Vectrus reports second quarter 2016 financial results
- Revenue $307.9 million, operating margin 3.7 percent
- Strong year-to-date free cash flow[1] of $19.0 million
- Days Sales Outstanding was 52 days for the quarter
- Voluntary debt payment of $2 million
COLORADO SPRINGS, Colo., Aug. 9, 2016 /PRNewswire/ -- Vectrus, Inc. (NYSE:VEC) announced second quarter 2016 results, which included revenue of $307.9 million, operating income of $11.3 million and diluted earnings per share of $0.55. As of July 1, 2016, year-to-date net cash provided by operating activities was $19.3 million and free cash flow1 improved $19.9 million year-over-year. Funded orders were $303.7 million in the second quarter of 2016, representing a funded book-to-bill2 ratio of 1.0x.
"In the second quarter, our revenue excluding Afghanistan programs continued to show growth, increasing 5 percent or $13.5 million year-over-year," said Ken Hunzeker, chief executive officer and president of Vectrus. "Our solid second quarter results combined with improved visibility for the remainder of 2016 allows us to raise our 2016 revenue, diluted EPS and free cash flow1 guidance."
Second Quarter 2016 Results
- Revenue of $307.9 million
- Operating income of $11.3 million
- Operating margin of 3.7 percent
- Diluted earnings per share of $0.55
Second quarter 2016 revenue of $307.9 million decreased $1.6 million, or 0.5 percent, compared to the second quarter 2015. This change was primarily driven by a $30.5 million decrease in revenue from our Afghanistan, U.S. and European programs. This was partially offset by an increase in our Middle East programs of $28.9 million for the second quarter 2016 as compared to the same period in 2015. Programs based in Afghanistan contributed $30.9 million of revenue in the second quarter 2016.
Operating income was $11.3 million, or 3.7 percent of operating margin, in the second quarter 2016, compared to $10.8 million, or 3.5 percent operating margin, in the second quarter 2015, an increase of $0.5 million. Programs based in Afghanistan contributed $0.7 million of operating income in the second quarter 2016.
Second quarter 2016 diluted earnings per share were $0.55 compared to $0.56 in the second quarter 2015.
Year-to-date July 1, 2016, net cash provided by operating activities was $19.3 million compared to net cash used in operating activities of $0.2 million during the same period in 2015. Free cash flow1 was $19.0 million year-to-date July 1, 2016, compared to negative free cash flow1 of $0.9 million during the same period in 2015.
"Year-to-date free cash flow1 improved by $19.9 million, driven by strong cash collections in 2016," said Matt Klein, chief financial officer at Vectrus. "We continue to see improvement in collections, achieving a Vectrus record 52 days sales outstanding during the quarter."
For the quarter ended July 1, 2016, the Company ended with total backlog of $2.3 billion and funded backlog of $975 million.
2016 Guidance
"As a result of our improved visibility and outlook for the remainder of the year, we are increasing the previously communicated ranges for revenue, diluted EPS and free cash flow1. Our strong cash collections in the quarter enabled a $2 million voluntary payment of our term loan. Based on our updated financial guidance, we now anticipate 2016 voluntary debt payments to range from $8 million to $10 million," said Klein. "We are pleased with our financial performance to date in 2016 and look forward to a strong second half of the year."
| (in millions, except operating margin and diluted EPS) |
(Prior) |
(Updated) |
|||||
| Revenue |
$1,150 |
to |
$1,190 |
$1,180 |
to |
$1,200 |
|
| Operating Margin (unchanged) |
3.60% |
to |
3.90% |
3.60% |
to |
3.90% |
|
| Diluted EPS3 |
$2.02 |
to |
$2.31 |
$2.07 |
to |
$2.32 |
|
| Free Cash Flow4 |
$22 |
to |
$30 |
$28 |
to |
$32 |
|
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 a.m. Eastern time on Wednesday, August 10, 2016.
U.S.-based participants may dial in to the conference call at 888-427-9414, while international participants may dial 719-325-2174. Passcode for both is 4660856. 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 28, 2016, at 877-870-5176 (domestic) or 858-384-5517 (international) with passcode 4660856.
Footnotes:
1 See "Key Performance Indicators and Non-GAAP Financial Measures" (below).
2 Book-to-bill ratio is the amount of funded orders divided by revenue for the period.
3 2016 EPS guidance is calculated using the estimated weighted average diluted common shares outstanding of 11.2 million for the year ending December 31, 2016.
4 2016 free cash flow guidance is calculated as estimated GAAP net cash provided by operating activities less 2016 estimated capital expenditures of $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 about 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 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 revenue, operating margin, EPS and free cash flow guidance for 2016, debt payments, contract opportunities and awards, business strategy, outlook, objectives, plans, intentions or goals, and any discussion of 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 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: risks and uncertainties relating to the spin-off from our former parent, including whether the spin-off and the related transactions will result in any tax liability; 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; competition in our industry; 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; protests of new awards; our ability to submit proposals for and/or win potential opportunities in our pipeline; 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 and to retain and renew our existing contracts; 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; 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; our compliance with public company accounting and financial reporting requirements; timing of payments by the U.S. government; and other factors set forth 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. 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.
Investors
Mike Smith
719-637-5773
[email protected]
Media
George Rhynedance
719-637-4182
[email protected]
| VECTRUS, INC. |
||||||||||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) |
||||||||||||||||
| Three Months Ended |
Six Months Ended |
|||||||||||||||
| July 1, |
June 26, |
July 1, |
June 26, |
|||||||||||||
| (In thousands, except per share data) |
2016 |
2015 |
2016 |
2015 |
||||||||||||
| Revenue |
$ |
307,895 |
$ |
309,509 |
$ |
618,577 |
$ |
570,429 |
||||||||
| Cost of revenue |
280,644 |
282,563 |
564,354 |
518,945 |
||||||||||||
| Selling, general and administrative expenses |
15,953 |
16,101 |
31,113 |
31,284 |
||||||||||||
| Operating income |
11,298 |
10,845 |
23,110 |
20,200 |
||||||||||||
| Interest (expense) income, net |
(1,736) |
(1,437) |
(3,048) |
(3,033) |
||||||||||||
| Income from operations before income taxes |
9,562 |
9,408 |
20,062 |
17,167 |
||||||||||||
| Income tax expense |
3,512 |
3,388 |
7,422 |
6,182 |
||||||||||||
| Net income |
$ |
6,050 |
$ |
6,020 |
$ |
12,640 |
$ |
10,985 |
||||||||
| Earnings per share |
||||||||||||||||
| Basic |
$0.57 |
$0.57 |
$1.19 |
$1.04 |
||||||||||||
| Diluted |
$0.55 |
$0.56 |
$1.16 |
$1.02 |
||||||||||||
| Weighted average common shares outstanding - basic |
10,702 |
10,548 |
10,665 |
10,520 |
||||||||||||
| Weighted average common shares outstanding - diluted |
10,958 |
10,804 |
10,913 |
10,789 |
||||||||||||
| VECTRUS, INC. |
||||||||
| CONDENSED CONSOLIDATED BALANCE SHEETS |
||||||||
| July 1, |
December 31, |
|||||||
| (In thousands, except share information) |
2016 |
2015 |
||||||
| Assets |
(unaudited) |
|||||||
| Current assets |
||||||||
| Cash |
$ |
49,989 |
$ |
39,995 |
||||
| Receivables |
177,683 |
210,561 |
||||||
| Costs incurred in excess of billings |
322 |
1,243 |
||||||
| Other current assets |
10,549 |
9,708 |
||||||
| Total current assets |
238,543 |
261,507 |
||||||
| Property, plant, and equipment, net |
3,566 |
4,762 |
||||||
| Goodwill |
216,930 |
216,930 |
||||||
| Other non-current assets |
1,472 |
1,197 |
||||||
| Total non-current assets |
221,968 |
222,889 |
||||||
| Total Assets |
$ |
460,511 |
$ |
484,396 |
||||
| Liabilities and Shareholders' Equity |
||||||||
| Current liabilities |
||||||||
| Accounts payable |
$ |
97,191 |
$ |
122,442 |
||||
| Billings in excess of costs |
6,371 |
6,025 |
||||||
| Compensation and other employee benefits |
39,973 |
36,783 |
||||||
| Short-term debt |
20,000 |
22,000 |
||||||
| Other accrued liabilities |
21,011 |
25,268 |
||||||
| Total current liabilities |
184,546 |
212,518 |
||||||
| Long-term debt, net |
82,972 |
89,615 |
||||||
| Deferred tax liability |
86,891 |
91,343 |
||||||
| Other non-current liabilities |
2,549 |
1,610 |
||||||
| Total non-current liabilities |
172,412 |
182,568 |
||||||
| Total liabilities |
356,958 |
395,086 |
||||||
| 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; 10,729,892 and 10,612,246 shares issued and outstanding |
107 |
106 |
||||||
| Additional paid in capital |
60,782 |
58,640 |
||||||
| Retained earnings |
46,943 |
34,304 |
||||||
| Accumulated other comprehensive loss |
(4,279) |
(3,740) |
||||||
| Total shareholders' equity |
103,553 |
89,310 |
||||||
| Total Liabilities and Shareholders' Equity |
$ |
460,511 |
$ |
484,396 |
||||
| VECTRUS, INC. |
||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) |
||||||||
| Six Months Ended |
||||||||
| July 1, |
June 26, |
|||||||
| (In thousands) |
2016 |
2015 |
||||||
| Operating activities |
||||||||
| Net income |
$ |
12,640 |
$ |
10,985 |
||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
||||||||
| Depreciation and amortization expense |
1,012 |
1,753 |
||||||
| Loss on disposal of property, plant, and equipment |
389 |
328 |
||||||
| Stock-based compensation |
3,268 |
3,852 |
||||||
| Amortization of debt issuance costs |
578 |
370 |
||||||
| Changes in assets and liabilities: |
||||||||
| Receivables |
33,458 |
(9,922) |
||||||
| Other assets |
1 |
(6,586) |
||||||
| Accounts payable |
(25,459) |
(12,062) |
||||||
| Billings in excess of costs |
346 |
9,321 |
||||||
| Deferred taxes |
(5,265) |
(3,504) |
||||||
| Compensation and other employee benefits |
3,134 |
9,637 |
||||||
| Other liabilities |
(4,820) |
(4,353) |
||||||
| Net cash provided by (used in) operating activities |
19,282 |
(181) |
||||||
| Investing activities |
||||||||
| Purchases of capital assets |
(317) |
(734) |
||||||
| Proceeds from the disposition of assets |
111 |
— |
||||||
| Distribution from equity investment |
89 |
— |
||||||
| Net cash (used in) investing activities |
(117) |
(734) |
||||||
| Financing activities |
||||||||
| Repayments of long-term debt |
(9,000) |
(11,250) |
||||||
| Proceeds from revolver |
69,000 |
132,500 |
||||||
| Repayments of revolver |
(69,000) |
(132,500) |
||||||
| Proceeds from exercise of stock options |
431 |
107 |
||||||
| Proceeds from insurance financing |
— |
14,857 |
||||||
| Repayments of insurance financing |
— |
(4,018) |
||||||
| Payments of employee withholding taxes on share-based compensation |
(651) |
(752) |
||||||
| Payment of debt issuance costs |
(221) |
— |
||||||
| Net cash (used in) financing activities |
(9,441) |
(1,056) |
||||||
| Exchange rate effect on cash |
270 |
(849) |
||||||
| Net change in cash |
9,994 |
(2,820) |
||||||
| Cash-beginning of year |
39,995 |
42,823 |
||||||
| Cash-end of period |
$ |
49,989 |
$ |
40,003 |
||||
| Supplemental Disclosure of Cash Flow Information: |
||||||||
| Interest paid |
$ |
3,060 |
$ |
2,393 |
||||
| Income taxes paid |
$ |
13,494 |
$ |
6,234 |
||||
| Non-cash investing activities: |
||||||||
| Purchase of capital assets on account |
$ |
— |
$ |
35 |
||||
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 free cash flow 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. Free cash flow is a non-GAAP financial measure. We believe 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.
"Free cash flow" is defined as GAAP net cash provided by or used in operating activities less capital expenditures. A reconciliation of free cash flow to net cash provided by or used in operating activities is in the table below.
| (in thousands) |
Six Months Ended |
|||||||
| Free Cash Flow (Non-GAAP Measure) |
July 1, 2016 |
June 26, 2015 |
||||||
| Net cash provided by (used in) operating activities |
$ |
19,282 |
$ |
(181) |
||||
| Less: |
||||||||
| Capital expenditures |
(317) |
(734) |
||||||
| Free cash flow |
$ |
18,965 |
$ |
(915) |
||||
| SUPPLEMENTAL INFORMATION |
||||||||||||||||||||||||||||
| Three Months Ended |
Six Months Ended |
|||||||||||||||||||||||||||
| (In thousands) |
July 1, 2016 |
June 26, 2015 |
July 1, 2016 |
June 26, 2015 |
||||||||||||||||||||||||
| Military branch |
Revenue |
% of |
Revenue |
% of |
Revenue |
% of |
Revenue |
% of |
||||||||||||||||||||
| Army |
$ |
258,193 |
84 |
% |
$ |
282,414 |
91 |
% |
$ |
521,220 |
84 |
% |
$ |
518,676 |
91 |
% |
||||||||||||
| Navy/Marines |
4,697 |
1 |
% |
6,764 |
2 |
% |
9,496 |
2 |
% |
13,531 |
2 |
% |
||||||||||||||||
| Air Force |
45,005 |
15 |
% |
20,331 |
7 |
% |
87,861 |
14 |
% |
38,222 |
7 |
% |
||||||||||||||||
| Total Revenue |
$ |
307,895 |
$ |
309,509 |
$ |
618,577 |
$ |
570,429 |
||||||||||||||||||||
| Three Months Ended |
Six Months Ended |
|||||||||||||||||||||||||||
| (in thousands) |
July 1, 2016 |
June 26, 2015 |
July 1, 2016 |
June 26, 2015 |
||||||||||||||||||||||||
| Contract type |
Revenue |
% of |
Revenue |
% of |
Revenue |
% of |
Revenue |
% of |
||||||||||||||||||||
| Firm-Fixed-Price |
$ |
77,233 |
25 |
% |
$ |
118,071 |
38 |
% |
$ |
157,626 |
25 |
% |
$ |
203,744 |
36 |
% |
||||||||||||
| Cost-Plus and Cost Reimbursable ¹ |
230,662 |
75 |
% |
191,438 |
62 |
% |
460,951 |
75 |
% |
366,685 |
64 |
% |
||||||||||||||||
| Total Revenue |
$ |
307,895 |
$ |
309,509 |
$ |
618,577 |
$ |
570,429 |
||||||||||||||||||||
| ¹ Includes time and material contracts |
||||||||||||||||||||||||||||
| Three Months Ended |
Six Months Ended |
|||||||||||||||||||||||||||
| (In thousands) |
July 1, 2016 |
June 26, 2015 |
July 1, 2016 |
June 26, 2015 |
||||||||||||||||||||||||
| Contract Relationship |
Revenue |
% of |
Revenue |
% of |
Revenue |
% of |
Revenue |
% of |
||||||||||||||||||||
| Prime Contractor |
$ |
285,156 |
93 |
% |
$ |
281,278 |
91 |
% |
$ |
570,820 |
92 |
% |
$ |
512,884 |
90 |
% |
||||||||||||
| Sub Contractor |
22,739 |
7 |
% |
28,231 |
9 |
% |
47,757 |
8 |
% |
57,545 |
10 |
% |
||||||||||||||||
| Total Revenue |
$ |
307,895 |
$ |
309,509 |
$ |
618,577 |
$ |
570,429 |
||||||||||||||||||||
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SOURCE Vectrus, Inc.
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