLC on this transaction. Terms of the deal were not disclosed.
Astronics Corp. has agreed to acquire Telefonix, Inc., a provider of advanced in-flight entertainment and connectivity equipment, as well as providing industry leading design consultancy services for the global aerospace industry. The deal is worth an estimated $104 million.
Booz Allen Hamilton, Inc. has agreed to acquire Morphick, Inc., a provider of managed detection and response (“MDR”) services. Terms of the deal were not disclosed.
Fuse Engineering, LLC has acquired ZyEdge, a provider of IT managed services for the small and mid-sized business market in the D.C. Metro / Northern Virginia area. Terms of the deal were not disclosed.
Highpoint Global, LLC has acquired Primescape Solutions, Inc., a provider of enterprise-scale information technology services and solutions to the public sector. Terms of the deal were not disclosed.
MavenHill Capital has agreed to acquire Connecticut Coining, Inc., a provider of precision deep drawn metal parts for mission-critical applications for aerospace, defense, medical, and power tube industries. Terms of the deal were not disclosed.
OpenGov, Inc. has acquired Peak Democracy, Inc., a provider of online citizen engagement solutions for the government sector. Terms of the deal were not disclosed.