Vectrus Announces Second Quarter 2020 Results

- Solid Q2 revenue of $336 million +1.3% Y/Y; COVID-19 adversely impacted revenue by $22.3 million or 6.7%

- Q2 diluted EPS of $0.09; Adjusted diluted EPS(1) of $0.24, excluding M&A related and LOGCAP V pre-operational legal costs

- Q2 earnings impacted by COVID-19 ($0.14), a contract adjustment ($0.36) and one-time closeouts ($0.18)

- Cash from Operations +52% Y/Y to $33 million, including $13 million favorable impact from CARES Act tax deferrals

- Won three Navy programs with $554 million aggregate value, including two Joint Ventures

- Robust backlog of $3.8 billion, resulting in 1.4x TTM book-to-bill

- Revised 2020 guidance reflects first-half results, incremental COVID-19 impact, and delays

Company Release - 8/11/2020 4:05 PM ET

COLORADO SPRINGS, Colo., Aug. 11, 2020 /PRNewswire/ -- Vectrus, Inc. (NYSE: VEC) announced second quarter 2020 financial results for the quarter ended July 3, 2020.

Vectrus Logo.

"Second quarter results demonstrated solid top line performance, strong new business awards, and favorable cash flow generation despite the impact of COVID-19. Margin and EPS were adversely impacted by one-time closeouts and a contract adjustment to a European program," said Chuck Prow, president and chief executive officer.  "The company is working with the client to resolve this issue prior to the next option period in mid-2021.  Our updated guidance reflects the continued impact from COVID-19 on existing programs and the delay of LOGCAP V and other new programs due to host nation and base access restrictions. We expect improved margins to drive EPS growth in the second half of the year."  

"During the quarter, we won three new contracts with our Navy client, two of which were in collaboration with a joint venture partner and are in the aggregate valued at $554 million," said Prow. "Our prospects for growth, supported by our robust backlog and $10.6 billion pipeline, are unchanged. Our cash flow generation and balance sheet remain strong and we are well positioned for the future. We are maintaining an agile, deliberate posture with respect to COVID-19 with focus on the safety of our clients and team while executing consistently on our programs.  I would like to acknowledge the dedication and innovation our entire work force has demonstrated to keep the missions we operate at a high level of readiness throughout the ongoing pandemic for our clients."

Second Quarter 2020 Results

Second quarter 2020 revenue of $336.1 million increased $4.5 million or 1.3% compared to second quarter 2019. It is estimated that revenue was adversely impacted by $22.3 million or 6.7% from the COVID-19 pandemic due to base access restrictions. Revenue was also adversely impacted in the quarter by the previously mentioned contract adjustment and one-time closeouts totaling $4.2 million or 1.3%.

For the second quarter 2020, operating income was $2.4 million or 0.7% margin. Excluding M&A related and LOGCAP V pre-operational costs, adjusted operating income1 was $4.7 million or 1.4% margin.  Adjusted operating income1 was adversely impacted by the COVID-19 deferral of high-margin revenue due to base access restrictions into future periods of $2.1 million which had a 30-basis point impact to adjusted operating margin1. Adjusted operating income1 was also adversely impacted by the above-mentioned contract adjustment and one-time closeouts of $8.4 million, which had a 240-basis point impact to adjusted operating margin.

EBITDA1 was $4.4 million or 1.3% margin for the second quarter 2020, compared to $12.6 million or 3.8% margin in the second quarter 2019. Excluding M&A related and LOGCAP V pre-operational legal costs, adjusted EBITDA1 was $6.7 million or 2.0% margin for the second quarter 2020, compared to $13.9 million or 4.2% margin in the second quarter 2019. Adjusted EBITDA1 was adversely impacted by COVID-19 of $2.1 million, which had a 30-basis point impact to adjusted EBITDA margin1. Adjusted EBITDA1 was also adversely impacted by the above-mentioned adjustments of $8.4 million, which had a 240-basis point impact.

Second quarter 2020 diluted EPS was $0.09 compared to $0.66 in second quarter 2019. Excluding M&A related and LOGCAP V pre-operational costs, adjusted diluted EPS1 for the second quarter 2020 was $0.24.  Adjusted diluted EPS1 was adversely impacted due to COVID-19 by $0.14, and by the above-mentioned adjustments of $0.54. The tax rate in the second quarter 2020 was a benefit of 2.5% as compared to a tax rate of 22.8% in the second quarter 2019.  The company benefited in the quarter from the resolution of a foreign tax matter related to prior periods, which had a positive effect on both diluted EPS and adjusted diluted EPS1 of $0.02.

"The combination of one-time closeouts and the adjustment to a European program adversely impacted our second quarter results, and are now behind us," said Susan Lynch, senior vice president and chief financial officer. "We continue to believe our business is resilient and stronger than ever. Vectrus continues to invest in hardening its processes, completing the rollout of its enterprise systems and enhancing our talent to support projected growth. Free cash flow has been strong. Our low leverage ratio and strong cash position provides the Company with $180 million dollars of liquidity to invest in long-term growth."

Net cash provided by operating activities for the quarter ended July 3, 2020 was $33.3 million, compared to net cash provided by operating activities of $21.8 million in the second quarter of 2019. Cash flow was favorably impacted by approximately $13 million of CARES Act Federal estimated payments and employee payroll tax deferrals.  Days sales outstanding (DSO) was 67 days in the second quarter of 2020.

Net debt at July 3, 2020 was $4.8 million, down from $35.2 million at December 31, 2019. Total debt at July 3, 2020 was $67.5 million, down $3.0 million from $70.5 million at December 31, 2019 due to mandatory payments. Cash at quarter-end was $62.7 million, up from $35.3 million at December 31, 2019. As of July 3, 2020, the revolver, was undrawn and combined with cash, results in total liquidity of $180 million. Total consolidated indebtedness to consolidated EBITDA1 (total leverage ratio) was 1.08x. Net debt to consolidated EBITDA1 was 0.08x.

Total backlog as of July 3, 2020 was $3.8 billion and funded backlog was $0.9 billion.  The trailing twelve-month book-to-bill was 1.4x as of July 3, 2020.

Revised 2020 Guidance

Vectrus is revising and narrowing its full-year 2020 guidance ranges for revenue, EBITDA, and diluted EPS to include second quarter results. The outlook for net cash provided by operating activities remains unchanged as a result of the favorable impact of the CARES Act tax deferrals, lower capital expenditure outlook and lower EBITDA projections.

The transition of LOGCAP V and newly won programs have slowed due to COVID-19 as restrictions in both host nation and base access continue to be gating factors to full operational capability. Additionally, protests on new business awards are limiting our ability to conduct transition and phase-in activities.

The COVID-19 pandemic is now estimated to defer 2020 revenue of approximately $65 million and EBITDA of $4 million into future periods. While we expect the vast majority of the associated revenue and profit to remain in our backlog, the contribution will be determined by the timing of services performed in future contractual periods. The Company continues to work with its clients to maintain operations and plan a safe return to work in light of the COVID-19 pandemic.

In addition, guidance for capital expenditures has been reduced from $7.0 million to $5.0 million, depreciation and amortization has been reduced from $8.4 million to $8.1 million.  Mandatory debt payments of $6.5 million, interest expense of $5.6 million, tax rate of 23%, and weighted average diluted shares outstanding of 11.8 million at December 31, 2020 remain unchanged.

$ millions, except for EBITDA margins and per share amounts

Revised 2020 Guidance

Prior 2020 Guidance

Revenue

$1,385

to

$1,405

$1,475

to

$1,525

EBITDA Margin

3.8%

to

3.9%

4.6%

to

4.8%

Adjusted EBITDA Margin*

4.0%

to

4.1%

4.6%

to

4.8%

Diluted Earnings Per Share

$2.53

to

$2.67

$3.48

to

$3.81

Adjusted Diluted Earnings Per Share*

$2.68

to

$2.82

$3.48

to

$3.81

Net Cash Provided by Operating Activities

$45.0

to

$55.0

$45.0

to

$55.0


* Adjusted EBITDA margin1 and Adjusted Diluted Earnings Per Share1, excludes any M&A related costs and LOGCAP V pre-operational legal costs.

The Company notes that forward-looking statements 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.

Second Quarter 2020 Conference Call

Management will conduct a conference call with analysts and investors at 4:30 p.m. ET on Tuesday, August 11, 2020. U.S.-based participants may dial in to the conference call at 877-407-0792, while international participants may dial 201-689-8263. For all other listeners, a live webcast of the conference call will be available on the Vectrus Investor Relations website at

http://investors.vectrus.com. An accompanying slide presentation will also be available on the Vectrus Investor Relations website.

A replay of the conference call will be posted on the Vectrus website shortly after completion of the call and will be available for one year. A telephonic replay will also be available through August 25, 2020, at 844-512-2921 (domestic) or 412-317-6671 (international) with passcode 13707461.

Footnotes:

1 See "Key Performance Indicators and Non-GAAP Financial Measures" for reconciliation.

About Vectrus

Vectrus is a leading provider of global service solutions with a history in the services market that dates back more than 70 years. The company provides facility and base operations; supply chain and logistics services; information technology mission support; and engineering and digital technology services primarily 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 its clients' mission success. Vectrus is headquartered in Colorado Springs, Colo., and includes about 7,200 employees spanning 148 locations in 26 countries and territories across four continents. In 2019, Vectrus generated sales of $1.4 billion. To learn about career opportunities at Vectrus, visit www.vectrus.com/careers. For more information, visit the company's website at www.vectrus.com or connect with Vectrus on Facebook, Twitter, and LinkedIn.

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, all of the statements and items listed in the table in "Revised 2020 Guidance" above and other assumptions contained therein for purposes of such guidance, other statements about our 2020 performance outlook, five-year growth plan, revenue, DSO, contract opportunities, the potential impact of COVID-19, 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.

These forward-looking statements are not guarantees of future performance, conditions or results, and involve a number of known and unknown risks, uncertainties, assumptions and other important factors, many of which are outside our management's control, that could cause actual results to differ materially from the results discussed in the forward-looking statements. For a discussion  of some of the risks and important factors that could cause actual results to differ from such forward-looking statements, see the risks and other factors detailed from time to time our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and other filings with the U.S. 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.

CONTACT:

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

VECTRUS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)




Three Months Ended


Six Months Ended



July 3,


June 28,


July 3,


June 28,

(In thousands, except per share data)


2020


2019


2020


2019

Revenue


$

336,063



$

331,589



$

687,797



$

657,495


Cost of revenue


311,817



300,553



631,510



596,149


Selling, general, and administrative expenses


21,816



19,843



41,374



39,762


Operating income


2,430



11,193



14,913



21,584


Interest expense, net


(1,346)



(1,329)



(3,048)



(2,904)


Income from operations before income taxes


1,084



9,864



11,865



18,680


Income tax expense


(27)



2,247



2,086



3,989


Net income


$

1,111



$

7,617



$

9,779



$

14,691











Earnings per share









Basic


$0.10



$0.66



$0.84



$1.29


Diluted


$0.09



$0.66



$0.83



$1.28


Weighted average common shares outstanding - basic


11,607



11,455



11,575



11,376


Weighted average common shares outstanding - diluted


11,745



11,605



11,742



11,512


 

VECTRUS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS




July 3,


December 31,

(In thousands, except share information)


2020


2019

Assets


(unaudited)



Current assets





Cash


$

62,719



$

35,318


Receivables


260,295



269,144


Other current assets


21,980



16,154


Total current assets


344,994



320,616


Property, plant, and equipment, net


19,107



18,844


Goodwill


262,130



261,983


Intangible assets, net


12,905



14,926


Right-of-use assets


11,259



14,654


Other non-current assets


7,386



5,366


Total non-current assets


312,787



315,773


Total Assets


$

657,781



$

636,389


Liabilities and Shareholders' Equity





Current liabilities





Accounts payable


$

142,138



$

148,015


Compensation and other employee benefits


60,417



53,155


Short-term debt


7,500



6,500


Other accrued liabilities


45,655



37,409


Total current liabilities


255,710



245,079


Long-term debt, net


59,234



63,041


Deferred tax liability


46,473



49,407


Other non-current liabilities


26,929



19,997


Total non-current liabilities


132,636



132,445


Total liabilities


388,346



377,524


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; 11,619,544 and 11,523,691 shares issued and outstanding as of July 3, 2020 and December 31, 2019, respectively                                      


116



115


Additional paid in capital


79,944



78,757


Retained earnings


194,854



185,075


Accumulated other comprehensive loss


(5,479)



(5,082)


Total shareholders' equity


269,435



258,865


Total Liabilities and Shareholders' Equity


$

657,781



$

636,389


 

VECTRUS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)




Six Months Ended



July 3,


June 28,

(In thousands)


2020


2019

Operating activities





Net income


$

9,779



$

14,691


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





Depreciation expense


1,971



1,538


Amortization of intangible assets


2,028



1,277


Loss on disposal of property, plant, and equipment




2


Stock-based compensation


5,411



4,031


Amortization of debt issuance costs


193



201


Changes in assets and liabilities:





Receivables


9,429



(224)


Other assets


(7,938)



(7,128)


Accounts payable


(6,021)



2,038


Deferred taxes


(2,735)



(2,579)


Compensation and other employee benefits


7,037



3,324


Other liabilities


15,252



(1,721)


Net cash provided by operating activities


34,406



15,450


Investing activities





Purchases of capital assets and intangibles


(2,246)



(11,739)


Net cash (used in) investing activities


(2,246)



(11,739)


Financing activities





Repayments of long-term debt


(3,000)



(2,000)


Proceeds from revolver


144,000



98,000


Repayments of revolver


(144,000)



(98,000)


Proceeds from exercise of stock options


59



3,467


Payments of employee withholding taxes on share-based compensation


(1,873)



(768)


Net cash (used in) provided by financing activities


(4,814)



699


Exchange rate effect on cash


55



(226)


Net change in cash


27,401



4,184


Cash-beginning of year


35,318



66,145


Cash-end of period


$

62,719



$

70,329


Supplemental disclosure of cash flow information:





Interest paid


$

2,527



$

2,818


Income taxes paid


$

70



$

4,198


Non-cash investing activities:





Purchase of capital assets on account


$

447



$

301


Key Performance Indicators and Non-GAAP Measures

The primary financial performance measures we use to manage our business and monitor results of operations are revenue trends and operating income trends. Management believes that these financial performance measures are the primary drivers for our earnings and net cash from operating activities. Management evaluates its contracts and business performance by focusing on revenue, operating income and operating margin. Operating income represents revenue less both cost of revenue and selling, general and administrative (SG&A) expenses. Cost of revenue consists of labor, subcontracting costs, materials, and an allocation of indirect costs, which includes service center transaction costs. SG&A expenses consist of indirect labor costs (including wages and salaries for executives and administrative personnel), bid and proposal expenses and other general and administrative expenses not allocated to cost of revenue. We define operating margin as operating income divided by revenue.

We manage the nature and amount of costs at the program level, which forms the basis for estimating our total costs and profitability. This is consistent with our approach for managing our business, which begins with management's assessing the bidding opportunity for each contract and then managing contract profitability throughout the performance period.

In addition to the key performance measures discussed above, we consider adjusted operating income, adjusted operating margin, adjusted net income, adjusted diluted earnings per share, EBITDA, adjusted EBITDA, EBITDA margin, adjusted EBITDA margin, and organic revenue to be useful to management and investors in evaluating our operating performance, 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. We provide this information to our investors in our earnings releases, presentations and other disclosures.

Adjusted operating income, adjusted operating margin, adjusted net income, adjusted diluted earnings per share, EBITDA, adjusted EBITDA, EBITDA margin, adjusted EBITDA margin, and organic revenue, however, are not measures of financial performance under GAAP and should not be considered a substitute for operating income, operating margin, net income and diluted earnings per share as determined in accordance with GAAP.  Definitions and 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 significant charges or credits, and unusual and infrequent non-operating items, such as M&A transaction and LOGCAP V pre-operational legal 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.
  • Adjusted net income is defined as net income, adjusted to exclude items that may include, but are not limited to, significant charges or credits, and unusual and infrequent non-operating items, such as M&A transaction and LOGCAP V pre-operational legal costs, that impact current results but are not related to our ongoing operations.
  • Adjusted diluted earnings per share is defined as adjusted net income divided by the weighted average diluted common shares outstanding.
  • EBITDA is defined as operating income, adjusted to exclude depreciation and amortization.
  • Adjusted EBITDA is defined as EBITDA, adjusted to exclude items that may include, but are not limited to, significant charges or credits and unusual and infrequent non-operating items, such as M&A transaction and LOGCAP V pre-operational legal costs that impact current results but are not related to our ongoing operations.
  • EBITDA margin is defined as EBITDA divided by revenue.
  • Adjusted EBITDA margin is defined as Adjusted EBITDA divided by revenue.
  • Organic revenue is defined as revenue, adjusted to exclude revenue from acquired companies.

 

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









($ in thousands, except per share data)


Three
Months
Ended July
3, 2020 As
Reported


M&A
Related
Costs


LOGCAP V
Pre-
Operational
Legal Costs


Three
Months
Ended July
3, 2020 As
Reported -
Adjusted










Revenue


$

336,063



$



$



$

336,063


Growth


1.3

%






1.3

%

Growth, organic


(1.8)

%






(1.8)

%

Operating income


2,430



2,193



46



4,669


Operating margin


0.7

%






1.4

%










Interest expense, net


(1,346)







(1,346)











Income from operations before income taxes


$

1,084



$

2,193



$

46



$

3,323











Income tax expense


(27)



504



11



488


Income tax rate


(2.5)

%


23.0

%


23.0

%


14.7

%










Net income


$

1,111



$

1,689



$

35



$

2,835











Weighted average common shares outstanding, diluted


11,745







11,745











Diluted earnings per share


$

0.09



$

0.14



$



$

0.24











EBITDA (Non-GAAP Measures)









($ in thousands)


Three
Months
Ended July
3, 2020 As
Reported


M&A
Related
Costs


LOGCAP V
Pre-
Operational
Legal Costs


Three
Months
Ended July
3, 2020 As
Reported -
Adjusted

Operating Income


$

2,430



$

2,193



$

46



$

4,669











Add:









Depreciation and amortization


1,988







1,988











EBITDA


$

4,418



$

2,193



$

46



$

6,657


EBITDA Margin


1.3

%






2.0

%


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









($ in thousands, except per share data)


Three
Months
Ended June
28, 2019 As
Reported


M&A
Related
Costs


LOGCAP V
Pre-
Operational
Legal Costs


Three
Months
Ended June
28, 2019 As
Reported -
Adjusted










Revenue


$

331,589



$



$



$

331,589











Operating income


11,193



667



579



12,439


Operating margin


3.4

%






3.8

%










Interest expense, net


(1,329)







(1,329)











Income from operations before income taxes


$

9,864



$

667



$

579



$

11,110











Income tax expense


2,247



152



132



2,531


Income tax rate


22.8

%






22.8

%










Net income


$

7,617



$

515



$

447



$

8,579











Weighted average common shares outstanding, diluted


11,605







11,605











Diluted earnings per share


$

0.66







$

0.74











EBITDA (Non-GAAP Measures)









($ in thousands)


Three
Months
Ended June
28, 2019 As
Reported


M&A
Related
Costs


LOGCAP V
Pre-
Operational
Legal Costs


Three
Months
Ended June
28, 2019 As
Reported -
Adjusted

Operating Income


11,193



667



$

579



$

12,439











Add:









Depreciation and amortization


1,456







1,456











EBITDA


$

12,649



$

667



$

579



$

13,895


EBITDA Margin


3.8

%






4.2

%

 

(In thousands)


Three Months
Ended July 3,
2020 As
Reported


Three Months
Ended July 3,
2020 Advantor


Three Months
Ended July 3,
2020 As Reported
- Organic








Revenue


$

336,063



$

10,287



$

325,776









($ In thousands)


Three Months
Ended June 28,
2019 As
Reported


Three Months
Ended June 28,
2019 Advantor


Three Months
Ended June 28,
2019 As Reported
- Organic








Revenue


$

331,589



$



$

331,589









Organic Revenue $






$

(5,813)


Organic Revenue %






(1.8)

%

SUPPLEMENTAL INFORMATION

Revenue by client branch, contract type, contract relationship, and geographic region for the periods presented below was as follows: 

Revenue by Client



















Three Months Ended


Six Months Ended

($ In thousands)


July 3, 2020


% of Total


June 28, 2019


% of Total


July 3, 2020


% of Total


June 28, 2019


% of Total

Army


$

227,351



68

%


$

225,867



68

%


$

474,906



69

%


$

452,559



69

%

Air Force


78,321



23

%


72,593



22

%


151,663



22

%


140,524



21

%

Navy


14,542



4

%


16,796



5

%


29,779



4

%


31,884



5

%

Other


15,849



5

%


16,333



5

%


31,449



5

%


32,528



5

%

Total revenue


$

336,063





$

331,589





$

687,797





$

657,495





















Revenue by Contract Type







Three Months Ended


Six Months Ended

($ In thousands)


July 3, 2020


% of Total


June 28, 2019


% of Total


July 3, 2020


% of Total


June 28, 2019


% of Total

Cost-plus and cost-reimbursable ¹


$

242,740



72

%


$

256,737



77

%


$

499,059



73

%


$

508,193



77

%

Firm-fixed-price


93,323



28

%


74,852



23

%


188,738



27

%


149,302



23

%

Total revenue


$

336,063





$

331,589





$

687,797





$

657,495




¹ Includes time and material contracts


































Revenue by Contract Relationship



















Three Months Ended


Six Months Ended

($ In thousands)


July 3, 2020


% of Total


June 28, 2019


% of Total


July 3, 2020


% of Total


June 28, 2019


% of Total

Prime contractor


$

314,345



94

%


$

312,732



94

%


$

647,738



94

%


$

619,790



94

%

Subcontractor


21,718



6

%


18,857



6

%


40,059



6

%


37,705



6

%

Total revenue


$

336,063





$

331,589





$

687,797





$

657,495





















Revenue by Geographic Region



















Three Months Ended


Six Months Ended

($ In thousands)


July 3, 2020


% of Total


June 28, 2019


% of Total


July 3, 2020


% of Total


June 28, 2019


% of Total

Middle East


$

216,763



65

%


$

223,588



67

%


$

454,700



66

%


$

450,004



68

%

United States


83,770



25

%


72,376



22

%


165,239



24

%


143,764



22

%

Europe


35,530



10

%


35,625



11

%


67,858



10

%


63,727



10

%

Total revenue


$

336,063





$

331,589





$

687,797





$

657,495




 

Cision View original content to download multimedia:http://www.prnewswire.com/news-releases/vectrus-announces-second-quarter-2020-results-301110237.html

SOURCE Vectrus, Inc.