Vectrus Announces Strong First Quarter 2021 Results

Rhea-AI Summary

Vectrus reported strong first quarter 2021 results, with revenue growth of 23% year-over-year, totaling $434 million. This growth stemmed from two strategic acquisitions and progress in the LOGCAP V phase-in. The adjusted EBITDA margin increased by 60 basis points year-over-year. Key wins included a $19 million CBRN defense contract and a $22 million IT services task order. Guidance for 2021 has been raised, reflecting a positive outlook with adjusted EPS projected between $4.55 and $4.85.

Positive

• Revenue increased by 23% year-over-year to $434 million.
• Adjusted EBITDA margin improved by 60 basis points.
• Secured a $19 million CBRN integrated defense contract.
• Won a $22 million task order under the Army's ITES-3S IDIQ.
• Increased 2021 guidance for revenue and adjusted EPS.

Negative

• Net debt rose to $138.7 million due to acquisitions.
• Cash used in operating activities was $21.7 million, reflecting timing issues.

COLORADO SPRINGS, Colo., May 11, 2021 /PRNewswire/ -- Vectrus, Inc. (NYSE:VEC) announced first quarter 2021 financial results.

"Vectrus reported strong first quarter results driven by the continued momentum in the execution of our strategy," said Chuck Prow, Chief Executive Officer of Vectrus.

"During the quarter, revenue grew 23% year-over-year, with organic growth of 4%," said Prow. "Revenue growth was driven by our recent acquisitions, continued phase-in of LOGCAP V, as well as the progress made in executing growth in our core programs.  Additionally, adjusted EBITDA margin increased 60 basis points year-over-year."

"Our growth-related activities and efforts to make Vectrus the premier converged infrastructure company continue to experience positive momentum," said Prow.  "During the quarter Vectrus was awarded the CBRN integrated defense prime OTA contract, which was based on our well-known capabilities in sensor integration, Internet of Things, and perimeter security solutions. The award is valued at $19 million over two years and extends Vectrus' IoT, machine learning and data analytics offerings. This effort is co-sponsored between the DoD and Department of Homeland Security and provides sensor integration as well as data integration and analysis related to threat detection domestically. This program brings our digitally integrated solutions, that were originally deployed overseas, to the U.S. to support protection of the Homeland. We are pleased to have been selected for such an important mission and look forward to the opportunity to bring our unique and differentiated solutions utilized by the DoD to a new client and market. This work is illustrative of how Vectrus is building capabilities and inserting technology to deliver a more integrated and comprehensive suite of solutions in support of the converged infrastructure market."

Prow continued, "We are also continuing to execute our IDIQ portfolio by leveraging our converged solutions, geographic footprint, and ability to provide complex mission-critical IT services. During the quarter, we won a $22 million five-year task order under the Army's ITES-3S IDIQ to provide enterprise IT services to the U.S. Army Corp of Engineers across Europe. This is an important win for Vectrus which leverages the more than 30 years of experience we have in providing a full range of operations and maintenance, IT support and supply services with our Army OPMAS-E contract in Europe. This task order provides Vectrus with an opportunity to grow its' presence in support of the 37,000 U.S. Army Corp of Engineers civilians and soldiers that are delivering vital engineering services in over 130 countries worldwide."

"Last quarter we completed two strategic acquisitions that added key clients, capabilities, and accelerated our converged infrastructure strategy," said Prow. "The integration of these acquisitions is well underway and on track with our plan. We remain excited about the talent, combined capabilities, and opportunities for accelerated growth."

"Regarding LOGCAP V, we continue to phase-in and anticipate being at full operational capability in Iraq by June," said Prow. "In terms of INDOPACOM, the phase-in process remains elongated due to base access restrictions associated with COVID-19; but we continue to anticipate phase-in later this year with full operational capability in early 2022."

First Quarter 2021 Results

First quarter 2021 revenue of $434.0 million was up $82.3 million dollars year on year or 23.4% as compared to the same period last year.  Revenue grew by $68.9 million year on year as a result of the companies' two acquisitions on December 31, 2020 and grew $13.4 million organically. 

Operating income was $16.5 million or 3.8% margin in the first quarter of 2021.  Adjusted operating income¹ was $19.1 million or 4.4% margin.

EBITDA¹ was $20.5 million or 4.7% margin and Adjusted EBITDA¹ was $20.7 million or 4.8% margin for the first quarter of 2021. Margin improved by 60 basis points for both EBITDA and Adjusted EBITDA due to the company's two acquisitions and improved operating performance.

Fully diluted EPS for the first quarter of 2021 was $1.02 as compared to $0.74 cents in the same period last year. Adjusted diluted EPS¹, which adds back amortization of acquired intangible assets, was $1.20 for the quarter, as compared to $0.82 cents in the prior year.  The improvement in EPS is due to the company's two acquisitions, improved operating performance, and lower tax expense.

"Our first quarter results demonstrate that our strategic execution is resulting in a more capable and diverse company," said Susan Lynch, Senior Vice President and Chief Financial Officer. "For example, our revenue with the Navy now comprises 13% of total revenue compared to 4% during the same time last year. Our geographic and contract mix have also diversified."

Lynch continued, "We are very pleased with our first quarter operating performance, the contributions from our recent December 31, 2020 acquisitions, and our overall progress in becoming a higher value, growth-oriented platform. We expect to continue to derive synergies from our acquisitions on both the top and bottom line while achieving greater operational efficiencies from our new ERP systems."   

Cash used in operating activities through April 2, 2021 was $21.7 million and was a result of timing and the strong cash performance in the fourth quarter of 2020.

Net debt at April 2, 2021 was $138.7 million, up $100.9 million from April 3, 2020 due to the acquisitions of Zenetex and HHB on December 31, 2020. Total debt at April 2, 2021 was $177.0 million, down $7 million from $184.0 million at April 3, 2020. Cash at quarter-end was $38.3 million. Total consolidated indebtedness to consolidated EBITDA¹ (total leverage ratio) was 2.0x.

Total backlog as of April 2, 2021 was $4.5 billion and funded backlog was $0.9 billion. The trailing twelve-month book-to-bill was 0.8x as of April 2, 2021. 

Increasing 2021 Guidance Mid-Point

Lynch continued, "In light of our strong first quarter performance we are increasing the low-end of the guidance range." Guidance for 2021 is as follows:

$ millions, except for EBITDA margins and per share amounts	Previous 2021 Guidance			Updated 2021 Guidance			Updated 2021 Mid-Point
Revenue	$1,645	to	$1,715	$1,680	to	$1,715	$1,698
Adjusted EBITDA Margin1	4.6%	to	5.0%	4.8%	to	5.0%	4.9%
Adjusted Diluted Earnings Per Share1	$4.25	to	$4.85	$4.55	to	$4.85	$4.70
Net Cash Provided by Operating Activities	$55.0	to	$65.0	$58.0	to	$65.0	$61.5

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. 

First Quarter 2021 Conference Call

Management will conduct a conference call with analysts and investors at 4:30 p.m. ET on Tuesday, May 11, 2021. 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 or https://www.webcaster4.com/Webcast/Page/1431/41306. 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 May 25, 2021, at 844-512-2921 (domestic) or 412-317-6671 (international) with passcode 13719138.

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 integration 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 9,200 employees spanning 206 locations in 27 countries. In 2020, 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 "2021 Guidance" above and other assumptions contained therein for purposes of such guidance, other statements about our 2021 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
mike.smith@vectrus.com

 

VECTRUS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
		Three Months Ended
		April 2,						April 3,
(In thousands, except per share data)		2021						2020
Revenue		$	434,004						$	351,734
Cost of revenue			393,648							319,693
Selling, general, and administrative expenses			23,823							19,558
Operating income			16,533							12,483
Interest expense, net			(1,932)							(1,703)
Income from operations before income taxes			14,601							10,780
Income tax expense			2,553							2,112
Net income		$	12,048						$	8,668
Earnings per share
Basic		$	1.03						$	0.75
Diluted		$	1.02						$	0.74
Weighted average common shares outstanding - basic			11,648							11,545
Weighted average common shares outstanding - diluted			11,827							11,745

 

VECTRUS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
		April 2,				December 31,
(In thousands, except share information)		2021				2020
Assets
Current assets
Cash and cash equivalents		$	38,347			$	66,949
Restricted cash		1,778				1,778
Receivables		359,182				314,959
Other current assets		27,319				24,702
Total current assets		426,626				408,388
Property, plant, and equipment, net		21,410				22,573
Goodwill		315,401				339,702
Intangible assets, net		71,254				48,105
Right-of-use assets		20,802				18,718
Other non-current assets		6,839				6,325
Total non-current assets		435,706				435,423
Total Assets		$	862,332			$	843,811
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable		$	197,447			$	159,586
Compensation and other employee benefits		56,349				79,568
Short-term debt		9,200				8,600
Other accrued liabilities		41,249				40,657
Total current liabilities		304,245				288,411
Long-term debt, net		166,383				168,751
Deferred tax liability		41,999				39,386
Other non-current liabilities		35,239				42,325
Total non-current liabilities		243,621				250,462
Total liabilities		547,866				538,873
Commitments and contingencies (Note 10)
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; 11,700,232 and 11,624,717 shares issued and outstanding as of April 2, 2021 and December 31, 2020, respectively		117				116
Additional paid in capital		82,735				82,823
Retained earnings		234,074				222,026
Accumulated other comprehensive loss		(2,460)				(27)
Total shareholders' equity		314,466				304,938
Total Liabilities and Shareholders' Equity		$	862,332			$	843,811

 

VECTRUS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
		Three Months Ended
		April 2,				April 3,
(In thousands)		2021				2020
Operating activities
Net income		$	12,048			$	8,668
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense		1,548				996
Amortization of intangible assets		2,450				1,015
Loss on disposal of property, plant, and equipment		43				—
Stock-based compensation		2,622				2,367
Amortization of debt issuance costs		232				99
Changes in assets and liabilities:
Receivables		(46,544)				3,942
Other assets		(3,785)				(5,715)
Accounts payable		42,054				(162)
Deferred taxes		2,716				(1,522)
Compensation and other employee benefits		(22,818)				(9,733)
Other liabilities		(12,295)				1,182
Net cash (used in) provided by operating activities		(21,729)				1,137
Investing activities
Purchases of capital assets		(2,611)				(917)
Net cash (used in) investing activities		(2,611)				(917)
Financing activities
Repayments of long-term debt		(2,000)				(1,500)
Proceeds from revolver		110,000				144,000
Repayments of revolver		(110,000)				(29,000)
Proceeds from exercise of stock options		113				1
Payments of employee withholding taxes on share-based compensation		(2,184)				(1,787)
Net cash (used in) provided by financing activities		(4,071)				111,714
Exchange rate effect on cash		(191)				(1,080)
Net change in cash, cash equivalents and restricted cash		(28,602)				110,854
Cash, cash equivalents and restricted cash-beginning of year		68,727				35,318
Cash, cash equivalents and restricted cash-end of period		$	40,125			$	146,172
Supplemental disclosure of cash flow information:
Interest paid		$	1,371			$	1,469
Income taxes (refunded) paid		$	(97)			$	36
Purchase of capital assets on account		$	(132)			$	(606)

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, and amortization of acquired intangible assets 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, and amortization of acquired intangible assets 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 April 2, 2021 As Reported				M&A Related Costs				LOGCAP V Pre- Operational Legal Costs				Amortization of Acquired Intangible Assets				Three Months Ended April 2, 2021 As Reported - Adjusted
Revenue		$	434,004			$	—			$	—			$	—			$	433,004
Growth		23.4		%														23.4		%
Operating income		16,533				—				157				2,450				19,140
Operating margin		3.8		%														4.4		%
Interest expense, net		(1,932)				—				—				—				(1,932)
Income from operations before income taxes		$	14,601			$	—			$	157			$	2,450			$	17,208
Income tax expense		2,553				—				27				428				3,008
Income tax rate		17.5		%														17.5		%
Net income		$	12,048			$	—			$	130			$	2,022			$	14,200
Weighted average common shares outstanding, diluted		11,827																11,827
Diluted earnings per share		$	1.02			$	—			$	0.01			$	0.17			$	1.20
EBITDA (Non-GAAP Measures)
($ in thousands)		Three Months Ended April 2, 2021 As Reported				M&A Related Costs				LOGCAP V Pre- Operational Legal Costs				Amortization of Acquired Intangible Assets				Three Months Ended April 2, 2021 As Reported - Adjusted
Operating Income		$	16,533			$	—			$	157			$	2,450			$	19,140
Add:
Depreciation and amortization		3,998				—				—				(2,450)				1,548
EBITDA		$	20,531			$	—			$	157			$	—			$	20,688
EBITDA Margin		4.7		%														4.8		%

 

Adjusted Net Income, Adjusted Diluted Earnings Per Share (Non-GAAP Measures)
($ in thousands, except per share data)		Three Months Ended April 3, 2020 As Reported				M&A Related Costs				LOGCAP V Pre- Operational Legal Costs				Amortization of Acquired Intangible Assets				Three Months Ended April 3, 2020 As Reported - Adjusted
Revenue		$	351,734			$	—			$	—			$	—			$	351,734
Operating income		$	12,483			$	—			$	141			$	1,015			$	13,639
Operating margin		3.5		%														3.9		%
Interest expense, net		$	(1,703)			$	—			$	—			$	—			$	(1,703)
Income from operations before income taxes		$	10,780			$	—			$	141			$	1,015			$	11,936
Income tax expense		$	2,112			$	—			$	28			$	171			$	2,311
Income tax rate		19.6		%														19.4		%
Net income		$	8,668			$	—			$	113			$	844			$	9,625
Weighted average common shares outstanding, diluted		11,745																11,745
Diluted earnings per share		$	0.74			$	—			$	0.01			$	0.07			$	0.82
EBITDA (Non-GAAP Measures)
($ in thousands)		Three Months Ended April 3, 2020 As Reported				M&A Related Costs				LOGCAP V Pre- Operational Legal Costs				Amortization of Acquired Intangible Assets				Three Months Ended April 3, 2020 As Reported - Adjusted
Operating Income		$	12,483			$	—			$	141			$	1,015			$	13,639
Add:
Depreciation and amortization		$	2,011			$	—			$	—			$	(1,015)			$	996
EBITDA		$	14,494			$	—			$	141			$	—			$	14,635
EBITDA Margin		4.1		%														4.2		%

 

($ In thousands)		Three Months Ended April 2, 2021 As Reported				Three Months Ended April 2, 2021 Zenetex & HHB				Three Months Ended April 2, 2021 As Reported - Organic
Revenue		$	434,004			$	68,869			$	365,135
($ In thousands)		Three Months Ended April 3, 2020 As Reported				Three Months Ended April 3, 2020 Zenetex & HHB				Three Months Ended April 3, 2020 As Reported - Organic
Revenue		$	351,734			$	—			$	351,734
Organic Revenue $										$	13,401
Organic Revenue %										3.8		%

 

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
		April 2.							April 3,
(In thousands)		2021				%			2020				%
Army		$	257,349			59	%		$	247,555			70	%
Air Force		78,170				18	%		73,341				21	%
Navy		56,427				13	%		15,237				4	%
Other		42,058				10	%		15,601				5	%
Total revenue		$	434,004						$	351,734
Revenue by Contract Type
		Three Months Ended
		April 2,							April 3,
(In thousands)		2021				%			2020				%
Cost-plus and cost-reimbursable ¹		$	305,247			70	%		$	256,319			73	%
Firm-fixed-price		128,757				30	%		95,415				27	%
Total revenue		$	434,004						$	351,734
¹ Includes time and material contracts
Revenue by Contract Relationship
		Three Months Ended
		April 2,							April 3,
(In thousands)		2021				%			2020				%
Prime contractor		$	403,262			93	%		$	333,393			95	%
Subcontractor		30,742				7	%		18,341				5	%
Total revenue		$	434,004						$	351,734
Revenue by Geographic Region
		Three Months Ended
		April 2,							April 3,
(In thousands)		2021				%			2020				%
Middle East		$	241,813			56	%		$	237,937			68	%
United States		151,582				35	%		81,469				23	%
Europe		40,609				9	%		32,328				9	%
Total revenue		$	434,004						$	351,734

 

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SOURCE Vectrus, Inc.

FAQ

What were Vectrus's first quarter 2021 financial results?

Vectrus reported a revenue of $434 million, up 23% year-over-year.

What contracts did Vectrus secure in the first quarter of 2021?

Vectrus secured a $19 million CBRN defense contract and a $22 million IT services task order.

What is Vectrus's updated 2021 guidance?

Vectrus increased its revenue guidance to a range of $1.680 to $1.715 billion, with adjusted EPS projected between $4.55 and $4.85.

What caused the increase in Vectrus's net debt?

Net debt increased to $138.7 million due to acquisitions made on December 31, 2020.

How did acquisitions affect Vectrus's financial performance?

The acquisitions contributed to revenue growth and improved adjusted EBITDA margins.