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Edited Transcript of Dyncorp International Inc earnings conference call or presentation 14-Aug-19 2:00pm GMT

Q2 2019 Dyncorp International Inc Earnings Call

FALLS CHURCH Sep 3, 2019 (Thomson StreetEvents) -- Edited Transcript of Dyncorp International Inc earnings conference call or presentation Wednesday, August 14, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Brendan Burke

Delta Tucker Holdings, Inc. - VP & Treasurer of DynCorp International Inc.

* George C. Krivo

Delta Tucker Holdings, Inc. - CEO & Director

* William T. Kansky

Delta Tucker Holdings, Inc. - CFO & Senior VP

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Presentation

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Operator [1]

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Good morning. My name is Lawrence, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Delta Tucker Holdings, Inc., parent of DynCorp International Inc., Second Quarter 2019 Earnings Call. (Operator Instructions) I would now like to turn the conference over to Mr. Brendan Burke, Vice President and Treasurer. Please go ahead, Mr. Burke.

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Brendan Burke, Delta Tucker Holdings, Inc. - VP & Treasurer of DynCorp International Inc. [2]

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Thank you, Lawrence, and good morning, everyone. Today, we're reporting earnings for the second quarter of 2019 on behalf of DynCorp International's parent, Delta Tucker Holdings, Inc. With me today are the company's Chief Executive Officer, George Krivo; and Chief Financial Officer, Bill Kansky. After we've made our formal remarks, we'll open the phone lines for any questions. A slide presentation for today's call is posted on our website under the Investor Relations section.

Before turning the call over to George, I would like to remind our audience that today's call will include forward-looking statements reflecting the company's views about future events and their potential impact on performance. The forward-looking statements are based on management's current knowledge and expectations and are subject to certain risks and uncertainties that may cause actual results to differ materially from the forward-looking statements.

The risks and uncertainties related to the forward-looking statements in this presentation include those described under the caption Risk Factors and Forward-looking Statements in the earnings release, which was posted to our website this morning and in Delta Tucker Holdings, Inc.'s Form 10-Q, which we filed later today. The company undertakes no obligation to update any forward-looking statement.

Also this call will include statements regarding certain financial measures that have not been calculated in accordance with accounting principles generally accepted in the United States. Such non-GAAP financial measures include but are not limited to EBITDA and adjusted EBITDA. We have provided additional information regarding such non-GAAP financial measures at the end of the presentation.

So with that, I'd like to turn the call over to George. George?

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George C. Krivo, Delta Tucker Holdings, Inc. - CEO & Director [3]

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Thank you, Brendan, and thank you all for joining us today. Revenue for the quarter was $487.8 million. Adjusted EBITDA was $38.1 million with margins of 7.8%. Our cash management efforts continue to be outstanding with DSO at 44 days. And our net debt position of $234.7 million represents a 76% reduction since the Cerberus acquisition, an excellent accomplishment. Consistent with that, we recently made a voluntary term loan payment of $30 million.

Next, I want to highlight our backlog. We track backlog to assess our current business development effectiveness and to assist us in forecasting our future business needs and financial performance. We've been extremely successful booking new awards in 2019. And given the very large size of the new awards, such as customs and border patrol and the AFM East and West, the company will have a historically high visibility into future revenue once we get through the protest cycles.

With that, let's turn to the next slide and look at some of the operational highlights. As I mentioned a moment ago, we had several especially significant wins this quarter. To begin, the U.S. Army Contracting Command at Redstone Arsenal awarded us a contract for Aviation Field Maintenance in the West region for a total value of $1.1 billion. We are thrilled to have also been awarded AFM East with a total contract value of $2.4 billion. The work for both AFM West and AFM East includes program management, aircraft and ground support equipment maintenance as well as aircraft modifications and other support around the world.

Next, we won a Department of Homeland Security Customs and Border Protection contract valued at $1.4 billion. This program provides national aviation maintenance and logistics services for CBP's diverse fleet of fixed- and rotary-wing aircraft. For this contract, our job is to ensure that the government has the numbers and types of properly configured aircraft to meet its operational commitments.

Also we were exceptionally pleased to be awarded the U.S. Air Force Air Combat Command's Acquisitions Management and Integration Center contract for aviation command and control in the CenCom region. This contract has a total value of $308 million, and we are exceptionally excited to have been selected as the provider for this critical program.

We also won our first task order on the CMMARS IDIQ contract. The total value of this task order is $111.7 million in support of the U.S. Marine Corps UC-35 aircraft located around the world. The UC-35 fleet provides time-sensitive movement of personnel and cargo as well as limited medical evacuation to America's expeditionary force readiness.

Next, we are -- we were thrilled to be awarded the department of -- an awardee on the Department of State Diplomatic Platform Support Services IDIQ, which has a $6 billion ceiling. DiPSS, as it's known, provides a full range of services for life support, logistics and operations and maintenance to the Department of State and other U.S. government agencies under Chief of Mission Authority worldwide. We have long supported the Department of State and their programs, and this award provides us with the opportunity to expand our logistics, operations and maintenance and other capabilities to U.S. embassies around the globe.

We were pleased to be awarded a 9-month extension on our LOGCAP IV task order in Southern Afghanistan valued at $187.8 million, which takes this task order into calendar year 2020. The Office of Program Manager Saudi Arabian National Guard awarded us a contract for personnel supervision management and quality control in support of the Saudi Arabian National Guard and base operations support at Eskan Village in the Kingdom of Saudi Arabia. The total contract value is $21.3 million, and we are pleased to have been chosen to support this important partner.

There is strong demand for our services, and with $5.6 billion in proposals awaiting for award, we are looking forward to announcing more wins very soon. Additionally, our performance indicators point out that we continue to delight our customers. In other words, there is plenty of work to do, and our customers appreciate the way we are doing it.

With that, I'll turn it over to Bill for a closer look at the financials. Bill?

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William T. Kansky, Delta Tucker Holdings, Inc. - CFO & Senior VP [4]

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Thanks, George. Moving to the details on Slide 7, you can see that second quarter revenue of $487.8 million was down $62.5 million or 11.4% from the comparable period in 2018. The decrease in revenue was driven primarily by the completion of the INL Air Wing and T-6 Bridge contracts and was partially offset by increased scope on our AFCAP and CLS transport programs.

Adjusted EBITDA came in at $38.1 million, down $10.8 million from Q2 2018 levels. The decrease was driven by the wind-down of the INL and T-6 contracts, offset in part by the performance on our CLS transport program and by productivity gains we enjoyed across several contracts. Backlog decreased $417 million from year-end levels to $3.6 billion.

Moving to Slide 8, you see results from our DynAviation segment. Revenue of $234.3 million was down $63.2 million compared to Q2's results of 2018. The increase was primarily due to the completion of the INL Air Wing contract, decreased content on the T-6 COMBS Bridge contract and the completion of the MD530 subcontract. The decrease in revenue was partially offset by increased scope on our CLS transport contract.

Adjusted EBITDA for the second quarter came in at $14 million, down $11 million from Q2 of 2018. Lower profitability was primarily attributed to the completion of the INL Air Wing and MD530 contracts, decreased content on the T-6 COMBS Bridge contract and the performance on the T-34/44/6 and C-130 contracts. The decrease was partially offset by the performance of the CLS Transport program. And backlog for DynAviation came in at $2.1 billion for the quarter.

Turning to Slide 9, you can see the second quarter details for the DynLogistics segment. DynLogistics revenue of $253.6 million was $2.3 million higher as compared to the second quarter of 2018. The favorable comparison was primarily due to increased scope on the AFCAP and ALiSS contracts that's partially offset by the completion of the Taji program.

Adjusted EBITDA came in at $26.7 million for the quarter, down $2.5 million for the comparable period in 2018. The decrease was primarily due to the scoping of certain training contracts and was offset in part by productivity gains on a number of programs. And backlog for the DynLogistics ended the quarter at $1.5 billion.

If you turn to Slide 10, I'd like to cover a number of miscellaneous financial items. Working capital for the quarter came in at $119.2 million, down $14.9 million from year-end levels and resulted in working capital as a percentage of revenue of 5.9%. DSO was 44 days in Q2, a 5-day decrease from year-end primarily due to our continued focus on the management of payment cycles and the impact from advanced payment we received during the second quarter of 2019.

Free cash flow was $59.3 million for the second quarter of this year. Net debt at the end of the quarter was $234.7 million, down $53.2 million or 18% lower from year-end levels. Our unrestricted cash balance at quarter end was $195.6 million with no borrowings outstanding under the revolving credit facility at the end of the period.

The company made a $30 million voluntary prepayment on the term loan in the quarter. And the company's 2019 financial guidance remains unchanged.

So with that, let me hand it back over to George for some final comments. George?

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George C. Krivo, Delta Tucker Holdings, Inc. - CEO & Director [5]

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Thanks, Bill. I want to thank the team for delivering results in the quarter, especially the large, new business wins. These awards are expected to provide us significant backlog growth and revenue visibility for the future.

A new bipartisan budget deal was recently signed into law. In the deal, defense spending increases by 3% in FY 2020 and grows 4% in FY '21. Importantly, the deal continues the budget stability and predictability that has enabled growth in our sector, and it ends the dreaded sequestration going forward.

Beyond the top line, defense spending aligns with DI's core offerings and capabilities, rebuilding force readiness and ensuring future readiness. That's what we do. DI is a readiness company. We met our goals in 2018. And with continued focus, we expect we will do that again.

With that, operator, I think we're ready for some Qs and As.

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Operator [6]

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(Operator Instructions) This concludes today's conference call. You may now disconnect.

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Brendan Burke, Delta Tucker Holdings, Inc. - VP & Treasurer of DynCorp International Inc. [7]

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Thanks, everyone.