HUNTINGTON INGALLS INDUSTRIES REPORTS FIRST QUARTER 2020 RESULTS AND PROVIDES COVID-19 UPDATE

• Revenues were $2.3 billion in the quarter
• Operating margin was 9.5%
• Diluted earnings per share was $4.23
• Backlog of $45.2 billion
• Reiterates long-term financial targets provided at February 2020 Investor Day

NEWPORT NEWS, Va., May 07, 2020 (GLOBE NEWSWIRE) -- Huntington Ingalls Industries (NYSE: HII) reported first quarter 2020 revenues of $2.3 billion, up 8.8% from the first quarter of 2019. The increase was driven primarily by higher volume at HII’s Newport News and Ingalls shipbuilding divisions, as well as growth at HII’s Technical Solutions division.

Operating income in the quarter was $215 million and operating margin was 9.5%, compared to $161 million and 7.7%, respectively, in the first quarter of 2019. The increases in operating income and operating margin were mainly the result of a more favorable operating FAS/CAS adjustment and higher risk retirement at both Newport News and Ingalls shipbuilding divisions.

Net earnings in the quarter were $172 million, compared to $118 million in the first quarter of 2019. The increase in net earnings for the quarter was mainly the result of higher operating income and a more favorable FAS (non-service) pension benefit, partially offset by a $16 million loss recorded in Other, net as a result of lower returns on marketable securities related to our non-qualified benefit plans.

Diluted earnings per share in the quarter was $4.23, compared to $2.85 in the same period of 2019. Excluding the impacts of pension, adjusted earnings per share1 in the quarter was $2.43, compared to $2.14 in the same period of 2019.

First quarter cash from operations was $68 million and free cash flow1 was $2 million, compared to $11 million and negative $63 million, respectively, in the first quarter of 2019.

New contract awards in the quarter were approximately $900 million, primarily driven by an award for the construction of guided missile destroyer Sam Nunn (DDG 133). As of March 31, 2020, backlog totaled approximately $45.2 billion.

COVID-19 Update

“As the COVID-19 pandemic unfolds, the health and safety of our employees remains paramount even as we continue our important work to support the nation’s defense,” said Mike Petters, HII president and CEO. “We are aggressively managing our response to the pandemic and have put in place a number of policies and procedures to mitigate the exposure to and spread of COVID-19 in accordance with guidelines provided by the Centers for Disease Control and Prevention (CDC) and other state and local government health agencies.” Petters continued, “We have done our best to provide employees with the resources they need to stay safe and healthy while also continuing to support our customers, suppliers and communities during this unprecedented situation.” Employee health and safety initiatives include:

• Implemented liberal leave policies that provide employees flexibility and job security
• Implemented processes aligned with CDC guidelines to work with any exposed individual on the necessary quarantine period and the process to return to work
• Adjusting policies, procedures and workspaces to support social distancing, including re-balancing shifts to reduce concurrent headcount, and the utilization of face masks
• Significantly increased workplace sanitation and deep cleaning
• Suspended all non-essential work travel
• Offering telecommute and work from home options where feasible

Operational Highlights

“We have continued to make good progress and have recently achieved a number of key operational milestones. However, we are experiencing staffing levels that are 70% to 75% of normal at our shipyards as employees adjust their schedules and utilize liberal leave policies as needed for their individual situations,” Petters said.

• Proactively working with our supply chain and accelerating payments to small business suppliers
• Delivered amphibious assault ship Tripoli (LHA 7) in late February
• Launched amphibious transport dock Fort Lauderdale (LPD 28) in late March
• Began fabrication of amphibious transport dock Harrisburg (LPD 30) in March and guided missile destroyer Ted Stevens (DDG 128) in early April
• Completed sea trials and planned production work for guided missile destroyer USS Fitzgerald (DDG 62) during the first quarter
• Completed acceptance trials and delivered guided missile destroyer Delbert D. Black (DDG 119) in mid-April
• John F. Kennedy (CVN 79) is approximately 72% complete; the team remains focused on compartment completion and preparation for primary system testing
• The refueling and complex overhaul (RCOH) of USS George Washington (CVN 73) is progressing through its final outfitting and test phase and is approximately 74% complete
• Closed the acquisition of Hydroid, Inc. in late March, significantly expanding capabilities in the important and rapidly growing autonomous and unmanned maritime systems market

Financial Outlook and Liquidity

“Given the unprecedented visibility and stability provided by our $45 billion in backlog, and our strong balance sheet, we remain confident in our ability to minimize the impact of COVID-19 on our business and to achieve the long-term financial targets we provided in February,” said Chris Kastner, HII chief financial officer. "However, due to reduced attendance in the shipyards, we see shipbuilding sales growth for the year to be at the lower end of the previously provided range of 3 to 5 percent."

• No change to long-term financial targets provided at February 2020 Investor Day
• Strong pre-COVID balance sheet bolstered by recent actions; $1B in proceeds from new senior notes offering, $500M new revolving credit facility

Results of Operations

Three Months Ended March 31 (in millions, except per share amounts)20202019$ Change% ChangeSales and service revenues$2,263 $2,080 $183 8.8 %Operating income215 161 54 33.5 %Operating margin %9.5 %7.7 % 176 bps Segment operating income1156 129 27 20.9 %Segment operating margin %16.9 %6.2 % 69 bps Net earnings172 118 54 45.8 %Diluted earnings per share$4.23 $2.85 $1.38 48.4 % Adjusted Figures Net earnings299 89 10 11.2 %Diluted earnings per share2$2.43 $2.14 $0.29 13.6 %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 March 31 ($ in millions)20202019$ Change% ChangeRevenues$629 $584 $45 7.7 %Segment operating income168 46 22 47.8 %Segment operating margin %110.8 %7.9 % 293 bps 1 Non-GAAP measures. See Exhibit B for definitions and reconciliations.

Ingalls Shipbuilding revenues for the first quarter of 2020 were $629 million, an increase of $45 million, or 7.7%, from the same period in 2019, driven by higher revenues on the San Antonio-class LPD program and the Arleigh Burke-class DDG program, partially offset by lower revenues on the America-class LHA program and Legend-class National Security Cutter (NSC) program. Higher LPD program revenues were primarily due to increased volumes on Harrisburg (LPD 30) and Richard M. McCool Jr. (LPD 29). Higher DDG program revenues were primarily due to increased volumes on Jeremiah Denton (DDG 129), Delbert D. Black (DDG 119) and Ted Stevens (DDG 128), partially offset by lower volume on Paul Ignatius (DDG 117). Lower LHA program revenues were primarily due to decreased volume on the delivered Tripoli (LHA 7). Lower NSC program revenues were primarily the result of decreased volume on the delivered U.S. Coast Guard Cutter Midgett (NSC 8), partially offset by higher volume on Calhoun (NSC 10).

Ingalls Shipbuilding segment operating income for the first quarter was $68 million, an increase of $22 million from the same period last year. Segment operating margin in the quarter was 10.8%, compared to 7.9% in the same period last year. These increases were primarily driven by higher risk retirement on the LPD and DDG programs.

Newport News Shipbuilding

Three Months Ended March 31 ($ in millions)20202019$ Change% ChangeRevenues$1,341 $1,279 $62 4.8 %Segment operating income195 81 14 17.3 %Segment operating margin %17.1 %6.3 % 75 bps 1 Non-GAAP measures. See Exhibit B for definitions and reconciliations.

Newport News Shipbuilding revenues for the first quarter of 2020 were $1.3 billion, an increase of $62 million, or 4.8%, from the same period in 2019, driven by higher revenues in submarine construction, partially offset by lower revenues in aircraft carriers. Higher submarine revenues were primarily due to higher volumes on the Virginia-class submarine (VCS) program Block V boats, as well as higher volume on Columbia-class, partially offset by lower revenues related to Block III boats of the VCS program. Aircraft carrier revenues decreased primarily as a result of lower volumes on the RCOH of USS George Washington (CVN 73) and USS Gerald R. Ford (CVN 78), partially offset by higher volumes on Enterprise (CVN 80) and the advance planning contract for the RCOH of USS John C. Stennis (CVN 74).

Newport News Shipbuilding segment operating income for the first quarter was $95 million, an increase of $14 million from the same period last year. Segment operating margin was 7.1% for the quarter, compared to 6.3% in the same period last year. These increases were primarily driven by higher risk retirement on the VCS program and the RCOH of USS George Washington (CVN 73).

Technical Solutions

Three Months Ended March 31 ($ in millions)20202019$ Change% ChangeRevenues$317 $240 77 32.1 %Segment operating income1(7)2 (9) (450.0)%Segment operating margin %1(2.2)%0.8 % (304) bps 1 Non-GAAP measures. See Exhibit B for definitions and reconciliations.

Technical Solutions revenues for the first quarter of 2020 were $317 million, an increase of $77 million, or 32.1%, from the same period in 2019, primarily driven by higher mission driven innovative solutions (MDIS) revenues attributable to the acquisition of Fulcrum IT Services (Fulcrum) in 2019 and higher volume on other MDIS services, as well as higher oil and gas revenues and fleet support revenues.

Technical Solutions segment operating loss for the first quarter was $7 million, compared to segment operating income of $2 million in first quarter 2019. The decrease was primarily driven by lower performance on fleet support, oil and gas, and nuclear and environmental services.

2020 Outlook