Vectrus Announces Third Quarter 2018 Results
COLORADO SPRINGS, Colo., Nov. 6, 2018 /PRNewswire/ -- Vectrus, Inc. (NYSE:VEC) announced third quarter 2018 financial results. For the third quarter, revenue was $308 million, GAAP operating income was $14.0 million or 4.5% GAAP operating margin, and GAAP diluted earnings per share were $0.86.
"We reported solid third quarter financial results driven by the continued execution of our strategy and momentum in the market," said Chuck Prow, president and chief executive officer of Vectrus. "We are leveraging our industry-leading technology infusion, rapid deployment, tactical agility, and operational continuity capabilities in order to deliver value added solutions with our clients. I'm proud to announce that this focus led to the recent win of a $60 million task order to provide base operations support services for the U.S. Navy at Guantanamo Bay. The award was made subsequent to the third quarter and will be included in our fourth quarter backlog."
"Clients are welcoming our outcome-oriented solutions approach, and as demonstrated by our financial results, we are making substantial progress transforming Vectrus into a higher value platform," said Prow. "Additionally, with 65% of 2018 new business wins based on contract value coming from the Air Force and Navy, we are also making great progress in diversifying our portfolio and expanding market share with clients that have not historically been large contributors to revenue. We see additional opportunities to further expand our footprint with existing clients in the Department of Defense and intelligence community, as well as new clients in the federal civilian market."
Year-to-date September 28, 2018, net cash provided by operating activities was $8.7 million, a decrease of $13.7 million compared to 2017. Days sales outstanding (DSO) was 66 days in the third quarter of 2018 compared to 54 days in the third quarter of 2017. "Year-to-date net cash provided by operating activities is lower compared to the prior year due to temporary timing differences related to the SENTEL integration," said Matt Klein, chief financial officer of Vectrus. "Net cash provided by operating activities is expected to be strong in the fourth quarter."
The Company ended the third quarter 2018 with a total debt balance of $76.0 million, which was down from $79.0 million at the end of the 2017. As of September 28, 2018, the Company had total consolidated indebtedness to consolidated EBITDA (total leverage ratio) of 1.29x to 1.00x.
"With approximately $330 million in 2018 new business awards, which includes the recent Guantanamo Bay task order, we continue to capitalize on the growth opportunities in our markets," said Klein. "With our current financial profile, we are well positioned to continue executing on organic and inorganic activities aligned to our strategy that will result in enhanced shareholder value."
The Company ended the third quarter 2018 with total backlog of $3.0 billion and funded backlog of $773.4 million.
2018 Guidance
"We are updating our full-year 2018 guidance," said Klein. "Our 2018 guidance assumes capital expenditures of approximately $9 million, interest expense of $4.7 million, depreciation and amortization expense of $4.2 million, mandatory debt payments of $4.0 million, and weighted average diluted shares outstanding of 11.4 million at December 31, 2018."
2018 guidance details include:
$ millions, except for operating margin and EPS amounts (Prior) (Updated)
2018 Guidance 2018 Guidance
Revenue $1,215 to $1,285 $1,250 to $1,270
Operating
Margin 3.6% to 4.0% 3.6% to 4.0%
Net Income $30.9 to $36.9 $31.6 to $36.1
Diluted EPS
1 $2.71 to $3.23 $2.77 to $3.17
Net Cash
Provided by
Operating
Activities $35.0 to $39.0 $35.0 to $39.0
---
The Company notes that forward-looking statements of future performance made in this release, including 2018 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. ET on Tuesday, November 6, 2018.
U.S.-based participants may dial into the conference call at 877-407-0792, while international participants may dial 201-689-8263. 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 20, 2018, at 844-512-2921 (domestic) or 412-317-6671 (international) with pass code 13684461.
Footnotes:
(1 )Diluted EPS guidance is calculated using estimated weighted average diluted common shares outstanding at December 31, 2018 of 11.4 million.
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 6,700 employees spanning 177 locations in 21 countries. In 2017, Vectrus generated sales of $1.1 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 2018 Guidance above about our revenue, operating margin, net income, diluted EPS and net cash provided by operating activities for 2018 and other assumptions contained therein for purposes of such guidance, other statements about revenue and DSO, our credit facility, 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," "goal" 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 dependence on the U.S. government and the importance of our maintaining a good relationship with the U.S. government, 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; any acquisitions, investments or joint ventures, including the integration of SENTEL Corporation into our business; 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; 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; 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, including under the Tax Cuts and Jobs Act, or exposure to additional income tax liabilities; changes in U.S. generally accepted accounting principles, including changes related to Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (ASC 606); 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 2017 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.
VECTRUS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three months ended
Nine months ended
September 28, September 29, September 28, September 29,
(In thousands, except per share
data) 2018 2017 2018 2017
---
Revenue $
308,095 $
269,625 $
949,744 $
819,005
Cost of revenue 278,964 245,219 865,078 743,502
Selling, general and administrative
expenses 15,125 14,316 48,990 44,560
Operating income 14,006 10,090 35,676 30,943
Interest (expense) income, net (1,315) (1,058) (3,619) (3,262)
Income from operations before income
taxes 12,691 9,032 32,057 27,681
Income tax expense 2,826 3,232 6,884 9,751
Net income $
9,866 $
5,800 $
25,173 $
17,930
Earnings per share
Basic $
0.88 $
0.52 $
2.25 $
1.63
Diluted $
0.86 $
0.51 $
2.21 $
1.61
Weighted average common shares
outstanding -basic 11,248 11,075 11,210 10,991
Weighted average common shares
outstanding -diluted 11,406 11,272 11,380 11,168
VECTRUS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
September 28, December 31,
(In thousands, except share
information) 2018 2017
---
Assets (unaudited)
Current assets
Cash $
39,584 $
77,453
Receivables 223,389 174,995
Costs incurred in excess of
billings 12,751
Other current assets 12,107 6,747
Total current assets 275,080 271,946
Property, plant, and equipment, net 10,512 3,733
Goodwill 234,818 216,930
Intangible assets, net 9,161 121
Other non-current assets 4,014 2,821
Total non-current assets 258,505 223,605
Total Assets $
533,585 $
495,551
Liabilities and Shareholders'
Equity
Current liabilities
Accounts payable $
121,717 $
115,899
Billings in excess of costs 3,766
Compensation and other employee
benefits 46,841 39,304
Short-term debt 4,000 4,000
Other accrued liabilities 24,245 19,209
Total current liabilities 196,803 182,178
Long-term debt, net 70,529 73,211
Deferred tax liability 53,315 55,329
Other non-current liabilities 1,452 1,461
Total non-current liabilities 125,296 130,001
Total liabilities 322,099 312,179
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;
11,249,222 and 11,120,528 shares
issued and outstanding 113 111
Additional paid in capital 70,759 67,526
Retained earnings 142,510 117,415
Accumulated other comprehensive
loss (1,896) (1,680)
Total shareholders' equity 211,486 183,372
Total Liabilities and Shareholders'
Equity $
533,585 $
495,551
VECTRUS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended
September 28, September 29,
(In thousands) 2018 2017
---
Operating activities
Net income $
25,173 $
17,930
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 2,546 1,141
Loss on disposal of property,
plant, and equipment 315
Stock-based compensation 3,410 3,341
Amortization of debt issuance costs 318 561
Changes in assets and liabilities:
Receivables (15,179) (96)
Other assets (5,669) 3,196
Accounts payable (5,259) (11,470)
Billings in excess of costs 1,649
Deferred taxes (2,101) (1,007)
Compensation and other employee
benefits 5,002 6,817
Other liabilities 98 336
Net cash provided by operating
activities $
8,654 $
22,398
Investing activities
Purchases of capital assets (6,115) (901)
Proceeds from the disposition of
assets 33
Acquisition of business, net of
cash acquired (36,855)
Net cash used in investing
activities $
(42,937) $
(901)
Financing activities
Repayments of long-term debt (3,000) (10,500)
Proceeds from revolver 138,000 27,500
Repayments of revolver (138,000) (27,500)
Proceeds from exercise of stock
options 1,388 1,886
Payments of employee withholding
taxes on share-based compensation (803) (612)
Net cash used in financing
activities $
(2,415) $
(9,226)
Exchange rate effect on cash (1,171) 3,524
Net change in cash (37,869) 15,795
Cash-beginning of year 77,453 47,651
Cash-end of period $
39,584 $
63,446
Supplemental disclosure of cash
flow information:
Interest paid $
3,241 $
3,014
Income taxes paid $
11,222 $
3,801
Non-cash investing activities:
Purchase of capital assets on
account $
1,374 $
438
Key Performance Indicators and Non-GAAP Financial Measures
The primary financial performance measures we use to manage our business and monitor results of operations are revenue trends and operating income trends. In addition, we consider EBITDA and EBITDA % to be useful to management and investors in evaluating our operating performance for the periods presented, and to provide a tool for evaluating our ongoing operations. This information can assist investors in assessing our financial performance and measures our ability to generate capital for deployment among competing strategic alternatives and initiatives.
EBITDA and EBITDA %, however, are not measures of financial performance under generally accepted accounting principles in the United States of America (GAAP) and should not be considered a substitute for operating income as determined in accordance with GAAP. Reconciliations of these items are provided below.
"EBITDA" is defined as operating income, adjusted to exclude depreciation and amortization.
"EBITDA %" is defined as EBITDA divided by revenue.
(In thousands)
---
EBITDA (Non-GAAP
Measures)
Three months ended
Nine months ended
---
September 28, September 29, September 28, September 29,
2018 2017 2018 2017
Revenue $
308,095 $
269,625 $
949,744 $
819,005
Operating Income 14,006 10,090 35,676 30,943
Add:
Depreciation and
Amortization $
922 347 2,546 1,141
EBITDA $
14,928 $
10,437 $
38,222 $
32,084
EBITDA % 4.8
% 3.9
% 4.0
% 3.9
%
Supplemental Information
Revenue by client branch, contract type, contract relationship, and geographic region for the periods presented below was as follows:
Revenue by Customer
Three Months Ended
Nine Months Ended
September 28, % of September 29, % of September 28, % of September 29, % of
2018 Total Total Total Total
(In thousands) 2017 2018 2017
---
Army $
224,038 72 $
214,152 80 $
700,265 74 $
682,891 83
% % % %
Air Force 64,278 21 49,435 18 189,954 20 119,896 15
% % % %
Navy 8,567 3 6,038 2 26,912 3 16,218 2
% % % %
Other 11,212 4 % 32,613 3
% % %
Total revenue $
308,095 $
269,625 $
949,744 $
819,005
Revenue by Contract Type
Three Months Ended
Nine Months Ended
--- ---
September 28, % of September 29, % of September 28, % of September 29, % of
2018 Total Total Total Total
(In thousands) 2017 2018 2017
---
Cost-plus and cost- $
240,338 78 $
194,982 72 $
713,289 75 $
609,323 74
reimbursable(1)
% % % %
Firm-fixed-price 67,757 22 74,643 28 236,455 25 209,682 26
% % % %
Total revenue $
308,095 $
269,625 $
949,744 $
819,005
(1)Includes time and material contracts
Revenue by Contract
Relationship
Three Months Ended
Nine Months Ended
--- ---
September 28, % of September 29, % of September 28, % of September 29, % of
Total Total Total Total
(In thousands) 2018 2017 2018 2017
---
Prime contractor $
290,090 94 $
262,372 97 $
892,206 94 $
799,439 98
% % % %
Subcontractor 18,005 6 7,253 3 57,538 6 19,566 2
% % % %
Total revenue $
308,095 $
269,625 $
949,744 $
819,005
Revenue by Geographic Region
Three Months Ended
Nine Months Ended
--- ---
(In thousands) September 28, % of September 29, % of September 28, % of September 29, % of
Total Total Total 2017 Total
2018 2017 2018
---
Middle East 223,636 72 217,312 80 662,734 70 660,020 80
% % % %
United States 54,379 18 36,499 14 203,015 21 112,833 14
% % % %
Europe 30,080 10 15,814 6 83,995 9 46,152 6
% % % %
Total revenue 308,095 269,625 949,744 819,005
CONTACT:
Mike Smith, CFA
719-637-5773
michael.smith@vectrus.com
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SOURCE Vectrus, Inc.
