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Vectrus Announces Solid First Quarter Results

VEC
  • Q1 revenue +5.2% Y/Y to $456.5 million
  • Operating income of $5.2 million; Adjusted EBITDA margin1 of 4.0%
  • Q1 fully diluted EPS of $0.24; Adjusted diluted EPS1 of $1.01
  • Several key wins expand and solidify work with Army, Navy, and National Security clients
  • Reiterating revenue and adjusted diluted EPS1 guidance

COLORADO SPRINGS, Colo., May 10, 2022 /PRNewswire/ -- Vectrus, Inc. (NYSE:VEC) announced first quarter 2022 financial results.

Vectrus Logo.

"Vectrus reported solid first quarter results driven by the continued expansion into LOGCAP V and our focus on diversification to new clients and markets," said Chuck Prow, Chief Executive Officer of Vectrus.

"During the quarter, revenue grew 5% year-over-year and 9% sequentially to $456 million. Revenue growth was driven by the continued phase-in of LOGCAP V, high op-tempo in the regions we operate in support of ongoing world affairs, as well as the progress made in executing growth in our core programs," said Prow. "With a continued focus on the needs of our clients, the Vectrus team supported several important missions during the quarter, including assisting the DoD with the establishment of a water supply system and water remediation efforts in Hawaii. In addition, we demonstrated our ability to transition quickly and recently became fully operational on LOGCAP V Kwajalein, approximately a month and a half ahead of schedule. We also leveraged our process-oriented phase in system and in a short period of time, achieved full operations at Ft. Benning following our December 2021$250 million award. We are proud of this achievement and look forward to providing world class maintenance, transportation, and supply services for the US Army's Maneuver Training Center over the next five years."

"Notably, late in the first quarter Vectrus was awarded a strategically important task order to provide support for the U.S. Air Force in Europe as part of the European Deterrence Initiative," said Prow. "While currently small in value, this contingency task is providing mission critical services to our Air Force client in Europe. This effort exemplifies our global positioning and rapid response capabilities supporting our clients' most challenging and important missions."

Prow continued, "Adjusted EBITDA for the quarter was $18.2 million or 4.0% margin as we work through program efficiencies in the early phases of LOGCAP V implementation. Additionally, LOGCAP V is generating higher revenue volume with a greater amount of material and pass-through content that has a different margin complexion."

"We are continuing our positive momentum working with the Navy and during the first quarter were selected to complete the final phases of application development for the 5G Naval Base Coronado Smart Warehouse, which is demonstrative of our ability to provide converged solutions and operational technologies to clients," said Prow. "We were also recently awarded the follow-on contract for Spectrum Management with the Navy valued at $60 million. This award continues more than 30 years of support to the Navy in solving afloat electromagnetic interference and compatibility challenges for the fleet. Furthermore, Vectrus won a position on a $250 million five-year IDIQ vehicle that provides rapid development, prototyping, and systems integration to the Navy, Joint, and coalition forces worldwide utilizing numerous platforms and integrated capabilities. Vectrus will focus on embarkable systems that include cyber hardening, new technology insertion and retrofit of existing systems. In addition, we won an effort as subcontractor performing electromagnetic test and evaluation engineering. These are key wins that demonstrate our capabilities in engineering and operational technology, and our commitment to delivering a more integrated and comprehensive suite of solutions in support of the converged environment," Prow elaborated.

Prow continued, "Vectrus has worked diligently over the past several years to expand its presence with national security clients and, during the first quarter our teams were successful in securing several wins that enhance our footprint in the intelligence community."

Prow concluded, "Our first quarter results demonstrate Vectrus' realization and execution of our strategy to strengthen and grow the business through outstanding program execution, capability expansion, and diversification of our geographic and client footprint."

First Quarter 2022 Results

First quarter 2022 revenue of $456.5 million was up $22.5 million year-on-year. "Revenue grew 5.2% year over year boosted by our transition to full operational capability on LOGCAP V programs in Iraq and Kuwait late last year, and Kwajalein this year. In addition, revenue benefitted from transitioning Ft Benning and volume associated with rapid response and contingency efforts," said Susan Lynch, Senior Vice President and Chief Financial Officer. "This revenue growth was impressive given the headwinds associated with the withdrawal of the US military from Afghanistan," added Lynch. Operating income was $5.2 million or 1.1% margin. This includes M&A and integration related expenses of $9.1 million and amortization of acquired intangible assets of $2.3 million which were incurred in the quarter.

Adjusted operating income1 was $16.6 million or 3.6% margin. Adjusted EBITDA1 was $18.2 million or 4.0% margin as compared to $20.7 million or 4.8% in the prior year. "The year-on-year margin change was influenced by the significant amount of revenue and contracts that are in the early stages of their lifecycle. We believe margin on these contracts will improve over time as we apply our process improvement and Enterprise Vectrus initiatives. In addition, as we continue to support our LOGCAP V clients' supply chain needs, we are experiencing an increase in material and pass-through content which carries a lower margin. In aggregate, on average and over time we expect to see improvement in the margin profile as we drive operational efficiencies and diversify into higher margin scopes of work," said Lynch.

Fully diluted EPS for the first quarter of 2022 was $0.24 as compared to $1.02 in the prior year. Fully diluted EPS in the quarter included the aforementioned M&A and integration related costs. Adjusted diluted EPS1 was $1.01 in the quarter as compared to $1.20 in the prior year. The change in adjusted diluted EPS1 was primarily due to the above-mentioned change in Adjusted EBITDA1.

Cash used in operating activities through April 1, 2022, was $26.4 million, compared to net cash used in operating activities of $21.7 million through the first quarter of 2021. Cash used in operating activities was negatively impacted in the current quarter by an approximately $8.0 million repayment of CARES Act tax deferrals and $2 million of merger related payments.

Net debt on April 1, 2022, was $96.8 million, down $41.9 million from April 2, 2021. Total debt on April 1, 2022, was $119.8 million, down $57.2 million from $177.0 million on April 2, 2021. Cash at quarter-end was $23.0 million. Total consolidated indebtedness to consolidated EBITDA1 (total leverage ratio) was 1.4x compared to 2.0x at the same time last year.

Total backlog as of April 1, 2022, was $4.5 billion representing almost 2.5x the company's estimated 2022 revenue mid-point. Funded backlog was $0.8 billion. The trailing twelve-month book-to-bill was 1.0x as of April 1, 2022.

2022 Guidance

Lynch continued, "In light of our solid first quarter performance, we are reiterating our full-year 2022 guidance ranges for revenue and adjusted EBITDA, adjusted diluted EPS, and net cash provided by operating activities, excluding M&A related activities."

Due to the merger activities with Vertex, the company is not providing GAAP guidance or a reconciliation of forward-looking measures including adjusted diluted EPS to GAAP diluted EPS or adjusted EBITDA margin to GAAP net income due to the difficulty in forecasting the transaction timing and quantifying certain amounts that are necessary for such reconciliation. Reconciliations to the closest corresponding U.S. GAAP measures are not available without unreasonable efforts on a forward-looking basis due to the high variability, complexity and low visibility with respect to the charges excluded from these non-GAAP measures. The variability of such charges could potentially have a significant impact on our future U.S. GAAP financial results.

$ millions, except for EBITDA margins and per share amounts

2021
Actual

2022 Guidance

2022 Mid-Point

2022 Mid-Point vs
2021

Revenue

$1,784

$1,820

to

$1,860

$1,840

3.1 %

Adjusted EBITDA Margin

4.7 %

4.5 %

to

4.7%

4.6 %

(10) bps

Adjusted Diluted Earnings Per Share

$4.77

$4.57

to

$4.93

$4.74

(0.6) %

Net Cash Provided by Operating Activities

$61.3

$50.00

to

$53.50

$51.75

(15.6) %

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 2022 Conference Call

Management will conduct a conference call with analysts and investors at 4:30 p.m. ET on Tuesday, May 10, 2022. U.S.-based participants may dial in to the conference call at 844-825-9789, while international participants may dial 412-317-5180. A live webcast of the conference call as well as an accompanying slide presentation will be available on the Vectrus Investor Relations website at https://app.webinar.net/b4KdmrqJ7En.

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 24, 2022, at 844-512-2921 (domestic) or 412-317-6671 (international) with passcode 10166668.

Footnotes:

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

About Vectrus

For more than 70 years, Vectrus has provided critical mission support for our customers' toughest operational challenges. As a high-performing organization with exceptional talent, deep domain knowledge, a history of long-term customer relationships, and groundbreaking technical expertise, we deliver innovative, mission-matched solutions for our military and government customers worldwide. Whether it's base operations support, supply chain and logistics, IT mission support, engineering and digital integration, security, or maintenance, repair and overhaul, our customers count on us for on-target solutions that increase efficiency, reduce costs, improve readiness, and strengthen national security. Vectrus is headquartered in Colorado Springs, Colo., and includes about 8,100 employees spanning 205 locations in 28 countries. In 2021, Vectrus generated sales of $1.8 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 the statements and items listed in the table in "2022 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.

VECTRUS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)




Three Months Ended



April 1,


April 2,

(In thousands, except per share data)


2022


2021

Revenue


$ 456,471


$ 434,004

Cost of revenue


419,275


393,648

Selling, general, and administrative expenses


31,959


23,823

Operating income


5,237


16,533

Interest expense, net


(1,681)


(1,932)

Income from operations before income taxes


3,556


14,601

Income tax expense


701


2,553

Net income


$ 2,855


$ 12,048






Earnings per share





Basic


$ 0.24


$ 1.03

Diluted


$ 0.24


$ 1.02

Weighted average common shares outstanding – basic


11,759


11,648

Weighted average common shares outstanding – diluted


11,902


11,827



















VECTRUS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)




April 1,


December 31,

(In thousands, except per share information)


2022


2021

Assets





Current assets





Cash and cash equivalents


$ 22,999


$ 38,513

Receivables


377,571


348,605

Prepaid expenses


25,923


21,160

Other current assets


11,083


15,062

Total current assets


437,576


423,340

Property, plant, and equipment, net


24,049


23,758

Goodwill


321,734


321,734

Intangible assets, net


64,281


66,582

Right-of-use assets


42,074


43,651

Other non-current assets


9,876


10,394

Total non-current assets


462,014


466,119

Total Assets


$ 899,590


$ 889,459

Liabilities and Shareholders' Equity





Current liabilities





Accounts payable


$ 234,713


$ 212,533

Compensation and other employee benefits


59,059


80,284

Short-term debt


10,400


10,400

Other accrued liabilities


55,421


55,031

Total current liabilities


359,593


358,248

Long-term debt, net


108,392


94,246

Deferred tax liability


32,620


32,214

Operating lease liability


33,167


34,536

Other non-current liabilities


11,643


20,128

Total non-current liabilities


185,822


181,124

Total liabilities


545,415


539,372

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 shares authorized; 11,805 and 11,738 shares issued and outstanding
as of April 1, 2022 and December 31, 2021, respectively


118


117

Additional paid in capital


89,590


88,116

Retained earnings


270,609


267,754

Accumulated other comprehensive loss


(6,142)


(5,900)

Total shareholders' equity


354,175


350,087

Total Liabilities and Shareholders' Equity


$ 899,590


$ 889,459

VECTRUS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)





Three Months Ended



April 1,


April 2,


(In thousands)


2022


2021


Operating activities






Net income


$ 2,855


$ 12,048


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






Depreciation expense


1,591


1,548


Amortization of intangible assets


2,301


2,450


(Gain) Loss on disposal of property, plant, and equipment


(16)


43


Stock-based compensation


2,558


2,622


Amortization of debt issuance costs


204


232


Changes in assets and liabilities:






Receivables


(29,898)


(46,544)


Prepaid expenses


(4,849)


(3,137)


Other assets


4,520


(648)


Accounts payable


22,693


42,054


Deferred taxes



2,716


Compensation and other employee benefits


(21,138)


(22,818)


Other liabilities


(7,202)


(12,295)


Net cash used in operating activities


(26,381)


(21,729)


Investing activities






Purchases of capital assets and intangibles


(2,195)


(2,611)


Proceeds from the disposition of assets


17



Net cash used in investing activities


(2,178)


(2,611)


Financing activities






Repayments of long-term debt


(2,600)


(2,000)


Proceeds from revolver


217,000


110,000


Repayments of revolver


(200,000)


(110,000)


Proceeds from exercise of stock options



113


Payment of debt issuance costs


(458)



Payments of employee withholding taxes on share-based compensation


(1,626)


(2,184)


Net cash provided by (used in) financing activities


12,316


(4,071)


Exchange rate effect on cash


729


(191)


Net change in cash, cash equivalents and restricted cash


(15,514)


(28,602)


Cash, cash equivalents and restricted cash-beginning of year


38,513


68,727


Cash, cash equivalents and restricted cash-end of period


$ 22,999


$ 40,125


Supplemental disclosure of cash flow information:






Interest paid


$ 1,513


$ 1,371


Income taxes paid


$ 66


$ (97)


Purchase of capital assets on account


$ 5


$ (132)











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, integration and related costs, 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, integration and related costs, 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, integration and related costs, 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)









($K, except per share data)


Three Months
Ended April 1,
2022, As
Reported


M&A,
Integration
and Related
Costs


LOGCAP V
Pre-Operational
Legal Costs


Amortization
of Acquired
Intangible
Assets



Three Months
Ended April 1,
2022 -
Adjusted















Revenue


$ 456,471


$ —


$ —


$ —



$ 456,471


Growth


5.2 %









5.2 %


Operating income


$ 5,237


$ 9,068


$ —


$ 2,301



$ 16,606


Operating margin


1.1 %









3.6 %















Interest expense, net


$ (1,681)


$ —


$ —


$ —



$ (1,681)















Income from operations before income taxes


$ 3,556


$ 9,068


$ —


$ 2,301



$ 14,925















Income tax expense


$ 701


$ 1,787


$ —


$ 453



$ 2,941


Income tax rate


19.7 %









19.7 %















Net income


$ 2,855


$ 7,281


$ —


$ 1,848



$ 11,984















Weighted average common shares outstanding, diluted


11,902









11,902















Diluted earnings per share


$ 0.24


$ 0.61


$ —


$ 0.16



$ 1.01















EBITDA (Non-GAAP Measures)













($K)


Three Months
Ended April 1,
2022, As
Reported


M&A,
Integration
and Related
Costs


LOGCAP V
Pre-Operational
Legal Costs


Amortization
of Acquired
Intangible
Assets



Three Months
Ended April 1,
2022 -
Adjusted


Operating Income


$ 5,237


$ 9,068


$ —


$ 2,301



$ 16,606















Add:













Depreciation and amortization


$ 3,892


$ —


$ —


$ (2,301)



$ 1,591















EBITDA


$ 9,129


$ 9,068


$ —


$ —



$ 18,197


EBITDA Margin


2.0 %









4.0 %

















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









($K, except per share data)


Three Months
Ended April 2,
2021

As Reported


M&A,
Integration and
Related
Costs


LOGCAP V
Pre-Operational
Legal Costs


Amortization
of Acquired
Intangible
Assets



Three Months
Ended April 2,
2021 -
Adjusted















Revenue


$ 434,004


$ —


$ —


$ —



$ 434,004















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)













($K)


Three Months
Ended April 2,
2021

As Reported


M&A,
Integration and
Related
Costs


LOGCAP V
Pre-Operational
Legal Costs


Amortization
of Acquired
Intangible
Assets



Three Months
Ended April 2, 2021 -
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 %

















SUPPLEMENTAL INFORMATION

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



Three Months Ended



April 1,




April 2,



(In thousands)


2022


%


2021


%

Army


$ 280,113


61 %


$ 257,349


59 %

Air Force


61,474


13 %


78,170


18 %

Navy


75,217


17 %


56,427


13 % %

Other


39,667


9 %


42,058


10 %

Total revenue


$ 456,471




$ 434,004












Revenue by Contract Type











Three Months Ended



April 1,




April 2,



(In thousands)


2022


%


2021


%

Cost-plus and cost-reimbursable


$ 311,094


68 %


$ 290,230


67 %

Firm-fixed-price


128,004


28 %


128,757


30 %

Time and material


17,373


4 %


15,017


3 %

Total revenue


$ 456,471




$ 434,004




























Revenue by Contract Relationship











Three Months Ended



April 1,




April 2,



(In thousands)


2022


%


2021


%

Prime contractor


$ 427,093


94 %


$ 403,262


93 %

Subcontractor


29,378


6 %


30,742


7 %

Total revenue


$ 456,471




$ 434,004












Revenue by Geographic Region











Three Months Ended



April 1,




April 2,



(In thousands)


2022


%


2021


%

Middle East


$ 235,754


52 %


$ 240,013


55 %

United States


167,980


37 %


149,811


35 %

Europe


36,531


7 %


40,623


9 %

Asia


16,206


4 %


3,557


1 %

Total revenue


$ 456,471




$ 434,004



CONTACT:

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

Cision View original content to download multimedia:https://www.prnewswire.com/news-releases/vectrus-announces-solid-first-quarter-results-301544306.html

SOURCE Vectrus, Inc.