Vectrus Announces Third Quarter 2017 Results
COLORADO SPRINGS, Colo., Nov. 7, 2017 /PRNewswire/ -- Vectrus, Inc. (NYSE:VEC) announced third quarter 2017 financial results. For the third quarter, revenue was $269.6 million, operating income was $10.1 million, and diluted earnings per share were $0.51. As of September 29, 2017, year-to-date net cash provided by operating activities was $22.4 million.
"We reported solid third quarter results, which were driven by progression on our strategic imperatives and strong program execution. Additionally, I'm pleased to announce that during the quarter, Vectrus was awarded a significant long-term subcontract in support of the Air Force Range Support Services II program," said Chuck Prow, president and chief executive officer of Vectrus. "The new contract, worth approximately $400 million, extends through the first quarter of 2034 and is expected to increase our U.S. based facilities and logistics work with the Air Force. This was a notable win for our team and is the largest new business contract awarded to Vectrus this year. We are proud to be a part of the RSS II team and look forward to delivering exceptional results on this long-term program."
"We remain focused on future growth and our efforts so far in 2017 have resulted in over $1.3 billion of contract bookings," explained Prow. "Our contract awards have driven our total backlog to $3.1 billion, which now represents almost three times our updated 2017 revenue guidance mid-point."
Third Quarter 2017 Results
-- Revenue $269.6 million
-- Operating income $10.1 million
-- Operating margin 3.7%
-- Diluted earnings per share $0.51
Third quarter 2017 revenue of $269.6 million decreased $14.2 million, or 5.0 percent, compared to the third quarter of 2016. The decrease in revenue was attributable to lower activity from our Middle East programs of $14.1 million and our U.S programs of $2.9 million, partially offset by increases from our European programs of $2.3 million and from our Afghanistan programs of $0.5 million.
Operating income was $10.1 million or 3.7 percent operating margin in the third quarter of 2017, compared to $11.2 million or 3.9 percent operating margin in the third quarter of 2016.
Third quarter 2017 diluted earnings per share were $0.51 compared to $0.60 in the third quarter 2016.
Year-to-date September 29, 2017, net cash provided by operating activities was $22.4 million, a decrease of $11.1 million compared to the 2016 period. Days sales outstanding was 57 days in the third quarter of 2017 compared to 55 days in the third quarter of 2016.
"We remain focused on cash generation and our team continues to evolve our processes to enhance cash collections," said Matt Klein, chief financial officer of Vectrus.
The Company ended the third quarter of 2017 with a total debt balance of $74.5 million, which was down from $85.0 million at December 31, 2016. As of September 29, 2017, the Company had a total consolidated indebtedness to consolidated EBITDA (total leverage ratio) of 1.58 to 1.00x.
"With approximately $11 million in net debt(1), our balance sheet remains in excellent shape," said Klein. "Our increased visibility and strong financial position has allowed us to negotiate commitment letters and a term sheet for a new and expanded credit facility. Our planned new credit facility, which we expect to close in the fourth quarter, will allow for even greater financial flexibility to support our business growth objectives and capital allocation strategy."
The Company ended the third quarter 2017 with total backlog of $3.1 billion and funded backlog of $0.8 billion.
2017 Guidance
"We are increasing our 2017 guidance for revenue, operating margin, net income, diluted EPS, and net cash provided by operating activities," said Klein.
2017 guidance details include:
$ millions, except for operating margin and per share amounts (Prior) (Updated)
2017 Guidance 2017 Guidance 2
Revenue $990 to $1,090 $1,080 to $1,100
Operating
Margin 3.40% to 3.60% 3.50% to 3.70%
Net Income $18.7 to $22.3 $21.1 to $23.0
Diluted EPS $1.68 to $2.00 $1.87 to $2.03
Net Cash
Provided by
Operating
Activities $22.0 to $28.0 $24.0 to $30.0
------------ ----- --- ----- ----- --- -----
The Company notes that forward-looking statements of future performance made in this release, including 2017 guidance, are based upon current expectations and are subject to factors that could cause actual results to differ materially from those suggested here, including those factors set forth in the Safe Harbor Statement below.
Investor Call
Management representatives will conduct an investor briefing and conference call at 4:30 p.m. EST on Tuesday, November 7, 2017.
U.S.-based participants may dial into the conference call at 855-327-6837, while international participants may dial 631-891-4304. For all other listeners, a live webcast of the briefing and conference call will be available on the Vectrus Investor Relations website at http://investors.vectrus.com.
A replay of the briefing will be posted on the Vectrus website shortly after completion of the call, and will remain available for one year. A telephonic replay will also be available through November 21, 2017, at 844-512-2921 (domestic) or 412-317-6671 (international).
About Vectrus
Vectrus is a leading, global government services company with a history in the services market that dates back more than 70 years. The company provides facility and logistics services and information technology and network communication services to U.S. government customers around the world. Vectrus is differentiated by operational excellence, superior program performance, a history of long-term customer relationships, and a strong commitment to their mission success. Vectrus is headquartered in Colorado Springs, Colo., and includes about 5,600 employees spanning 143 locations in 18 countries. In 2016, Vectrus generated sales of $1.2 billion. For more information, visit our website at www.vectrus.com or connect with us on Facebook, Twitter, LinkedIn, and YouTube.
Safe Harbor Statement
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 (the "Act"): Certain material presented herein includes forward-looking statements intended to qualify for the safe harbor from liability established by the Act. These forward-looking statements include, but are not limited to, statements in 2017 Guidance above about our revenue, operating margin, net income, EPS and net cash provided by operating activities for 2017 and other assumptions contained therein for purposes of such guidance, our new credit facility, cash and cash collections, debt payments, expense savings, contract opportunities, bids and awards, collections, business strategy, outlook, objectives, plans, intentions or goals, and any discussion of future operating or financial performance. Whenever used, words such as "may," "are considering," "will," "likely," "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," "target," "could," "potential," "continue," or similar terminology are forward-looking statements. These statements are based on the beliefs and assumptions of our management based on information currently available to management. Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward-looking statements, our historical experience and our present expectations or projections. These risks and uncertainties include, but are not limited to: our dependence on a few large contracts for a significant portion of our revenue; competition in our industry; our ability to submit proposals for and/or win potential opportunities in our pipeline; our ability to retain and renew our existing contracts; protests of new awards; our international operations, including the economic, political and social conditions in the countries in which we conduct our businesses; changes in U.S. government military operations, including its operations in Afghanistan; changes in, or delays in the completion of, U.S. or international government budgets; government regulations and compliance therewith, including changes to the Department of Defense procurement process; changes in technology; intellectual property matters; governmental investigations, reviews, audits and cost adjustments; contingencies related to actual or alleged environmental contamination, claims and concerns; our success in expanding our geographic footprint or broadening our customer base, markets and capabilities; our ability to realize the full amounts reflected in our backlog; our maintaining our good relationship with the U.S. government; impairment of goodwill; our performance of our contracts and our ability to control costs; our level of indebtedness; our compliance with the terms of our credit agreement; subcontractor and employee performance and conduct; our teaming arrangements with other contractors; economic and capital markets conditions; any future acquisitions, investments or joint ventures; our ability to retain and recruit qualified personnel; our maintenance of safe work sites and equipment; our compliance with applicable environmental health and safety regulations; our ability to maintain required security clearances; any disputes with labor unions; costs of outcome of any legal proceedings; security breaches and other disruptions to our information technology and operations; changes in our tax provisions or exposure to additional income tax liabilities; changes in U.S. generally accepted accounting principles; accounting estimates made in connection with our contracts; our exposure to interest rate risk; our compliance with public company accounting and financial reporting requirements; timing of payments by the U.S. government; risks and uncertainties relating to the spin-off from our former parent; and other factors set forth in Part I, Item 1A, - "Risk Factors," and elsewhere in our 2016 Annual Report on Form 10-K and described from time to time in our future reports filed with the Securities and Exchange Commission. We undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
Footnotes:
(1) Net debt defined as total debt less
cash.
(2) 2017 guidance assumptions. Capital
expenditures approximately $2.0
million. Depreciation and
amortization approximately $2.3
million. 2017 mandatory debt
payments $11.5 million. Interest
expense $5.1 million. Estimated
tax rate 35.5%. 2017 diluted EPS
assumes 11.3 million weighted
average diluted shares outstanding
at December 31, 2017.
VECTRUS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Nine Months Ended
September 29, September 30, September 29, September 30,
(In thousands, except per share
data) 2017 2016 2017 2016
------------------------------- ---- ---- ---- ----
Revenue $269,625 $283,782 $819,005 $902,359
Cost of revenue 245,219 257,687 743,502 822,042
Selling, general and administrative
expenses 14,316 14,933 44,560 46,046
------ ------ ------ ------
Operating income 10,090 11,162 30,943 34,271
Interest (expense) income, net (1,058) (1,348) (3,262) (4,396)
------ ------ ------ ------
Income from operations before income
taxes 9,032 9,814 27,681 29,875
Income tax expense 3,232 3,207 9,751 10,629
Net income $5,800 $6,607 $17,930 $19,246
====== ====== ======= =======
Earnings per share
Basic $0.52 $0.62 $1.63 $1.80
Diluted $0.51 $0.60 $1.61 $1.76
Weighted average common shares
outstanding -basic 11,075 10,733 10,991 10,688
Weighted average common shares
outstanding -diluted 11,272 11,061 11,168 10,966
VECTRUS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
September 29, December 31,
(In thousands, except share
information) 2017 2016
--------------------------- ---- ----
Assets (unaudited)
Current assets
Cash $63,446 $47,651
Receivables 174,943 172,072
Costs incurred in excess of
billings 11,751 11,002
Other current assets 8,509 13,412
Total current assets 258,649 244,137
------- -------
Property, plant, and equipment, net 3,259 3,061
Goodwill 216,930 216,930
Other non-current assets 2,413 1,177
Total non-current assets 222,602 221,168
------- -------
Total Assets $481,251 $465,305
======== ========
Liabilities and Shareholders'
Equity
Current liabilities
Accounts payable 109,100 118,055
Billings in excess of costs 3,070 1,421
Compensation and other employee
benefits 42,770 34,917
Short-term debt 21,000 15,750
Other accrued liabilities 18,996 17,693
Total current liabilities 194,936 187,836
------- -------
Long-term debt, net 52,653 67,842
Deferred tax liability 89,710 89,667
Other non-current liabilities 2,322 2,559
Total non-current liabilities 144,685 160,068
Total liabilities 339,621 347,904
------- -------
Commitments and contingencies
Shareholders' Equity
Preferred stock; $0.01 par value;
10,000,000 shares authorized; No
shares issued and outstanding - -
Common stock; $0.01 par value;
100,000,000 shares authorized;
11,075,220 and 10,894,924 shares
issued and outstanding 111 109
Additional paid in capital 67,464 63,910
Retained earnings 75,847 57,959
Accumulated other comprehensive
loss (1,792) (4,577)
------ ------
Total shareholders' equity 141,630 117,401
------- -------
Total Liabilities and Shareholders'
Equity $481,251 $465,305
======== ========
VECTRUS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended
September 29, September 30,
(In thousands) 2017 2016
------------- ---- ----
Operating activities
Net income $17,930 $19,246
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization
expense 1,141 1,453
Loss on disposal of property,
plant, and equipment - 402
Stock-based compensation 3,341 3,542
Amortization of debt issuance costs 561 915
Changes in assets and liabilities:
Receivables (96) 47,501
Other assets 3,196 (2,954)
Accounts payable (11,470) (31,593)
Billings in excess of costs 1,649 (2,828)
Deferred taxes (1,007) (7,138)
Compensation and other employee
benefits 6,817 9,252
Other liabilities 336 (4,314)
Net cash provided by operating
activities $22,398 $33,484
------- -------
Investing activities
Purchases of capital assets (901) (400)
Proceeds from the disposition of
assets - 116
Distributions from equity
investment - 346
--- ---
Net cash (used in) investing
activities $(901) $62
----- ---
Financing activities
Repayments of long-term debt (10,500) (20,500)
Proceeds from revolver 27,500 74,000
Repayments of revolver (27,500) (74,000)
Proceeds from exercise of stock
options 1,886 568
Payment of debt issuance costs - (221)
Payments of employee withholding
taxes on share-based compensation (612) (651)
Net cash (used in) financing
activities $(9,226) $(20,804)
------- --------
Exchange rate effect on cash 3,524 614
----- ---
Net change in cash 15,795 13,356
Cash-beginning of year 47,651 39,995
Cash-end of period $63,446 $53,351
======= =======
Supplemental Disclosure of Cash
Flow Information:
Interest paid $3,014 $4,224
------ ------
Income taxes paid $3,801 $20,598
====== =======
Non-cash investing activities:
Purchase of capital assets on
account $438 $ -
==== === ===
SUPPLEMENTAL INFORMATION
Revenue by military branch for the periods presented below was as follows:
Three Months Ended Nine Months Ended
September 29, September 30, September 29, September 30,
(In thousands) 2017 2016 2017 2016
-------------
Military branch Revenue % of Revenue % of Revenue % of Revenue % of
Total Total Total Total
----- ----- ----- -----
Army $214,152 80% $241,601 85% $682,891 83% $762,818 85%
Navy 6,038 2% 5,482 2% 16,218 2% 14,975 2%
Air Force 49,435 18% 36,699 13% 119,896 15% 124,566 14%
Total Revenue $269,625 $283,782 $819,005 $902,359
======== ======== ======== ========
Three Months Ended Nine Months Ended
September 29, September 30, September 29, September 30,
(in thousands) 2017 2016 2017 2016
-------------
Contract type Revenue % of Revenue % of Revenue % of Revenue % of
Total Total Total Total
----- ----- ----- -----
Firm-Fixed-Price $74,643 28% $72,978 26% $209,682 26% $230,604 26%
Cost-Plus and Cost-
Reimbursable (1) 194,982 72% 210,804 74% 609,323 74% 671,755 74%
Total Revenue $269,625 $283,782 $819,005 $902,359
======== ======== ======== ========
(1) Includes time and
material contracts
Three Months Ended Nine Months Ended
September 29, September 30, September 29, September 30,
(In thousands) 2017 2016 2017 2016
-------------
Contract Relationship Revenue % of Revenue % of Revenue % of Revenue % of
Total Total Total Total
----- ----- ----- -----
Prime Contractor $262,372 97% $277,787 98% $799,439 98% $848,582 94%
Sub Contractor 7,253 3% 5,995 2% 19,566 2% 53,777 6%
Total Revenue $269,625 $283,782 $819,005 $902,359
======== ======== ======== ========
CONTACT:
Mike Smith, CFA
719-637-5773
michael.smith@vectrus.com
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SOURCE Vectrus, Inc.
