- Q3 revenue +30.4% Y/Y to $459.4 million; Organic revenue1 +13.0% Y/Y
- Q3 fully diluted EPS of $0.87; Adjusted diluted EPS1 of $1.15, +19% Y/Y
- Operating income of $12.9 million; Adjusted EBITDA margin1 of 4.5%
- Strong Q3 operating cash flow generation of $39.4 million
- Reiterating 2021 guidance ranges
COLORADO SPRINGS, Colo., Nov. 9, 2021 /PRNewswire/ -- Vectrus, Inc. (NYSE:VEC) announced third quarter 2021 financial results.
"We reported strong third quarter results that were underpinned by robust topline growth," said Chuck Prow, Chief Executive Officer of Vectrus. "In the third quarter, Vectrus recorded total and organic revenue growth of 30% and 13%, respectively. During the quarter, the Vectrus team achieved a noteworthy milestone in support of a major humanitarian effort. This accomplishment involved the successful build out of over 250,000 square feet of living space and associated life-support infrastructure for thousands of refugees coming from Afghanistan. This work was done on an accelerated timeline, under extreme weather conditions and required 24/7 support from our teams to ensure success. I'd like to commend our team for going above and beyond and their commitment and dedication to this critically important mission."
Prow continued, "As it relates to LOGCAP V, CENTCOM is at full operational capability and our presence in the Indo-Pacific region continues to expand. During the quarter we grew our footprint under LOGCAP V to providing logistics and support in the Philippines. We also completed the pre-transition site survey in Kwajalein and anticipate phase-in of this program to start by the end of the year. Our revenue in INDOPACOM now makes up approximately 5% of our total revenue compared to 1% in the same period last year."
"Our client campaigns remain instrumental to our growth and diversification strategy," said Prow. "During the third quarter we continued to build on our Navy campaign and won several noteworthy contracts that advanced our position as the premier converged infrastructure company. First, Vectrus was awarded a prime OTA contract to provide automation in the receipt and tracking of materials for the Naval Air Warfare Center Aircraft Division. Secondly, Vectrus was awarded a contract to further develop the Real-Time Spectrum Operations software for the U.S. Navy fleet. This important effort is responsible for providing spectrum planning, sensing, monitoring, characterization, prediction, management, and maneuvering capabilities to support Electro-Magnetic Spectrum Operations. This win was based on our decades of experience providing leading-edge electromagnetic environmental effects engineering and spectrum operations. Finally, Vectrus was awarded a position on a $93 million five-year multiple award IDIQ contract to provide research and development, engineering, integration, test, cybersecurity, upgrade, and sustainment for various tactical threat systems for the Navy."
Third Quarter 2021 Results
Third quarter 2021 revenue of $459.4 million was up $107.0 million or 30.4% year-on-year. Revenue grew by $61.2 million year-on-year as a result of the company's two acquisitions on December 31, 2020 and grew $45.8 million or 13.0% organically. "Our organic and total revenue growth in the quarter was substantial and driven by Vectrus' ability to provide critical solutions in support of our clients' missions across all time zones," said Susan Lynch, Senior Vice President and Chief Financial Officer.
Operating income was $12.9 million or 2.8% margin. M&A and integration related expenses of $3.3 million and amortization of acquired intangible assets of $2.6 million were incurred in the quarter. Adjusted operating income1 was $18.8 million or 4.1% margin. Adjusted EBITDA1 was $20.5 million or 4.5% margin as compared to $17.0 million or 4.8% in the prior year. "Our strong topline growth in the quarter had considerable material and pass-through content which carries with it a lower margin," said Lynch. "Year-on-year margin was also influenced by the phase-in of new awards, program completions and contract mix."
Lynch continued, "We are continuing to strategically invest in our business to enhance our capability and support future growth while phasing-in new programs that are expected to show incremental margin progression over time."
Fully diluted EPS for the third quarter of 2021 was $0.87 cents as compared to $0.88 cents in the prior years' quarter. Fully diluted EPS in the quarter included the aforementioned M&A and integration related costs, higher interest expense, and prior years' effect of tax credits taken in the period. Adjusted diluted EPS1 was $1.15 in the quarter as compared to $0.97 cents in the prior year.
Cash provided by operating activities through October 1, 2021 was $53.4 million, compared to cash provided by operating activities of $37.7 million in the same period last year. Prior year's year-to-date cash flows benefitted from the CARES Act by $9.9 million. The increase year-to-date over the prior year is due to strong collections and working capital management. "Excluding the prior year benefit of the CARES Act payroll tax deferrals, year-to-date cash flow from operations improved 92% over last year. Operating cash flow in the quarter was $39.4 million, an impressive result that was driven by our teams focus on cash collections and process improvement," said Lynch.
Net debt at October 1, 2021 was $71.8 million, up $69.5 million from October 2, 2020. Total debt at October 1, 2021 was $128.0 million, up $62.0 million from $66.0 million at October 2, 2020. Both net debt and total debt were up due to the acquisitions of Zenetex and HHB on December 31, 2020. Cash at quarter-end was $56.2 million. Total consolidated indebtedness to consolidated EBITDA1 (total leverage ratio) was 1.33x.
Lynch continued, "The outstanding performance by our team in the third quarter has further strengthened our balance sheet and enabled an additional pay-down of debt in the quarter of $45 million, reducing Vectrus' net debt to EBITDA leverage ratio to 0.75x. We plan to leverage our strong balance sheet and growth profile to enhance our current credit facility to a larger, more favorable, and flexible structure in order to support our growth plan and thoughtful deployment of capital on acquisitions that align with our strategy."
Total backlog as of October 1, 2021 was $4.9 billion and funded backlog was $1.2 billion. The trailing twelve-month book-to-bill was 1.3x as of October 1, 2021.
Lynch continued, "We are reiterating our previous 2021 guidance ranges." Guidance for 2021 is as follows:
$ millions, except for EBITDA margins and per share amounts
2021 Mid-Point vs 2020
Operating Income Margin
Adjusted EBITDA Margin1
Earnings Per Share
Adjusted Diluted Earnings Per Share1
Net Cash Provided by Operating Activities
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 2021 Conference Call
Management will conduct a conference call with analysts and investors at 4:30 p.m. ET on Tuesday, November 9, 2021. 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 http://investors.vectrus.com or https://www.webcaster4.com/Webcast/Page/1431/43364.
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 23, 2021, at 844-512-2921 (domestic) or 412-317-6671 (international) with passcode 10161138.
1 See "Key Performance Indicators and Non-GAAP Financial Measures" for reconciliation.
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 9,200 employees spanning 206 locations in 27 countries. In 2020, 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 "2021 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 impacts 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.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended
Nine Months Ended
(In thousands, except per share data)
Cost of revenue
Selling, general, and administrative expenses
Interest expense, net
Income from operations before income taxes
Income tax expense
Earnings per share
Weighted average common shares outstanding - basic
Weighted average common shares outstanding - diluted
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands, except share information)
Cash and cash equivalents
Other current assets
Total current assets
Property, plant, and equipment, net
Intangible assets, net
Other non-current assets
Total non-current assets
Liabilities and Shareholders' Equity
Compensation and other employee benefits
Other accrued liabilities
Total current liabilities
Long-term debt, net
Deferred tax liability
Other non-current liabilities
Total non-current liabilities
Commitments and contingencies (Note 10)
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; 11,726,707 and 11,624,717 shares issued and outstanding as of October 1, 2021 and December 31, 2020, respectively
Additional paid in capital
Parent company equity
Accumulated other comprehensive loss
Total shareholders' equity
Total Liabilities and Shareholders' Equity
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of intangible assets
Loss on disposal of property, plant, and equipment
Amortization of debt issuance costs
Changes in assets and liabilities:
Compensation and other employee benefits
Net cash provided by operating activities
Purchases of capital assets and intangibles
Proceeds from the disposition of assets
Business acquisition purchase price adjustment
Contribution to joint venture
Net cash used in investing activities
Repayments of long-term debt
Proceeds from revolver
Repayments of revolver
Proceeds from exercise of stock options
Payment of debt issuance costs
Payments of employee withholding taxes on share-based compensation
Net cash used in financing activities
Exchange rate effect on cash
Net change in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash-beginning of year
Cash, cash equivalents and restricted cash-end of period
Supplemental disclosure of cash flow information:
Income taxes paid
Purchase of capital assets on account
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 October 01, 2021 As Reported
M&A, Integration and Related Costs
LOGCAP V Pre-Operational Legal Costs
Amortization of Acquired Intangible Assets
Prior Years' Tax Credits
Three Months Ended October 01, 2021 - Adjusted