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Vectrus Announces Fourth Quarter and Full-Year 2016 Results; Issues 2017 Guidance

- Full-year revenue $1,191 million; up $10 million year-over-year

- Paid $29 million of debt in 2016, $15 million of which was voluntary

- Chuck Prow joined as President and Chief Executive Officer in December 2016

- K-BOSSS re-compete proposal under evaluation

- New contract phase-ins commence on Thule and AFCAP Al Udeid

- Strategic focus on physical and digital infrastructure convergence

Company Release - 3/1/2017 4:10 PM ET

COLORADO SPRINGS, Colo., March 1, 2017 /PRNewswire/ -- Vectrus, Inc. (NYSE:VEC) announced fourth quarter and full-year 2016 financial results. For the fourth quarter, revenue was $288.2 million, operating income was $8.6 million, and diluted earnings per share were $0.40. For the full year, revenue was $1,190.5 million, operating income was $42.8 million, and diluted earnings per share were $2.16. Cash provided by operating activities for the full-year 2016 was $36.6 million.

"I am impressed with what the Vectrus team accomplished in 2016, especially in light of challenges experienced throughout the year," said Chuck Prow, president and chief executive officer of Vectrus. "Our team did an excellent job of focusing on the business which was demonstrated through a reduced leverage profile, significant improvement in days sales outstanding, and a more streamlined and effective organizational structure. Additionally, performance on the Kuwait Base Operations and Security Support Services contract continued to be strong and our most recent performance rating issued by the client was excellent.  The K-BOSSS re-compete proposal is under evaluation and we look forward to delivering a robust and differentiated solution, while continuing the excellent performance our client has consistently received on this contract."

"Since joining Vectrus in December," Prow continued, "I've had the opportunity to visit a number of our clients and program teams around the world to see first-hand the missions we serve and our employees' dedication and commitment to those missions."

"The federal facilities and logistics markets are under significant pressure to transform and deliver much better outcomes at dramatically lower costs. Vectrus has an opportunity, with our clients, to be a leader in this transformation through innovation," explained Prow. "To capture this opportunity, I have initiated a strategic process that will leverage our core facilities and logistics capabilities with our technology business.  The convergence of our clients' physical and digital infrastructure including supply chains represent an opportunity to improve the outcomes of their missions while creating a higher value, growth oriented platform. Overall, I believe the long-term outlook for Vectrus is promising and will lead to enhanced shareholder value."

Fourth Quarter 2016 Results

  • Revenue $288.2 million
  • Operating income $8.6 million
  • Operating margin 3.0%
  • Diluted earnings per share $0.40

Fourth quarter 2016 revenue of $288.2 million decreased $23.0 million or 7.4 percent compared to the fourth quarter of 2015. The decrease is due to lower revenue of $27.7 million from Afghanistan programs and $18.2 million from U.S. and European programs, partially offset by a $22.9 million increase in Middle East programs.

Operating income was $8.6 million or 3.0 percent operating margin in the fourth quarter of 2016, compared to $11.3 million or 3.6 percent operating margin in the fourth quarter of 2015.

Fourth quarter 2016 diluted earnings per share were $0.40 compared to $0.55 in the fourth quarter of 2015.

"It is important to note that we incurred one-time expenses in the amount of $1.5 million associated with actions taken in the fourth quarter, which adversely impacted our operating income," said Matt Klein, chief financial officer of Vectrus.

Full-Year 2016 Results

  • Revenue $1,190.5 million
  • Operating income $42.8 million
  • Operating margin 3.6 percent
  • Diluted earnings per share $2.16
  • Cash provided by operating activities $36.6 million

Full-year 2016 revenue of $1,190.5 million increased $9.8 million or 0.8 percent compared to 2015. The increase is due to a $130.9 million increase in revenue from Middle East programs, partially offset by decreases in Afghanistan programs of $80.1 million and U.S. and European programs of $41.0 million.

Operating income was $42.8 million or 3.6 percent operating margin for the full-year 2016, compared to $40.0 million or 3.4 percent operating margin in 2015. For the year ended December 31, 2015, adjusted operating income1 was $43.4 million or 3.7 percent adjusted operating margin1.

Full-year 2016 diluted earnings per share were $2.16 compared to $2.86 in 2015 and adjusted diluted earnings per share1 of $2.23 in 2015.

Cash provided by operating activities for the year ended December 31, 2016 was $36.6 million; an increase of $17.7 million compared to 2015.

"Our team did a phenomenal job of improving cash collections in 2016. Day's sales outstanding improved significantly to 57 days, an 11 day improvement year-over-year," said Klein.

The Company ended 2016 with total debt of $85.0 million, which was down $29.0 million from $114.0 million at the end of 2015. This included $15 million of voluntary prepayments in 2016. As of December 31, 2016, the Company had a total consolidated indebtedness to consolidated EBITDA (total leverage ratio) of 1.63x to 1.00x.

"We have prudently managed our debt profile to ensure we remain below our covenants, especially given the recent dynamics involving our business," said Klein. "As of year-end, we were tracking well below our 2016 debt-to-EBITDA covenant level of 3.25 times. In 2017, this covenant steps down to 3.0 times. We will continue to methodically manage our leverage profile and capital structure as we move through 2017."

The Company ended 2016 with total backlog of $2.4 billion and funded backlog of $665 million.

2017 Guidance

"In 2017, we expect annual revenue to be in the range of $910 million to $1,010 million including an anticipated extension of our existing K-BOSSS contract while the re-compete proposal is under evaluation. Full-year operating margin is expected to be in the range of 3.40 percent to 3.60 percent and net income to be in the range of $17.0 million to $20.5 million. We expect to see diluted EPS in the range of $1.53 to $1.83 per share, and cash provided by operating activities from $20 million to $26 million," said Klein.  "Our 2017 guidance assumes interest expense of approximately $4 million, depreciation and amortization of $2 million, mandatory debt payments of $16 million, a tax rate of 36.4 percent and weighted average diluted shares outstanding of 11.1 million at December 31, 2017."

2017 guidance details include:

$ millions, except for operating margin and per share amounts

2017 Guidance

2017 Mid

Revenue

$910

to

$1,010

$960

Operating Margin

3.40%

to

3.60%

3.5%

Net Income

$17.0

to

$20.5

$18.8

Diluted EPS 2

$1.53

to

$1.83

$1.68

Cash Provided by Operating Activities

$20

to

$26

$23









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 5 p.m. Eastern Standard Time on Wednesday, Mar. 1, 2017. 
 
U.S.-based participants may dial into the conference call at 877-407-0792, while international participants may dial 201-689-8263. Pass code for both is 13655384. 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 Mar. 15, 2017, at 844-512-2921 (domestic) or 412-317-6671 (international) with pass code 13655384.

Footnotes:

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

2 2017 EPS guidance is calculated using the estimated weighted average diluted common shares outstanding for the year ending December 31, 2017 of 11.2 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 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, 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 ad 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.

VECTRUS, INC.

CONSOLIDATED AND COMBINED STATEMENTS OF INCOME




Year Ended December 31,

(In thousands, except per share data)


2016


2015


2014

Revenue


$

1,190,519



$

1,180,684



$

1,203,269


Cost of revenue


1,083,607



1,075,035



1,084,512


Selling, general and administrative expenses


64,086



65,687



80,340


Operating income


42,826



39,962



38,417


Interest (expense) income, net


(5,639)



(6,531)



(1,526)


Income from continuing operations before income taxes


37,187



33,431



36,891


Income tax expense


13,532



2,458



14,079


Net income


$

23,655



$

30,973



$

22,812









Earnings per share







Basic


$2.21



$2.94



$2.18


Diluted


$2.16



$2.86



$2.13


Weighted average common shares outstanding - basic


10,714



10,551



10,476


Weighted average common shares outstanding - diluted


10,974



10,825



10,692










 

VECTRUS, INC.

CONSOLIDATED BALANCE SHEETS




December 31,

(In thousands, except share information)


2016


2015

Assets





Current assets





  Cash


$

47,651



$

39,995


  Receivables


172,072



210,561


  Costs incurred in excess of billings


11,002



1,243


  Other current assets


13,412



9,708


Total current assets


244,137



261,507


  Property, plant, and equipment, net


3,061



4,762


  Goodwill


216,930



216,930


  Other non-current assets


1,177



1,197


  Total non-current assets


221,168



222,889


Total Assets


$

465,305



$

484,396


Liabilities and Shareholders' Equity





Current liabilities





  Accounts payable


118,055



122,442


  Billings in excess of costs


1,421



6,025


  Compensation and other employee benefits


34,917



36,783


  Short-term debt


15,750



22,000


  Other accrued liabilities


17,693



25,268


Total current liabilities


187,836



212,518


  Long-term debt, net


67,842



89,615


  Deferred tax liability


89,667



91,343


  Other non-current liabilities


2,559



1,610


Total non-current liabilities


160,068



182,568


Total liabilities


347,904



395,086


  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; 10,894,924 and 10,612,246 shares issued and outstanding


109



106


  Additional paid in capital


63,910



58,640


  Retained earnings


57,959



34,304


  Accumulated other comprehensive loss


(4,577)



(3,740)


Total shareholders' equity


117,401



89,310


Total Liabilities and Shareholders' Equity


$

465,305



$

484,396


 

VECTRUS, INC.

CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS




Year Ended December 31,

(In thousands)


2016


2015


2014

Operating activities







Net income


$

23,655



$

30,973



$

22,812


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







  Depreciation and amortization expense


1,920



3,138



2,149


  Loss on disposal of property, plant, and equipment


405



686



103


  Stock-based compensation


4,649



6,658



2,324


  Amortization of debt issuance costs


1,198



1,130



185


  Changes in assets and liabilities:







  Receivables


37,814



(9,886)



21,608


  Other assets


(13,903)



12,005



(1,329)


  Accounts payable


(3,766)



8,874



6,169


  Billings in excess of costs


(4,605)



219



(5,266)


  Deferred taxes


(2,163)



(9,404)



11,282


  Compensation and other employee benefits


(1,808)



275



(13,245)


  Other liabilities


(6,778)



(25,788)



(3,813)


  Net cash provided by operating activities


$

36,618



$

18,880



$

42,979


Investing activities







  Purchases of capital assets


(741)



(793)



(3,847)


  Proceeds from the disposition of assets


116



387



497


  Distributions from equity investment


573



524




  Net cash (used in) provided by investing activities


$

(52)



$

118



$

(3,350)


Financing activities







  Proceeds from issuance of long-term debt






140,000


  Repayments of long-term debt


(29,000)



(23,375)



(2,625)


  Proceeds from revolver


74,000



324,000



23,000


  Repayments of revolver


(74,000)



(324,000)



(23,000)


  Distribution to subsidiary of Exelis






(136,281)


  Proceeds from exercise of stock options


2,146



239




  Payment of debt issuance costs


(221)





(3,701)


  Proceeds from insurance financing




14,857




  Repayments of insurance financing




(12,130)




  Payments of employee withholding taxes on share-based compensation


(987)



(1,301)



(229)


  Working capital adjustment payment from Exelis






2,600


  Transfer to Former Parent, net






(6,371)


  Net cash used in financing activities


$

(28,062)



$

(21,710)



$

(6,607)


Exchange rate effect on cash


(848)



(116)



(645)


Net change in cash


7,656



(2,828)



32,377


Cash-beginning of year


39,995



42,823



10,446


Cash-end of year


$

47,651



$

39,995



$

42,823









Supplemental Disclosure of Cash Flow Information:







Interest paid


$

5,278



$

6,047



$

1,201


Income taxes paid


$

26,068



$

16,096



$

2,667


Non-cash investing activities: Purchase of capital assets on account


$



$



$

92


 

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 operating income, adjusted operating margin, adjusted net income and adjusted diluted earnings per share, to be useful to management and investors in evaluating the 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, 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 operating income, net income or 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, 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 separation costs incurred to become a stand-alone public company and tax indemnifications in connection with the spin-off from our former parent.

"Adjusted operating margin" is defined as adjusted operating income 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 separation costs incurred to become a stand-alone public company.

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


(In thousands)


Three Months Ended December 31,


Year Ended December 31,

Adjusted Operating Income (Non-GAAP Measure)


2016


2015


2016


2015

Revenue


$

288,160



$

311,194



1,190,519



1,180,684











Operating income


$

8,555



$

11,291



$

42,826



$

39,962


Separation costs 1 (pretax)








177


Tax indemnifications 2








3,300


Adjusted operating income


$

8,555



$

11,291



$

42,826



$

43,439











GAAP operating margin


3.0

%


3.6

%


3.6

%


3.4

%

Adjusted operating margin


3.0

%


3.6

%


3.6

%


3.7

%










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

2 Tax indemnifications in connection with the spin-off from our former parent (see "Tax Indemnifications" in Note 3 to the financial statements in our 2016 Annual Report on Form 10-K).

 

(In thousands, except per share data)


Three Months Ended December 31,


Year Ended December 31,

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


2016


2015


2016


2015

Net income


$

4,409



$

5,960



$

23,655



$

30,973


Separation costs 1 (pretax)








177


Tax impact of adjustments




(20)





(13)


Net settlement of uncertain tax positions 2








(6,949)


Adjusted net income


$

4,409



$

5,940



$

23,655



$

24,188


GAAP EPS - diluted


$

0.40



$

0.55



$

2.16



$

2.86


Adjusted EPS - diluted


$

0.40



$

0.55



$

2.16



$

2.23











Weighted average common shares outstanding - diluted


10,988



10,869



10,974



10,825











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

2 Net settlement of uncertain tax positions due to the resolution of examinations of tax returns of our former parent ("Uncertain Tax Positions" in Note 3 to the financial statements in our 2016 Annual Report on Form 10-K).

 

SUPPLEMENTAL INFORMATION

          Revenue by military branch for the periods presented below was as follows:




Year Ended December 31,

(In thousands)


2016


2015

Military branch


Revenue


% of Total


Revenue


% of Total

Army


$

1,004,842



84

%


$

1,007,648



85

%

Navy


20,066



2

%


25,561



2

%

Air Force


165,611



14

%


145,854



13

%

Marines




%


1,621



%

Total Revenue


$

1,190,519





$

1,180,684







Year Ended December 31,

(in thousands)


2016


2015

Contract type


Revenue


% of Total


Revenue


% of Total

Firm-Fixed-Price


$

297,677



25

%


$

321,449



27

%

Cost-Plus and Cost Reimbursable ¹


892,842



75

%


859,235



73

%

Total Revenue


$

1,190,519





$

1,180,684













¹ Includes time and material contracts



Year Ended December 31,

(In thousands)


2016


2015

Contract Relationship


Revenue


% of Total


Revenue


% of Total

Prime Contractor


$

1,131,773



95

%


$

1,059,984



90

%

Sub Contractor


58,746



5

%


120,700



10

%

Total Revenue


$

1,190,519





$

1,180,684




 

CONTACT:

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

 

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/vectrus-announces-fourth-quarter-and-full-year-2016-results-issues-2017-guidance-300415689.html

SOURCE Vectrus, Inc.