Vectrus Announces Second Quarter 2020 Results
Vectrus, Inc. (NYSE: VEC) reported Q2 2020 revenue of $336.1 million, up 1.3% year-over-year, despite a $22.3 million impact from COVID-19 restrictions. Adjusted diluted EPS decreased to $0.24 from $0.66 in Q2 2019, affected by contract adjustments and one-time closeouts totaling $8.4 million. The company revised its 2020 guidance, projecting revenue between $1.385 and $1.405 billion, down from previous estimates. Vectrus continues to maintain strong cash flow and a solid balance sheet, with $180 million in liquidity, while navigating challenges posed by the pandemic.
- Revenue increased by 1.3% year-over-year, totaling $336.1 million.
- The company secured three new contracts with the Navy worth $554 million.
- Strong cash flow generation with $33.3 million net cash from operating activities.
- Total liquidity of $180 million supports long-term growth.
- Adjusted diluted EPS dropped to $0.24 from $0.66 year-over-year.
- COVID-19 expected to defer $65 million in revenue and $4 million in EBITDA to future periods.
- Revised full-year 2020 guidance shows a decrease in revenue and EBITDA expectations.
COLORADO SPRINGS, Colo., Aug. 11, 2020 /PRNewswire/ -- Vectrus, Inc. (NYSE: VEC) announced second quarter 2020 financial results for the quarter ended July 3, 2020.
"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
Second Quarter 2020 Results
Second quarter 2020 revenue of
For the second quarter 2020, operating income was
EBITDA1 was
Second quarter 2020 diluted EPS was
"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
Net cash provided by operating activities for the quarter ended July 3, 2020 was
Net debt at July 3, 2020 was
Total backlog as of July 3, 2020 was
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
In addition, guidance for capital expenditures has been reduced from
$ millions, except for EBITDA margins and per share amounts | Revised 2020 Guidance | Prior 2020 Guidance | ||||
Revenue | to | to | ||||
EBITDA Margin | to | to | ||||
Adjusted EBITDA Margin* | to | to | ||||
Diluted Earnings Per Share | to | to | ||||
Adjusted Diluted Earnings Per Share* | to | to | ||||
Net Cash Provided by Operating Activities | to | to | ||||
* 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
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 | ||||||||||||||||
Diluted | ||||||||||||||||
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; | — | — | ||||||
Common stock; | 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 | M&A | LOGCAP V | Three | ||||||||||||
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 | M&A | LOGCAP V | Three | ||||||||||||
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 | M&A | LOGCAP V | Three | ||||||||||||
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 | M&A | LOGCAP V | Three | ||||||||||||
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 | Three Months | Three Months | |||||||||
Revenue | $ | 336,063 | $ | 10,287 | $ | 325,776 | ||||||
($ In thousands) | Three Months | Three Months | Three Months | |||||||||
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 | ||||||||||||||||||||
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SOURCE Vectrus, Inc.
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