Vectrus Announces Third Quarter 2020 Results

Rhea-AI Summary

Vectrus, Inc. (NYSE:VEC) reported third quarter 2020 results with revenue of $352.4 million, down 2.1% year-over-year due to COVID-19 impacts, yet up 4.9% sequentially. Operating income was $14.8 million with a 4.2% margin, and adjusted diluted EPS increased to $0.89 from $0.71 in Q3 2019. The company secured a contract for Navy Smart Warehouse Prototype 5G applications and a GSA IDIQ contract, boosting growth prospects. Cash at quarter-end reached $63.7 million, reflecting strong liquidity. 2020 guidance remains unchanged, forecasting revenue of $1.385 to $1.405 billion.

Positive

• Secured a Navy Smart Warehouse contract, enhancing revenue diversification.
• Total backlog reached $3.7 billion, indicating strong future revenue potential.
• Adjusted diluted EPS improved from $0.71 to $0.89 year-over-year.
• Cash position increased to $63.7 million, promoting liquidity.
• Total consolidated indebtedness to EBITDA ratio at 0.99x, showing low leverage.

Negative

• Revenue decreased by 2.1% year-over-year, primarily due to COVID-19 impact.
• COVID-19 deferrals negatively affected adjusted operating income by $2.1 million.

COLORADO SPRINGS, Colo., Nov. 10, 2020 /PRNewswire/ -- Vectrus, Inc. (NYSE:VEC) announced third quarter 2020 financial results for the quarter ended October 2, 2020.

"Third quarter results were solid, reflecting improved volumes and margin levels," said Chuck Prow, president and chief executive officer. "In addition, we continued to execute well on our growth strategy on all fronts, particularly with respect to diversifying our revenue streams and advancing our leadership position in the converged infrastructure market. For example, we were recently awarded a contract to support Navy Smart Warehouse Prototype 5G Applications. While modest in size, this prime contract is the result of our deliberate, strategic and transformational investment in expanding our capabilities at the intersection of traditional infrastructure and integrated digital services. We were also recently awarded a position on a "Best in Class" General Services Administration multi-year, multiple award, IDIQ contract vehicle, allowing access to a funding stream that is new to us and affords additional avenues of organic growth.

"For the remainder of the year, we are focused on delivering on all of our programs while keeping our teams and our clients safe; growing our pipeline of opportunities in the converged infrastructure market; and pursuing strategic M&A," said Prow. "I want to thank our entire work force for their continued dedication, fortitude, and resourcefulness every day as we face the ongoing global pandemic." 

Third Quarter 2020 Results

Third quarter 2020 revenue of $352.4 million was down slightly year on year by 2.1% mainly due to COVID-19 pandemic related deferrals of $12.9 million or 3.7% due to base access restrictions. Revenue was up $16.4 million sequentially or 4.9%.

For the third quarter 2020, operating income was $14.8 million or 4.2% margin.  Adjusted operating income¹ was $15.0 million or 4.3% 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 40-basis point impact to adjusted operating margin¹.

EBITDA¹ was $16.9 million or 4.8% margin for the third quarter 2020, compared to $14.1 million or 3.9% margin in the third quarter 2019. Adjusted EBITDA¹ was $17.0 million or 4.8% margin for the third quarter 2020, compared to $14.7 million or 4.1% margin in the third quarter 2019. Adjusted EBITDA¹ was adversely impacted by COVID-19 of $2.1 million, which had a 40-basis point impact to adjusted EBITDA margin¹.

Third quarter 2020 diluted EPS was $0.88 compared to $0.67 in the third quarter 2019. Adjusted diluted EPS¹ for the third quarter 2020 was $0.89 compared to $0.71 in the third quarter 2019.  Adjusted diluted EPS¹ was adversely impacted due to COVID-19 by $0.14.

"Third quarter adjusted EBITDA¹ margin of 4.8%, representing the second highest margin rate in the past ten quarters, an impressive accomplishment as EBITDA margin includes an estimated 40-basis points of COVID-19 impact," said Susan Lynch, senior vice president and chief financial officer. "Our margin reflects the strength of our underlying business and continued execution on our enterprise wide performance improvement initiatives. The rollout of our enterprise systems is progressing well, and we continue to invest in our team to support our growth. With less than one-times leverage and a strong liquidity position as well as a solid backlog, we are poised to weather the pandemic while continuing to support our long-term growth." 

Cash provided by operating activities through October 2, 2020 was $37.7 million, compared to net cash provided by operating activities of $28.4 million year-to-date 2019.  The increase year-to-date over prior year is mainly driven by the CARES Act employee payroll tax deferrals of approximately $9.9 million.

Net debt at October 2, 2020 was $2.3 million, down from $35.2 million at December 31, 2019. Total debt at October 2, 2020 was $66.0 million, down $4.5 million from $70.5 million at December 31, 2019. Cash at quarter-end was $63.7 million, up $28.4 million from $35.3 million at December 31, 2019. As of October 2, 2020, the revolver, was undrawn and combined with cash, results in total liquidity of more than $180 million. Total consolidated indebtedness to consolidated EBITDA¹ (total leverage ratio) was 0.99x.

Total backlog as of October 2, 2020 was $3.7 billion and funded backlog was $1.0 billion.  The trailing twelve-month book-to-bill was 1.5x as of October 2, 2020.

Reiterate 2020 Guidance

Lynch continued, "We expect the momentum experienced in the third quarter to continue for the remainder of the year and are reiterating our 2020 guidance."

$ millions, except for EBITDA margins and per share amounts	2020 Guidance
Revenue	$1,385	to	$1,405
Adjusted EBITDA Margin1	4.0%	to	4.1%
Adjusted Diluted Earnings Per Share1	$2.68	to	$2.82
Net Cash Provided by Operating Activities	$45.0	to	$55.0

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.

Third Quarter 2020 Conference Call

Management will conduct a conference call with analysts and investors at 4:30 p.m. ET on Tuesday, November 10, 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 or https://www.webcaster4.com/Webcast/Page/1431/38350. 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 November 24, 2020, at 844-512-2921 (domestic) or 412-317-6671 (international) with passcode 13712134.

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 7,100 employees spanning 148 locations in 26 countries and territories. In 2019, Vectrus generated sales of $1.4 billion. 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 "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.

VECTRUS, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
		Three Months Ended								Nine Months Ended
		October 2,				September 27,				October 2,				September 27,
(In thousands, except per share data)		2020				2019				2020				2019
Revenue		$	352,415			$	359,873			$	1,040,212			$	1,017,368
Cost of revenue		320,234				327,523				951,743				923,671
Selling, general, and administrative expenses		17,344				19,934				58,718				59,697
Operating income		14,837				12,416				29,751				34,000
Interest expense, net		(939)				(1,907)				(3,988)				(4,811)
Income from operations before income taxes		13,898				10,509				25,763				29,189
Income tax expense		3,507				2,668				5,593				6,657
Net income		$	10,391			$	7,841			$	20,170			$	22,532
Earnings per share
Basic		$0.89				$0.68				$1.74				$1.97
Diluted		$0.88				$0.67				$1.72				$1.95
Weighted average common shares outstanding – basic		11,621				11,506				11,590				11,420
Weighted average common shares outstanding – diluted		11,751				11,678				11,743				11,566

 

VECTRUS, INC.  CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
		October 2,				December 31,
(In thousands, except share information)		2020				2019
Assets		(Unaudited)
Current assets
Cash		$	63,734			$	35,318
Receivables		268,143				269,144
Other current assets		24,537				16,154
Total current assets		356,414				320,616
Property, plant, and equipment, net		19,256				18,844
Goodwill		262,130				261,983
Intangible assets, net		11,902				14,926
Right-of-use assets		9,970				14,654
Other non-current assets		6,256				5,366
Total non-current assets		309,514				315,773
Total Assets		$	665,928			$	636,389
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable		$	146,458			$	148,015
Compensation and other employee benefits		54,216				53,155
Short-term debt		8,000				6,500
Other accrued liabilities		38,572				37,409
Total current liabilities		247,246				245,079
Long-term debt, net		57,326				63,041
Deferred tax liability		41,734				49,407
Other non-current liabilities		35,817				19,997
Total non-current liabilities		134,877				132,445
Total liabilities		382,123				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; 11,621,709 and 11,523,691 shares issued and outstanding as of October 2, 2020 and December 31, 2019, respectively		116				115
Additional paid in capital		81,589				78,757
Retained earnings		205,245				185,075
Accumulated other comprehensive loss		(3,145)				(5,082)
Total shareholders' equity		283,805				258,865
Total Liabilities and Shareholders' Equity		$	665,928			$	636,389

 

VECTRUS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
		Nine Months Ended
		October 2,				September 27,
(In thousands)		2020				2019
Operating activities
Net income		$	20,170			$	22,532
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense		3,001				2,395
Amortization of intangible assets		3,031				2,103
Loss on disposal of property, plant, and equipment		63				2
Stock-based compensation		6,499				5,952
Amortization of debt issuance costs		286				301
Changes in assets and liabilities:
Receivables		3,584				(7,540)
Other assets		(8,826)				(5,820)
Accounts payable		(1,988)				(14,458)
Deferred taxes		(7,575)				(4,670)
Compensation and other employee benefits		813				17,863
Other liabilities		18,597				9,788
Net cash provided by operating activities		37,655				28,448
Investing activities
Purchases of capital assets and intangibles		(3,348)				(14,440)
Proceeds from the disposition of assets		—				5,400
Acquisition of business, net of cash acquired		—				(43,963)
Net cash (used in) investing activities		(3,348)				(53,003)
Financing activities
Repayments of long-term debt		(4,500)				(2,000)
Proceeds from revolver		151,000				226,000
Repayments of revolver		(151,000)				(226,000)
Proceeds from exercise of stock options		59				3,467
Payments of employee withholding taxes on share-based   compensation		(1,918)				(768)
Net cash (used in) provided by financing activities		(6,359)				699
Exchange rate effect on cash		468				(1,239)
Net change in cash		28,416				(25,095)
Cash-beginning of year		35,318				66,145
Cash-end of period		$	63,734			$	41,050
Supplemental disclosure of cash flow information:
Interest paid		$	3,030			$	4,363
Income taxes paid		$	12,570			$	5,076
Non-cash investing activities:
Purchase of capital assets on account		$	373			$	394

 

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 October 2, 2020 As Reported				M&A Related Costs				LOGCAP V Pre-Operational Legal Costs				Three Months Ended October 2, 2020 As Reported - Adjusted
Revenue		$	352,415			$	—			$	—			$	352,415
Growth		(2.1)		%										(2.1)		%
Operating income		14,837				121				38				14,996
Operating margin		4.2		%										4.3		%
Interest expense, net		(939)				—				—				(939)
Income from operations before income taxes		$	13,898			$	121			$	38			$	14,057
Income tax expense		3,507				28				9				3,544
Income tax rate		25.2		%										25.2		%
Net income		$	10,391			$	93			$	29			$	10,513
Weighted average common shares outstanding, diluted		11,751												11,751
Diluted earnings per share		$	0.88			$	0.01			$	—			$	0.89
EBITDA (Non-GAAP Measures)
($ in thousands)		Three Months Ended October 2, 2020 As Reported				M&A Related Costs				LOGCAP V Pre-Operational Legal Costs				Three Months Ended October 2, 2020 As Reported - Adjusted
Operating Income		$	14,837			$	121			$	38			$	14,996
Add:
Depreciation and amortization		2,033				—				—				2,033
EBITDA		$	16,870			$	121			$	38			$	17,029
EBITDA Margin		4.8		%										4.8		%

 

Adjusted Net Income, Adjusted Diluted Earnings Per Share (Non-GAAP Measures)
($ in thousands, except per share data)		Three Months Ended September 27, 2019 As Reported				M&A Related Costs				LOGCAP V Pre-Operational Legal Costs				Three Months Ended September 27, 2019 As Reported - Adjusted
Revenue		$	359,873			$	—			$	—			$	359,873
Operating income		12,416				420				197				13,033
Operating margin		3.5		%										3.6		%
Interest expense, net		(1,907)				—				—				(1,907)
Income from operations before income taxes		$	10,509			$	420			$	197			$	11,126
Income tax expense		2,668				104				49				2,821
Income tax rate		25.4		%										25.4		%
Net income		$	7,841			$	316			$	148			$	8,305
Weighted average common shares outstanding, diluted		11,678												11,678
Diluted earnings per share		$	0.67											$	0.71
EBITDA (Non-GAAP Measures)
($ in thousands)		Three Months Ended September 27, 2019 As Reported				M&A Related Costs				LOGCAP V Pre-Operational Legal Costs				Three Months Ended September 27, 2019 As Reported - Adjusted
Operating Income		12,416				420				$	197			$	13,033
Add:
Depreciation and amortization		1,683				—				—				1,683
EBITDA		$	14,099			$	420			$	197			$	14,716
EBITDA Margin		3.9		%										4.1		%

 

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														Nine Months Ended
($ In thousands)		October 2, 2020				% of Total			September 27, 2019				% of Total			October 2, 2020				% of Total			September 27, 2019				% of Total
Army		$	236,267			67	%		$	245,817			68	%		$	711,173			68	%		$	698,377			69	%
Air Force		79,425				23	%		86,576				24	%		231,088				22	%		227,100				22	%
Navy		18,785				5	%		13,344				4	%		48,564				5	%		45,227				4	%
Other		17,938				5	%		14,136				4	%		49,387				5	%		46,664				5	%
Total revenue		$	352,415						$	359,873						$	1,040,212						$	1,017,368
Revenue by Contract Type
		Three Months Ended														Nine Months Ended
($ In thousands)		October 2, 2020				% of Total			September 27, 2019				% of Total			October 2, 2020				% of Total			September 27, 2019				% of Total
Cost-plus and cost-reimbursable ¹		$	249,484			71	%		$	272,810			76	%		$	748,543			72	%		$	781,024			77	%
Firm-fixed-price		102,931				29	%		87,063				24	%		291,669				28	%		236,344				23	%
Total revenue		$	352,415						$	359,873						$	1,040,212						$	1,017,368
¹ Includes time and material contracts
Revenue by Contract Relationship
		Three Months Ended														Nine Months Ended
($ In thousands)		October 2, 2020				% of Total			September 27, 2019				% of Total			October 2, 2020				% of Total			September 27, 2019				% of Total
Prime contractor		$	332,564			94	%		$	334,402			93	%		$	980,301			94	%		$	954,191			94	%
Subcontractor		19,851				6	%		25,471				7	%		59,911				6	%		63,177				6	%
Total revenue		$	352,415						$	359,873						$	1,040,212						$	1,017,368
Revenue by Geographic Region
		Three Months Ended														Nine Months Ended
($ In thousands)		October 2, 2020				% of Total			September 27, 2019				% of Total			October 2, 2020				% of Total			September 27, 2019				% of Total
Middle East		$	224,934			64	%		$	244,142			68	%		$	679,633			65	%		$	695,626			68	%
United States		89,400				25	%		77,228				21	%		254,640				24	%		219,512				22	%
Europe		38,081				11	%		38,503				11	%		105,939				11	%		102,230				10	%
Total revenue		$	352,415						$	359,873						$	1,040,212						$	1,017,368

 

CONTACT:

Vectrus

Mike Smith, CFA

719-637-5773

michael.smith@vectrus.com

 

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SOURCE Vectrus, Inc.

FAQ

What are Vectrus' third quarter 2020 financial results?

Vectrus reported third quarter 2020 revenue of $352.4 million, down 2.1% year-over-year but up 4.9% sequentially.

What is Vectrus' adjusted diluted EPS for Q3 2020?

Vectrus' adjusted diluted EPS for Q3 2020 was $0.89, an increase from $0.71 in Q3 2019.

What contracts did Vectrus secure in Q3 2020?

Vectrus secured a contract for Navy Smart Warehouse Prototype 5G applications and a GSA IDIQ contract.

What is Vectrus' cash position as of Q3 2020?

Cash at quarter-end for Vectrus was $63.7 million, up from $35.3 million at the end of 2019.

What is Vectrus' revenue guidance for 2020?

Vectrus reiterated its 2020 revenue guidance of $1.385 billion to $1.405 billion.