VEC Vectrus Inc

COLORADO SPRINGS, Colo., Nov. 10, 2020 /PRNewswire/ -- Vectrus, Inc. (NYSE:VEC) announced third quarter 2020 financial results for the quarter ended October 2, 2020.

"Third quarter results were solid, reflecting improved volumes and margin levels," said Chuck Prow, president and chief executive officer. "In addition, we continued to execute well on our growth strategy on all fronts, particularly with respect to diversifying our revenue streams and advancing our leadership position in the converged infrastructure market. For example, we were recently awarded a contract to support Navy Smart Warehouse Prototype 5G Applications. While modest in size, this prime contract is the result of our deliberate, strategic and transformational investment in expanding our capabilities at the intersection of traditional infrastructure and integrated digital services. We were also recently awarded a position on a "Best in Class" General Services Administration multi-year, multiple award, IDIQ contract vehicle, allowing access to a funding stream that is new to us and affords additional avenues of organic growth.

"For the remainder of the year, we are focused on delivering on all of our programs while keeping our teams and our clients safe; growing our pipeline of opportunities in the converged infrastructure market; and pursuing strategic M&A," said Prow. "I want to thank our entire work force for their continued dedication, fortitude, and resourcefulness every day as we face the ongoing global pandemic." 

Third Quarter 2020 Results

Third quarter 2020 revenue of $352.4 million was down slightly year on year by 2.1% mainly due to COVID-19 pandemic related deferrals of $12.9 million or 3.7% due to base access restrictions. Revenue was up $16.4 million sequentially or 4.9%.

For the third quarter 2020, operating income was $14.8 million or 4.2% margin.  Adjusted operating income¹ was $15.0 million or 4.3% margin.  Adjusted operating income¹ was adversely impacted by the COVID-19 deferral of high-margin revenue due to base access restrictions into future periods of $2.1 million which had a 40-basis point impact to adjusted operating margin¹.

EBITDA¹ was $16.9 million or 4.8% margin for the third quarter 2020, compared to $14.1 million or 3.9% margin in the third quarter 2019. Adjusted EBITDA¹ was $17.0 million or 4.8% margin for the third quarter 2020, compared to $14.7 million or 4.1% margin in the third quarter 2019. Adjusted EBITDA¹ was adversely impacted by COVID-19 of $2.1 million, which had a 40-basis point impact to adjusted EBITDA margin¹.

Third quarter 2020 diluted EPS was $0.88 compared to $0.67 in the third quarter 2019. Adjusted diluted EPS¹ for the third quarter 2020 was $0.89 compared to $0.71 in the third quarter 2019.  Adjusted diluted EPS¹ was adversely impacted due to COVID-19 by $0.14.

"Third quarter adjusted EBITDA¹ margin of 4.8%, representing the second highest margin rate in the past ten quarters, an impressive accomplishment as EBITDA margin includes an estimated 40-basis points of COVID-19 impact," said Susan Lynch, senior vice president and chief financial officer. "Our margin reflects the strength of our underlying business and continued execution on our enterprise wide performance improvement initiatives. The rollout of our enterprise systems is progressing well, and we continue to invest in our team to support our growth. With less than one-times leverage and a strong liquidity position as well as a solid backlog, we are poised to weather the pandemic while continuing to support our long-term growth." 

Cash provided by operating activities through October 2, 2020 was $37.7 million, compared to net cash provided by operating activities of $28.4 million year-to-date 2019.  The increase year-to-date over prior year is mainly driven by the CARES Act employee payroll tax deferrals of approximately $9.9 million.

Net debt at October 2, 2020 was $2.3 million, down from $35.2 million at December 31, 2019. Total debt at October 2, 2020 was $66.0 million, down $4.5 million from $70.5 million at December 31, 2019. Cash at quarter-end was $63.7 million, up $28.4 million from $35.3 million at December 31, 2019. As of October 2, 2020, the revolver, was undrawn and combined with cash, results in total liquidity of more than $180 million. Total consolidated indebtedness to consolidated EBITDA¹ (total leverage ratio) was 0.99x.

Total backlog as of October 2, 2020 was $3.7 billion and funded backlog was $1.0 billion.  The trailing twelve-month book-to-bill was 1.5x as of October 2, 2020.

Reiterate 2020 Guidance

Lynch continued, "We expect the momentum experienced in the third quarter to continue for the remainder of the year and are reiterating our 2020 guidance."

The Company notes that 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 2020 Conference Call

Management will conduct a conference call with analysts and investors at 4:30 p.m. ET on Tuesday, November 10, 2020. U.S.-based participants may dial in to the conference call at 877-407-0792, while international participants may dial 201-689-8263. For all other listeners, a live webcast of the conference call will be available on the Vectrus Investor Relations website at http://investors.vectrus.com or https://www.webcaster4.com/Webcast/Page/1431/38350. An accompanying slide presentation will also be available on the Vectrus Investor Relations website.

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 24, 2020, at 844-512-2921 (domestic) or 412-317-6671 (international) with passcode 13712134.

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

About Vectrus

Vectrus is a leading provider of global service solutions with a history in the services market that dates back more than 70 years. The company provides facility and base operations; supply chain and logistics services; information technology mission support; and engineering and digital technology services primarily 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 its clients' mission success. Vectrus is headquartered in Colorado Springs, Colo., and includes about 7,100 employees spanning 148 locations in 26 countries and territories. In 2019, 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 "2020 Guidance" above and other assumptions contained therein for purposes of such guidance, other statements about our 2020 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.

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 transaction and LOGCAP V pre-operational legal costs 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 transaction and LOGCAP V pre-operational legal costs, 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 transaction and 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.

SUPPLEMENTAL INFORMATION

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

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SOURCE Vectrus, Inc.