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Vectrus, Inc. (NYSE:VEC) reported financial results for the third quarter of 2014.
Successful Completion of Spin-off
On Sept. 27, 2014, Vectrus completed its spin-off from Exelis Inc., and began operations as an independent, publicly traded company. Although Vectrus was a business unit under Exelis during the reported period, the following results reflect Vectrus as an independent company.
Significant Recent Awards
Vectrus was recently awarded three key contracts which will add approximately $1.4 billion of backlog to its enduring base business in the fourth quarter. The periods of performance of these contracts extend beyond 2020 and will help mitigate the revenue decline from Afghanistan contracts.
“We are very pleased with the award announcements by the U.S. Army Corps of Engineers and the U.S. Air Force,” said Ken Hunzeker, chief executive officer of Vectrus. “The awards broaden our customer base, expand our geographic footprint, and demonstrate our ability to win new large-scale programs in a competitive environment.”
Details of these programs include:
Third Quarter Results
Revenue of $301 million represents a decline of 13.8 percent compared to the third quarter of 2013. As a result of the anticipated decline of troop levels in Afghanistan, adjusted revenue1 of $288 million declined 15.8 percent compared to the third quarter of 2013.
“We are excited to begin operations as an independent company,” said Hunzeker. “Our lower operating results in the quarter were anticipated as the U.S. Government continues to wind down its operations in Afghanistan at a pace consistent with our expectations.”
“Our recent wins are expected to contribute approximately $200 million of annualized revenue, which will help mitigate the Afghanistan revenue declines,” said Hunzeker. “We expect to continue growing our base business with $10 billion of identified potential new opportunities in the pipeline, including $1 billion of proposals submitted and pending award.”
Operating income was $3 million, or one percent of sales in the third quarter compared to $29 million or 8.3 percent of sales in the third quarter of 2013. Adjusted operating income1 was $9 million or 3.1 percent of sales in the third quarter compared to $28 million or 8.2 percent of sales in the third quarter of 2013, reflecting the decline of troop levels in Afghanistan.
Year-to-date September 30, 2014, operating cash flow was $40 million, which is $40 million higher when compared to the same period in 2013. Year-to-date September 30, 2014, free cash flow1 was $38 million, compared to a use of one million dollars of free cash flow (1) in the prior year.
“Cash flow was exceptionally strong from large cash receipts in the third quarter,” said Matt Klein, chief financial officer at Vectrus. “While we are pleased with the performance in the quarter, we do not anticipate this favorability to continue in the fourth quarter. Nonetheless, it positions us well to achieve our full year targets and provides additional flexibility in funding our operating plan.”
At the end of the third quarter, the Company’s book-to-bill2 for the first nine months was 1.3x. The Company ended the quarter with total backlog of $2.2 billion, which excludes the impact from the three major program awards discussed above. For the remainder of 2014, 100 percent of expected revenue is currently in funded backlog.
The Company is confirming its guidance for the full year of 2014. “We expect our adjusted revenue3 to be in the range of $1.15 billion to $1.2 billion, at the higher end of the previously announced $1.1 billion to $1.2 billion range. We expect full year adjusted operating margin4 to be in a range of 4 to 4.5 percent,” said Klein.
2014 guidance details include:
Adjusted revenue3 $1.15B to $1.2B
Adjusted operating margin4 4.0% to 4.5%
Free cash flow5 $23M to $26M
Adjusted EPS6, fully diluted $2.70 to $2.90
The Company notes that forward-looking statements of future performance made in this release 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.
Management representatives will conduct an investor briefing and conference call at 8 a.m. Eastern time on Tuesday, Nov. 11, 2014.
U.S.-based participants may dial in to the conference call at 888-455-2260, while international participants may dial 719-457-2727. Passcode for both is 6385868. For all other listeners, a live webcast of the briefing and conference call will be available via the Investor Relations section of the Vectrus website at http://investors.vectrus.com.
A replay of the briefing will be posted on the Vectrus website two hours after completion of the call and will remain available until Nov. 24, 2014.
1 See “Key Performance Indicators and Non-GAAP Financial Measures.”
2 Book-to-bill is the amount of funded orders divided by adjusted revenue for the period.
3 Full year 2014 adjusted revenue excludes the impact of Tethered Aerostat Radar System (TARS) business historical revenue of $31M.
4 Full year 2014 adjusted operating margin excludes the pretax impact of TARS business operating income of $2M and the impact of separation costs incurred to become a stand-alone public company of $13M.
5 Free cash flow is calculated as Generally Accepted Accounting Principles in the United States of America (GAAP) net cash provided by operating activities less capital expenditures.
6 Full-year 2014 adjusted EPS reflects the impact, net of tax, of: (i) TARS business operating income of $1M or $0.09 per share, and (ii) separation costs incurred to become a stand-alone public company of $8M or $0.75 per share. The total number of outstanding diluted shares is estimated to be 10.6M at Dec. 31, 2014.
Vectrus is a leading, global government services company with a history in the services market that dates back more than 50 years. The company provides infrastructure asset management, information technology and network communication services, and logistics and supply chain management 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, working in the most challenging environments in the world, on four continents and in 18 countries. In 2013, Vectrus generated sales of $1.5 billion. For more information, visit our website at www.vectrus.com or connect with us on Facebook, Twitter, LinkedIn, and YouTube.
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