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Vectrus Announces Third Quarter 2017 Results

COLORADO SPRINGS, Colo., Nov. 7, 2017 /PRNewswire/ -- Vectrus, Inc. (NYSE:VEC) announced third quarter 2017 financial results. For the third quarter, revenue was $269.6 million, operating income was $10.1 million, and diluted earnings per share were $0.51. As of September 29, 2017, year-to-date net cash provided by operating activities was $22.4 million.

"We reported solid third quarter results, which were driven by progression on our strategic imperatives and strong program execution. Additionally, I'm pleased to announce that during the quarter, Vectrus was awarded a significant long-term subcontract in support of the Air Force Range Support Services II program," said Chuck Prow, president and chief executive officer of Vectrus. "The new contract, worth approximately $400 million, extends through the first quarter of 2034 and is expected to increase our U.S. based facilities and logistics work with the Air Force. This was a notable win for our team and is the largest new business contract awarded to Vectrus this year. We are proud to be a part of the RSS II team and look forward to delivering exceptional results on this long-term program."

"We remain focused on future growth and our efforts so far in 2017 have resulted in over $1.3 billion of contract bookings," explained Prow. "Our contract awards have driven our total backlog to $3.1 billion, which now represents almost three times our updated 2017 revenue guidance mid-point."

Third Quarter 2017 Results

  • Revenue $269.6 million
  • Operating income $10.1 million
  • Operating margin 3.7%
  • Diluted earnings per share $0.51

Third quarter 2017 revenue of $269.6 million decreased $14.2 million, or 5.0 percent, compared to the third quarter of 2016. The decrease in revenue was attributable to lower activity from our Middle East programs of $14.1 million and our U.S programs of $2.9 million, partially offset by increases from our European programs of $2.3 million and from our Afghanistan programs of $0.5 million.

Operating income was $10.1 million or 3.7 percent operating margin in the third quarter of 2017, compared to $11.2 million or 3.9 percent operating margin in the third quarter of 2016.

Third quarter 2017 diluted earnings per share were $0.51 compared to $0.60 in the third quarter 2016.

Year-to-date September 29, 2017, net cash provided by operating activities was $22.4 million, a decrease of $11.1 million compared to the 2016 period. Days sales outstanding was 57 days in the third quarter of 2017 compared to 55 days in the third quarter of 2016.

"We remain focused on cash generation and our team continues to evolve our processes to enhance cash collections," said Matt Klein, chief financial officer of Vectrus.

The Company ended the third quarter of 2017 with a total debt balance of $74.5 million, which was down from $85.0 million at December 31, 2016. As of September 29, 2017, the Company had a total consolidated indebtedness to consolidated EBITDA (total leverage ratio) of 1.58 to 1.00x.

"With approximately $11 million in net debt1, our balance sheet remains in excellent shape," said Klein. "Our increased visibility and strong financial position has allowed us to negotiate commitment letters and a term sheet for a new and expanded credit facility. Our planned new credit facility, which we expect to close in the fourth quarter, will allow for even greater financial flexibility to support our business growth objectives and capital allocation strategy."

The Company ended the third quarter 2017 with total backlog of $3.1 billion and funded backlog of $0.8 billion.

2017 Guidance

"We are increasing our 2017 guidance for revenue, operating margin, net income, diluted EPS, and net cash provided by operating activities," said Klein.

2017 guidance details include:

$ millions, except for operating margin and per share amounts

(Prior)
2017 Guidance

(Updated)
2017 Guidance 2

Revenue

$990

to

$1,090


$1,080

to

$1,100

Operating Margin

3.40%

to

3.60%


3.50%

to

3.70%

Net Income

$18.7

to

$22.3


$21.1

to

$23.0

Diluted EPS

$1.68

to

$2.00


$1.87

to

$2.03

Net Cash Provided by Operating Activities

$22.0

to

$28.0


$24.0

to

$30.0

The Company notes that forward-looking statements of future performance made in this release, including 2017 guidance, are based upon current expectations and are subject to factors that could cause actual results to differ materially from those suggested here, including those factors set forth in the Safe Harbor Statement below.

Investor Call

Management representatives will conduct an investor briefing and conference call at 4:30 p.m. EST on Tuesday, November 7, 2017.

U.S.-based participants may dial into the conference call at 855-327-6837, while international participants may dial 631-891-4304. For all other listeners, a live webcast of the briefing and conference call will be available on the Vectrus Investor Relations website at http://investors.vectrus.com.

A replay of the briefing will be posted on the Vectrus website shortly after completion of the call, and will remain available for one year. A telephonic replay will also be available through November 21, 2017, at 844-512-2921 (domestic) or 412-317-6671 (international).

About Vectrus

Vectrus is a leading, global government services company with a history in the services market that dates back more than 70 years. The company provides facility and logistics services and information technology and network communication services to U.S. government customers around the world. Vectrus is differentiated by operational excellence, superior program performance, a history of long-term customer relationships, and a strong commitment to their mission success. Vectrus is headquartered in Colorado Springs, Colo., and includes about 5,600 employees spanning 143 locations in 18 countries. In 2016, Vectrus generated sales of $1.2 billion. For more information, visit our website at www.vectrus.com or connect with us on Facebook, Twitter, LinkedIn, and YouTube.

Safe Harbor Statement

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 (the "Act"): Certain material presented herein includes forward-looking statements intended to qualify for the safe harbor from liability established by the Act. These forward-looking statements include, but are not limited to, statements in 2017 Guidance above about our revenue, operating margin, net income, EPS and net cash provided by operating activities for 2017 and other assumptions contained therein for purposes of such guidance, our new credit facility, cash and cash collections, debt payments, expense savings, contract opportunities, bids and awards, collections, business strategy, outlook, objectives, plans, intentions or goals, and any discussion of future operating or financial performance. Whenever used, words such as "may," "are considering," "will," "likely," "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," "target," "could," "potential," "continue," or similar terminology are forward-looking statements. These statements are based on the beliefs and assumptions of our management based on information currently available to management. Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward-looking statements, our historical experience and our present expectations or projections. These risks and uncertainties include, but are not limited to: our dependence on a few large contracts for a significant portion of our revenue; competition in our industry; our ability to submit proposals for and/or win potential opportunities in our pipeline; our ability to retain and renew our existing contracts; protests of new awards; our international operations, including the economic, political and social conditions in the countries in which we conduct our businesses; changes in U.S. government military operations, including its operations in Afghanistan; changes in, or delays in the completion of, U.S. or international government budgets; government regulations and compliance therewith, including changes to the Department of Defense procurement process; changes in technology; intellectual property matters; governmental investigations, reviews, audits and cost adjustments; contingencies related to actual or alleged environmental contamination, claims and concerns; our success in expanding our geographic footprint or broadening our customer base, markets and capabilities; our ability to realize the full amounts reflected in our backlog; our maintaining our good relationship with the U.S. government; impairment of goodwill; our performance of our contracts and our ability to control costs; our level of indebtedness; our compliance with the terms of our credit agreement; subcontractor and employee performance and conduct; our teaming arrangements with other contractors; economic and capital markets conditions; any future acquisitions, investments or joint ventures; our ability to retain and recruit qualified personnel; our maintenance of safe work sites and equipment; our compliance with applicable environmental health and safety regulations; our ability to maintain required security clearances; any disputes with labor unions; costs of outcome of any legal proceedings; security breaches and other disruptions to our information technology and operations; changes in our tax provisions or exposure to additional income tax liabilities; changes in U.S. generally accepted accounting principles; accounting estimates made in connection with our contracts; our exposure to interest rate risk; our compliance with public company accounting and financial reporting requirements; timing of payments by the U.S. government; risks and uncertainties relating to the spin-off from our former parent; and other factors set forth in Part I, Item 1A, – "Risk Factors," and elsewhere in our 2016 Annual Report on Form 10-K and described from time to time in our future reports filed with the Securities and Exchange Commission. We undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Footnotes:

1

Net debt defined as total debt less cash.

2

2017 guidance assumptions. Capital expenditures approximately $2.0 million. Depreciation and amortization approximately $2.3 million. 2017 mandatory debt payments $11.5 million. Interest expense $5.1 million. Estimated tax rate 35.5%. 2017 diluted EPS assumes 11.3 million weighted average diluted shares outstanding at December 31, 2017.

VECTRUS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)




Three Months Ended


Nine Months Ended



September 29,


September 30,


September 29,


September 30,

(In thousands, except per share data)


2017


2016


2017


2016

Revenue


$

269,625



$

283,782



$

819,005



$

902,359


Cost of revenue


245,219



257,687



743,502



822,042


Selling, general and administrative expenses


14,316



14,933



44,560



46,046


Operating income


10,090



11,162



30,943



34,271


Interest (expense) income, net


(1,058)



(1,348)



(3,262)



(4,396)


Income from operations before income taxes


9,032



9,814



27,681



29,875


Income tax expense


3,232



3,207



9,751



10,629


Net income


$

5,800



$

6,607



$

17,930



$

19,246











Earnings per share









Basic


$0.52



$0.62



$1.63



$1.80


Diluted


$0.51



$0.60



$1.61



$1.76


Weighted average common shares outstanding - basic


11,075



10,733



10,991



10,688


Weighted average common shares outstanding - diluted


11,272



11,061



11,168



10,966


VECTRUS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS




September 29,


December 31,

(In thousands, except share information)


2017


2016

Assets


(unaudited)



Current assets





Cash


$

63,446



$

47,651


Receivables


174,943



172,072


Costs incurred in excess of billings


11,751



11,002


Other current assets


8,509



13,412


Total current assets


258,649



244,137


Property, plant, and equipment, net


3,259



3,061


Goodwill


216,930



216,930


Other non-current assets


2,413



1,177


Total non-current assets


222,602



221,168


Total Assets


$

481,251



$

465,305


Liabilities and Shareholders' Equity





Current liabilities





Accounts payable


109,100



118,055


Billings in excess of costs


3,070



1,421


Compensation and other employee benefits


42,770



34,917


Short-term debt


21,000



15,750


Other accrued liabilities


18,996



17,693


Total current liabilities


194,936



187,836


Long-term debt, net


52,653



67,842


Deferred tax liability


89,710



89,667


Other non-current liabilities


2,322



2,559


Total non-current liabilities


144,685



160,068


Total liabilities


339,621



347,904


Commitments and contingencies





Shareholders' Equity





Preferred stock; $0.01 par value; 10,000,000 shares authorized; No shares issued and outstanding





Common stock; $0.01 par value; 100,000,000 shares authorized; 11,075,220 and 10,894,924 shares issued and outstanding


111



109


Additional paid in capital


67,464



63,910


Retained earnings


75,847



57,959


Accumulated other comprehensive loss


(1,792)



(4,577)


Total shareholders' equity


141,630



117,401


Total Liabilities and Shareholders' Equity


$

481,251



$

465,305


VECTRUS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)




Nine Months Ended



September 29,


September 30,

(In thousands)


2017


2016

Operating activities





Net income


$

17,930



$

19,246


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





Depreciation and amortization expense


1,141



1,453


Loss on disposal of property, plant, and equipment




402


Stock-based compensation


3,341



3,542


Amortization of debt issuance costs


561



915


Changes in assets and liabilities:





Receivables


(96)



47,501


Other assets


3,196



(2,954)


Accounts payable


(11,470)



(31,593)


Billings in excess of costs


1,649



(2,828)


Deferred taxes


(1,007)



(7,138)


Compensation and other employee benefits


6,817



9,252


Other liabilities


336



(4,314)


Net cash provided by operating activities


$

22,398



$

33,484


Investing activities





Purchases of capital assets


(901)



(400)


Proceeds from the disposition of assets




116


Distributions from equity investment




346


Net cash (used in) investing activities


$

(901)



$

62


Financing activities





Repayments of long-term debt


(10,500)



(20,500)


Proceeds from revolver


27,500



74,000


Repayments of revolver


(27,500)



(74,000)


Proceeds from exercise of stock options


1,886



568


Payment of debt issuance costs




(221)


Payments of employee withholding taxes on share-based compensation


(612)



(651)


Net cash (used in) financing activities


$

(9,226)



$

(20,804)


Exchange rate effect on cash


3,524



614


Net change in cash


15,795



13,356


Cash-beginning of year


47,651



39,995


Cash-end of period


$

63,446



$

53,351


Supplemental Disclosure of Cash Flow Information:





Interest paid


$

3,014



$

4,224


Income taxes paid


$

3,801



$

20,598


Non-cash investing activities:





Purchase of capital assets on account


$

438



$


SUPPLEMENTAL INFORMATION

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







Three Months Ended


Nine Months Ended



September 29,


September 30,


September 29,


September 30,

(In thousands)


2017


2016


2017


2016

Military branch


Revenue


% of
Total


Revenue


% of
Total


Revenue


% of
Total


Revenue


% of
Total

Army


$

214,152


80

%


$

241,601


85

%


$

682,891


83

%


$

762,818


85

%

Navy


6,038


2

%


5,482


2

%


16,218


2

%


14,975


2

%

Air Force


49,435


18

%


36,699


13

%


119,896


15

%


124,566


14

%

Total Revenue


$

269,625




$

283,782




$

819,005




$

902,359






















Three Months Ended


Nine Months Ended



September 29,


September 30,


September 29,


September 30,

(in thousands)


2017


2016


2017


2016

Contract type


Revenue


% of
Total


Revenue


% of
Total


Revenue


% of
Total


Revenue


% of
Total

Firm-Fixed-Price


$

74,643


28

%


$

72,978


26

%


$

209,682


26

%


$

230,604


26

%

Cost-Plus and Cost-Reimbursable ¹


194,982


72

%


210,804


74

%


609,323


74

%


671,755


74

%

Total Revenue


$

269,625




$

283,782




$

819,005




$

902,359




















¹ Includes time and material contracts




































Three Months Ended


Nine Months Ended



September 29,


September 30,


September 29,


September 30,

(In thousands)


2017


2016


2017


2016

Contract Relationship


Revenue


% of
Total


Revenue


% of
Total


Revenue


% of
Total


Revenue


% of
Total

Prime Contractor


$

262,372


97

%


$

277,787


98

%


$

799,439


98

%


$

848,582


94

%

Sub Contractor


7,253


3

%


5,995


2

%


19,566


2

%


53,777


6

%

Total Revenue


$

269,625




$

283,782




$

819,005




$

902,359



CONTACT:

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

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SOURCE Vectrus, Inc.

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