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Vectrus Announces Second Quarter 2018 Results

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Vectrus Announces Second Quarter 2018 Results

- Second quarter revenue of $321 million, up 24% year-over-year

- GAAP operating margin 4.0% and GAAP diluted earnings per share (EPS) $0.81

- Awarded two new firm-fixed-price base maintenance contracts in Europe and North America valued at over $125 million

- Reaffirming 2018 guidance

PR Newswire

COLORADO SPRINGS, Colo., Aug. 7, 2018 /PRNewswire/ -- Vectrus, Inc. (NYSE:VEC) announced second quarter 2018 financial results. For the second quarter, revenue was $321 million, GAAP operating income was $13.0 million, and GAAP diluted earnings per share were $0.81. As of June 29, 2018, year-to-date net cash provided by operating activities was $4.2 million.

Vectrus Logo.

"I'm happy to report that our business momentum continued into the second quarter and resulted in strong financial results," said Chuck Prow, president and chief executive officer of Vectrus. "Revenue increased 24% year-over-year, with 12% growth coming from the Vectrus base business and the remainder coming from the SENTEL acquisition. Our growth activities, strong program performance, as well as the continued execution of our strategic plan are showing tangible progress in the form of improved financial results and additional new business awards."

"During the second quarter, Vectrus won new business contracts valued at over $125 million, which builds on our success in the first quarter and brings the total value of our year-to-date new business wins to over $250 million," explained Prow. "Importantly, all of the new business won in the second quarter is firm-fixed price, which provides Vectrus an excellent opportunity, over time, to generate higher margins and better outcomes for our clients through the application of technology and continuous improvement principles and techniques."

Year-to-date June 29, 2018, net cash provided by operating activities was $4.2 million, a decrease of $1.6 million compared to 2017.  Days sales outstanding (DSO) was 60 days in the second quarter of 2018 compared to 59 days in the second quarter of 2017.

The Company ended the second quarter 2018 with a total debt balance of $77.0 million, which was down from $79.0 million at the end of the 2017 period.  As of June 29, 2018, the Company had total consolidated indebtedness to consolidated EBITDA (total leverage ratio) of 1.44x to 1.00x.

"Our financial profile is strong and Vectrus remains well positioned to capitalize on growth opportunities we see in our markets," said Matt Klein, chief financial officer of Vectrus. "We are executing on enhancing our internal business operations through the application of our Enterprise-wide improvement program also known as Enterprise Vectrus. Overall, we have made solid year-to-date progress and believe the continued execution of our strategy will result in further top-and-bottom line improvements and increased shareholder value."

The Company ended the second quarter 2018 with total backlog of $3.3 billion and funded backlog of $951.0 million.

"Our internal efforts and investments are generating returns, which have resulted in a robust backlog that spans several years," said Klein. "At $3.3 billion, total backlog represents over 2.5 times our 2018 revenue guidance mid-point and we believe provides solid long-term visibility."

2018 Guidance

"We are reaffirming our full-year 2018 guidance," said Klein. "Our 2018 guidance assumes interest expense of approximately $4.3 million, depreciation and amortization expense of $4.2 million, mandatory debt payments of $4.0 million, non-recurring transaction related expenses of $2.0 million, a tax rate of 22 percent 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

2018
Guidance

Revenue

$1,215

to

$1,285

Operating Margin

3.6%

to

4.0%

Net Income

$30.9

to

$36.9

Diluted EPS1

$2.71

to

$3.23

Net Cash Provided by Operating Activities

$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, August 7, 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 August 21, 2018, at 844-512-2921 (domestic) or 412-317-6671 (international) with pass code 13681720.

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 historyin 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 the company's website at www.vectrus.com or connect with Vectrus 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


Six months ended



June 29,


June 30,


June 29,


June 30,

(In thousands, except per share data)


2018


2017


2018


2017

Revenue


$

321,132



$

259,318



$

641,649



$

549,380


Cost of revenue


292,064



233,583



586,114



498,283


Selling, general and administrative expenses


16,070



16,531



33,865



30,244


Operating income


12,998



9,204



21,670



20,853


Interest (expense) income, net


(1,140)



(1,070)



(2,305)



(2,204)


Income from operations before income taxes


11,858



8,134



19,365



18,649


Income tax expense


2,663



2,673



4,058



6,520


Net income


$

9,195



$

5,461



$

15,307



$

12,129











Earnings per share









Basic


$

0.82



$

0.50



$

1.37



$

1.11


Diluted


$

0.81



$

0.49



$

1.35



$

1.09


Weighted average common shares outstanding - basic


11,235



10,987



11,191



10,948


Weighted average common shares outstanding - diluted


11,383



11,191



11,351



11,132


 

VECTRUS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS




June 29,


December 31,

(In thousands, except share information)


2018


2017

Assets


(unaudited)



Current assets





   Cash


$

40,958



$

77,453


   Receivables


217,071



174,995


   Costs incurred in excess of billings




12,751


   Other current assets


10,489



6,747


Total current assets


268,518



271,946


   Property, plant, and equipment, net


5,087



3,733


   Goodwill


235,180



216,930


   Intangible assets, net


9,687



121


   Other non-current assets


4,493



2,821


Total non-current assets


254,447



223,605


Total Assets


$

522,965



$

495,551


Liabilities and Shareholders' Equity





Current liabilities





   Accounts payable


$

126,785



$

115,899


   Billings in excess of costs




3,766


   Compensation and other employee benefits


39,838



39,304


   Short-term debt


4,000



4,000


   Other accrued liabilities


24,837



19,209


Total current liabilities


195,460



182,178


   Long-term debt, net


71,424



73,211


Deferred tax liability


54,088



55,329


Other non-current liabilities


1,433



1,461


Total non-current liabilities


126,945



130,001


Total liabilities


322,405



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; 11,247,722 and 11,120,528 shares issued and outstanding


112



111


Additional paid in capital


69,855



67,526


Retained earnings


132,644



117,415


Accumulated other comprehensive loss


(2,051)



(1,680)


Total shareholders' equity


200,560



183,372


Total Liabilities and Shareholders' Equity


$

522,965



$

495,551


 

VECTRUS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)




Six Months Ended



June 29,


June 30,

(In thousands)


2018


2017

Operating activities





Net income


$

15,307



$

12,129


Adjustments to reconcile net income to net cash provided by operating activities:





   Depreciation and amortization


1,624



794


   Loss on disposal of property, plant, and equipment


51




   Stock-based compensation


2,521



2,995


   Amortization of debt issuance costs


213



381


Changes in assets and liabilities:





   Receivables


(8,820)



8,791


   Other assets


(4,518)



(640)


   Accounts payable


693



(14,793)


   Billings in excess of costs




1,286


   Deferred taxes


(1,274)



(4,553)


   Compensation and other employee benefits


(1,950)



(1,411)


   Other liabilities


325



757


   Net cash provided by operating activities


$

4,172



$

5,736


Investing activities





Purchases of capital assets


(764)



(364)


Acquisition of business, net of cash acquired


(37,210)




Net cash used in investing activities


$

(37,974)



$

(364)


Financing activities





Repayments of long-term debt


(2,000)



(7,000)


Proceeds from revolver


55,000



18,000


Repayments of revolver


(55,000)



(18,000)


Proceeds from exercise of stock options


1,358



1,886


Payments of employee withholding taxes on share-based compensation


(803)



(612)


   Net cash used in financing activities


$

(1,445)



$

(5,726)


Exchange rate effect on cash


(1,248)



2,192


Net change in cash


(36,495)



1,838


Cash-beginning of year


77,453



47,651


Cash-end of period


$

40,958



$

49,489


Supplemental disclosure of cash flow information:





Interest paid


$

2,119



$

2,021


Income taxes paid


$

7,891



$

2,629


Non-cash investing activities:





Purchase of capital assets on account


$

481



$

344


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 adjusted operating income, adjusted operating margin, EBITDA, EBITDA %, adjusted EBITDA, adjusted EBITDA %, adjusted net income and adjusted diluted earnings per share 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.

Adjusted operating income, adjusted operating margin, EBITDA, EBITDA %, adjusted EBITDA, adjusted EBITDA %, net income, adjusted net income and adjusted diluted earnings per share, 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 net income and diluted earnings per share as determined in accordance with GAAP.  Reconciliations of these items are provided below.

"Adjusted operating income" is defined as operating income, adjusted to exclude items that may include, but are not limited to, transaction and non-recurring integration costs that impact current results but are not related to our ongoing operations.

"Adjusted operating margin" is defined as adjusted operating income divided by revenue.

"EBITDA" is defined as operating income, adjusted to exclude depreciation and amortization.

"EBITDA %" is defined as EBITDA divided by revenue.

"Adjusted EBITDA" is defined as EBITDA adjusted to exclude items that may include, but are not limited to, transaction and non-recurring integration costs that impact current results but are not related to our ongoing operations.

"Adjusted EBITDA %" is defined as adjusted EBITDA divided by revenue.

"Adjusted net income" is defined as net income, adjusted to exclude items that may include, but are not limited to, other income; significant charges or credits that impact current results but are not related to our ongoing operations and unusual and infrequent non-operating items and non-operating tax settlements or adjustments, such as revaluation of our deferred tax liability as a result of the Tax Cuts and Jobs Act, and net settlement of uncertain tax positions.

"Adjusted diluted earnings per share" is defined as adjusted net income divided by the weighted average diluted common shares outstanding.

(In thousands)









EBITDA and adjusted EBITDA (Non-GAAP Measures)


Three months ended


Six months ended



June 29,


June 30,


June 29,


June 30,



2018


2017


2018


2017

Revenue


$

321,132



$

259,318



$

641,649



$

549,380


Operating Income


12,998



9,204



21,670



20,853


Add:









  Depreciation and Amortization


815



387



1,624



794


EBITDA


$

13,813



$

9,591



$

23,294



$

21,647


EBITDA %


4.3

%


3.7

%


3.6

%


3.9

%

Transaction and non-recurring integration costs


492





1,669




Adjusted EBITDA


$

14,305



$

9,591



$

24,963



$

21,647


Adjusted EBITDA %


4.5

%


3.7

%


3.9

%


3.9

%



















(In thousands)









Adjusted Operating Income and Adjusted Operating Margin (Non-GAAP Measures)


Three months ended


Six months ended



June 29,


June 30,


June 29,


June 30,



2018


2017


2018


2017

Revenue


$

321,132



$

259,318



$

641,649



$

549,380


Cost of revenue


292,064



233,583



586,114



498,283


SG&A


16,070



16,531



33,865



30,244


Operating income


$

12,998



$

9,204



$

21,670



$

20,853


Operating margin


4.0

%


3.5

%


3.4

%


3.8

%

Transaction and non-recurring integration costs


492





1,669




Adjusted operating income


$

13,490



$

9,204



$

23,339



$

20,853


Adjusted operating margin


4.2

%


3.5

%


3.6

%


3.8

%



























(In thousands)









Adjusted Net Income and Adjusted Diluted Earnings Per Share (Non-GAAP Measures)


Three months ended


Six months ended



June 29,


June 30,


June 29,


June 30,



2018


2017


2018


2017

Net Income


$

9,195



$

5,461



$

15,307



$

12,129


Transaction and non-recurring integration costs


492





1,669




Tax impact of adjustments


(111)





(350)




Adjusted net income


$

9,576



$

5,461



$

16,626



$

12,129


GAAP EPS - diluted


$

0.81



$

0.49



$

1.35



$

1.09


Adjusted EPS - diluted


$

0.84



$

0.49



$

1.46



$

1.09











Weighted average common shares outstanding - diluted


11,383



11,191



11,351



11,132


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


Six Months Ended



June 29,


% of
Total


June 30,


% of
Total


June 29,


% of
Total


June 30,


% of
Total

(In thousands)


2018



2017



2018



2017


Army


$

238,381



74

%


$

216,554



84

%


$

476,228



74

%


$

468,693



85

%

Air Force


60,420



19

%


37,509



14

%


125,676



20

%


70,499



13

%

Navy


9,987



3

%


5,255



2

%


18,344



3

%


10,188



2

%

Other


12,344



4

%




%


21,401



3

%




%

Total revenue


$

321,132





$

259,318





$

641,649





$

549,380





















Revenue by Contract Type


Three Months Ended


Six Months Ended



June 29,


% of
Total


June 30,


% of
Total


June 29,


% of
Total


June 30,


% of
Total

(In thousands)


2018



2017



2018



2017


Cost-plus and cost-reimbursable ¹


$

242,742



76

%


$

196,086



76

%


$

472,951



74

%


$

414,341



75

%

Firm-fixed-price


78,390



24

%


63,232



24

%


168,698



26

%


135,039



25

%

Total revenue


$

321,132





$

259,318





$

641,649





$

549,380





















¹ Includes time and material contracts


































Revenue by Contract Relationship


Three Months Ended


Six Months Ended



June 29,


% of
Total


June 30,


% of
Total


June 29,


% of
Total


June 30,


% of
Total

(In thousands)


2018



2017



2018



2017


Prime contractor


$

301,088



94

%


$

251,990



97

%


$

602,116



94

%


$

537,040



98

%

Subcontractor


20,044



6

%


7,328



3

%


39,533



6

%


12,340



2

%

Total revenue


$

321,132





$

259,318





$

641,649





$

549,380





















Revenue by Geographic Region


Three Months Ended


Six Months Ended



June 29,


% of
Total


June 30,


% of
Total


June 29,


% of
Total


June 30,


% of
Total

(In thousands)


2018



2017



2018



2017


Middle East


219,218



69

%


208,801



81

%


439,098



69

%


442,708



80

%

United States


74,847



23

%


36,324



14

%


148,636



23

%


76,334



14

%

Europe


27,067



8

%


14,193



5

%


53,915



8

%


30,338



6

%

Total revenue


321,132





259,318





641,649





549,380




CONTACT:

Mike Smith, CFA
719-637-5773
michael.smith@vectrus.com

 

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SOURCE Vectrus, Inc.

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