Vectrus Announces Fourth Quarter and Full-Year 2015 Results; Issues 2016 Guidance

- Fourth quarter revenue $311 million; up 9 percent year-over-year

- Core business revenue1 increased 16 percent in fourth quarter; 12 percent for full-year 2015

- Investing in IT and Network Communication service line

- Paid down $23 million of debt, $12 million of which was voluntary in 2015

Mar 15, 2016, 16:05 ET from Vectrus

COLORADO SPRINGS, Colo., March 15, 2016 /PRNewswire/ -- Vectrus, Inc. (NYSE: VEC) announced fourth quarter and full-year 2015 financial results. For the fourth quarter, revenue was $311.2 million, operating income was $11.3 million, and diluted earnings per share were $0.55. For the full year, revenue was $1,180.7 million, operating income was $40.0 million and adjusted operating income1 was $43.4 million. Diluted earnings per share were $2.86, while adjusted earnings per share1 were $2.23 for 2015. Cash provided by operating activities and free cash flow1 for the full-year 2015 were $18.9 million and $18.1 million, respectively.

"We are pleased to report that our first full year results were consistent with, or exceeded the midpoint of our 2015 guidance in all categories," said Ken Hunzeker, chief executive officer and president of Vectrus. "With our well-developed pipeline, a number of anticipated awards in 2016 and our additional investment in IT and network opportunities, we are optimistic about the future."

Vectrus recently opened a new facility in Reston, Va., in an effort to expand its IT and Network Communication market share. Over the course of the next two to three years, the company will invest in IT and Network Communication service offerings to capitalize on the potential for increased growth.

"Vectrus is now in a position to reinvest and achieve additional growth through market and capability expansion, which is something we were not able to do before becoming an independent, public company," said Hunzeker.

Fourth Quarter 2015 Results

  • Revenue $311.2 million
  • Operating income $11.3 million
  • Operating margin 3.6 percent
  • Diluted earnings per share $0.55

Fourth quarter 2015 revenue of $311.2 million increased $25.4 million or 8.9 percent compared to the fourth quarter of 2014. The increase is due in large part to new contract startups and growth in Middle East business. Programs based in Afghanistan contributed $39.2 million of revenue in the fourth quarter of 2015, down $11.9 million compared to 2014.

"We experienced 16 percent growth in our core business1, the third consecutive quarter with double digit growth," said Hunzeker.

Operating income was $11.3 million or 3.6 percent operating margin in the fourth quarter of 2015, compared to $8.1 million or 2.9 percent in the fourth quarter of 2014. Adjusted operating income1 was $11.3 million or 3.6 percent margin in the fourth quarter of 2015 compared to $8.6 million or 3.0 percent in the fourth quarter of 2014. Programs based in Afghanistan contributed $2.2 million of operating income or 5.6 percent margin in the fourth quarter of 2015, down $1.0 million compared to 2014.

"Successful execution of our new contract phase-ins, core business revenue1 growth and operational excellence initiatives resulted in an improved fourth quarter margin," said Matt Klein, chief financial officer of Vectrus.

Fourth quarter 2015 diluted earnings per share were $0.55 compared to $0.31 in the fourth quarter of 2014.  Adjusted diluted earnings per share1 were $0.55 compared to $0.33 in the prior year quarter.

Full-Year 2015 Results

  • Revenue $1,180.7 million
  • Operating income $40.0 million; adjusted operating income1 $43.4 million
  • Operating margin 3.4 percent; adjusted operating margin1 3.7 percent
  • Diluted earnings per share $2.86; adjusted diluted earnings per share1 $2.23
  • Cash provided by operating activities $18.9 million; free cash flow1 was $18.1 million

Full-year 2015 revenue of $1,180.7 million declined $22.6 million or 1.9 percent compared to 2014. On an adjusted basis, 2015 revenue1 of $1,180.7 million increased $8.7 million or 0.7 percent compared to 2014. The increase is due to $111.1 million increase in revenue from our core business1, partially offset by a $102.4 million decline in revenue from programs based in Afghanistan, as a result of lower service-level requirements. Programs based in Afghanistan contributed revenue of $167.7 million in 2015.

Operating income was $40.0 million, or 3.4 percent operating margin for the full-year 2015, compared to $38.4 million or 3.2 percent in 2014. On an adjusted basis, operating income1 was $43.4 million or 3.7 percent margin for the full-year 2015, compared to $50.0 million or 4.3 percent in 2014, due to lower service-level requirements on Afghanistan contracts.  Programs based in Afghanistan contributed $10.5 million of operating income or 6.3 percent margin for full-year 2015 compared to $24.3 million or 9.0 percent in 2014.

Full-year 2015 diluted earnings per share were $2.86 compared to $2.13 in 2014 and adjusted diluted earnings per share1 were $2.23 compared to $2.80 in 2014.

Cash provided by operating activities for the year ended December 31, 2015, was $18.9 million, which is $24.1 million lower when compared to 2014.  Free cash flow1 was $18.1 million for full- year 2015, which is $21.0 million lower when compared to 2014, primarily due to early cash receipts on a couple of large contracts in 2014. 

The Company ended 2015 with total backlog of $2.4 billion and funded backlog of $685 million.

2016 Guidance

"For 2016 we expect annual revenue to be in the range of $1,110 million to $1,190 million, which reflects continued growth in the core business1 at the mid-point. Full year operating margin is expected to be in the range of 3.60 percent to 3.90 percent. Our commitment to operational excellence allows us to achieve slightly higher operating margins at the midpoint while also investing in our IT and Network Communication services in 2016. We expect to see diluted earnings per share2 in the range of $1.94 to $2.31, and free cash flow3 between $20 million and $30 million," said Klein.

2016 guidance details include:

 

$ millions, except for operating margin and per share amounts

2016 Guidance

2016 Mid

Revenue

$1,110

to

$1,190

$1,150

Operating Margin

3.60%

to

3.90%

3.75%

Diluted EPS2

$1.94

to

$2.31

$2.12

Free Cash Flow3

$20

to

$30

$25






 

The Company notes that forward-looking statements of future performance made in this release 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 8:00 a.m. Eastern time on Wednesday, March 16, 2016. 
 
U.S.-based participants may dial in to the conference call at 888-438-5448, while international participants may dial 719-457-1512. Passcode for both is 7482188. 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 March 30, 2016 at 877-870-5176 (domestic) or 858-384-5517 (international) with passcode 7482188.

Footnotes:

1 See "Key Performance Indicators and Non-GAAP Financial Measures" (below).

2 2016 EPS guidance is calculated using the estimated weighted average diluted common shares outstanding for the year ending December 31, 2016 of 11.2 million.

3 2016 Free Cash Flow guidance is calculated as GAAP net cash provided by operating activities less capital expenditures.  Estimated 2016 capital expenditures are $2.1 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 infrastructure asset management, information technology and network communication services, and logistics and supply chain management 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 more than 6,000 employees spanning 132 locations in 18 countries. In 2015, Vectrus generated sales of $1.2 billion. For more information, visit our website at http://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 about our spin-off from our former parent (the "Separation" or "Spin-off"), the terms and the effect of the Separation and related matters, future strategic plans and other statements that describe our business strategy, outlook, objectives, plans, intentions or goals, and any discussion of guidance or future operating or financial performance. Whenever used, words such as "may", "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 the management of the company 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: risks and uncertainties relating to the Spin-off, including whether the Spin-off and related transactions will result in any tax liability, the operational and financial profile or any of our businesses after giving effect to the Spin-off, and our ability to operate as an independent entity; economic, political and social conditions in the countries in which we conduct our businesses; changes in U.S. or international government defense budgets; protests of new awards; our ability to submit proposals for and/or win all potential opportunities in our pipeline; changes in technology, intellectual property matters, government regulations and compliance therewith, including changes to the Department of Defense procurement process; governmental investigations, reviews, audits and cost adjustments; contingencies related to actual or alleged environmental contamination, claims and concerns; delays in completion of the U.S. Government's budget; 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 and retain and renew our existing contracts; impairment of goodwill; misconduct of our employees, subcontractors, agents and business partners; our ability to control costs; our level of indebtedness; subcontractor performance; economic and capital markets conditions; ability to retain and recruit qualified personnel; 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 generally accepted accounting principles; and other factors described in Part I, Item 1A – "Risk Factors," and elsewhere in our 2015 Annual Report on Form 10-K and described from time to time in our future reports filed with the Securities and Exchange Commission. The company undertakes no obligation to update our forward looking statements, whether as a result of new information, future events or otherwise, except as required by law.

CONTACT:

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

Media
George Rhynedance
719-637-4182
george.rhynedance@vectrus.com

 


VECTRUS, INC.

CONSOLIDATED AND COMBINED STATEMENTS OF INCOME




Year Ended December 31,

(In thousands, except per share data)


2015


2014


2013

Revenue


$

1,180,684


$

1,203,269


$

1,511,638

Cost of revenue


1,075,035


1,084,512


1,297,089

Selling, general and administrative expenses


65,687


80,340


83,227

Operating income


39,962


38,417


131,322

Interest (expense) income, net


(6,531)


(1,526)


111

Income from continuing operations before income taxes


33,431


36,891


131,433

Income tax expense


2,458


14,079


47,041

Net income


$

30,973


$

22,812


$

84,392








Earnings per share ¹







Basic


$2.94


$2.18


$8.06

Diluted


$2.86


$2.13


$8.06

Weighted average common shares outstanding - basic


10,551


10,476


10,474

Weighted average common shares outstanding - diluted


10,825


10,692


10,474








1 For the year ended December 31, 2013, basic and diluted earnings per share are computed using the number of shares of Vectrus common stock outstanding on September 27, 2014, the date on which Vectrus common stock was distributed to the shareholders of Exelis Inc. as of the Spin-off.

 

VECTRUS, INC.

CONSOLIDATED BALANCE SHEETS




December 31,

(In thousands, except share information)


2015


2014

Assets





Current assets





  Cash


$

39,995


$

42,823

  Receivables


210,561


202,732

  Costs incurred in excess of billings


1,243


7,112

  Other current assets


9,708


10,883

Total current assets


261,507


263,550

  Property, plant, and equipment, net


4,762


8,920

  Goodwill


216,930


216,930

  Other non-current assets


1,197


6,575

  Total non-current assets


222,889


232,425

Total Assets


$

484,396


$

495,975

Liabilities and Shareholders' Equity





Current liabilities





  Accounts payable


122,442


114,487

  Billings in excess of costs


6,025


5,806

  Compensation and other employee benefits


36,783


36,580

  Short-term debt


22,000


11,375

  Other accrued liabilities


25,268


37,073

Total current liabilities


212,518


205,321

  Long-term debt, net


89,615


122,484

  Deferred tax liability


91,343


100,751

  Other non-current liabilities


1,610


13,544

Total non-current liabilities


182,568


236,779

Total liabilities


395,086


442,100

  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; 10,612,246 and 10,484,974 shares issued and outstanding


106


105

  Additional paid in capital


58,640


52,967

  Retained earnings


34,304


3,331

  Accumulated other comprehensive loss


(3,740)


(2,528)

Total shareholders' equity


89,310


53,875

Total Liabilities and Shareholders' Equity


$

484,396


$

495,975

 

VECTRUS, INC.

CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS




Year Ended December 31,

(In thousands)


2015


2014


2013

Operating activities







Net income


$

30,973


$

22,812


$

84,392

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







  Depreciation and amortization expense


3,138


2,149


2,631

  Loss on disposal of property, plant, and equipment


686


103


40

  Stock-based compensation


6,658


2,324


  Amortization of debt issuance costs


1,130


185


  Changes in assets and liabilities:







Receivables


(9,886)


21,608


101,549

  Other assets


12,005


(1,329)


(3,770)

  Accounts payable


8,874


6,169


(51,049)

  Billings in excess of costs


219


(5,266)


(289)

  Deferred taxes


(9,404)


11,282


(15,888)

  Compensation and other employee benefits


275


(13,245)


(20,053)

  Other liabilities


(25,788)


(3,813)


(4,771)

  Net cash provided by operating activities


$

18,880


$

42,979


$

92,792

Investing activities







  Purchases of capital assets


(793)


(3,847)


(2,429)

  Proceeds from the disposition of assets


387


497


  Distributions from equity investment


524



  Net cash provided by (used in) investing activities


$

118


$

(3,350)


$

(2,429)

Financing activities







  Proceeds from issuance of long-term debt



140,000


  Repayments of long-term debt


(23,375)


(2,625)


  Proceeds from revolver


324,000


23,000


  Repayments of revolver


(324,000)


(23,000)


  Distribution to subsidiary of Exelis



(136,281)


  Proceeds from exercise of stock options


239



  Payment of debt issuance costs



(3,701)


  Proceeds from insurance financing


14,857



  Repayments of insurance financing


(12,130)



Payments of employee withholding taxes on share-based compensation


(1,301)


(229)


Working capital adjustment payment from Exelis



2,600


Transfer to Former Parent, net



(6,371)


(94,924)

Net cash used in financing activities


$

(21,710)


$

(6,607)


$

(94,924)

Exchange rate effect on cash


(116)


(645)


607

Net change in cash


(2,828)


32,377


(3,954)

Cash-beginning of year


42,823


10,446


14,400

Cash-end of year


$

39,995


$

42,823


$

10,446

Supplemental Disclosure of Cash Flow Information:







Interest paid


$

6,047


$

1,201


$

Income taxes paid


$

16,096


$

2,667


$

Non-cash investing activities:







Purchase of capital assets on account


$


$

92


$

277

 

Key Performance Indicators and Non-GAAP Financial Measures

The primary financial performance measures Vectrus uses to manage its business and monitor results of operations are revenue trends and operating income trends.  In addition, we consider adjusted revenue, adjusted operating income, adjusted operating margin, adjusted net income, adjusted diluted earnings per share, free cash flow, adjusted funded orders, and core business revenue, 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 revenue, adjusted operating income, adjusted operating margin, adjusted net income, adjusted diluted earnings per share, free cash flow, adjusted funded orders and core business revenue, 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 revenue, operating income, net income, diluted earnings per share, or net cash provided by operating activities as determined in accordance with GAAP.  Reconciliations of these items are provided below.

"Adjusted revenue" is defined as revenue adjusted to exclude the Tethered Aerostat Radar System (TARS) program revenue which has been retained by our former parent in connection with the Spin-off.

"Adjusted operating income" is defined as net income, adjusted to exclude income tax expense (benefit), interest income (expense), TARS program operating income (loss), pretax impact of separation costs incurred to become a public company, and tax indemnifications.

"Adjusted operating margin" is defined as net income, adjusted to exclude income tax expense (benefit), interest income (expense), TARS program operating income (loss), pretax impact of separation costs incurred to become a public company, and tax indemnifications divided by adjusted revenue.

"Adjusted net income" is defined as net income, adjusted to exclude TARS program operating income (loss), separation costs incurred to become a public company, and net settlement of uncertain tax positions, net of taxes.

"Adjusted diluted earnings per share" is defined as net income, adjusted to exclude TARS program operating income (loss), separation costs incurred to become a public company, and net settlement of uncertain tax positions, net of taxes divided by the weighted average diluted common shares outstanding.

"Free cash flow" is defined as GAAP net cash provided by operating activities less capital expenditures.

"Adjusted funded orders" is defined as funded orders adjusted to exclude the TARS program orders.

"Core business revenue" is defined as adjusted revenue less revenue from Afghanistan programs.

 


(In thousands)


Three Months Ended
December 31,


Year Ended December 31,

Adjusted Revenue (Non-GAAP Measure)


2015


2014


2015


2014

Revenue


$

311,194


$

285,765


$

1,180,684


$

1,203,269

TARS revenue 1





(31,315)

Adjusted revenue


$

311,194


$

285,765


$

1,180,684


$

1,171,954


1 TARS program historical revenue, which has been retained by Exelis

 


(In thousands)


Three Months Ended
December 31,


Year Ended December 31,

Adjusted Operating Income (Non-GAAP Measure)


2015


2014


2015


2014

Net income


$

5,960



$

3,331



$

30,973



$

22,812


Income tax expense


3,416



3,264



2,458



14,079


Interest (expense) income


(1,915)



(1,554)



(6,531)



(1,526)


Operating income


$

11,291



$

8,149



$

39,962



$

38,417


Operating margin


3.6

%


2.9

%


3.4

%


3.2

%

TARS operating income (loss) 1 (pretax)




(116)





(1,623)


Separation costs 2 (pretax)




566



177



13,237


Tax indemnifications 3




$



3,300




Adjusted operating income


$

11,291



$

8,599



$

43,439



$

50,031


Adjusted operating margin


3.6

%


3.0

%


3.7

%


4.3

%


1 TARS program historical operating income (loss), which has been retained by our former parent.

2 Costs incurred to become a stand-alone public company.

3 Tax indemnifications in connection with the spin-off (see "Tax Indemnifications" in Note 3 to the financial statements in our 2015 Annual Report on Form 10-K).

 


(In thousands, except for share and per share data)


Three Months Ended December 31,


Year Ended December 31,

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


2015


2014


2015


2014

Net income


$

5,960


$

3,331


$

30,973


$

22,812

TARS operating income 1 (pretax)



(116)



(1,623)

Separation costs 2 (pretax)



566


177


13,237

Tax impact of adjustments


(20)


(223)


(13)


(4,437)

Net settlement of uncertain tax positions 3




(6,949)


Adjusted net income


$

5,940


$

3,558


$

24,188


$

29,989

GAAP EPS - diluted


$0.55


$0.31


$2.86


$2.13

Adjusted EPS - diluted


$0.55


$0.33


$2.23


$2.80










Weighted average common shares outstanding - diluted


10,869


10,696


10,825


10,692










1 TARS program historical operating income (loss), which has been retained by our former parent.

2 Costs incurred to become a stand-alone public company.

3 Net settlement of uncertain tax positions due to resolution of examinations of tax returns of our former parent ("Uncertain Tax Positions" in Note 3 to the financial statements in our 2015 Annual Report on Form 10-K).

 

(In thousands)


Year Ended December 31,

Free Cash Flow (Non-GAAP Measure)


2015


2014

Net cash provided by operating activities


$

18,880


$

42,979

Subtract:





Capital expenditures


(793)


(3,847)

Free cash flow


$

18,087


$

39,132

 


(in thousands)


Three Months Ended
December 31,


Year Ended December 31,

Adjusted Funded Orders (Non-GAAP Measure)


2015


2014


2015


2014

Orders


$

131,635


$

177,656


$

1,051,440


$

1,370,557

TARS Orders 1





(25,000)

Adjusted Orders


$

131,635


$

177,656


$

1,051,440


$

1,345,557


1 TARS program historical orders, which has been retained by our former parent.

 

(in thousands)


Three Months Ended December 31,



Adjusted Revenue and Core Business Revenue (Non-GAAP Measure)


2015


2014


$ Change


% Change

Revenue


$

311,194


$

285,765





Less TARS revenue







Adjusted revenue


$

311,194


$

285,765


$

25,429


9%

Less Afghanistan program revenue


(39,159)


(51,033)


(11,874)


(23)%

Core business revenue


$

272,035


$

234,732


$

37,303


16%



















(in thousands)


Year Ended December 31,





Adjusted Revenue and Core Business Revenue (Non-GAAP Measure)


2015


2014


$ Change


% Change

Revenue


$

1,180,684


$

1,203,269





Less TARS revenue



(31,315)





Adjusted revenue


$

1,180,684


$

1,171,954


$

8,730


1%

Less Afghanistan program revenue


(167,655)


(270,059)


(102,404)


(38)%

Core business revenue


$

1,013,029


$

901,895


$

111,134


12%

 


SUPPLEMENTAL INFORMATION




Year Ended December 31,

(In thousands)


2015


2014

Military branch


Revenue


% of Total


Revenue


% of Total

Army


$

1,007,648


85%


$

1,054,408


88%

Navy


25,561


2%


26,163


2%

Air Force


145,854


13%


87,799


7%

Marines


1,621


—%


3,648


—%

Other U.S Government1



—%


31,251


3%

Total Revenue


$

1,180,684




$

1,203,269




1 TARS program, which was retained by Exelis

 




Year Ended December 31,

(in thousands)


2015


2014

Contract type


Revenue


% of Total


Revenue


% of Total

Firm-Fixed-Price


$

321,449


27%


$

293,598


24%

Cost-Plus and Cost Reimbursable 1


859,235


73%


909,671


76%

Total Revenue


$

1,180,684




$

1,203,269




1 Includes time and material contracts

 



Year Ended December 31,

(In thousands)


2015


2014

Contract Relationship


Revenue


% of Total


Revenue


% of Total

Prime Contractor


$

1,059,984


90%


$

1,036,717


86%

Sub Contractor


120,700


10%


166,552


14%

Total Revenue


$

1,180,684




$

1,203,269












 

SOURCE Vectrus



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